How to Get a Business Acquisition Loan to Buy Another Company

To get a business acquisition loan, you finance the purchase of another company by combining a primary loan sized to the target's cash flow — most often an SBA 7(a) loan, a bank term loan, or seller financing — with your own equity injection, then close on a valuation the lender's underwriter can defend. The core question is never "how much do I want to borrow"; it is "can the acquired business service the debt after I own it." Lenders underwrite the target's trailing revenue, seller's discretionary earnings (SDE) or EBITDA, and the deal structure — not just your personal credit. For deals that need speed, a small earnest deposit, or capital to cover the gap between an accepted offer and a slow SBA close, a revenue-based advance approved on bank deposits (min ~$10,000, FICO 500+, funding in 24-48 hours) can bridge the timeline. Below is how an underwriter reads each path, when to use which, and a realistic example structure.

What a business acquisition loan actually finances

A business acquisition loan is any financing used to buy an existing company — its assets, its equity, or both. Unlike a startup loan, the lender is underwriting a business that already has a track record, so the analysis centers on the target's numbers, with your credit and experience as secondary signals. Proceeds typically cover the purchase price, working capital for the transition, and sometimes closing costs or a small amount of post-close inventory.

Underwriters break the deal into three buckets:

• Purchase price vs. valuation. The price you negotiated has to be supported by a defensible multiple of SDE or EBITDA. A bank will order or accept a business valuation; if you overpay, the loan gets cut to the appraised value and you cover the difference in cash.
• Debt service coverage. The single most important number. Lenders want the target's post-close cash flow to cover the new loan payment with cushion — commonly a debt service coverage ratio (DSCR) of about 1.25x or better. If the business throws off $1.25 for every $1.00 of debt payment, it clears.
• Skin in the game. Your equity injection. SBA 7(a) acquisition loans generally require at least 10% down, and that can include a portion of standby seller financing.

The takeaway: you are not borrowing against your dream. You are borrowing against a cash-flow stream the seller built, and the lender's job is to confirm that stream survives the ownership change.

The main ways to finance buying a company

Most acquisitions are funded with a stack — two or three sources layered together — rather than a single loan. Here are the building blocks an underwriter sees most often:

• SBA 7(a) loan. The workhorse for main-street acquisitions under roughly $5 million. Long terms (up to 10 years for a business-only purchase, longer with real estate), lower down payments, and a government guarantee that lets banks say yes to goodwill-heavy deals. The trade-off is paperwork and time — 45 to 90 days is typical.
• Conventional bank term loan. Faster than SBA for a strong buyer with hard collateral, but expects more down and more established borrower credit. Common when the target has real estate or heavy equipment.
• Seller financing (seller note). The seller carries part of the price and you pay them over time. Reduces the cash you need at close, aligns the seller with a smooth transition, and — when structured on full standby — can count toward your SBA equity requirement.
• Earn-outs. Part of the price is tied to the business hitting future performance targets. Useful when you and the seller disagree on valuation.
• Revenue-based financing / MCA marketplace. Not a purchase-price loan — a cash-flow tool. Approved on the acquiring or acquired business's bank deposits and revenue rather than credit, with funding in 24-48 hours. Its role in an acquisition is speed: covering an earnest-money deposit, funding due-diligence and legal costs, or bridging working capital in the first weeks after close while a slower loan funds behind it. Learn how the mechanics work in our merchant cash advance overview.

How lenders underwrite the deal (what they check)

Whether the money comes from an SBA lender or a revenue-based funder, the diligence rhymes. Have these ready before you shop, because a clean file is what separates a 30-day close from a 90-day one:

• The target's financials. Two to three years of business tax returns, profit-and-loss statements, and — critically — the trailing 12 months of business bank statements. Revenue-based funders lean almost entirely on those deposits.
• Seller's discretionary earnings (SDE) add-backs. Underwriters normalize the P&L by adding back the owner's salary, one-time expenses, and personal costs run through the business, then apply a multiple. Know your add-backs cold.
• The deal documents. Letter of intent, purchase agreement, and a business valuation. SBA requires an independent valuation on most changes of ownership.
• Your relevant experience. Lenders finance buyers who can run the thing. Industry background or a strong management team materially helps.
• Personal credit and injection. For SBA/bank, expect a personal guarantee and a FICO check. For a revenue-based bridge, the bar is lower — FICO 500+ and healthy deposits, with approval driven by revenue rather than score.

One underwriter's tip: the fastest declines come from deals where the buyer can't explain the seller's reason for selling or can't reconcile the tax returns to the bank statements. Tell a clean, consistent story.

Decision framework: which financing fits your deal

Match the tool to the deal, not the deal to the tool. Here is how an underwriter routes it:

Use an SBA 7(a) acquisition loan when:

• The purchase price is roughly $150k-$5M and cash flow is steady and provable.
• You have limited cash and need the low down payment and long amortization.
• The business is goodwill-heavy (a service company with few hard assets) — the SBA guarantee is built for exactly this.
• You can tolerate a 45-90 day close.

Use seller financing / an earn-out when:

• The seller wants a clean exit but will carry paper to get the price, or you disagree on valuation.
• You want to keep the seller invested in a smooth handoff.

Use a revenue-based advance / MCA marketplace when:

• You need speed — an earnest deposit, diligence costs, or day-one working capital — and can't wait on an SBA timeline.
• Your personal credit is thin (FICO in the 500s) but the business throwing off revenue is strong.
• You need a smaller amount (min ~$10,000) to bridge a defined gap that a permanent loan will refinance behind.

Avoid a revenue-based advance when:

• You are trying to finance the entire purchase price with it. It is a short-duration cash-flow tool, not a 10-year acquisition loan — using it that way strains the acquired company's cash flow.
• The acquired business has thin or highly seasonal deposits that can't comfortably absorb a fixed daily or weekly remittance.
• You have the time and credit to qualify for SBA or bank pricing — use the cheaper capital.

The most common winning structure for a main-street deal: SBA 7(a) for the bulk, a standby seller note for part of the equity, and — only if timing demands it — a small revenue-based bridge to move fast on the deposit and diligence.

Example acquisition structures (illustrative)

The figures below are for example only — every deal is priced on its own cash flow, valuation, and buyer profile. They show how the pieces fit, not a quote.

Notice what's missing: exact payback totals. That is deliberate. Acquisition financing should be evaluated on whether the acquired company's cash flow comfortably covers the payment with cushion — the DSCR question — not on a single sticker number. A structure that pencils on paper but leaves the business gasping for working capital in month two is a bad deal at any price.

Step-by-step: from offer to funded

1. Get the target's financials first. Trailing 12 months of bank statements, two to three years of tax returns and P&Ls. No serious lender talks without them.
2. Build the SDE / EBITDA picture. Normalize with defensible add-backs and confirm the price maps to a sane multiple.
3. Sign a letter of intent. Non-binding, but it lets you order a valuation and open lender conversations.
4. Line up the equity injection. Your cash plus, potentially, a standby seller note. SBA wants to see it before close.
5. Shop the primary loan. Approach SBA-preferred lenders (PLP banks close faster) and/or conventional banks in parallel. Compare terms, not just rates.
6. Bridge only if timing demands it. If an earnest deposit or diligence cost can't wait, a revenue-based advance approved on deposits funds in 24-48 hours — then gets refinanced by the permanent loan.
7. Close and transition. Fund the purchase, complete the seller handoff, and keep a working-capital cushion for the first 60-90 days. New owners routinely underestimate transition costs — protect your cash.