According to the British Business Bank, around 70% of SME business owners only consider their bank when seeking acquisition finance. Unfortunately, traditional banks are often reluctant to support SME acquisitions – especially without significant security, personal guarantees (PGs), or cash input from the buyer.

But the good news? Alternative finance providers offer more flexible solutions, against the two main types of borrowing.

The Two Main Types of Borrowing…

1.   Secured Borrowing

This is when the loan is backed by assets. Banks typically prefer this—but only under certain conditions:

  • The buyer has a proven track record in the industry

  • There’s cash in the deal – without it, most banks won’t proceed.

  • Additional security is often required (personal or company assets).

Alternative lenders, however, may be more flexible:

  • They assess competence and management strength, even if the buyer is new to the sector.
  • Acquisition funding is usually structured as a Leveraged Buyout (LBO) – borrowing against the assets of the business being acquired.

👉 Important: Assets must be identifiable (make, model, serial number, manufacture date). Properties are rarely accepted unless they are domestic and owned personally—not by the business or a pension fund. Also, lenders use a “fire sale” value, not market value, when calculating loan amounts.

2.   Unsecured Borrowing

Unsecured loans are possible, but they:

  • Are generally more expensive 
  • Still usually require personal guarantees (PGs).
  • May offer better terms if some form of security is still provided (e.g. charge on a property).

👉 Important: It’s very rare to secure 100% funding with no personal risk or guarantee.

What About SPVs?

A common structure in acquisition finance is the use of a Special Purpose Vehicle (SPV):

  • A company cannot lend money directly to shareholders.
  • Instead, a new (or existing) company – the SPV, borrows the money via the target business.
  • The target company lends funds to the SPV, which uses the money to buy the shares.
  • The SPV then owes the target company for that amount.

👉 Important: This structure is essential for compliance and control, especially in leveraged deals.

Final Thoughts

Every acquisition and funding structure is different. There are always exceptions, variables, and creative solutions.

If you’re planning to acquire a business and need tailored finance advice, we can help. Simply fill out the form below and one of our Finance Specialists will get in touch—no obligation.