Roughly 70% of SME owners turn to their bank when exploring acquisition finance. The challenge is that high street lenders tend to be cautious in this area, particularly where there’s limited security, no personal guarantees (PGs), or minimal upfront capital from the buyer.
That said, the landscape is broader than many assume. Alternative lenders have become an increasingly viable route, typically structuring deals around two core borrowing approaches.
Secured borrowing involves lending against assets. Traditional banks favour this model, but usually only when certain boxes are ticked: the buyer has relevant industry experience, there’s a meaningful cash contribution, and additional security is available—often in the form of personal or business assets.
Non-bank lenders tend to take a more commercial view. They may place greater weight on the strength of the management team and overall capability, even where the buyer is entering a new sector. Funding is often arranged as a leveraged buyout (LBO), where borrowing is secured against the assets of the business being acquired. One key consideration here is that assets must be clearly identifiable,details like make, model, and age matter. Valuations are also conservative, typically based on forced-sale scenarios rather than open market worth. Property is rarely included unless it’s personally owned residential real estate, rather than held within a company or pension structure.
Unsecured borrowing, while available, comes with trade-offs. Costs are usually higher, and lenders will still often require personal guarantees. In some cases, terms can be improved if partial security is introduced, for example, a charge over property. Fully non-recourse funding, however, is exceptionally uncommon.
When it comes to deal structuring, Special Purpose Vehicles (SPVs) are widely used. In simple terms, a business cannot directly fund its own share purchase. Instead, a separate entity, the SPV is set up to raise finance, often supported by the target company’s assets or cash flow. The target business can then upstream funds to the SPV, enabling it to complete the acquisition, with the SPV assuming the resulting liability. This structure helps ensure both legal compliance and financial control, particularly in leveraged transactions.
In practice, no two deals look the same. Funding structures can vary significantly, and outcomes often depend on how creatively the available options are applied.
At Weybrook we are not financial advisors or lenders, but we can put you in touch with accredited professionals. What do, do is find buyers for businesses, if you would like to know more contact Rupert Trevelyan at Weybrook Business Brokers on rupert@weybrookbusinessbrokers.com or 07826 050690
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