How Loans Can Help with Business Acquisitions – A Comprehensive Guide

When you’re looking to acquire an existing business, understanding how loans can help with business acquisitions is critical. Whether you’re buying out a partner, purchasing a competitor, or acquiring a franchise, the right financing can make or break the deal. In this guide we’ll dig into the why, the how, and the what-to-watch-out-for so you can move forward with confidence.

What We Mean by Acquisitions and Acquisition Loans

Defining a Business Acquisition

A business acquisition means buying an existing company—or a portion of it—rather than starting one from scratch. You may acquire:

• A full ownership stake in an existing business.

• A partner’s share in a business you co-own.

• Assets of another company (equipment, contracts, intellectual property).

• A franchise, which comes with a proven model and brand.

What Is a Business Acquisition Loan?

A business acquisition loan is specifically structured to facilitate that purchase of an existing business, rather than typical working capital or startup financing. According to one expert source, acquisition loans are often term loans in which you repay borrowed funds with interest over time. 

These loans give you the financial firepower to:

• Capture immediate revenue streams (from the acquired business)

• Avoid starting from zero

• Use financing to bridge value gaps

Why Loans Help with Business Acquisitions

Speed to Revenue and Cash Flow

By acquiring an existing business, you’re often buying an enterprise with customers, processes, and cash flow already in place. A loan helps you jump into that revenue stream instead of building gradually. For example, one lender points out that acquisition loans allow entrepreneurs to skip the startup stage. 

Leveraging Capital Efficiently

Rather than using all your own savings or equity, you can leverage debt to finance the acquisition—reserving cash for operations, growth or contingency. Loans thereby help you preserve working capital. Lendio states: “Protect your cash flow: support growth without tying up your working capital.”

Gaining Strategic Advantage

With financing, your acquisition can help you:

• Expand market share by buying a competitor.

• Add complementary offerings by acquiring a related business.

• Acquire talent, assets and customers without starting from scratch.
  For instance, one bank says acquisition financing can support buying a competitor to absorb their market position.

Tax and Asset Benefits

Acquiring an existing company may bring depreciable assets, inventory, contracts and goodwill that offer tax advantages. While this isn’t a guarantee, financing acquisition via a loan can enable you to structure your deal to capture those benefits.

Types of Loans You Can Use for Business Acquisitions

U.S. Small Business Administration (SBA) 7(a) Loans

The SBA 7(a) program is one of the most common ways to finance business acquisitions:

• Designed to help with “establishing a new business or assisting in the acquisition, operation or expansion of an existing business.”

• Borrowers apply through participating lenders; the SBA guarantees part of the loan.

• Terms tend to be favourable (lower interest, longer amortisation) but eligibility is strict.

Traditional Term Loans

Banks and credit unions offer term loans for business acquisitions. These are best suited to borrowers with strong credit, solid cash flow and business experience. NerdWallet notes banks require good personal credit and many years in business.

Online Lenders and Specialty Funding

For deals requiring speed or less conventional underwriting, online lenders or non-SBA lenders can provide acquisition loans. For example, one provider claims approvals in as few as 24 hours and funding in as little as 3 days. 

Asset-Based or Collateral Loans

Acquisition financing often uses the acquired business’s assets as collateral. Dealroom explains that acquisition loans “use the acquired assets as collateral to secure the loan.” 

How to Qualify and Prepare for a Loan to Acquire a Business

Eligibility Criteria You Should Know

While criteria vary by lender, common requirements include:

• Strong personal credit history (often 650+ for SBA loans).

• Business experience (e.g., operating an existing business successfully).

• Solid cash flow and profit history from target business or your existing business.

• A down payment or equity injection (10 %-30 % or more).

Preparing Your Application Documents

To present a strong case, you’ll typically need:

• The seller’s financial statements, tax returns and business valuation.

• Your personal financial statements, business tax returns (if existing business) and credit history. 

• A detailed acquisition plan, showing how you’ll run the business post-acquisition and meet loan repayments.

The Application and Underwriting Process

Typical steps include:

1. Pre-qualify with the lender to assess eligibility.

2. Submit a full application with buyer and seller documents. 

3. Underwriting by the lender (review of cash flow, collateral, projections).

4. Closing and funding of the loan.

Timeline Considerations

While online lenders may offer rapid funding, traditional and SBA acquisition loans often take longer—30-60 days or more depending on complexity.

Using the Loan: How the Funds Get Deployed

Purchase Price and Equity

Funds from the loan typically go toward the purchase price of the business (assets, shares, goodwill). You may still need to inject personal or business equity.

Working Capital and Transitional Costs

Acquisitions often come with transitional costs: staff retention, integration, marketing, systems migration. A portion of your financing may cover those.

Paying Out Existing Owners or Partners

If you’re buying a partner’s stake or the seller is staying on board, funds may pay that out. Acquisitions often include a buy-out component.

Asset Acquisition and Deferred Payments

Some deals include buying equipment, inventory or real estate as part of the business. Loans may cover those or you may structure deferred payment arrangements.

