Business Acquisition Financing Options: Making Entrepreneurship Accessible

There are various business acquisition financing options available, showing that purchasing a business doesn't always require a large upfront cash payment and making entrepreneurship seem more within reach. This blog details common financing a business acquisition strategies and potential challenges to help readers understand the funding landscape.

George Wellmer
George Wellmer

One of the biggest myths is that if you’re going to buy a business, you need all the cash readily available.


The fact is, most business acquisitions are not all-cash deals. You can buy a business with a loan and have a minimal down payment, then use the income of the business to pay back the loan. This is one of the fastest ways to create life-changing wealth: business acquisitions.


Understanding your business acquisition financing options is crucial for making this a reality and for getting the best deal.


If you’re considering buying a business or have ever thought that you’d like to be an entrepreneur, this article is for you. Entrepreneurship is a whole lot closer than you ever thought, especially when you explore the various ways of financing a business acquisition.


Common Ways to Buy a Business


Most businesses in the U.S. are small. The majority are worth less than $5 million, and many of these businesses generate real, meaningful income for their owners – the kind that replaces a salary and often beats it.


If you want to buy one of these businesses, there are a few common ways to do it. Here’s how most people pull it off, leveraging different business acquisition financing options:


SBA Loans The government wants small businesses to thrive, and the SBA exists to make that happen. One way the government does this is by guaranteeing some small business loans that banks make—especially loans used to buy businesses. The most popular program is called the SBA 7(a), which is the name of a specific type of loan. The SBA 7(a) loan is specifically designed to help people buy businesses worth under $5 million. It’s how thousands of people become entrepreneurs every year without needing to be rich first, making it a key financing a business acquisition strategy.


Seller Financing A lot of sellers are willing to “be the bank” for part of the deal. Instead of getting all the cash upfront, they agree to get paid over time—with interest. Sometimes it’s just a small piece of the deal. Occasionally, it's most or even all of it. It’s basically a bet that the business will keep running well after they’re gone, and it represents a significant business acquisition financing option.


Private Investors If you know people with money who trust you, you can raise capital privately. This works best when your network includes folks looking for returns, and you're the one who can operate the business. Generally, these investors are acquiring equity in the company, providing another avenue for financing a business acquisition.


Leveraged Buyout (LBO) This is a version of seller financing and investor capital, often used for bigger deals. You buy the company mostly with borrowed money and use the business’s own cash flow to pay the debt. It sounds fancy, but at its core, it's just using leverage to buy an income stream, representing a more complex business acquisition financing option.


Self-Funded You save up, sell some assets, or pull from retirement accounts—and just buy the thing yourself. It’s cleaner but slower. This is how a lot of first-time buyers get started, a straightforward if less common method of financing a business acquisition.


Earn-Outs An earn-out is when the seller agrees to get paid more if the business performs well after the sale. It aligns incentives but adds complexity. Usually, it’s just one piece of a larger deal structure, and it can influence the overall business acquisition financing options considered.


In reality, most deals are a mix. A common structure looks like this:

  • 10% Self-Funded
  • 10% Seller Financing
  • 80% SBA loan


That means you can buy a $1 million business with $100,000. If the business cash flows well, you use that income to pay back the loans. Exploring these different business acquisition financing options is key to understanding affordability.


Buying a business isn’t just for people with deep pockets. It’s for people who understand how the pieces fit together—and are willing to bet on themselves, often by strategically leveraging various methods of financing a business acquisition.


Business Acquisition Financing Options: A Closer Look


SBA Loan

SBA 7(a) loans are the most common financing tool for business acquisitions under $5 million.

Pros:

  • Requires a relatively low down payment (typically 10%)
  • Long repayment terms (usually 10 years)
  • Backed by the government, so lenders are more willing to approve deals
  • Designed to make business ownership accessible to more buyers

Cons:

  • Interest rates can fluctuate and are often higher than traditional bank loans
  • The SBA imposes strict rules on deal structure, eligibility, and collateral
  • There’s a cap of $5 million in total SBA-backed financing
  • Buyers must personally guarantee the loan and pledge personal assets

Common Use Cases:

  • First-time business buyers exploring financing a business acquisition
  • Acquisitions under $5 million in industries like home services, healthcare, or retail
  • Buyers who want to preserve liquidity while still leveraging debt for their business acquisition financing


Seller Financing

Seller financing is when the seller agrees to finance part of the purchase price, typically via a promissory note, representing a direct business acquisition financing option.

