Most limited companies fund an acquisition from several sources. That's usually some of their own money, a loan based on the target's cash flow or assets and part of the price paid to the seller later. Here's how those pieces fit together, what lenders check and what it costs.

Manda, iwoca's mergers and acquisitions service, arranges acquisition finance as part of the deal for UK small businesses typically valued between £500k and £10m. Its transaction managers work with iwoca's unsecured lending and partner secured lenders, so buyers are pre-qualified before they make an offer. (Source: manda by iwoca, checked 12 October 2026.)

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How are small business acquisitions usually funded?

Acquisition finance is any money you raise to buy another business or its assets. Small deals are rarely paid for from one source: buyers usually combine their own money, a loan and a deferred payment to the seller.

Each source carries a different cost and risk, so the mix matters as much as the total. If you're buying the business you already run, our guide to a management buyout covers the extra steps.

Crowdfunding sometimes comes up too. Equity and rewards crowdfunding raise money from many backers; peer-to-peer lending is a loan from many lenders. Neither is common for buying an established small business.

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How much of your own money will you need?

Expect to put some of your own money in. Lenders rarely fund the whole price, and there's no fixed percentage: it depends on the target's cash flow, the security on offer and how much the seller agrees to defer.

Your contribution shows the lender you share the risk. A seller who defers part of the price reduces what you need at completion, which is why vendor loans and earn-outs often decide whether a deal works.

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What do lenders check before funding an acquisition?

Lenders mainly look at whether the business you're buying can repay the debt from its own cash flow. They also check its accounts and customers, your experience, how much you're putting in and what security or guarantees they can take.

Expect to be asked for a personal guarantee, especially on unsecured loans. It means you could have to repay the debt yourself if the company can't. Take advice before you sign one.

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Shares or assets, and which company should borrow?

In a share purchase you buy the company with everything in it, so the lender looks at that company's accounts and assets. In an asset purchase you buy selected assets. Who borrows, your existing company or a new holding company, changes whose accounts and security the lender relies on.

A share purchase brings the target's history with it, including its debts, so due diligence matters more. When you buy shares, you usually pay 0.5% stamp duty, or Stamp Duty on a stock transfer form if the transaction is over £1,000 (gov.uk, checked 12 October 2026). An asset purchase has different taxes; our guide to the steps to buy a business covers them.

Many buyers set up a new holding company to make the purchase. It has no trading history of its own, so lenders assess the target's accounts and usually take security over the target once the deal completes. Your existing company can buy instead if its own accounts support the borrowing. Take legal and tax advice before you choose.

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How do vendor loans and earn-outs work?

Both let you pay part of the price after completion. A vendor loan is a fixed amount repaid to the seller over time. An earn-out is an extra payment that only happens if the business hits agreed targets after the sale.

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Vendor loans

With a vendor loan, the seller agrees to receive part of the price later, usually in instalments with interest. That reduces how much you need to borrow at completion. Lenders tend to see it as a good sign, because the seller still has a stake in the business doing well.

Expect the bank to ask the seller to wait behind it: if money is tight, the bank gets repaid first. The seller may ask for security or a guarantee in return. Our guide explains how vendor finance works in more detail.

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Earn-outs

An earn-out ties part of the price to the business's results after the sale. It helps when you and the seller disagree on what the business is worth. You pay more only if it performs.

Agree exactly how the targets are measured, over what period and who controls the decisions that affect them. Vague targets lead to disputes, so get your solicitor to draft them.

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Worked example: funding an £800,000 purchase

Here's an illustrative £800,000 share purchase funded by the buyer's own money, a bank loan and a vendor loan. It includes the stamp duty and the repayment test a lender would run. The split is for illustration, not a typical or recommended one.

On top of the £4,000 stamp duty, budget for legal, accounting and lender fees, and keep enough cash to run the business after completion.

Now the lender's question: can the business carry this? Say the target has £250,000 a year left after tax and a fair salary for whoever runs it. Repayments on the bank loan and vendor loan come to £180,000 a year. That's about 1.4 times cover. A lender would ask what happens to that cushion if a large customer leaves. Each lender sets its own minimum, so ask what yours is.

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What are the risks of borrowing to buy a business?

The main risk is that the business you buy earns less than planned and can't cover the repayments. Your company then has to make up the gap, and so could you if you've given a personal guarantee.

