Acquisition Financing: How to Fund the Purchase of a Business (2026 Guide)
Updated November 2026
Acquisition financing is capital used to buy all or part of an existing business. The money can come from loans, the seller, the buyer’s own cash or equity investors. Most deals use more than one. A loan usually carries most of the price, and the business being bought repays it out of its own cash flow.[1]
This guide is for established owners and operators. Maybe you want to buy a competitor or a supplier, buy out a partner or put capital into the business to grow it before a sale. It covers how deals are structured, the main types of financing, what lenders look at and how to pick a lender that fits your deal. Acquisitions rarely look like a standard loan application, so lender flexibility matters as much as price.
How acquisition financing works
A buyer agrees on a price, then assembles a “capital stack”: the layers of money that together pay for the deal. A typical stack for an owner-operated business has three layers:
- Senior debt. A term loan or cash flow loan from a bank, the SBA program or a direct lender. This is usually the largest piece, and it is repaid first.
- Seller financing. The seller agrees to be paid part of the price over time through a promissory note. It reduces the cash needed at closing and keeps the seller invested in a smooth handover.[2]
- Buyer equity. The buyer’s own cash or capital from investors. Lenders expect the buyer to have money in the deal. SBA acquisitions require at least 10% of the project cost, and conventional bank deals often expect 20–30% or more.[4][2]
The loan is normally sized on the combined business’s cash flow, not just its hard assets. It is secured by the assets of the business, and lenders may ask for a personal guarantee. Proceeds can cover the purchase price plus deal costs such as legal, accounting and broker fees.[1]
Timing matters. Bank and SBA acquisition loans often take 60 to 120 days or more from application to funding. A seller with other offers may not wait that long.[2]
Types of acquisition financing
Most buyers combine two or three of these. The right mix depends on deal size, how fast you need to close and how much of your own cash you want to put in.[1][2]
| Type | How it works | Best for | Watch out for |
|---|---|---|---|
| Direct lender term loan | A non-bank lender funds a fixed amount, repaid on a set schedule. Sized on the cash flow of the business. | Owners who need speed and a lender willing to underwrite an unusual deal | Fees and covenants vary, so compare full term sheets |
| Bank term loan | Fixed or variable rate with a set schedule from a commercial bank. | Clean deals with strong collateral and a long track record | Strict credit boxes, heavy collateral needs, slower approvals |
| SBA 7(a) loan | Bank loan partly guaranteed by the SBA. Up to $5 million per loan, usually 10-year terms.[3][1] | Smaller deals where a long term matters most | At least 10% equity, 1.25x coverage for acquisitions, a Quality of Earnings report for deals of $3M+, and weeks to months of processing[4] |
| Cash flow loan | Loan sized on EBITDA rather than on hard assets. | Service, software and other asset-light businesses | Lenders will closely test how dependable the earnings are |
| Asset-based loan | Borrowing against the target’s receivables, inventory or equipment. | Asset-heavy targets such as distributors and manufacturers | Borrowing base can shrink when assets do |
| Seller financing | The seller is paid part of the price over time through a note. | Bridging a gap between price and what lenders will fund | Senior lenders may require the note to wait behind their loan |
| Equity | Cash from the buyer or investors in exchange for ownership. | Large deals, or buyers who want less debt | Dilutes ownership and control |
What lenders look at
An acquisition lender is really asking one question: can the combined business pay back the loan and still run well? These are the main things they review:
- Cash flow and EBITDA. The earnings of the target, and of your business if you are buying a competitor, are the core of the decision. Lenders usually review three to five years of financial statements and tax returns.[2]
- Debt service coverage. This is cash flow divided by total debt payments. Most banks want at least 1.25x, meaning $1.25 of cash flow for every $1 of payments.[5]
- Purchase price and valuation. Lenders check that the price is in line with the business’s earnings and market value.[1]
- Buyer equity. How much of your own money is in the deal, and where it comes from.
- Management and transition. Your operating experience, who runs the business after closing and whether key customers and staff will stay.
- Collateral and guarantees. The assets securing the loan, and whether a personal guarantee is needed.[1]
- Projections. A plan showing three to five years of expected results, including any cost savings or growth from the deal.[1]
This is where lenders differ the most. A bank scores each item against fixed thresholds and declines a deal that misses any one of them. A direct lender can weigh the whole picture. Strong recurring revenue can offset thin collateral, for example, and a clear integration plan can offset a short history.
Looking for $1M–$50M in growth capital?
Hum Financial, Hum Capital’s direct lending arm, provides non-dilutive financing to established U.S. businesses, with typical terms of 12–36 months.
See If You QualifyHow business owners use acquisition financing
Buying a competitor, supplier or adjacent business. A tuck-in acquisition adds customers, capacity or a new product line faster than building it yourself. The loan is repaid from the earnings of the combined business, so you can grow without giving up equity.
Buying out a partner or co-owner. When a partner wants to retire or exit, debt lets the remaining owners buy their stake without bringing in new investors. You keep control, and the departing partner gets paid at closing rather than over years.
Growing before a sale. Owners planning an exit in the next few years often use an acquisition to add scale, because larger businesses tend to sell for higher multiples. Using debt rather than equity means the extra value stays with the current owners at sale.
Protecting the business through a transition. A well-structured loan can fund the purchase and leave working capital on the balance sheet. That keeps cash available for integration, hiring or a slow quarter, so the deal doesn’t strain day-to-day operations.
Acquisition financing from Hum Financial
Hum Financial is a direct lender. Hum doesn’t fit borrowers into a credit box. Each facility is built around your specific deal, so an acquisition that doesn’t match a bank’s checklist can still get funded.[6]
- Loan size: $1 million to $50 million. Most loans are $2 million to $7 million.
- Term: 12 to 36 months.
- Uses: acquisitions, partner buyouts, expansion, working capital, hiring, new products and equipment.
- Clear terms up front: a non-binding term sheet that lists all fees, so you can compare offers side by side.
- Built for owners: whether you are buying a business, putting capital into the one you own or preparing for a sale, the structure is designed to protect your financials and keep you in control.
Related reading: Business Term Loans · Cash Flow Lending · Non-Dilutive Financing
If you are weighing an acquisition, see if you qualify and get a term sheet built around your deal.
Frequently asked questions
What is acquisition financing?
It is capital used to buy an existing business, usually a mix of a loan, seller financing and the buyer’s own equity.
How much do I need to put down to buy a business?
It depends on the lender. SBA acquisition loans require at least 10% of the project cost, and conventional bank loans often require 20–30% or more. Seller financing can reduce the cash you need at closing.[4][2]
Can I use a loan to buy out my business partner?
Yes. Partner and owner buyouts are a common use of acquisition financing. The loan is repaid from the business’s cash flow, so you keep full ownership without bringing in new investors.
How long does it take to get acquisition financing?
Bank and SBA loans often take 60 to 120 days or more.[2] Direct lenders can usually move faster because they make credit decisions in-house.
What if my deal doesn’t fit a bank’s criteria?
A direct lender like Hum Financial can look at the whole deal rather than a fixed checklist. That includes recurring revenue, the integration plan and the buyer’s track record, as well as collateral.
Sources
- “Business acquisition loans: What they are, how they work, and how to get one”, Stripe.
- “Navigating a business acquisition loan”, National Business Capital.
- “7(a) loans”, U.S. Small Business Administration.
- “SBA SOP 50 10 8.1: change of ownership, equity, DSCR and QoE guide”, Beancount, September 23, 2026.
- “Debt service coverage ratio”, BizBuySell.
- Hum Financial, Hum Capital, accessed November 4, 2026.
