How Should You Finance Your Acquisition? Debt, Equity – or Both?
If you’re looking to grow your business through acquisition, securing the right financing is absolutely critical. Whether you lean on debt, bring in equity partners, or use a hybrid of both, your choice impacts risk, control, and ultimately your returns.
Let’s break down your options and what to watch out for.
1. Know Your Financing Choices
When you buy another company, one of the first questions is: How do I pay for it? Your answer will shape everything. There are three main paths: debt financing, equity financing, and hybrid structures.
Debt financing means you borrow money (typically a loan) and pay interest plus principal over time. If the business thrives, you get full upside—but you carry repayment risk.
Equity financing means bringing in outside investors who take ownership in return for capital. You share future profits (and potentially decision-making) with them, which reduces your control but also reduces your personal financial burden.
Hybrid structures blend debt + equity. This is often the sweet spot for many buyers because it balances risk and control.
2. What Each Option Means for You
With debt, you retain full ownership, but your business must generate sufficient cash flow to cover debt service. If it doesn’t, you’re in trouble.
With equity, you’ll have partners or investors to answer to. Your returns may be smaller (you’re sharing), but your risk also goes down somewhat.
With a hybrid, you get flexibility—but you’ll need to be intentional about structuring the deal so each party’s incentives align.
Also, imagine you take on a heavy debt load—cool if everything goes great, but if you hit a bump, the pressure mounts. On the other hand, equity investors might push for faster growth or exit, which might not match your timeline. The key is matching the financing to your business’s strengths and your personal goals.
3. Ask Yourself These Questions Before You Pull the Trigger
Does the business you’re acquiring have strong, predictable cash flow so you can handle debt payments without stressing the owner's business?
If I bring in investors, can I still steer the business the way I want?
Am I comfortable with how future profits will be split, or do I want to keep full upside?
Do I have a plan for what happens if things go sideways?
Can the business support the financing structure I choose and leave room for reinvestment or surprises?
Your capital structure isn’t just a financial technicality—it affects your day-to-day business, your personal risk, and how much value you can realize long term. By choosing the right mix of debt and equity, you give yourself the best chance at a sustainable acquisition. Masterworks Capital can help you to decide the best route.