Acquiring another business — buying a competitor, a complementary company, or a retiring owner's book — can be a significant growth lever. Short-term business loans can play a role in financing acquisitions, but they are not the right tool in all cases.
Where short-term business finance fits in an acquisition
Most acquisitions are not funded by a single source. Common structures combine personal equity from the directors, seller financing (the seller accepts deferred payments), bank debt, and in some cases short-term working capital finance. A short-term business loan from a lender like Credicorp is most useful for:
- Bridging the deposit or earnest money payment while longer-term finance is arranged.
- Funding the working capital uplift needed immediately post-acquisition — absorbing the acquired company's cashflow while integrations take effect.
- Covering transaction costs — legal fees, due diligence costs, accountancy fees — that fall due before the acquisition completes and before any new revenue flows.
What short-term finance is less suited to
Funding the full acquisition price of a company via short-term unsecured lending is rarely appropriate — the repayment timeline is typically too short to match the revenue benefit of an acquisition, and the cost of credit would be high relative to the value created. For the main acquisition consideration, most buyers use a combination of bank debt (often secured on the acquired assets or shares), seller deferred consideration, and equity from the buying company's directors or investors.
Key questions before using business finance in an acquisition
- What is the acquisition-year free cashflow? Can the combined business comfortably service the loan repayments?
- What is the integration risk? If the acquired company underperforms in the first months, will the combined cashflow still cover the loan?
- Is the timeline right? A short-term loan needs repaying. Make sure the revenue benefit of the acquisition arrives before the loan maturity.
- Is there a simpler alternative? Seller financing — where the seller accepts staged payments over 2–3 years — often costs less and aligns incentives better than third-party debt.
Discussing with Credicorp
If you are considering using a Credicorp facility to support an acquisition-related need, include the acquisition context in your business purpose declaration. We assess each application on its merits, including the commercial logic of the transaction and your company's ability to service the debt post-completion.
See also: Matching borrowing to the asset or need, What can I use a Credicorp business loan for?, How much should my business borrow?.