Acquiring a business rarely requires 100% cash up front. Understanding how to structure debt and equity financing is key to successfully acquiring a profitable company while conserving working capital.
Primary Funding Options in the US
- SBA 7(a) Loans: The gold standard for US acquisitions. The Small Business Administration guarantees up to 85% of loans up to $5M, allowing qualified buyers to purchase a business with as little as 10% down.
- Seller Financing: A promissory note where the seller acts as the lender for a portion of the purchase price (typically 10%–30%). This aligns the seller’s interest with the ongoing success of the business.
- Rollovers for Business Startups (ROBS): Allows buyers to use retirement funds (401k/IRA) to fund a business purchase without triggering tax penalties or early withdrawal fees.
- Equity Partners / Investors: Partnering with high-net-worth individuals or search fund investors in exchange for equity share in the new venture.
Ideal Deal Structure Breakdown
A typical structure for a mid-market small business acquisition often looks like:
- 10% Buyer Equity Down Payment
- 15% Seller Note (Financed over 3–5 years)
- 75% SBA Senior Bank Debt
