How to Finance a Business Acquisition

Key Takeaways

• Multiple paths to funding exist — from traditional bank loans and SBA financing to seller financing and private equity, the right structure depends on your deal size, credit profile and growth goals.
• Acquisitions accelerate growth — buying an existing business can fast-track market expansion, bring in new talent and reduce risk through diversification faster than building from scratch.
• Preparation is everything — a solid business plan, clean credit history and strong lender relationships significantly improve your chances of approval.
• Customers Bank is a Small Business Administration (SBA) Preferred Lender — which means faster processing and more flexible terms for qualifying small business borrowers.

Acquiring an existing business can be one of the most powerful moves an entrepreneur makes. Done right, it can accelerate growth, open new markets and unlock capabilities that would take years to build organically. But getting there requires navigating the financing side thoughtfully.

Here’s a clear look at how business acquisition financing works and where Customers Bank can help.

Why Acquisitions Make Strategic Sense

Before diving into the “how,” it’s worth understanding what you’re working toward. Business acquisitions can offer some real advantages:

Faster growth. Rather than building market share from scratch, acquiring an established company lets you hit the ground running with existing customers, revenue and infrastructure already in place.

Cost efficiencies. Merging operations often creates economies of scale, eliminates redundant functions and reduces overhead over time.

Risk diversification. Adding a complementary business to your portfolio can reduce exposure to market cycles or industry-specific disruption.

New talent and expertise. Sometimes the most valuable part of an acquisition isn’t the business itself — it’s the people. Acquisitions can bring in specialized knowledge or leadership that’s hard to recruit otherwise.

How to Finance a Business Acquisition

Getting acquisition financing in place isn’t a single conversation. It’s a process that runs parallel with the deal itself. Here’s how to approach it.

1. Know what you’re buying and what it’s worth

Before any lender can structure financing, they need to understand the target company. That means having access to at least two to three years of financial statements, tax returns and an earnings analysis adjusted for owner pay and one-time costs. Valuation in acquisitions typically hinges on a multiple of that adjusted earnings figure, so getting comfortable with the numbers early gives you a clearer sense of what a realistic purchase price looks like and what the debt will need to support.

2. Assess your own financial position

Most acquisition financing structures require the buyer to bring equity to the deal, which is often somewhere between 10% and 30% of the purchase price depending on the loan type and transaction specifics. SBA loans, for example, typically require a 10% equity injection. Understanding what you can contribute, and what collateral you have available, shapes which financing structures are actually available to you before you engage a lender.

3. Budget for the full transaction, not just the purchase price

The purchase price is the largest line item, but it’s not the only one. Due diligence fees, legal costs, advisory fees and integration expenses can add meaningfully to the total. Make sure your financing strategy accounts for the complete cost of the transaction; lenders will want to see this, and underestimating it creates real problems after close.

4. Engage a lender early

Acquisition timelines compress quickly. Once the letter of intent (LOI) is signed and a deal is in motion, there’s significant pressure to move. Lenders who are introduced to a deal mid-stream have less time to underwrite carefully, which can result in slower decisions or more conservative terms. Getting a banking relationship in place before you have a specific deal, or at minimum reaching out as soon as the LOI is signed, puts you in a much stronger position.

5. Understand how lenders will underwrite the deal

Acquisition loans are typically underwritten based on the combined entity’s ability to service the debt, not the acquirer’s financials or the target’s financials in isolation. The key metric lenders focus on is the debt service coverage ratio (DSCR) — the ratio of the business’s net operating income to its annual debt obligations. Most lenders want to see a DSCR of at least 1.25, meaning the business generates $1.25 for every $1.00 it owes in debt payments. Understanding this before you sit down with a lender helps you stress-test your own projections first.

6. Choose the right structure for your deal

The loan product that makes sense depends on the transaction size, the target’s asset base, your collateral position and your timeline. A term loan may be the most straightforward option for a cash-flow-supported deal. An SBA acquisition loan may be the right path if you’re looking for longer repayment terms and a lower equity requirement. Financing secured against the target’s receivables, inventory or equipment may open additional capacity if the company carries meaningful assets in those areas.

However, these structures aren’t mutually exclusive, as many deals involve a combination. A lender with acquisition experience can help you identify the right fit rather than defaulting to a single product.

Financing Options for Business Acquisitions

There’s no one-size-fits-all approach to acquisition financing. Here are the most common structures:

Traditional Bank Loans

A conventional commercial loan is often the starting point. Banks like Customers Bank offer loan products specifically designed for business acquisitions. Lenders will typically want to see a solid business plan, financial projections, collateral, and a strong credit history, both personal and business. The strength of your relationship with your banker matters too, so don’t underestimate the value of early, open communication throughout the process.

SBA Loans

SBA loans are often the most accessible route for entrepreneurs who don’t have extensive collateral or are acquiring a smaller business. Backed by the Small Business Administration, these loans tend to offer more flexible qualification requirements and competitive terms than traditional commercial financing. Customers Bank is an SBA Preferred Lender, which means faster turnaround and a more streamlined experience for eligible borrowers.

Seller Financing

In some deals, the current owner agrees to finance part (or all) of the purchase price directly. This can simplify the process, with no traditional lender required, and often allows for more flexible repayment terms negotiated directly between buyer and seller. It can be especially useful if you’re looking to bridge a gap between what a bank will lend and the full purchase price.

Private Equity and Venture Capital

For larger deals or high-growth acquisitions, private equity or venture capital firms may be worth exploring. These investors provide capital in exchange for equity ownership or a share of future profits. It’s a meaningful source of funding, but one that typically comes with tradeoffs including giving up some degree of ownership or control. Make sure you understand the terms fully before moving forward.

What Lenders Will Be Looking For

Regardless of which financing route you pursue, a few fundamentals apply across the board:

• A credible business plan that clearly outlines the acquisition rationale, market opportunity and integration plan, along with realistic financial projections.
• Strong credit history — both personal and business — that demonstrates you can manage debt responsibly.
• Collateral, where applicable, such as real estate, equipment or other business assets.
• A relationship with your lender built on transparency and consistent communication throughout the process.

Ready to Explore Your Options?

Financing a business acquisition is complex, but you don’t have to figure it out alone. Our bankers work closely with business owners and entrepreneurs to structure financing that fits the deal and the vision behind it.

Customers Bank provides commercial banking services that help businesses, and the people who run them, succeed. To chat through an upcoming business acquisition, contact Customers Bank to talk through your goals and find out what’s possible.