Before you commit, check:

• What happens to repayments if profits fall by a quarter in the first year.
• Whether you've paid too much because the valuation rested on one good year.
• How long it'll take to combine teams, systems and customers, and what that costs.
• Whether the deal leaves your existing company short of cash or less able to borrow later.

Only borrow what the business could still repay if trading gets tougher.

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What does acquisition finance cost?

You'll pay interest and lender fees on the borrowing, plus legal, accounting and due diligence fees and, on a share purchase, stamp duty. Interest is usually deductible for corporation tax, but large interest bills can be restricted.

The main costs to budget for:

• Interest on each loan, and any arrangement fee.
• Interest on a vendor loan, if you agree to pay it.
• Legal fees for the purchase and the loan documents.
• Accounting and due diligence fees.
• Stamp duty of 0.5% on a share purchase.

On tax, the Corporate Interest Restriction can limit the deduction for companies or groups with net interest and financing costs over £2 million in a 12-month period. Under its fixed ratio method, the allowance is the lower of two amounts: 30% of taxable profits before interest, tax and some reliefs, or the worldwide net interest expense (gov.uk, checked 12 October 2026). A small acquisition is unlikely to reach that threshold, but take tax advice on your structure.

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How do you arrange acquisition finance?

Line up the funding before you sign heads of terms, then complete it alongside due diligence. A lender can't commit until it has seen the target's accounts.

1. Work out the full cost. Add the price, stamp duty, fees and the cash you'll need after completion.
2. Choose a structure. Decide how much comes from your own money, borrowing and the seller.
3. Get indicative terms. Talk to lenders, or a broker who compares several, with the target's accounts in hand.
4. Agree heads of terms with the seller. Include any vendor loan or earn-out.
5. Run due diligence. The lender will want to see the results before it gives final approval.
6. Sign the loan and purchase documents and complete.

How long it takes depends on the deal and how clean the target's accounts are.

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How iwoca can help

manda by iwoca helps limited companies find and buy a UK small business, with acquisition finance arranged as part of the deal. An iwoca Flexi-Loan can fund working capital around the purchase.

With manda, you can:

• Search and evaluate businesses for free. A fixed commitment fee applies once your heads of terms are accepted and you enter exclusivity, and a success fee is due when the deal completes.
• Get acquisition finance structured with iwoca's unsecured lending and partner secured lenders, with no fee for the structuring.
• Be pre-qualified, so sellers know your offer is credible.
• See businesses whose financials have been checked before you meet the seller.

If you're ready to look, register as a buyer with manda.

The iwoca Flexi-Loan lets a limited company borrow up to £1 million, over up to five years, with a decision within 24 hours. It's a business loan with flexible repayment options: you pay interest only on what you owe, and there's no fee for repaying early, though an upfront fee can apply. Every new Flexi-Loan needs a personal guarantee from at least one director.

Stephen Murray, managing director of ECF Accident Repair Group, used a £500k iwoca loan, introduced by his broker, to complete his management buyout:

"It was so simple compared to the hoops I've had to jump through with private equity in the past. The iwoca deal was quick and no stress." — Stephen Murray, Managing Director, ECF Accident Repair Group

iwoca has provided £5bn+ of funding to 100,000+ UK businesses.

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When iwoca isn't the right fit

iwoca lends only to UK limited companies and the Flexi-Loan goes up to £1 million, so larger deals or buyers not using a limited company need other lenders.

Look elsewhere if:

• You're not buying through a limited company.
• You need more than £1 million of borrowing in one loan.
• The business you want is valued well above £10m, beyond what manda is built for.
• You want a loan secured on property. iwoca doesn't offer property finance.

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Frequently asked questions

Can I get a loan to buy a business?

Yes, if the business you're buying makes enough profit to cover the repayments and you can put some of your own money in. Lenders assess the target's accounts as much as yours.

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How hard is it to get an acquisition loan?

It's harder than borrowing for an existing business you run, because the lender is betting on a business you don't own yet. Clean accounts, a seller willing to defer part of the price and your own contribution make it easier.

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Is interest on an acquisition loan tax-deductible?

Usually, for a limited company paying corporation tax. The Corporate Interest Restriction only limits the deduction above £2 million of net interest and financing costs a year, so take tax advice on your structure.

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How do I compare acquisition lenders and brokers?

Compare the total cost (interest plus every fee), the security and guarantees asked for, how repayments are set and how quickly the lender can commit. A broker can compare several lenders at once; ask how they're paid.