Chapter 11
How buyers fund a transaction
How a buyer funds a purchase shapes what the seller ends up with. A funding structure that looks like the buyer's problem is, in practice, a shared one.
The usual components
- Own funds. The portion the buyer brings. It signals commitment more than anything else in an offer.
- Bank finance. Available where there are tangible assets or a long, stable record. Online businesses without stock often struggle here.
- Seller financing. Part of the consideration is left in the business as a loan, repaid over time. Common, and often the element that makes a deal possible.
- Earn-out. A part tied to results after the transfer.
- Revenue based finance. Repayment as a share of turnover; used mostly in smaller e-commerce transactions.
What a seller should ask
Whether the funding is confirmed or expected. Who the lender is and what conditions attach. Whether the deferred elements are secured, and against what. And what happens to those elements if the business underperforms for reasons the seller does not control.
A buyer who cannot answer these questions in a first conversation is not yet in a position to make a firm offer.
Security
Deferred amounts can be protected with a pledge over shares, a bank guarantee, a personal commitment or an escrow arrangement. Each has a different cost and a different level of comfort.
The instrument matters less than the trigger: what event releases the money, who determines that the event has occurred, and how a disagreement about it is resolved.
- Financing a business takeover (https://www.businessforsale.eu/knowledge-base/financing-business-takeover)
- Vendor loans and how they are structured (https://www.businessforsale.eu/knowledge-base/vendor-loan)