Business Acquisition Loan

A business acquisition loan allows you to:

  • Purchase an existing business that has already been established
  • Acquire or open a new franchise location
  • Buy-out a partner in a business you presently own

Business acquisition loans include several options which we will explore here. The amount of funding and the cost of borrowing (interest rate/APR) will depend on the industry sector of the business you are trying to acquire, the balance sheet of the target company and your personal credit history.

Getting a loan to buy a business can get complicated and usually will take longer than other types of business loans. This guide is designed to provide an overview of the types of financing business owners use to acquire new businesses.


The first step is to identify the right type of loan program. Generally speaking, there are no loans that are designed specifically for business acquisitions. There are several options for loan types that are most commonly used for the purposes of acquiring a business, so let's start with those first.

  • Traditional Bank (Term Loan)

    This is the most basic form of loan, where the borrower receives a lump-sum disbursement from a lending institution and agrees to pay the amount back over the term of loan at an agreed-upon rate of interest. More Loan Types

  • Equipment Financing

    Equipment financing is a type of small business loan used primarily to purchase business equipment like computers, machinery, vehicles or most any business equipment. Business owners may use the new equipment as collateral for the loan, making equipment financing a smart way to preserve on-hand cash. Read More

  • SBA Loans

    The U.S. Small Business Administration, or SBA, is a federal agency that provides loan guarantee programs and other services to support and encourage the growth and development of small businesses across the United States. It was founded on July 30, 1953, and has delivered over 20 million loans, guarantees, counseling sessions, contracts, and other forms of assistance to small businesses across the country. SBA loans are offered to merchants through multiple financial institutions. Read More

  • Roll-Over for Small Business (ROBS)

    ROBS allow you to use funds from a qualified retirement account such as a 401k or IRA and rollover the investment into a company you own. It is not considered borrowing from your retirement account, it allows for entrepreneurs to use their business as the tax-deferred investment. Read More

Working with a Biz2Credit representative, you will be guided through these steps towards securing a business loan with bad credit. Your loan representative may also suggest alternatives and instruct you on best practices towards improving your creditworthiness.

Securing a Business Acquisition Loan

So now that we understand some of the more popular loan types used for business acquisitions, let's examine some of the details of a typical business acquisition loan transaction. If you have ever applied for a business loan for an existing business that you own, you may recall that the lending institution reviewed your personal finances and credit history as well as the finances and credit history of the business.

In an acquisition situation, the lender will also look at the current finances of the target business as well. In addition, the lender may require up to five years of past financial and bank statements (or more) to ensure that the business you are purchasing is viable.

If you're the buyer, take comfort. Having the bank audit the company you are about to acquire is really a professional "second set of eyes" in the financial due-diligence process. If you are granted the loan for the business acquisition, you can take comfort in knowing that the lender also thinks this is a sound business decision. If you are denied, perhaps that is an opportunity to realize that there was a lot of risk associated with the business, or perhaps you need to renegotiate the purchase price.

There are certain businesses that have historically high rates of failure or are considered high risk by traditional lending institutions and banks such as:
  • Restaurants
  • Vice-related industries (liquor stores, adult entertainment, etc)
  • Grocery stores
  • Obscure products or services that don't have popular appeal.
  • Businesses that have one or a few customers only

When seeking financial for the businesses above, you are likely to find more success with a lender such as Biz2Credit who will work with you for secure funding from alternative lenders who specialize in high-risk lending.


Documents Required for a Business Acquisition Loan

(For the Business Being Acquired)

Balance Sheet

This is an essential part of any business loan evaluation and tells the lender what total value of assets and liabilities will be transferred at the time of sale. This document is the most important piece of the loan due-diligence process and will quickly tell the lender a wealth of information such as whether the purchase price is appropriate or not. For example, a lender may calculate the value of all fixed (tangible assets) and use a portion of that value as collateral for the loan. This may reduce the amount of collateral required by the lender. The balance sheet can help to uncover hidden assets or expose financial weaknesses.

Tax Returns

Like any other loan, you will be required to produce several years of state and federal tax returns to verify the historical revenue flows of the company. Tax returns are used to validate figures provided on the balance sheet and income statements.

Gross & Net Profit Margins

Aside from the balance sheet, the profit margins are the most important documents. How you generate free cash flow and in what amounts tells the lender how much money there is after expenses to repay the loan. This is a pretty obvious one, but often overlooked by business owners who sometimes see acquisitions from less objective viewpoints. A buyer may be obsessed with acquiring a longtime rival to satisfy their sense of competition and achievement and stroking their ego. Many a company has been bankrupt by owner's egos. Pay attention to what is really going on with profit, not appearance. If there are non-financial considerations such as goodwill or brand value, carefully and conservatively assess the pass-along value.

Providing an Argument In Favor of Your Business Acquisition to Your Funding Source

Once you and your lender have reviewed the financials and are satisfied that the business is viable and is "bankable", now it's time to make the case to the lender why and how the acquisition will fit into your existing business. After all, if the acquisition does not somehow relate or enhance the existing business, why are you trying to acquire it? Lenders may be wary of granting a business acquisition loan if they feel that the acquired business is not a great fit. Telling the story of why you wish to acquire an existing business is as important as making sure the finances are favorable to support a loan.

  • Acquisition Business Plan

    The business plan should be the narrative to explain how acquiring an existing company will grow your existing business. The plan should include details on how you intend to integrate the two companies, increase sales, reduce cost and in general gain more efficiency.

    You will need to explain why it's important to acquire the business versus building it internally and provide a rationale for the buy vs. build decision.

  • Acquisition Valuation

    Needless to say, in most cases the price you pay to acquire a company is the most important financial component. In many cases, lenders will require you to get an independent valuation assessment for the acquisition.

    In addition to marketplace viability, life cycle analysis, cash-flow and other market-based factors, an independent auditor should render an opinion of the buyer's industry expertise and ability to expand and add value to the new entity post-acquisition.

  • Management Expertise

    This assessment will be an important component of the valuation section. A lender will surely wish to know whether you, or your top management is qualified to run the acquired business as or more effectively that its previous owners.

    If you do not possess the requisite skills to operate the acquired company personally as the owner, you would be well-advised to show that you can attract and retain the appropriate personnel to do so or take such a person as a partner.

  • Pro Forma Revenue Projections

    It is common for a lender to ask for future revenue and expense projections for several years after the acquisition to get a sense of management's vision to grow the company. Projections should be accompanied by a brief narrative to justify any increases in revenues or significant reduction in costs.