This guide provides general educational information—not legal, tax, accounting, financial, or investment advice. Confirm material decisions with qualified professionals.
Common sources of acquisition capital
Many purchases use a combination of buyer equity and debt. Options may include an SBA-backed loan made by a participating lender, a conventional bank loan, seller financing, outside equity, or—in limited circumstances—specialized financing structures.
- Buyer equity shows commitment and reduces borrowed funds.
- Seller financing can align incentives but must be documented carefully.
- Outside equity reduces debt but shares ownership and control.
What lenders evaluate
A lender typically evaluates historical cash flow, debt-service capacity, the buyer’s experience and credit, collateral where applicable, the business plan, purchase terms, and the quality of financial records. Requirements vary by lender and program.
Model the complete cash need
Include the down payment, lender and professional fees, working capital, inventory adjustments, repairs, technology, insurance, deposits, and personal reserves. A deal can be financeable yet still leave the new owner undercapitalized.
Prepare a lender-ready package
Organize buyer financial information, resume, acquisition criteria, seller statements and tax returns, purchase agreement or LOI, debt schedule, projections with assumptions, and an explanation of management and transition plans. Keep reported figures consistent across every document.
Compare terms, not just rates
Review amortization, maturity, collateral, guarantees, covenants, prepayment terms, required reserves, closing conditions, and permitted seller financing. Ask each lender to explain the expected timeline and documents.
Primary sources and further reading
Always confirm current requirements directly with the relevant agency, lender, or professional.