Business Acquisition Loans: How They Work, Rates, and How to Qualify.
Acquisition financing is its own world. The structure you choose determines your interest rate, your personal guarantee exposure, your closing timeline, and whether you can refinance in five years. Here's the field guide.
Five loan structures, compared
| Structure | Rate | Down | Close |
|---|---|---|---|
| Conventional bank | 7–10% | 20–30% | 30–60 days |
| Seller financing | 5–8% | 10–30% | Closes with deal |
| Bridge loan | 10–15% | 15–25% | 7–21 days |
| Revenue-based | 9–20% effective | None | 24–72 hours |
When each structure wins
Conventional bank financing can fit buyers who have time for a full lender review and strong documentation. Most Canadian small-business acquisitions pair senior bank debt with a seller note, depending on cash flow, collateral, and the lender's terms.
Conventional bank is best for buyers with a strong existing banking relationship and an acquisition target the bank already underwrites comfortably (existing customer, well-known industry).
Seller financing closes deals when other structures fall through. A motivated seller will finance 10–30% of the price at 5–8% interest, often standing behind senior debt.
Bridge loans fund acquisitions where you'll refinance into conventional debt within 6–12 months — used when timing forces a fast close.
Revenue-based capital fills working-capital gaps post-close, not the acquisition itself. Pair senior debt with seller financing for the purchase, and use RBF for first-90-day operating cash.
Lender requirements
- 3+ years of personal tax returns — lenders want to see your existing income, not just the acquisition target's.
- 3+ years of target business financials — taxes, P&L, balance sheet, A/R aging.
- Personal net worth statement — net worth, debts, real estate.
- Resume or business plan — most lenders want to see relevant operating experience.
- Down-payment proof — 30 days of bank statements showing the equity injection is real.
Seven-step application process
- Pre-qualification — soft credit pull, target deal size, structure recommendation.
- Lender match — quote 3–5 lenders simultaneously for fastest term-sheet comparison.
- Application + docs — typically 30 documents on the lender's standard list.
- Lender review — 2–4 weeks for bank financing, 1–2 weeks for alternative.
- Term sheet — focus on rate, term, prepayment, covenants, personal guarantee.
- Closing diligence — appraisals, legal, escrow, insurance binders.
- Funding + first payment — wire to seller and start the amortization schedule.
Common mistakes
- Shopping rate without shopping structure — a 0.5% rate difference matters less than 5 vs 10-year term.
- Underestimating closing timeline — sellers walk when financing drags into month four.
- Skipping the bridge plan — if bank financing falls through 30 days from close, bridge financing is your only option.
- Ignoring personal guarantee language — many loans require a full PG, and confirm exactly what guarantees the lender requires before signing.