How much can I borrow to buy a business?

What the combined business's cash flow supports at the leverage the market clears for its size, not a multiple of the purchase price. For smaller transactions that is currently in the range of two and a half to three and a quarter turns of EBITDA in total debt, with the rest of the price funded by junior capital, seller components, and equity. The binding test is coverage under a downside case, and lenders run it on the combined entity.

What is a seller note and why would a seller agree to one?

A deferred, usually subordinated portion of the purchase price that the seller lends back to the deal, paid over years rather than at closing. Sellers agree because it bridges a price gap, defers tax, and earns interest; buyers value it because it is capital that requires no third-party process and because a seller willing to stand behind the business's future payments is making a statement diligence cannot.

Do I need committed financing before I bid?

In any competitive process, effectively yes. A seller's advisor weighs certainty alongside price, and committed facilities against best-efforts language is the clearest certainty signal a bid carries. Committing costs money and time before you know you have won, which is exactly why it works: it is credible because it is expensive. The financing plan therefore starts when the target is identified, not when the LOI is signed.

Acquisition Financing for Business Buyers

Acquisition financing, sized to the business you are buying into.

An acquisition is financed against the combined business, not the buyer alone. The structure is assembled in layers, senior debt, junior capital, deferred seller components, and equity, and the assembly is negotiated against a deal clock the financing cannot be allowed to miss.

How is a business acquisition actually financed?

In layers, sized from the bottom up. Senior debt advances what the combined business's cash flow supports at the leverage the market currently clears. Junior capital, mezzanine or a second tranche, fills part of the remaining distance where coverage supports it. Deferred seller components, a subordinated seller note or an earnout, shift part of the price into the future and signal the seller's own confidence in the numbers. Equity funds the rest, and lenders treat its size as a term of the deal rather than a residual.

The proportions move with size and situation. Smaller transactions lean more on seller components because the junior layer is narrow at that end of the market; larger ones support fuller stacks. What does not move is the sequencing discipline: the financing plan is built before the offer is made, because a price agreed without a structure behind it is a retrade waiting for a date.

The instrument pages on senior debt, unitranche, and mezzanine cover each layer's mechanics; this page is about assembling them against a transaction.

What will the market fund an acquisition at right now?

The bands that govern any leveraged financing govern acquisitions. For a combined business below $10m of EBITDA, senior debt clears at 2.00x to 2.50x of EBITDA and total debt at 2.50x to 3.25x; above $25m of EBITDA, 4.25x to 5.25x senior and 5.00x to 6.50x total (SPP Capital Partners, Market At A Glance, July 2026). Pricing follows the layer: senior bank debt at S+350 to 425 for the smaller cohort, unitranche at S+550 to 750, junior capital at 13.00% to 16.00% all-in (SPP, July 2026).

Lenders state the equity requirement plainly: a minimum 40% base equity capitalization, with at least 60% of that in new cash rather than rollover (SPP, July 2026). A buyer planning an acquisition against last year's leverage assumptions is planning a funding gap: the small-borrower bands have contracted roughly half a turn of senior capacity year on year (SPP, July 2026).

Current figures across the whole grid are maintained on our Credit Terms Monitor and in the linked positions, each dated and attributed.

What do lenders test in an acquisition credit?

The pro-forma, mercilessly. An acquisition credit is underwritten on the combined business: the target's earnings quality tested the way a buyer's diligence tests it, the synergies discounted to what is contracted rather than what is hoped, and the integration plan read as a risk factor rather than a slide. Adjustments survive when documented; combination benefits priced into the debt rarely survive at all.

Then the buyer's own record and equity. A lender to an acquisition is backing the acquirer's ability to operate what it buys, so management depth, the plan for the seller's departure, and the hardness of the equity commitment all price. This is also where committed financing earns its cost: in a competitive process, a bid backed by committed facilities outranks a higher bid backed by best-efforts language, and sellers' advisors read the difference immediately.

Then the standard credit work at the new leverage: coverage under a downside case for the combined business, the covenant package tested against the integration year rather than a steady state, and the refinancing path once the acquisition debt seasons.