The Unwritten Rules of Acquisition Financing that Separate Pros from Amateurs

Posted on: June 12th, 2025

acquisition-financing

There are many best practices regarding acquisition financing available on the web. These widely disseminated rules tend to state the obvious that apply to all types of loans, regardless of the complexity of the deal. These rules focus on careful review and analysis of the terms and conditions of the acquisition financing to ensure you clearly understand the pricing, fees and reporting obligations post-closing.

These written rules, while common sensical, must be augmented by the wisdom of acquisition financing professionals to enable the best acquisition financing deal is obtained by the borrower. The rules of acquisition financing pros are their stock in trade and rarely show up flashing on a web site. Yet, they are critical to any company seeking acquisition financing due to their focus on less obvious parts of the acquisition financing formula. While most acquisition financing advisors focus on pricing, seasoned pros focus on the quantity and flexibility of the acquisition financing as well as the engagement style and underwriting process of the lender.

It is important to discern beyond the technical parts of the acquisition financing term sheet and form a view on not just the cost but the quality, sophistication, culture and flexibility of the acquisition financing lender. Lenders that will provide a larger initial loan amount and a delayed draw term loan are much more desirable, even if their pricing is higher. Lenders populated by smart, enterprising, business savvy people are usually more reliable in getting your deal done up front and better at working through any problems down the road. Lenders that take the time to learn your business from the bottom up, will usually be more valuable and flexible over the term of the relationship. Lenders with efficient workflows and strong communication are easier to deal with.

Finally, the culture of the acquisition financing lender is hugely determinative as to expected borrower experience. Lenders that exhibit humility usually have a natural affinity for hardworking entrepreneurs. All of these factors are unwritten rules, beyond the term sheet that acquisition financing pros illuminate when selecting the best lender for you.

Mezzanine debt often functions as a gap-filler in middle market deals. As crossover capital, it provides equity-level funding with debt-like properties thereby providing more capital at lower prices for companies. Mezzanine debt also unlocks more aggressive growth scenarios unavailable through bank loan structures.

Acquisition Finance Loan Agreements can be a bit of a sticky wicket. On the one hand, all the major terms have been agreed between the parties in the letter of intent. While these major terms are usually clear in the loan agreement, new language and rights often pop up for the first time, which makes it uncomfortable for the company. These new things are often traditional legalese, too minor for the acquisition finance lender to disclose up front in the term sheet.