What lenders look for in a business acquisition

The question underneath all the other questions

A lender is asking one thing in five different ways: will this debt be repaid, and if it is not, what then. Every document requested and every question asked is a way of getting at that.

It is worth holding on to, because it explains behaviour that otherwise looks arbitrary. A lender is not being obstructive when it asks who will do the seller's job after completion. It is testing whether the profit it is lending against survives the transaction that created the loan.

One: can it be serviced

This is first and it is not close. Everything else adjusts the answer at the margins.

The lender does not use the profit figure in the sale particulars. It rebuilds it. It takes the earnings the business reports, strips out anything that will not recur, adds back the seller's drawings, then puts back a realistic salary for whoever is actually going to do that work once the seller has gone. The number that survives is what the debt is serviced from.

Against that it sets the total debt service: your new facility, anything else the business already owes, and often a margin for comfort. The relationship between the two is the debt service cover ratio, and it is the single most important number in the file.

Why the two numbers differA business advertised on earnings of 200,000 where the owner has been drawing very little, and where a replacement manager would cost 60,000, is not a 200,000 business to a lender. The figure it lends against is what remains after that manager is paid. The multiple sets the price; the margin sets the borrowing.

If nobody has done this arithmetic before the price is agreed, it gets done for the first time in credit, which is the worst possible moment to discover it. Read valuation basics for how price and funding are the same problem rather than two consecutive ones.

Two: how good is the income

Two businesses can produce identical profit and be assessed completely differently, because the profit is not equally likely to still be there next year.

The tests are consistent across sectors:

• Is it contracted? A signed agreement with a term and a notice period is worth more than a customer who has always come back.
• Does it renew, and can you prove it? Renewal history beats assertion. Three years of evidence beats a sentence in the particulars.
• Why does the customer buy? Work driven by a legal, insurance or audit obligation renews more reliably than work that is a good idea.
• Who is the relationship with? If it is with the person selling, some of it leaves with them.
• How concentrated is it? See customer concentration.

This is where sector knowledge on the lender's side starts to matter enormously. A funder who has seen a maintenance book or a fee block before knows to ask these questions and knows what good answers look like. One who has not tends to fall back on tangible security, find very little, and price the uncertainty. That difference is covered properly in how lenders assess recurring revenue.

Three: what is there to fall back on

Security is not the first question, contrary to how it feels when you are asked for it. It is the answer to "and if it is not repaid, what then".

In the sectors on this site there is usually not much of it. That is normal and it is not fatal. It does mean the conversation moves to a debenture over the company's assets, and to a personal guarantee from the buyer. Where there is property, a commercial mortgage may carry part of the structure more cheaply. Where there are vehicles or plant, they can often carry their own asset finance, which frees the main facility for the goodwill.

Four: who is buying it

Lenders lend to people as much as to businesses, and at this size the buyer is a substantial part of the credit decision.

• Sector experience. Have you run something like this before? A trade buyer who can absorb the work is in a materially stronger position than a first-time buyer funding the whole thing with debt.
• The management around you. A team is more comfortable than an individual, especially where the seller is leaving.
• What you are putting in. See equity contribution. Money at risk alongside the lender's changes the conversation.
• Your own record. Personal credit, any previous insolvency, and whether existing businesses you run pay on time.
• The plan for the first year. Not a document for its own sake. What actually changes on day one, and what it costs.

Five: how the deal is put together

Structure is not a detail bolted on at the end. It changes the risk the lender is taking, so it changes the answer.

Whether you are buying shares or assets decides what liabilities come with the business and whether contracts and consents survive: see share purchase versus asset purchase. Deferring part of the price reduces what you need on day one and introduces a second creditor sitting alongside the bank, which is why deferred consideration and earn-outs and vendor finance get read carefully. Where several facilities are involved, ranking between them has to be agreed, which is stacking facilities.

What actually decides it

In practice, most declines are not close calls on the numbers. They are one of a small number of recurring problems, most of them fixable if they are found early. That is its own subject and it is set out in why lenders decline acquisition finance.

The pattern worth internalising is this. A lender is looking for a reason to be comfortable, and comfort comes from evidence rather than from enthusiasm. A buyer who arrives with a reconciled fee or contract schedule, a forecast with stated assumptions, a downside case they produced themselves, and an honest answer about what happens when the seller leaves is making the lender's job possible. A buyer who arrives with a price and a hope is asking the lender to do that work, and it will price the risk of doing it badly.

Our document checklist is the practical version of that, in the order things get asked for.

Where the choice of lender comes in

Everything above describes what a competent lender does. What it does not capture is how much the answer varies between them, for the same business, on the same numbers.

Bank of England figures for June 2026 put the effective interest rate on new bank loans to SMEs meaningfully above the rate for the wider corporate market, at 6.36% against 5.42% across UK private non-financial corporations as a whole[1]. Some of that gap is genuine risk. Some of it is the cost of being assessed by somebody who does not recognise what they are looking at.

That second part is the part worth doing something about, and it is what we are for. We know this market and we know specific people who have funded businesses like the one you are buying, so the proposal goes to someone who already understands the sector rather than to whoever is nearest. Why Reads sets out the argument in full, including when you would be better off going straight to your own bank.