How much of an acquisition can I fund with debt?

There is no universal ratio. A lender will look at the profit and cash flow of the combined business, the assets available as security, your track record and how much of your own money is going in. The useful question is how much debt the combined business could still repay if profits fell for a year or two. A lender or corporate finance adviser can test that with your numbers.

What is the difference between deferred consideration and an earn-out?

Deferred consideration (paying part of the price later) is a fixed amount agreed at the outset and paid in instalments after completion. An earn-out (paying part of the price later if the business delivers) is an amount that depends on how the business performs after you buy it. Both mean the seller waits for part of their money, but only an earn-out can go up or down.

Will the seller agree to be paid in stages?

Many will consider it, particularly where it bridges a gap on price or shows they believe in the business. Sellers usually want something in return, such as a higher headline price, security for the unpaid amount or protections on how you run the business. It is a negotiation, not a given.

Does Acquisitiv arrange acquisition finance?

No. Acquisitiv does not provide, arrange or advise on finance. We help you find and approach the right businesses to buy. For funding you should speak to your bank, a regulated finance broker or a corporate finance adviser, and take legal and tax advice on any deal structure.

Business Acquisition Finance in the UK

"The bit I'm struggling with is how to get the funds if it all checks out." That line, from an owner on a UK business forum, sums up a worry many buyers carry from the first conversation. The good news is that an established, profitable business usually has more options than a first-time buyer of a small company. The harder part is choosing a mix you can live with if the year after completion goes less well than the plan.

This guide explains the main routes in plain terms. It is general information, not financial advice. Acquisitiv does not provide or arrange finance, and every deal needs its own advice from your bank, accountant and lawyers.

How much money do you actually need?

The price is only part of it. Before you talk to a lender, add up the whole funding requirement:

The purchase price paid at completion, plus any amounts paid later.
Deal costs: legal fees, accountancy and tax work, checking what you're really buying (due diligence), and any lender or arrangement fees.
Working capital: the cash the target needs day to day for stock, debtors and wages. If the seller takes cash out before completion, you may need to put some back.
Investment: systems, people or equipment the business needs after you buy it, including the cost of bringing the two businesses together.
Contingency: a buffer for things that cost more or take longer than planned.

Here is an illustrative, fictional example of how this adds up.

Item (illustrative, fictional)	Amount
Price paid at completion	£3.0m
Deferred payment to seller over two years	£0.8m
Possible earn-out, if targets are met	up to £0.5m
Deal costs	£0.25m
Working capital top-up	£0.3m
Investment and integration in year one	£0.2m
Contingency	£0.2m
Funding to have in place at completion	about £3.95m
Total possible cost over three years	about £5.25m

The headline price in this example is £3.0m, but the business needs nearly £4m arranged by completion and should plan for over £5m in total. Buyers who only fund the price often find themselves short of cash in the first six months.

What are the main ways to pay for an acquisition?

Your own cash

Paying from cash reserves is the simplest route. There is no lender to satisfy and no interest to pay, and it is quick.

For: speed, simplicity, a strong position with the seller.
Against: it uses the buffer that protects your existing business. Spending most of your reserves on one deal leaves little room if trading dips or the integration costs more than expected.

Bank lending

A term loan from a bank, sometimes called acquisition finance, is the most common form of borrowing for a deal. The bank lends against the profit and cash flow of the combined business and usually takes security over its assets. Lenders may also ask for covenants (financial tests you must keep meeting, such as limits on debt relative to profit) and, in some cases, personal guarantees.

For: you keep full ownership, and interest is a known cost.
Against: repayments are due whatever happens. Covenants can restrict what you do, and breaching one gives the bank rights you would rather it did not have.

The British Business Bank runs the Growth Guarantee Scheme, which gives accredited lenders a government-backed 70% guarantee on facilities to smaller businesses with turnover of up to £45m, up to £2m per business group. The guarantee protects the lender, not you: the British Business Bank states that "your business remains 100% liable for repayment of the facility." Whether it can be used for a particular acquisition is a question for the lender.

