A lot of people on the corporate ladder will have had a thought that goes something like this: ‘I’d love to own a business – some day.’
If you’re ready to make ‘some day’ today, then this is the article is for you. You might be thinking about starting your own business, but we’re going to be talking about a powerful alternative route here: buying an existing one.
Buying a business means skipping the uncertainty of the launch phase and jumping straight into ownership with a reliable customer base, proven systems, brand recognition and market experience. The trade-off for that extra level of financial stability is that you need to make an up-front investment, but here’s the part many people miss. That up-front investment doesn’t need to come out of your own pocket – it can come out of a lender’s.
We’re going to walk you through the essential information you need to know about financing a business purchase. We’ll cover the different types of financing, what a good deal looks like, how you can avoid common mistakes many entrepreneurs make, and what lenders look for. Hopefully you’ll come away with a clear understanding of the options available to you, letting you make your next move with confidence.
Let’s dive in!
How do you finance buying a business?
You don’t need enormous amounts of liquid capital sat in your personal bank account to buy a business. What you need is a strong, clearly communicated business plan, and a partner willing to lend. That will often be a bank, but there are other options available. Let’s have a look at the main routes to financing.
- Debt finance. This is the traditional loan model, where you borrow money from a bank or other lender to fund the purchase, and repay it over time with interest. You should lay out a clear plan for how you will repay the debt, leaving enough working capital to actually run the business.
- Equity finance. The ‘dragons den’ model. An investor provides money in return for a stake in the business. From a buyer’s perspective, this route might mean less pressure on repayments (which could help a lot in the early stages) but it also means giving up some control and some of your future upside in the long term.
- Convertible or hybrid deal structures. Some deals combine the two. An example might be where a lender/investor can convert some of their funding into shares under certain conditions. You may want a business/transaction lawyer to guide you through the complexities if you go this route.
- Seller financing. This is where part of the asking price is covered by revenue generated by the business, acting as a sort of ‘deferred’ payment. For buyers this is often the ideal scenario, but it usually comes with a higher level of risk for the seller. Seller financing can keep both buyer and seller invested in the business’ future success, as well as reducing up-front cash requirements. But it may also reduce how much working capital you can generate early on if you’re still repaying ton the seller.
Many small business acquisitions will still require you to use some of your own working capital, but this could be as low as 10% of the asking price. For deals at the lower end of the spectrum, you could be looking at something in the region of £10-£20k. While that might constitute a considerable saving on the costs of launching a startup, it’s important to factor in all the necessary repayments and have a clear picture of the finances as a whole.
Where do I find a lending partner?
All major high street banks have commercial banking arms which will lend to SMEs. HSBC, Natwest and Lloyds in particular have large, structured business banking divisions with dedicated relationship managers for SMEs. Challenger banks like Allica are also increasingly entering the commercial lending space.
You could search for partners on angel investor networks like AngelList or the UK Business Angels Association (UKBAA). You can also find investors by searching terms like ‘investor’, ‘search fund’ or ‘acquisition entrepreneur’ on LinkedIn.
If you’re stuck, you might want to consider bringing a finance broker on board. They can package your deal properly and introduce you to the right lenders, helping increase your approval odds.
Tip: For a deeper dive into the role brokers play during acquisitions, read our article Do I need to use a business broker to buy a business in the UK? 2026
What does a good deal look like?
If you’ve found a financing partner, the next stage is to break down the terms of the deal and make sure it works for you. A business broker or transaction lawyer can be incredibly valuable at this stage, to help you examine the fine print. So, what exactly are you looking for?
A good financing deal is one that has a manageable deposit, and where the business can comfortably afford to service its debt. You should build a conservative pro forma which also factors in financial projections for your target business in a worst-case scenario, to ensure your business can continue operating even when things don’t quite go to plan.
It should have clear and transparent terms around security, repayments and defaults, with no grey areas or room for interpretation. Ideally, a good financing deal will also be flexible if performance dips temporarily, and not force you to put up personal guarantees such as lending against your house. You don’t want the threat of going into personal debt hanging over you while you navigate the complexities of business ownership.
What financing mistakes do business buyers make?
One of the most common mistakes business buyers make is not leaving enough working capital to actually run the business after the purchase completes. You’d be surprised how many seasoned entrepreneurs still underestimate operating costs, and then find themselves in a difficult situation within the first couple of years behind the wheel. You need to factor in everything: wages, suppliers, rent, utilities – and you need to make sure the remaining capital leaves you enough room for growth.
Try to shift your focus away from asking price, and more towards future cashflow. At the end of the day, the asking price is simply how much any buyer is willing to pay for a business – meaning its open to interpretation. What isn’t open to interpretation is cold, hard numbers. Can the business you’re thinking of buying safely repay its debt? Only a deep dive into its trading history and projected cashflow can tell you that.
We mentioned it above, but it’s worth repeating – if you can avoid it, don’t borrow against personal assets like your house. Negotiate collateral terms with business assets first, such as stock, equipment, receivables, or saleable assets. If you’ve been offered a deal that involves personal guarantees, remember there are more lenders out there. You don’t have to take the first offer you receive!
What do lenders and investors look for?
Convincing any lender or partner that you’re investable is all about planning. They want you to demonstrate your target business is stable, and that you’ve got the necessary experience to keep it profitable.
That focus on stability is one of the reasons why banks love franchising from an investment point of view: the prevalence of existing systems and branding, clear documentation and a long track record of success often make them a more appealing proposition.
Tip: For a deeper dive into how to build a strong business plan, read our article How to Write a Great Business Plan in 8 Steps.
Buying a business might feel like a big leap, but with the right financing structure in place, it’s far more accessible than most people realise. The key is to stay grounded in the numbers, explore your options, and build a deal that works not just on paper, but in reality. With the right preparation and partners around you, you can move from “some day” to ownership sooner than you think.
If you’re ready to take the next step, head to BusinessesForSale.com and start exploring some of the opportunities available on the site.