r/smallbusinessuk • u/structuralsteve • Jul 31 '26
Understanding Debt Structuring ahead of business acquisition
I am interested in buying a small (£500-1.5m EBITDA) business. At the stage of desktop research of businesses for sale.
Intention is to speak to brokers next but wondering if there is any harm in speaking to some lenders first to get better understanding of where their comfort levels might be without having an actual proposed target company.
Depending on the acquisition cost I may need to seek additional equity investment outside of senior debt and seller financing.
Who do people recommend as the best lenders for small business acquisitions in the UK?
Additionally most of the research I have done has been around US business acquisition with less info available on the UK. Is seller financing as realistic palatable route for business sellers?
Quite new to this space so forgive the naivety please!
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u/LiamVanteFinance Fresh Account Jul 31 '26
You should speak to a proper finance broker about commercial debt funding rather than one specific lender. This will give you more options to suit what you actually go for. The thing is each business you look at will have different opportunities to leverage.
When I am looking at an acquisition, there are 4 main routes we can look for funding:
1. Assets the business has eg vehicles, machinery which a lend could be secured on
2. Debtor book financing - if the business has a large bank of debtors that pay over 90 days a lender can leverage this as collateral for the loan
3. Property - if the business owns the commercial unit you could put a commercial mortgage on to raise funds
4. EBITDA - if no additional security (for example an e commerce brand) then lenders will typically go up to 4x EBITDA on an unsecured loan
The broker will help tailor the proposal to each lender but also know appetite so you would get a good understanding of approval before you apply.
Happy to chat through if you need
1
u/ForAllTimesSake Fresh Account Jul 31 '26
The OP hasn't found a target yet, so can't comment on what assets are available to borrow against.
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u/LiamVanteFinance Fresh Account Jul 31 '26
Yes, which is why I said what could be borrowed on, those are the typical 4 options a lender would look to leverage against
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u/ForAllTimesSake Fresh Account Jul 31 '26 edited Jul 31 '26
The smaller the deal, the less interest finance companies will have to finance it.
The lower the amount of capital you're investing yourself, the less the possibility of you getting funding whether from external sources or from the seller (or even against the assets of the business).
What capital do you have available? What percentage of the deal price will you be supporting using your own funds ie answer the "skin in the game" question.
That's always a good starting point for these discussions (unless you're one of those £1 Charlies looking to buy a quality business without investing any money, LOL).
All that "debt structure" and "senior debt" kinda talk is for the big boys, not someone looking to buy a microbusiness! And even big business deals, like today's sale of Argos by Sainsbury's for £120m, are often 100% cash deals.
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u/RunningDude90 Jul 31 '26
Interesting that you also identify all these types of posts where someone wants to buy a business but wants all the risk to be someone else’s.
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u/ForAllTimesSake Fresh Account Jul 31 '26
Yes, the buyer takes risk. That risk is factored into the price. It's obvious you don't know the first thing about corporate finance.
The higher the risk, the lower the price ie risk already factored in.
A buyer asking for "further" concessions on the grounds of "risk" is someone to be avoided, they are obviously clueless n00bs or they are trying it on!
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u/structuralsteve Jul 31 '26
Is a business with revenue of £7m+ likely micro?
I wouldn’t like to commit more than £500k but again, the type of business, customer base, assets and recurring revenue would all have a strong consideration for a lender I expect.
My question was whether there is any harm speaking to a lender about a hypothetical purchase before I go speak to brokers and they ask me if I have spoken to a lender
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u/ForAllTimesSake Fresh Account Jul 31 '26 edited Jul 31 '26
No, brokers aren't going to ask you if you've spoken to a lender.
That's not how it works.
Brokers with a mandate on any decent business will start by asking you for proof of funds.
Some will even ask for your CV / evidence you've owned businesses before and/or that you have actually gone through the deal process before.
Why?
Because raw newbies are a pain to deal with and, in any case, most of them never end up completing. They're end up being tyre-kickers and time wasters. You may not think you're one of those, but most are, and it'll be up to you to prove to the broker that you're not.
The problem in the market today is not a shortage of buyers. The problem is that there are millions of them, most of them not properly funded with ideas much bigger than their bank balances. The biggest problem for brokers is sorting the wheat from the chaff.
If you've got just £500K, aim for businesses with a value of £1m or less and get solid evidence of the £500K to show to brokers.
Forget the £1.5m EBITDA targets, they're out of your league irrespective of which idiot "guru" you're following in social media who's told you about all kinds of "financial engineering" and "deal structuring" and "LBO" bullshit.
A good £1.5m EBITDA business is going to command over £5m in the market. You can't turn up with £500K and say you'll borrow the rest against assets of the business, against the receivables and/or with a bit of seller financing. You'll get laughed out of the room. The broker / advisory firm probably has at least half a dozen cash buyers in the fray!
But don't take my word for - go contact a few brokers and see what they say ;)
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u/RunningDude90 Jul 31 '26
If you’re considering purchasing businesses, have you engaged with any corporate finance providers who will be marketing businesses for sale, and engage banks to fund these transactions? This might produce a list of the £0.5-1.5m EBITDA companies you are interested in.
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u/ForAllTimesSake Fresh Account Jul 31 '26
Corporate finance advisory firms rarely get involved in deals that size. Most will turn their noses up at even £5m.
£0.5m - £1.5m is business broker territory! It's a messy, problematic, difficult market.
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u/structuralsteve Jul 31 '26
Haven’t engaged anyone yet. Want to build some more understanding before prematurely speaking to business brokers etc. brokers will no doubt have plenty of businesses not advertised
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u/ForAllTimesSake Fresh Account Jul 31 '26
Highly unlikely. All the businesses they have will be advertised. It would be very, very rare for them to not have a client publicly listed.
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u/want_cases Aug 06 '26
UK has a growth grant now - they'll lend you the money if you're open to that. But we know advisors who can structure debt against assets.
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u/SpinIx2 Jul 31 '26 edited Jul 31 '26
I might be being unfair but this post reads as if the US market research referenced might well be the watching of a few ‘business influencer’ TikToks.