Business Acquisition Finance
Funding to buy a business.
Buying an existing business can be one of the fastest ways to grow, but funding a business purchase is often more complex than a standard loan.
Unlike property lending, business acquisition finance is primarily based on the strength of the business itself. Lenders assess profitability, cashflow and the ability of the business to service the proposed debt.
They also consider the experience of the buyer, the industry risk and how the purchase is structured.
At Vive Capital, we help structure business acquisition finance around the opportunity, whether that involves bank funding, non-bank lending, private capital or a combination.
How business acquisition finance works
Business purchase lending is usually determined around the cashflow of the business being bought. The lender wants comfort that the business can generate enough income to cover loan repayments and operating costs.
Assessing business cashflow
This usually involves reviewing:
Historical financials
EBITDA or net profit
Add-backs and adjustments
Debt servicing ability
Working capital requirements
Purchase price relative to profit
Lenders also look closely at the purchase price relative to earnings. This is often assessed using an EBITDA multiple. In simple terms, this compares the purchase price to the annual earnings of the business.
For example, a business earning $500,000 per year in EBITDA - purchased for $1,500,000 represents a 3x EBITDA multiple.
Lower multiples are generally viewed as lower risk, as the debt can be repaid faster from business cashflow. Higher multiples increase risk and may require more equity or a more structured funding approach.
If the numbers stack up, lenders may fund a portion of the purchase price.
Goodwill vs tangible assets
The funding structure often depends on how the purchase price is allocated between goodwill and tangible assets.
Where a business has strong tangible assets such as plant, equipment or property - lenders may be more comfortable providing higher lending (lower equity/ deposit). These assets provide security and reduce risk.
Where the value is largely goodwill, lenders typically take a more conservative approach. Goodwill relies on ongoing performance, customer retention and management continuity, which increases risk from a lending perspective.
This is why two businesses with the same purchase price can have very different funding outcomes.
Deposit requirements
Deposit requirements vary depending on the strength of the deal and the risk profile of the business. You will usually require between 30% - 50% of the purchase price and business loan usually needs to be paid back over a five-year term. This is why business cashflow generation is very important.
Higher deposits are more common where:
Goodwill makes up a large portion of the purchase price
Earnings are volatile
Industry risk is higher
Buyer experience is limited
EBITDA multiple is higher
Lower deposits may be possible where:
Cashflow is strong and stable
Tangible assets support the purchase
Additional security is available
Vendor support is included
The purchase price is sensible
EBITDA multiple is conservative
Equity contributions may come from a combination of:
Cash deposit
Property-backed equity
Vendor finance
The Merit of the Deal
Ultimately, business acquisition finance is driven by the merit of the deal. A strong business with stable earnings, sensible purchase price and clear transition plan may allow more flexible funding.
Higher-risk deals or goodwill-heavy acquisitions may require more equity, additional security or a more structured funding approach.
Talk to us early - When to apply for funding/ seek options
It’s best to look at funding early in the process. This helps you understand borrowing capacity and structure the acquisition correctly.
We can help when you are:
Assessing a business opportunity
Negotiating a purchase
Reviewing financials
Structuring a buy-in
Preparing an offer
Acquiring a competitor
Planning a management buyout
Early planning often creates more funding options.
Discuss your project
If you're considering buying a business, we can help you understand how the funding may be structured and what lenders are likely to look for.