2026 Guide: How to Raise Capital to Buy a Business with Other People's Money
by Raises.com
This article is general information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.
You can acquire a business using other people's money by combining debt financing with equity from investors, focusing on profitable, asset-rich companies and structuring the deal to cover interest and cash-flow needs. The key is to match the cash flow of the target to the financing costs and to involve investors early in the process.
Concrete lessons from the video
- Step 1: Choose an industry you understand. Focus on a niche where you have expertise so you avoid competition disadvantages and can evaluate the business quickly.
- Step 2: Define the financing mix early. Identify potential lenders and equity investors before you negotiate the purchase price.
- Step 3: Verify cash flow covers debt service. In the example a $1,000,000 acquisition uses a $500,000 loan at 10% interest, requiring roughly $50,000 annual payment; the business must generate profit above that amount.
- Step 4: Leverage real-estate assets when possible. Properties attached to a business raise the loan-to-value ratio, allowing you to borrow a larger percentage of the purchase price.
- Step 5: Structure equity contributions. Split the equity portion between investors and yourself; for a $1,000,000 deal you could have a $500,000 loan, a $300,000 investor equity stake, and $200,000 of your own cash.
- Step 6: Keep legal compliance front-and-center. Work with lawyers to draft the PPM, subscription agreement, operating agreement, and other required documents.
- Step 7: Use professional service providers. Raises.com can deliver a full SPV structure, financial pro-formas, data room, pitch deck, and introductions to debt and equity investors.
Financing options compared
| Feature | Debt Only | Equity Only | Hybrid (Debt + Equity) |
|---|---|---|---|
| Source of funds | Bank or private lender | Investors buying ownership | Combination of lender loan and investor equity |
| Ownership dilution | None | Full dilution to investors | Partial dilution based on equity share |
| Repayment obligation | Fixed interest and principal schedule | No regular payments, profit sharing | Interest on loan plus profit sharing on equity |
| Typical LTV (loan-to-value) | 40-60% without real estate, up to 80% with property | 0% (no loan) | Blend of both; can achieve 60-70% effective leverage |
| Best for | Cash-flow stable businesses with strong assets | High-growth businesses lacking collateral | Businesses that have cash flow and some asset backing |
Applying the lessons to your next acquisition
Start by drafting a one-page deal memo that outlines the target industry, purchase price, and projected cash flow. Then identify at least two potential equity investors and a lender willing to fund up to 50% of the price. Run a cash-flow test using the $500,000 loan at 10% interest example: ensure annual profit exceeds $50,000 after operating costs. Finally, engage a lawyer to prepare the SPV structure and subscription documents before you approach investors.
Frequently asked questions
How can I use other people's money to buy a business?
You combine a loan from a lender with equity contributions from investors to cover the purchase price while preserving your own cash.
What is the minimum equity needed for a business acquisition?
Equity can be as low as 10-20% of the purchase price if the lender is comfortable with a high loan-to-value ratio backed by real estate.
Can I finance a business without real estate collateral?
Yes, but lenders typically offer lower loan-to-value ratios and may require higher equity stakes.
What interest rate is realistic for a $500,000 loan on a cash-flowing business?
Rates around 8-12% are common, depending on the business's risk profile and the lender's criteria.
Do I need a lawyer to raise capital for a business purchase?
Legal counsel is essential to draft the PPM, subscription agreement, and operating agreement and to ensure compliance with securities regulations.
Next steps
Raises.com has helped clients raise over $300M across documented case studies. Learn more about our flat-fee, no-carry model and how we can build your SPV, pitch deck, and investor introductions by visiting how it works or book a call today.
General information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.