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How to Finance a Merger



A merger involves the combination of two companies into one larger company.  Sometimes rather than a merger one company actually acquires, or completely takes over another company.  Companies may finance a merger or acquisition through stock equity or a stock swap agreed upon by the shareholders.  This is more common when large companies are combined.  But often business acquisition loans are required to finance either a merger or acquisition.   


Merger and acquisition financing is generally accomplished with a long term loan.  If real estate is included terms may be as long as twenty five years.  When there is no real estate involved the term would more likely be in the range of ten years.  It is sometimes possible to finance as much as 100% of the capital needed.  Large sums of money are usually involved, $250,000 or more.


Since a business acquisition is a long term loan it can be a risky venture for the lending institution.  For this reason, the lender will be thorough when researching the viability of a merger.  The financials of the merger need to make sense to the lender or private equity company for them to be willing to invest large amounts of money.  You will need to have a good business plan of how the merger will improve the business in order to obtaining the financing needed.   The provider will most likely look at the cash flow of both business’, credit histories, and the current condition of the business being acquired and the purchasing business.  The management experience of the borrower may even be a consideration when deciding whether or not to approve the loan.  It is important to present a clear idea of what direction the new larger company is going in. 


Mergers and acquisitions can be tricky to coordinate.  They will vary greatly depending on the size of the companies involved.  Business Funders work with numerous lenders and can help you find options that will work for your business.  When looking to merge with another company or acquire another company our experienced lenders can help you get the best rates and terms available.