When to Seek Financing for a Business Acquisition

The post-pandemic business landscape saw many acquisitions pause as buyers evaluated the impact of shutdowns on target companies’ financial outlooks. Now, with businesses reopening and economic activity rebounding, interest in mid-market acquisition financing is surging, especially from dealmakers such as private equity firms, independent sponsors, and established business owners.

With valuations still below historical norms due to ongoing market volatility, now may be an ideal time to pursue acquisitions – especially for buyers with access to financing. By leveraging acquisition financing tools designed for rapidly evolving conditions, mid-sized businesses can act quickly. Cerebro Capital helps companies navigate this process through a data-driven lender access platform connected to 2,200+ commercial and non-bank institutions. Read expert tips for navigating the acquisition process.

Experienced buyers also understand that acquisition targets able to support higher levels of debt require less cash equity to buy. While many prefer pre-approved loans, most corporate lenders require identification of a specific target and preliminary negotiation before providing term sheets. To pass a credit committee review, detailed information about the target business is often necessary.

Lenders receive numerous acquisition financing applications knowing that many M&A deals dissolve before closing. The more prepared and serious a buyer appears (especially by sharing details and eliminating unknowns) the greater the lender’s interest and the better the chance of approval.

Acquisition Financing for Mid-Sized Businesses: Step-by-Step Process

1. Identify a Specific Acquisition Target

Narrowing your focus from a broad search to a specific business is a critical first step. Lenders evaluate whether your team has relevant industry experience or a track record with similar business models. Strategic fit matters: acquisition synergies increase financing viability.

• Clearly justify why this target was selected
• Highlight management’s operational or sector experience
• Business brokers may help identify targets, but expect competition

2. Gather Detailed Financial Information

Prepare a comprehensive financial and operational picture of the target. This due diligence builds trust with lenders and supports faster decision-making. Documents typically include:

• Historical and projected financials
• Ownership structure and outstanding liabilities
• Customer and supplier summaries
• Legal disclosures and active lawsuits
• Preliminary valuation and sale price
• Signed NDA for information sharing

Lenders typically scrutinize all details to protect their investment. Learn more about what lenders are seeking in this data-driven acquisition financing guide.

3. Estimate Your Loan Terms and Financing Options

With target financials and valuation in hand, estimate:

• Loan size and structure (term loan, SBA loan, asset-based lending)
• Estimated interest rates and fees
• Cash equity requirements (usually 10–20% of purchase price)

Instead of applying to multiple lenders individually, use Cerebro Capital’s complimentary loan assessment tool. In just 15 minutes, you’ll see options from commercial banks and non-bank lenders, ensuring you consider the widest range of acquisition financing products.

For an overview of all types of acquisition financing solutions, visit Cerebro’s acquisition financing page. You may also compare various loan products here.

4. Understand Your Cash Position

Most acquisition lenders expect buyers to contribute equity toward the purchase, even when seller notes or creative structuring is available.

• Expect to provide 10–20% new cash equity
• For example, $200,000 in available capital typically supports a $2M purchase
• Use Cerebro’s loan analysis to understand your leverage capacity

5. Negotiate an Exclusive Letter of Intent (LOI)

Once initial diligence is complete, secure a signed LOI that includes exclusivity. This should outline purchase price, structure, seller financing, and key deal terms. Exclusive LOIs demonstrate buyer commitment and reduce the risk of competing offers during lender review.

6. Launch a Formal Loan Request and Engage Lenders

With the LOI and detailed financials in hand, you’re ready to submit a formal financing request. This includes a full loan application, proactive engagement with the seller for follow-up items, and coordination with legal and accounting partners.

Lenders that move forward issue credit-committee-approved term sheets, essential for final negotiations.

• Leverage real-time market data to support pricing
• Sector expertise helps accelerate lender evaluations
• Maintain deal momentum by responding to all information requests

Ready to Get Started?

Join the thousands of mid-sized companies that have used Cerebro Capital to discover their acquisition financing.

• Real case study: IT company sources acquisition financing
• Explore growth capital loans for mergers & acquisitions

Frequently Asked Questions about Acquisition Financing