Acquisition Financing: Keep Working Capital After Closing

An acquisition financing plan should show how the business will pay the seller and keep operating after closing. Payroll, supplier payments and debt service continue while customer receipts arrive on their own schedule. A purchase that uses every available dollar can leave the combined business short of working capital.

For an established company buying another operating business, the useful starting point is a complete uses-of-funds plan. Work out the purchase payment, transaction costs and operating liquidity together, then consider which financing structure can support them.

Separate the seller payment from the full funding need

Start with three amounts: what must be paid at closing, what the transition will cost, and how much usable cash the business needs afterward.

The first amount should reflect the actual proposed transaction. Confirm which debts are paid off, which obligations remain, and what assets transfer. The second might include professional fees, deposits, systems changes or other identified expenses. For the third, forecast receipts and payments through the transition rather than applying a convenient percentage to the purchase price.

Be careful with the phrase “working capital included.” Receivables and inventory transferred with a business are not the same as cash available in its bank account. Inventory still has to sell, and invoices still have to be collected. The acquisition agreement and the operating forecast need to tell a consistent story.

The SBA's guidance on buying an existing business recommends reviewing cash flow, inventory, contracts and leases, with professional help evaluating transaction documents and purchase-price adjustments. Have your accountant and attorney clarify the balances and obligations being transferred so the financing request reflects the agreement.

A hypothetical $2.2 million acquisition budget

Suppose an established distributor is considering another operating business. Its preliminary budget contains:

• $1,800,000 payable to the seller at closing.
• $100,000 for separately identified transaction and transition costs.
• $300,000 of additional operating cash to remain available after closing.
• Total funding uses of $2,200,000.

Assume the buyer can contribute $500,000 without disrupting its existing business. The remaining financing need is $1,700,000.

If the buyer sought only $1,400,000 of financing, its $500,000 contribution would bring total sources to $1,900,000. Paying the seller and the $100,000 of costs would exhaust that amount. The planned $300,000 operating cushion would still be unfunded.

These are hypothetical planning figures, not a Sussex Capital quote, required equity contribution or approved structure. The $300,000 is an additional cash requirement after considering the assets and liabilities that transfer; it must not duplicate a balance already included in the deal. Whether any particular cost or cash requirement can be financed depends on the program and provider.

If you are evaluating a purchase, submit your acquisition financing request to Sussex Capital. Share the approximate purchase amount, intended cash contribution and operating needs. We can help identify potential structures and the information needed for an initial review.

Match the financing structure to the job

Several structures may be worth exploring, depending on the transaction and the business's ability to repay.

A conventional term loan can address a defined acquisition need. Ask what proceeds are available at closing, which uses are permitted, and how the payment schedule fits the combined business. Compare the maturity date with the amortization schedule; a manageable monthly payment can still leave a final balance. Our guide to loan term versus amortization explains that distinction.

SBA financing may fit an eligible acquisition. The SBA lists changes of ownership, working capital and multiple-purpose loans among permitted 7(a) uses. That makes it worth discussing the full funding need with a participating lender. It does not mean every transaction, expense or borrower qualifies. Confirm current eligibility, permitted uses, required contributions and other conditions for the proposed structure.

A term loan paired with a revolving facility may separate the acquisition payment from recurring operating needs. But an approved credit limit is not automatically cash available on day one. Confirm initial availability, draw conditions, collateral requirements and any existing borrowing. If separate providers are involved, resolve how their collateral interests and agreements will work together before relying on both facilities.

Asset-backed or private credit financing may be relevant where qualifying assets and cash flow support a more tailored request. Compare the usable proceeds with costs, reporting obligations, restrictions and repayment requirements. Additional complexity needs to serve a business purpose.

Sussex Capital's financing programs provide a starting point for that discussion. The right comparison is the complete structure and its effect on the business's liquidity.

Test the first months after closing

Build a cash forecast for the combined operation, starting with the balances it will actually have at closing. Include the buyer's existing obligations, proposed acquisition payments and any separate transition spending.

Then change the assumptions that could matter most. What happens if a large customer pays later, suppliers require deposits, or planned cost savings take longer to arrive? Identify when cash reaches its lowest point and how the business would cover that period. Keep hoped-for savings separate from savings supported by an executable plan.

The OCC and FDIC's current leveraged-lending statement emphasizes repayment sources and the assumptions behind projections. For a borrower, that supports a practical approach: make the financing case work from defensible operating assumptions, and show where the uncertainties sit.

Use our working-capital cash-flow planning guide to organize payment timing. The purpose here is to decide how much liquidity the acquisition needs, not to produce a larger loan request simply because a higher amount might be available.

Bring the transaction into the financing discussion early

You do not need to choose a program or assemble a finished underwriting package before contacting Sussex Capital. Begin with the operating business, the proposed acquisition, approximate uses of funds and the information currently available.

As a commercial finance brokerage and private credit intermediary, Sussex helps discuss potential structures, organize relevant information and coordinate review with capital providers. Providers determine underwriting requirements, approval and funding.

Apply with Sussex Capital to discuss acquisition financing and include the working capital needed after closing. That gives the review a clearer objective: financing the purchase while leaving the business able to carry out its operating plan.

Sussex Capital serves established U.S. businesses and does not provide startup capital. Financing availability and terms depend on the transaction and the applicable provider's review.

Sources & further reading

• SBA — 7(a) loans
• SBA — Plan your business: Buy an existing business or franchise
• OCC and FDIC — Current leveraged-lending principles

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Financing is subject to provider review, eligibility, and terms.