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Buying a business

Acquisition loan declined by the bank? Your routes to buying without bank finance

A business acquisition without bank finance is often still possible after a decline. Why banks say no, what to ask and how to restructure the deal.

Reading time 5 min read
Category Business guides
Written by The bizbritain team
A business acquisition without bank finance is often still possible after your bank says no. A decline from one bank usually means the deal needs a different shape. That can mean more support from the seller, borrowing against the target's own assets, a bigger deposit, a lower price or a lender with a different appetite.
This guide explains why banks turn acquisition loans down and what to ask before you go elsewhere. It also covers how to keep the seller on side while you sort it out.

Section 01

Why do banks decline acquisition loans?

A bank lends against what the business can repay. It is not judging whether you would run it well. Most declines come down to one of six things.

  1. The profit does not cover the repayments

    Lenders size the loan to the profit the business reliably makes. If the price needs more debt than that profit can carry, the answer is often no.

  2. Not enough security

    Some banks want property or equipment behind the loan. A business with few assets gives them less to fall back on.

  3. Your deposit is too small

    Lenders want you to put in money of your own. A thin contribution leaves more of the risk with them.

  4. Too little experience

    A first-time buyer with no background in the sector can look riskier. The bank may want to see a plan for the handover.

  5. The accounts are weak or out of date

    Falling profits, a bad recent year or accounts that are months old all make the numbers harder to trust.

  6. The sector is outside the bank's appetite

    Some banks simply avoid certain trades or deal sizes. That says more about the bank than about your deal.

Section 02

What to ask the bank before you go elsewhere

Ask for the reason in plain words. A vague answer is common, so ask again.
Then ask what would change it. Would a smaller loan work? Would a bigger deposit, or more security, make a difference?
The answer tells you which kind of no it is. A no about the bank's appetite sends you to a different lender. A no about the numbers means the deal itself has to change.
Myth 01

“If my bank says no, every lender will”

Acquisition lenders differ a lot in what they will fund. Specialist and alternative lenders often look at deals the high-street banks pass on.

A decline from one bank is information, not a verdict on the deal.

Section 03

Can you fund a business acquisition without bank finance?

Often, yes. Most deals that survive a decline do it by changing the mix of money behind them.
More support from the seller. The seller can agree to be paid part of the price later. This can be a fixed sum on set dates, a loan from the seller or a payment tied to future performance. Lenders usually count a seller loan close to your own money, as long as it ranks behind them.
Borrowing against the target's assets. Unpaid invoices, stock, equipment or property in the business can support part of the funding. Asset-based lending sits alongside a smaller loan against profits.
A smaller loan and a bigger deposit. More of your own money means less to borrow. Our guide on how much deposit you need to buy a business explains what lenders expect.
A lower price. If the profits cannot support the price, renegotiating may be the honest answer.
A different lender. A lender with an appetite for your sector and deal size may see it differently.
Low on cash for the deposit? Our guide to buying a business with no money down covers what is realistic.

Section 04

Keeping the seller on side while you re-apply

A decline mid-deal puts your timetable at risk. The seller will worry about that first.
Step 1

Tell the seller early

Do it before they hear it some other way. Keep it short and factual.

Step 2

Give them a new timetable

Say what happens next and roughly when. A seller who knows the plan is more likely to wait.

Step 3

Bring a proposal, not just a problem

If the fix needs their help, such as a seller loan or a later payment, put it to them clearly.

What would make it work for both of you?

This is where a business acquisition finance broker can help. We can look at the deal across a wider range of lenders and suggest a structure that fits.
You pay bizbritain nothing unless a lender on our panel issues an Agreement in Principle. On advisory deals, we take no commission from lenders.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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