How to Fund a Business Acquisition as a UK Limited Company

Main funding routes for acquisitions

UK limited companies buying another business typically draw on a combination of: commercial acquisition loans (secured against the target's assets or the acquiring company's balance sheet), vendor finance (where the seller defers part of the consideration), and equity from existing shareholders. Each route has different cost, speed, and dilution implications.

Commercial lenders specialising in acquisition finance will assess the combined group's pro-forma EBITDA, the quality of the target's customer base, and whether the acquirer has a credible integration plan. A clean management accounts pack and a concise information memorandum materially speeds up credit decisions.

What lenders look at when assessing acquisition deals

Lenders focus on serviceability — whether the merged entity can comfortably service the debt from normalised free cash flow. They will stress-test revenue assumptions, review customer concentration, and check for any off-balance-sheet liabilities in the target.

Directors should be prepared to provide: three years of accounts for both entities, management accounts to within two months, a detailed acquisition rationale, and evidence of key-person continuity. Personal guarantees are common on SME acquisition lending, though the extent varies by deal size and security available.

Structuring vendor finance alongside external lending

Vendor loans — where the seller leaves a portion of the purchase price outstanding, repaid over an agreed term — can bridge the gap between what a commercial lender will advance and the full purchase price. Lenders generally insist that vendor loans are subordinated to their facility. Documenting the terms carefully in the sale and purchase agreement protects both parties.

Timeline and process

From signed heads of terms to drawdown typically takes four to twelve weeks depending on deal complexity and lender due diligence requirements. Instructing solicitors, appointing an accountant to prepare a financial model, and commissioning any required valuations early reduces delays. Some lenders will issue indicative terms quickly but will require satisfactory legal and financial due diligence before committing.