Asset-based lending

Asset-based lending raises money against what the business owns. The British Business Bank describes it as using "physical assets (like equipment) and intangible assets (like IP) as security". A related form, invoice finance, uses unpaid invoices as security "to gain quick access to a percentage of their value".

For: it can unlock cash in an asset-heavy target (stock, equipment, debtors) and may be available when a cash-flow loan is not.
Against: the amount available moves with the value of the assets, and it is usually more expensive and more involved to run than a simple loan. It suits some businesses far better than others.

Paying the seller later (deferred consideration and vendor loans)

Deferred consideration means part of an agreed, fixed price is paid after completion, often in instalments. A vendor loan, sometimes documented as loan notes, is a formal version: the seller effectively lends you part of the price. As one law firm puts it, "the buyer becomes a creditor of the seller for the balance."

For: it reduces the cash and borrowing you need on day one, and it keeps the seller interested in a smooth handover.
Against: you still owe the money, so it must fit alongside any bank debt. Sellers often ask for security, such as a charge over the target's assets or a guarantee from your company, and a bank may require the seller's loan to rank behind its own.

Earn-outs

An earn-out is part of the price that depends on how the business performs after you buy it, usually measured on revenue or profit over a set period. They are common: in the CMS European M&A Study 2026, 28% of the UK deals CMS advised on in 2025 included an earn-out, and 58% of earn-outs across Europe ran for between 12 and 36 months. Those deals tend to be larger than most owner-managed acquisitions, so treat the figures as a guide to practice, not a rule.

For: it bridges a gap between what the seller wants and what you can justify, and you pay the higher price only if the business delivers.
Against: earn-outs are a frequent source of disputes. The targets must be clear and objective, and sellers will want protection against the buyer changing the business to reduce the payment. Running the business at arm's length for two or three years can also slow down bringing the two businesses together.

An equity partner

You can bring in an investor, such as a private equity firm or a family office, who puts in money in return for shares. The British Business Bank notes that private equity investment "is typically a majority one, meaning the investor purchases a controlling interest of over 50%", although minority stakes are possible.

For: it can fund larger or repeated acquisitions without putting all the risk on your balance sheet, and good investors bring experience.
Against: you give up part of the ownership, and often control. Investors will expect a return and, at some point, a sale. For many founders this is a bigger decision than the acquisition itself.

How do deferred payments and earn-outs change the risk?

They move risk between you and the seller, so the structure matters as much as the price.

	Deferred payment	Vendor loan	Earn-out
Amount	Fixed	Fixed, may carry interest	Depends on performance
Who carries the risk of weak trading	You	You	Shared
What the seller usually asks for	Security, timetable	Security, interest, ranking	Clear targets, protections on how you run it
Common sticking points	What happens if you sell or refinance	How it sits with bank debt	How profit is measured; seller's role

Each of these has tax and legal consequences for both sides. The way an earn-out is linked to the seller staying in the business, for example, can change how it is taxed. Have your lawyers and tax adviser review the structure before you agree the price and main terms in writing (heads of terms), not after.

How do you get ready to talk to a lender or investor?

Lenders and investors want to see that you have thought it through. Expect to provide:

Three years of accounts for your business and, where available, for the target.
Up-to-date management accounts and a forecast for the combined business.
A cash-flow forecast showing how the debt and any deferred payments will be repaid.
Your reasons for the deal: what you want to buy and why, and what changes after completion.
A summary of what you know and do not yet know about the target, and how due diligence will close the gaps.
Details of existing borrowing, security and guarantees.

Then test the forecast. What happens to repayments if the target's profit falls by a fifth? If a large customer leaves? If integration takes six months longer? If the plan only works when everything goes right, the funding mix is too tight. It is far better to learn that before you agree a price than after. Knowing what the business is really worth helps here too.

Where to start

Funding is easier to arrange when you know what you want to buy, roughly what it will cost and how much risk you are willing to carry. An Expansion Briefing is a free 30-minute call with us to talk through what you want to buy and whether acquisition makes sense now, including whether your likely funding route fits the size of deal you have in mind. You get a short written summary and a recommended next step. Book an Expansion Briefing.

How do established UK businesses fund an acquisition?