How Much Deposit Do You Really Need?

There is no standard deposit

There is no standard deposit requirement when buying a business.

In practice, we have seen deals completed with nil deposits for GP medical practices, through to transactions requiring 40% of the purchase price for some hotels with weaker trading track record.

The amount you need will depend on the business you're buying, its trading performance, the level of borrowing required, your own circumstances, the security available and how the transaction is structured. It's also worth bearing in mind that a larger deposit means less borrowing, which can reduce monthly repayments and may result in more favourable lending terms.

Leasehold and freehold acquisitions can also be very different. A freehold property provides additional security for the lender, while a leasehold acquisition will generally be assessed more heavily on the underlying business and its ability to support the proposed borrowing.

Your deposit doesn't necessarily have to come entirely from your own cash savings. We will work with whatever deposit is available and find a funding structure that works around it.

Where business asking prices are higher, the absolute amount required as a deposit is typically larger even when the percentage is the same. A 20 percent deposit on a pharmacy asking £400,000 is £80,000 — buyers need to plan their deposit position carefully and early.

Raising funds for your deposit

Depending on your circumstances, there may be other ways to raise the capital required for your contribution.

• —Funds from another business — If you already operate a successful business, we may be able to raise capital against that business to help fund the acquisition of another.
• —Funds released from another property — If you own a property with sufficient equity, we may be able to release funds against that property to contribute towards the acquisition.

The mistake to avoid

Don't put every pound you have into the deposit.

Buying the business is only the beginning. Completion costs, professional fees, stock, working capital and your initial overheads still need to be paid — before the business has had time to generate enough cash to cover them.

A buyer who retains a sensible cash reserve may be in a much stronger position than one who stretches every available pound to complete the acquisition.

The right financing plan is designed not only to pay the seller, but also to make sure there's enough cash left to operate the business once you take over.

For a sector-specific view of how this works in practice, see our page on Pharmacies acquisition finance and loans, including how lenders assess these deals and the areas we cover.