Pros:

  • Reduces the cash needed upfront for financing a business acquisition
  • Shows the seller has confidence in the ongoing success of the business
  • Often comes with flexible terms compared to bank loans
  • Helps with the transfer of revenue and general business operations

Cons:

  • Most sellers prefer full cash at close and may be unwilling to hold a note
  • The buyer still needs to fund the remainder (usually through SBA or personal capital)
  • If the business underperforms, repayment can strain operations

Common Use Cases:

  • Deals where the seller wants to maximize sale price but the buyer can’t pay full price upfront, making seller financing a crucial business acquisition financing option
  • When buyers want to build a smoother transition with the seller
  • In conjunction with SBA financing (banks often require a seller note as part of the business acquisition financing package)


Private Investors or Equity Partners

In this structure, outside investors provide capital in exchange for equity in the acquired business, offering another way of financing a business acquisition.

Pros:

  • Limits the buyer’s personal capital investment in financing a business acquisition
  • Enables acquisition of larger businesses with higher upside
  • Strategic investors can provide operational or industry expertise

Cons:

  • Requires giving up ownership and control
  • May lead to conflicting goals or misaligned visions for the business
  • Equity is more expensive than debt in the long term

Common Use Cases:

  • Search funds or acquisition entrepreneurs seeking financing a business acquisition
  • Roll-ups or multi-location acquisition strategies
  • Buyers with strong operating skills but limited capital for business acquisition financing


Leveraged Buyout (LBO)

LBOs use a large amount of debt — often mezzanine or seller debt — to finance an acquisition, a sophisticated business acquisition financing option.

Pros:

  • Enables acquisition of larger, more profitable businesses
  • Minimizes the buyer’s upfront capital requirement for financing a business acquisition
  • Can generate strong returns if the business performs well

Cons:

  • High debt load introduces risk, especially if earnings drop
  • Mezzanine financing carries higher interest rates
  • Lenders often impose financial covenants that limit flexibility

Common Use Cases:

  • Experienced buyers or private equity firms exploring financing a business acquisition
  • Stable, cash-flowing businesses with low capital requirements
  • Situations where the buyer has a clear plan for operational improvements or growth


Self-Funded Acquisition

This is when the buyer pays for the business entirely with personal capital, a straightforward approach to financing a business acquisition.

Pros:

  • Full ownership and control from day one
  • No monthly loan payments or investor expectations
  • Faster close with fewer third-party approvals

Cons:

  • Ties up significant personal capital
  • Limits your ability to pursue other investments or acquisitions
  • No financial leverage means lower potential return on equity

Common Use Cases:

  • Smaller acquisitions where the total cost aligns with personal savings, a direct method of financing a business acquisition
  • High-net-worth individuals or serial entrepreneurs
  • Buyers who value speed, privacy, or full control over the business acquisition financing


Earnouts

Earnouts defer part of the purchase price based on future business performance, influencing the overall business acquisition financing structure.

Pros:

  • Reduces risk for the buyer by tying price to post-sale performance
  • Helpful when there’s uncertainty in financials or a transition period
  • Allows the seller to benefit if the business continues to thrive

Cons:

  • Many sellers dislike deferred payments
  • Can lead to disputes if performance metrics aren't clearly defined
  • Not ideal for businesses that require a clean break from the seller

Common Use Cases:

  • Service businesses with customer concentration
  • Rapidly growing companies with uncertain future earnings
  • When the seller will remain involved post-sale, impacting the business acquisition financing agreement


What to Watch Out For When Financing a Business Acquisition


While financing can unlock opportunities for business acquisitions, the wrong structure can create major headaches. Here are common pitfalls to avoid when funding a business acquisition:

  • Over-leverage: Taking on too much debt can cripple cash flow and limit your ability to reinvest in the business.
  • Capital restrictions: Some lenders place limits on how you can use funds post-acquisition, which may restrict growth or hiring plans.
  • Ownership restrictions: Bringing on equity partners can dilute control and slow decision-making.
  • Dilution of equity: Giving up too much ownership too early can limit your upside if the business takes off.
  • Cash flow gaps: Many deals don’t leave enough working capital post-close. A profitable business on paper can still run into cash shortages without a proper buffer.


Being aware of these risks early in the process will help you structure a deal that’s sustainable — and more likely to succeed in your business acquisition journey.


Final Thoughts on Business Acquisition Financing Options


Acquiring a business is one of the most powerful ways to build wealth. It’s not easy — but it can be life-changing. Understanding your business acquisition financing options is the first step.


Fortunately, there are many ways to finance a business acquisition. Whether through SBA loans, self-funding, private investors, seller financing, earnouts, or leveraged buyouts, the right mix depends on the deal, your goals, and your risk profile.


Most acquisitions aren’t funded by a single source — they’re a blend. A bit of seller financing here, a down payment there, maybe some equity or SBA debt layered in. Structuring it right is key to successfully financing a business acquisition.


If you're exploring a specific opportunity, need help evaluating a deal, or want to get matched with the right lenders — Tupelo has helped thousands of buyers acquire businesses.


Click here to book a free consultation and get expert guidance on your acquisition strategy.