The funding stack
Most acquisitions are funded from four layers. Buyer equity sits at the bottom and is the first money at risk. Senior debt — a bank or private credit term loan — takes first security and the lowest pricing. Asset-backed lines against the target's receivables, stock or plant often sit alongside it and can materially reduce the senior requirement.
Above that sits mezzanine or unitranche debt, priced for the extra risk, and finally deferred consideration or vendor loan notes, where part of the price is paid over time out of the acquired business's own cash generation. A well-built stack minimises the equity cheque without over-gearing the target.
How much debt a target will support
Senior lenders generally work to two to three and a half times sustainable EBITDA, with total leverage including mezzanine sometimes reaching four to four and a half times for a resilient, cash-generative business with recurring revenue.
The operative word is sustainable. Lenders adjust reported EBITDA for owner remuneration, one-off items, related-party transactions and any earnings dependent on the departing seller. A target whose profits walk out with the vendor supports far less debt than the headline accounts suggest.
Security, covenants and structure
Debt is normally raised in a newly formed acquisition vehicle and secured by a debenture over both the vehicle and the target, with the target guaranteeing the debt after completion. Expect leverage, interest cover and cash-flow cover covenants tested quarterly, plus restrictions on dividends, further borrowing and disposals.
Share purchases and asset purchases raise different tax, liability and security questions, and lenders price the two differently. Agree the structure with your advisers early — changing it late in the process resets much of the credit work.
Timeline and what lenders need
Eight to sixteen weeks from mandate to completion is realistic. Lenders will want three years of the target's audited accounts and current management figures, an integrated financial model with the debt in place, the heads of terms, your own track record in the sector, and a management plan for the first hundred days.
Financial and legal due diligence usually runs in parallel with credit approval. Where the seller expects a fast exit, funded due diligence and early lender engagement are what keep the deal deliverable.
Common reasons acquisition funding fails
Customer concentration in the target, earnings that depend on the departing owner, an aggressive price relative to normalised earnings, and no cash headroom after debt service are the usual causes. Each can often be solved by restructuring rather than repricing — more deferred consideration, a longer earn-out, or an asset-backed line replacing part of the senior debt.
Global Funding Gateway structures the request and approaches senior, asset-backed and mezzanine providers active at your deal size, with no upfront fees and all charges due only once funding is in place.
Frequently asked questions
How much equity does a buyer need to contribute?
Typically 20–40% of enterprise value, though a strong asset base or substantial vendor deferral can reduce it. Lenders want meaningful capital at risk below their own.
Can I buy a business with no money down?
Rarely, and usually only where the vendor defers most of the price or the target's own assets carry the funding. Lenders almost always require some buyer equity and demonstrable sector experience.
What is a vendor loan note?
Part of the purchase price left outstanding by the seller and repaid over an agreed period, usually ranking behind bank debt. It bridges valuation gaps and signals the seller's confidence in the business.
Last reviewed: 2026-08-15