You can usually get a loan to buy another business if that business makes enough profit to cover the repayments. Lenders rarely lend the whole price, so if you're looking at buying a business you'll likely have to add some of your own money. We offer two routes: manda, our mergers and acquisitions service, and the Flexi-Loan, a business loan with flexible repayment options.

Manda structures acquisition finance as part of the deal, using our unsecured lending and partner secured lenders, with no fee for the structuring. As a buyer of a business you'll be pre-qualified, so the seller knows an offer can be funded.

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Can I get a loan to buy a business?

You may be able to borrow through a UK limited company to buy a business. What a lender assesses will depend on your circumstances and the proposed purchase.

• Your company already trades. A lender may review your company’s accounts alongside those of the business you want to buy.
• You’re buying your first business through a new company. With no company trading history, the application may draw on the business’s accounts, your experience and your financial contribution.
• You manage the business you want to buy. You’ll need to explain how it will operate and afford repayments after the change of ownership.

A loan is one way to fund the purchase. You could also use your own money or agree to pay part of the price later. Our guide to business acquisition finance explains the wider funding options.

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How iwoca can help you fund the purchase

If you need help finding a business and arranging finance for the purchase, explore manda. If your company wants to apply for a loan directly, explore Flexi-Loan. The right route depends on the support you need and whether the funding is suitable for your purchase.

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Using a loan to fund a management buyout

If you manage the business you want to buy, a loan could help fund a management buyout. Your plan needs to cover both the purchase and how you’ll run the business afterwards. Work out whether the business can afford repayments alongside wages, supplier bills and other running costs. Your knowledge of its customers and operations can help you prepare that plan, but it does not guarantee funding.

Stephen Murray, managing director of ECF Accident Repair Group, needed funds to complete his management buyout of the business. His broker introduced him to iwoca, and he borrowed £500k:

'It was so simple compared to the hoops I've had to jump through with private equity in the past. The iwoca deal was quick and no stress.' – Stephen Murray, managing director, ECF Accident Repair Group

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What kind of loan can you use to buy a business?

The loans most often used to buy a business are unsecured and secured business loans, asset finance, and seller financing. Many buyers combine two or more.

Each one puts the risk in a different place: on you, on the business's assets, or on the seller. That's what shapes the cost and who each one suits.

The best type of loan for buying a business depends on the deal: how big it is, which assets come with it, and how much of the price the seller will take later.

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How much can you borrow to buy a business?

There is no single borrowing limit for buying a business. The amount you can borrow depends on the lender, the purchase and the business’s ability to repay. The asking price alone does not determine the loan offer.

Start by working out how much funding you need and how much of your own money you can contribute. Then assess whether the business can meet repayments while covering its running costs and other commitments. Acquisition lenders use financial information and cash flow forecasts to assess that capacity.

For a Flexi-Loan, iwoca assesses each application on the business's performance, so the amount offered varies from one company to the next.

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Lenders expect you to put in some of your own money

Expect to put some of your own money into the purchase. There’s no single percentage that applies to every purchase, and the amount depends on the deal.

The main factors are the business you want to buy's profits, any assets offered as security, and how much of the price the current owner agrees to take later. Your contribution shows the lender you share the risk.

A loan for 100% of the price is rare. Buyers who put in less themselves usually rely on the seller deferring more of the price, or bring in an investor who takes a share of the business. Keep enough cash back for fees and for running the business in the first months after completion.

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Lenders check the business you're buying as well as you

A lender wants to know that the business you're buying can repay the loan, and that you can run it. Expect questions on:

• The target's filed accounts, recent management accounts, and a forecast
• How much of its income depends on a few customers or contracts
• Your track record in the sector, and who stays on from the current team
• Your company's accounts, existing borrowing, and credit history, if it already trades
• How much you're putting in, and where the money comes from
• Any assets the lender can secure the loan against

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How much does a loan to buy a business cost?

The cost of a loan to buy a business is the interest plus any lender fees, and the deal itself adds legal, accounting, and due diligence costs.

Budget for these on top of the price:

• Interest on the loan, and any arrangement fee
• Legal fees for the purchase and the loan documents
• Accounting and due diligence fees
• Stamp duty of 0.5% if you buy shares and the transaction is over £1,000 (Tax when you buy shares on GOV.UK)

Interest and fees vary between lenders, so compare the total you'd repay, not just the rate.

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How to get a loan to buy a business, step by step

Start talking to lenders before you agree terms with the seller, because your funding shapes what you can offer. The loan is then finalised alongside due diligence, once the lender has seen the target's full accounts.

Borrowing runs alongside the wider process of buying a business, and a typical purchase runs in this order:

1. Work out the total cost. Add up the price, fees, any stamp duty, and the cash the business needs after completion.
2. Decide how much you'll put in. That sets how much you need to borrow, and how much you might ask the seller to defer.
3. Get the target's numbers. Ask the seller for filed and management accounts once you've signed a non-disclosure agreement.
4. Talk to lenders or a broker. Share the target's accounts and your plan to get indicative terms. A broker can compare several lenders at once.
5. Agree heads of terms with the seller. Include the price, how it's paid, and any deferred payment.
6. Complete due diligence. The lender usually wants to see the results before it gives final approval.
7. Sign the loan and the purchase agreement, then complete. The funds are usually released at completion.

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Loans to buy a business: quick answers

How hard is it to get a loan to buy a business?

A loan to buy a business usually takes more work than ordinary business borrowing, because the lender is judging a company you don't own yet. Up-to-date accounts for the target, your own contribution, and relevant experience all make approval more likely.

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How long does it take to get a loan to buy a business?

The time it takes to get a loan to buy a business depends mostly on due diligence, because lenders usually won't give final approval until it's done. manda targets three to six months from mandate to a signed letter of intent, with completion after due diligence.

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Can you buy a business with bad credit?

Buying a business with a poor credit history is harder, because lenders check your company's credit record and often yours. Some lenders weigh the target's accounts and your plan alongside it. You can check your business credit score for free with iwoca Credit Compass, which shows your Equifax business credit score, four more scores, and what's affecting them.

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Is the interest on a loan to buy a business tax-deductible?

Interest on a loan your company takes out to buy a business is usually deductible for corporation tax. The Corporate Interest Restriction can limit relief for companies or groups with net interest and financing costs over £2 million a year (Corporate Interest Restriction on GOV.UK), so take tax advice on your structure.