Key Benefits of Using Loans for Business Acquisitions

Faster Entry into Established Business

You avoid the risks of starting a business from scratch and benefit from an existing customer base, brand, processes and cash flow.

Leveraging Rather Than Depleting Your Capital

Borrowing means you preserve your equity for growth activities or contingency reserves.

Strategic Growth and Competitive Advantage

Acquiring via debt enables you to act quickly when opportunities arise—buying competitors, acquiring talent, or expanding horizontally.

Potential for Higher ROI

If you acquire a business that grows post-purchase, the return on your invested equity can be amplified by the loan financing.

Risks and Considerations Before You Borrow

Debt Service Obligations

A loan means monthly repayments. If the acquired business doesn’t perform as expected, you still must service the debt.

Qualification Criteria Are Stricter

Acquisition loans tend to have more intense underwriting than standard small business loans—for example, lenders expect proof you can handle post-acquisition operations.

Interest Rates and Terms Can Vary Widely

Online, non-traditional or weaker-credit loans may have higher interest or shorter terms, impacting cash flow.

Integration Risk

Buying a business isn’t just closing a deal—you must integrate operations, culture, systems and often retain key staff. Failure here can derail financial projections.

Collateral and Personal Guarantees

You may need to pledge business assets or your personal guarantee—meaning your personal assets may be at risk if the business fails to repay.

Step-by-Step: How to Use a Loan to Acquire a Business

1. Define your acquisition strategy – What size business? What sector? Why this target?

2. Perform due-diligence – Review target’s financials, assets, market position, risks.

3. Determine how much you need to borrow – Include purchase price + integration costs + working capital.

4. Choose the right loan type – SBA 7(a), term loan, online lender, asset-based.

5. Prepare your documents and application – Personal/business financials, seller’s info, business plan.

6. Submit to lenders and compare offers – Focus on interest rate, term length, down payment, collateral.

7. Negotiate and structure the deal – Consider seller financing, earn-out, loan contingent on performance.

8. Close the loan and execute acquisition – Use funds for purchase, integrate operations, monitor performance.

9. Monitor and repay – Track cash flow, ensure debt service is covered, adjust if needed.

Frequently Asked Questions (FAQs)

Can I buy a business with no down payment?

Some lenders advertise “no money down”, but in practice most acquisition loans expect some equity injection. For example, many SBA loans require a 10-30 % down payment. 

How much can I borrow for a business acquisition?

The amount depends on your credit, the valuation of the target, and lender criteria. Some sources show acquisition loans up to $5 million or more for SBA or specialised lenders.

Can I use an acquisition loan if I don’t have prior business ownership experience?

It’s more challenging. Lenders prefer borrowers with experience operating a business, or who have full confidence in the acquisition plan and the target company’s operations.

What happens if the acquired business underperforms?

You’re still responsible for the loan repayments. That’s why a realistic integration plan, conservative projections, and contingency funds are so important.

Best Practices for Selecting an Acquisition Loan

• Compare terms and interest rates — Don’t just go with the first offer.

• Understand repayment schedule and how it fits your cash flow — A shorter term means higher payments; a longer term means more interest.

• Check for hidden fees or pre-payment penalties — Some loans add origination, closing or early repayment costs.

• Align loan structure with your strategy — If you plan to expand quickly post-acquisition, choose a flexible term.

• Work with experienced advisors — A business broker, attorney or accountant familiar with acquisitions can add value.

• Plan for integration costs upfront — Even the best acquisition needs investment in staff, systems and culture.

• Keep a buffer — Don’t assume 100 % of revenue will carry over; build in contingency.

Case Study Example (Hypothetical)

Situation: You plan to acquire a small manufacturing business that has a stable customer base and $1 million in annual revenue.

• Purchase price: $800,000

• Equity injection (you provide): $160,000 (20 %)

• Loan amount: $640,000

• Loan term: 7 years, fixed rate, monthly payments

• Integration costs: $50,000 (staff training, system migration)
  Why the loan helps:

• You don’t tie up all your capital in purchase—some is reserved for operations.

• The business already has cash flow to service loan repayments.

• You accelerate growth rather than starting new.
  What you watch:

• Can the business maintain or grow revenue to meet the payment schedule?

• Are there hidden costs or customer-attrition risks post-acquisition?

• Is the loan structured with a buffer and smart amortisation?

Conclusion & Summary

In summary, loans can help with business acquisitions by providing you the capital to buy an existing business, accelerate growth, preserve working capital and gain competitive advantage. The right loan—whether an SBA 7(a), term loan, or online acquisition-financing product—can enable you to step into an established operation with revenue, assets and customers already on board.

However, this comes with important responsibilities: rigorous due diligence, a solid acquisition strategy, realistic cash-flow projections, and careful selection of loan terms. If you prepare well and choose wisely, financing your acquisition can be the transformative step your business needs.

Call to Action

Ready to take the next step? Begin by mapping your acquisition target, estimating your financing needs, and speaking with an experienced lender or financial advisor who specialises in business acquisitions. Download our free checklist for “Acquisition Loan Application Preparation” and schedule a consultation to explore your financing options today.