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Financing a business acquisition? How one type of loan could help

Financing a business acquisition? How one type of loan could help

Acquiring a business is one of the most exciting — and complex — milestones in a business owner's journey. Whether you're a first-time owner or a seasoned investor, how you structure the financing can have long-term implications for value creation and risk.
One of the most reliable and cost-effective tools available to business buyers is bank debt. Sometimes bank debt is discussed less than equity or alternative financing sources; however, it plays a foundational role in well-structured acquisitions. Based on my experience working with a wide range of buyers — from individual entrepreneurs to private equity groups — it's clear that bank debt offers a powerful and affordable path to growth, especially when paired with a true banking relationship.
Understanding bank debt in the acquisition landscape
In acquisition financing, 'bank debt' refers to loans provided by traditional financial institutions, often secured by the assets or cash flow of the target business. This type of financing is generally less expensive than equity or subordinated debt and can help preserve ownership while supporting strategic expansion.
You may also hear the term 'senior debt' used interchangeably. In technical terms, senior debt refers to the portion of a company's capital structure that has priority in repayment — typically bank loans. For most business acquisitions, especially those led by individuals or family offices, the practical distinction is minimal. What's important is that bank debt represents lower-cost capital with a clear repayment structure.
Structuring an acquisition: Real-world examples
While no two acquisitions are alike, common patterns emerge in how deals are financed — often combining several forms of capital. Here are a few recent Signature Bank examples that illustrate the versatility and impact of bank debt:
Accelerator-backed individual buyer. In one case, a buyer backed by an accelerator program — typically composed of experienced professionals, often with MBAs or military backgrounds — identified a promising acquisition. The structure included personal capital from the buyer, equity from the accelerator and a senior secured loan from the bank. The result was a disciplined capital stack that preserved flexibility and maintained growth capacity after closing.
Entrepreneur-led purchase with seller financing. Another example involved an individual purchasing a Wisconsin-based business valued at $7 million. The buyer contributed $700,000 of equity, obtained $5 million in bank financing, and negotiated a seller note for the remaining balance. This structure balanced risk between parties and created a clear path to ownership transition and debt service.
Institutional acquisition with layered capital. In a larger transaction, an investment group acquired two long-standing food production manufacturers for $50 million. The group raised $20 million in equity, obtained $20 million in bank financing and secured an additional $10 million through mezzanine debt. The depth of historical cash flow and the group's operational experience supported this multi-layered structure.
Across each of these scenarios, bank debt served as the foundation — anchoring the deal with cost-effective, repayable capital and enabling the buyer to avoid overleveraging or unnecessary equity dilution.
Why relationships still matter
Financing a business acquisition is about more than balance sheets and interest rates — it's about trust, timing and having a strategic partner who understands the full picture.
One of the greatest advantages of working with a real relationship banker is that business owners don't just receive financing — they gain a relationship with a banker who is committed to helping them succeed. If your banker is only discussing cash flow and collateral, you might not have a real relationship.
When I work with a client, I focus first on listening:
Who are you as a buyer?
What is the story behind the business you are acquiring?
What is your vision for the next stage of growth?
That understanding helps us structure deals that match real-world business goals, more than just financial formulas. It also allows us to move quickly when timing is critical, which can make or break an acquisition opportunity.
Sometimes we lightheartedly joke with clients, 'We're the only partner in your acquisition journey who doesn't send a bill.' A genuine banking partner adds value in numerous ways — such as providing access to a trusted network of legal, accounting and advisory professionals who can assist with due diligence, transaction execution and post-close planning. Because our involvement continues well beyond the closing, clients benefit from an enduring relationship they can rely on, not merely a one-time transaction.
Financing the next chapter of your business story
There's no one-size-fits-all approach to financing an acquisition. Some deals require simplicity; others call for layered capital. What remains consistent is the role bank debt can play in anchoring the structure — offering lower cost, reduced dilution and a clear repayment path supported by the acquired business' own performance.
For business owners evaluating their next move, it's worth considering bank financing not just as a source of capital, but as part of a broader strategy to grow with discipline and preserve value.
To learn more about structuring smart acquisition financing, contact Erik Doucette at Signature Bank.
Founded in 2006, Signature Bank is a privately held state-chartered bank in Illinois and Wisconsin. As a relationship-based commercial bank, we provide unmatched customer service while operating our business carefully and conservatively. Technology-driven and well-capitalized, Signature Bank is one of the fastest-growing independently owned business banks in the Midwest and has been named on American Banker's list of "Best Banks to Work For" for seven consecutive years. Reach out to info@signaturebank.bank to learn more.
Erik Doucette is vice president of Commercial Banking at Signature Bank. He brings more than 20 years of experience helping business owners and investors structure financing solutions for acquisitions, growth and succession. Based in Milwaukee, Doucette specializes in relationship-based banking with a focus on thoughtful, tailored capital strategies.

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