Key takeaways
- Acquisition financing usually combines buyer equity, senior debt, and sometimes seller financing.
- The loan must support both the purchase and the post-closing liquidity needs of the business.
- Lenders underwrite the business, the buyer, the transaction structure, and the documentation quality.
- A lower purchase price does not fix a deal that lacks sustainable cash flow or capable management.
The capital stack
Most small-business acquisitions are funded with more than one source of capital. The mix is often called the capital stack.
- Buyer equity: cash invested by the buyer or qualifying equity partners.
- Senior loan: bank, SBA-guaranteed, conventional, or other lender debt with first-priority repayment.
- Seller note: financing provided by the seller, which may be amortizing or placed on standby.
- Contingent consideration: earnouts or holdbacks tied to future performance or specific representations.
What the financing must cover
A common mistake is funding the purchase while leaving the company undercapitalized on day one. The buyer should model the first several months of payroll, inventory, rent, seasonality, and unexpected operating needs.
- Purchase price allocated among goodwill, equipment, inventory, and other assets.
- Closing costs, professional fees, and lender fees.
- Initial working capital and operating reserves.
- Required repairs, equipment replacement, technology, or growth investment.
- Refinanced debt or other eligible transaction obligations.
Four underwriting questions
- Can the business repay the proposed debt from supportable cash flow?
- Does the buyer have the experience, credit, liquidity, and management plan to operate the business?
- Is the purchase price supported by earnings, assets, and market evidence?
- Are the transaction documents, financial statements, tax returns, and ownership structure complete and consistent?
The role of seller financing
A seller note can reduce the senior lender’s exposure, bridge a valuation gap, and align the seller with the transition. Its treatment depends on payment terms, lien position, standby requirements, and the specific loan program.
Seller financing should not be used to hide inadequate buyer liquidity or an unsupported price. The repayment terms must still fit the business’s post-closing cash flow.
Prepare a lender-ready package
- Clear transaction summary and sources-and-uses schedule.
- Historical business tax returns and current financial statements.
- Debt schedule and explanation of any unusual liabilities.
- Buyer personal financial statement, resume, credit profile, and liquidity evidence.
- Purchase agreement or letter of intent, valuation support, and transition plan.
- Realistic projections that reconcile to historical performance and known changes.
Step 2 · Apply what you learned
Continue into a Professional Playbook
The guide explains the concept. The playbook turns it into a complete, documented workflow you can use on an actual client or investment assignment.
Step 3 · Test the actual transaction
Generate Deal Intelligence with Acqyrly
Enter the actual assumptions, compare scenarios, review decision metrics, and identify the questions that require better documentation.
Financing review
Turn the structure into a lender-ready request
Share the proposed purchase, equity, cash flow, and use of funds for a financing review.