The way you buy a company affects how the finance needs to be arranged. This guide looks at funding a company purchase through a share purchase, an asset purchase or a combination of debt, buyer equity and agreed seller funding.
For an introduction to eligibility, costs and the information lenders need, start with our business acquisition finance buyer guide. TMS Finance is a broker; your solicitor and accountant should advise on the legal and tax structure.
Share purchase or asset purchase?
In a share purchase, you acquire shares in the existing company. In an asset purchase, the agreed assets and business operations are transferred under the purchase agreement. These structures can lead to different borrowing entities, security arrangements, approvals and completion requirements.
Before approaching lenders, explain what is being bought, who will borrow, what the seller receives at completion and which liabilities or existing facilities need to be addressed. Ownership, existing charges and the ability to grant security need legal review. Do not assume the target’s assets are available to support the purchase simply because they appear on its balance sheet.
Combining funding sources
| Source | Possible role | Questions to resolve |
|---|---|---|
| Buyer equity | Your contribution to the purchase and initial cash needs. | How much is available, where is it coming from, and what cash remains after completion? |
| Term debt | Part of the purchase consideration, subject to lender assessment. | Can trading cash flow service the repayments, including under a weaker trading scenario? |
| Asset-based funding | Funding secured against eligible assets. | What is the lender’s valuation, who owns the assets, and what existing charges must be settled? |
| Seller loan or deferred consideration | An agreed part of the price paid after completion. | When is it payable, what security is involved, and does the external lender accept the arrangement? |
| Earn-out | Part of the price linked to agreed future performance. | How is performance measured, what are the limits, and how will a dispute be handled? |
| Working-capital facility | Support for eligible day-to-day cash needs after completion. | What is available on day one, and are customer invoices or assets eligible? |
A seller loan is a debt obligation, and an earn-out can create future payment commitments. Neither should automatically be treated as equivalent to cash equity. Lender acceptance and any subordination requirements are case-specific.
Test the combined repayment burden
Build all funding commitments into one forecast: loan instalments, facility charges, seller payments and any earn-out exposure. Allow for wages, suppliers, tax, capital expenditure and a cash reserve. Test what happens if sales slow or customers pay later than expected.
Review total borrowing cost, security, covenants and early repayment terms. A facility with a manageable opening payment may still create a difficult cash requirement later. If the structure only works under optimistic forecasts, reconsider it before making a binding commitment.
Agree the completion sequence
Different funders and the seller may have conditions that depend on each other. Your advisers need to establish how funds are released, existing debt is settled, security is created and ownership transfers. An invoice facility intended for use after completion may not be available to pay the purchase price beforehand.
Share the draft structure, sources-and-uses breakdown, recent accounts, forecast, asset details and proposed timetable with the broker and legal team. Allow time for credit assessment, valuations and legal work. No single deposit percentage or completion period applies to every acquisition.
Review your company purchase structure
TMS Finance can discuss the funding gap and relevant lender options alongside your legal and accounting advice. Discuss the funding structure for my company purchase. Include the price, share or asset purchase, your contribution, any proposed seller funding and the target completion date.