Loan to buy a business in UK

Eligibility criteria differ by lender and funding type. As a general rule of thumb, lenders will assess your financial health as a business or investor. This will require you to present evidence of profitability and experience. For instance, you may be asked to share cash flow projections, information, and documentation on your current debt levels, financial statements, and the lender will likely run a hard credit check on you and your business to determine your creditworthiness. 

Beyond that, they’ll also want to find out more about the business you're purchasing. You may be asked to submit a business plan outlining how the acquisition will generate profit, what an integration or merger might look like, and how you have determined the business’ value. Some lenders like to run due diligence checks, or at the very least, know you've run sufficient checks. If you're planning to put up an asset as collateral for the loan, lenders might like to see more documentation surrounding those assets. For instance, if you're using a property as collateral, they might like to see proof of ownership. 

That’s what we do – help eligible business-borrowers find the most suitable financing options for them. Whether or not we can help you personally depends on a few key factors, such as how much you’re hoping to borrow (we don’t facilitate loans over £20 million) and where you’re based (we work with UK businesses). To find out if we can help you, start by getting a quote here. We’ll get in touch to let you know if you’re eligible and if so, how much you might be able to borrow. 

Repayment terms depend heavily on the type of loan you're seeking. We’ve included a few example repayment terms below so that you can see what the terms might look like.

Example A: Let’s say you use a bridging loan to purchase a smaller company in a new location with plans of expanding your geographical reach. You have settled on a bridging loan because you're selling a set of apartments. The sale will take around a year to complete, and the business you want to buy is up for sale today. 

The business you're purchasing is £1 million, and you plan to repay the full amount with the sale of the apartments in exactly 12 months. While there are many different types of bridging loans, the one you take charges monthly interest payments, which you pay at the end of each month. Once the 12 months are over, you pay the full £1 million back and the loan is closed out. 

Example B: Now, let’s imagine you take out mezzanine finance as your form of business acquisition finance. You’ve chosen to go this route because the amount of funding you need is too large to gain access to as a standard loan. The repayment conditions also suit you best, as you believe you'll make back the money spent on the business within the next 7 years. 

Sticking to the £1 million example, in this case, it’s more likely you would have a loan term of around 7 years. Again, lender terms vary, but with a structure like this, you might pay interest-only payments for the first few years, followed by a balloon payment at the end of the 7 year period, when you would repay the full loan amount. 

Example C: Now let’s say you’ve chosen to go for a secured business loan. Same amount of money, but now you’re spreading it across 10 years. In this case, there wouldn't be a final balloon payment. Instead, you'd pay the full loan off slowly on a monthly basis, spread across the entire 10 years, with the addition of interest. 

There are several ways to finance the purchase of a business. The first is with your own personal savings, by taking out a personal loan, or with the help of friends and family. 

The next is with the support of crowdfunding or peer-to-peer lending, which is when multiple external sources pool financial resources together to help you make the acquisition. This is often done with the support of a platform such as Kickstarter and GoFundMe. 

Next, there’s business finance, which is essentially what we’ve been describing on this page – you take out a loan or some form of external funding, which you repay with the addition of interest over a predetermined period of time. 

Finally, there’s equity financing. This is when another investor (often a Venture Capital or Private Equity company) becomes part-owner in the new business with you. You might gain access to this funding by selling a piece of your current business, or by co-investing in the new business together. 

Depending on your goals, you could also explore:

• Getting a business loan to buy a car – this is a good option for company vehicles, including fleets

• Dreaming of opening a restaurant? You could consider using a business loan to buy a restaurant 

• If you work in agriculture or would like to invest in farming, you could use a business loan to buy a farm

• Getting a business loan to buy a franchise can be a helpful way to start a business under a working framework 

• Many businesses set up their company premises by using a business loan to buy a building

• Property developers and buy-to-let investors often use business loans to buy property or real estate

If you’d like to use a business loan for any of the above options, reach out to us to get a quote. 

Okay, let’s say you run a car dealership. You have three branches in the South East of England and you’d like to expand into the South West. You’ve found a great dealership nestled in a popular town in Devon. They already have a thriving customer base, some great employees, and their own supplier connections – best of all, they’re happy to sell the dealership to you and the price fits your budget. 

To buy the dealership, you decide to use a secured business loan. The lender enables you to spread the cost of the purchase over a period of 7 years and they’re happy to use your personal home (which you own mortgage-free) as collateral, along with a personal guarantee from you as the business owner. You use the loan to buy the dealership, integrate it into your business, and then repay the loan, with the addition of interest, in instalments spread across the entire period. You opt for a fixed-interest rate, so the amount you pay each month doesn’t change, which makes it easy to budget for and predict.

Each lender varies in which documents they require, but you may be asked for some of the following: 

• A business plan 

• Cash flow projections 

• Information about the business 

• Income statements 

• Exit plan 

• Evidence of ownership for any assets being used as collateral 

• Bank statements 

• Your passport and proof of address 

• Incorporation documents or a business licence 

• Details of any other financial arrangements you're currently in 

• Balance sheets