Financing the Purchase of an Existing Business

Acquisition financing has a feature no other business loan has: the thing being evaluated mostly isn't yours yet. The lender underwrites the target company's ability to repay, your ability to run it, and whether the price makes sense. All three have to hold.

The target's books are the main exhibit

Expect the lender to want several years of the seller's tax returns and financial statements — not a summary the seller prepared, but filed returns. Sellers who resist providing them are a warning sign for you as much as for the lender. If the business's real earnings can't be documented, financing it is very difficult regardless of how good the opportunity looks.

Price has to be defensible

A price agreed between buyer and seller isn't automatically a price a lender will finance. Valuation, and often a third-party appraisal or business valuation, sits between the handshake and the funding. If the price exceeds what the earnings support, the gap has to come from somewhere — usually your equity or seller financing.

Seller financing is a structural tool

When a seller carries part of the price — paid out of the business's future earnings — it reduces what you need to borrow and signals the seller's confidence in what they're selling. Many acquisition structures include it. Whether it's permitted, and on what terms, depends on the lender and program.

What you'll need on your side

• Personal financial statement, tax returns, and credit review
• Relevant industry or management experience — this genuinely matters here
• Your equity injection: the cash you're putting in
• A letter of intent or purchase agreement, and a business plan with realistic projections

Where deals commonly stall

• Seller's records don't support the earnings described verbally
• Undisclosed debts, liens, tax obligations or lease problems surface in diligence
• Revenue is concentrated in one or two customers who may leave with the seller
• No clear transition plan for relationships, licenses or key staff

Related: SBA loan basics, the document checklist, and commercial real estate financing if real property is part of the deal.