Acquisition Financing for the Middle Market: A Guide
Acquisition financing for a middle market company is money borrowed to buy another business, usually a mix of senior debt, subordinated debt and equity from the buyer. Middle market deals are typically funded by banks, asset-based lenders and private credit funds, and each source prices and structures the loan differently.
This guide covers what the term means, how middle market is defined for M&A, the main debt types, what lenders expect from the buyer, and how a borrower can approach private credit.
What is middle market financing?
Middle market financing is lending to companies that are too large for small business loans but too small for the largest public-market deals. According to Balboa Capital, middle-market businesses represent one-third of the private sector gross domestic product and employ nearly 48 million people. That scale is why lenders built products for this segment.
The funding can cover growth, equipment, working capital, refinancing or an acquisition. This page focuses on the acquisition case.
What is acquisition financing?
Acquisition financing pays for the purchase price of a target company. The buyer usually does not pay the full price in cash. A typical structure combines:
- Senior debt, the first-priority loan, often secured by the target's assets.
- Subordinated or second-lien debt, which sits behind senior debt and costs more.
- Equity, from the buyer's own capital or from a sponsor, which absorbs losses first.
- Asset-based lending, where the loan is sized against receivables and inventory.
The mix depends on the target's cash flow, its assets and how much equity the buyer can put in.
What is considered the middle market for M&A?
There is no single legal definition. Industry sources usually use revenue or employee count. According to Balboa Capital, middle-market businesses have annual revenues from $10 million to $1 billion and employ from 100 to several thousand people. Lenders often use their own cutoffs based on EBITDA, which is closer to how they size a loan.
For a buyer, the practical question is which lenders cover its deal size. A deal that is too small for one fund can be a good fit for another.
How do lenders size an acquisition loan?
Lenders look at enterprise value and the equity cushion beneath their loan. A worked example from Cyprium Partners shows the logic: a commercial bank values a $10 million EBITDA company at $70 million, and lends up to $30 million, with $22 million of that as a term loan above the asset-based portion. The bank is comfortable because $40 million of equity sits beneath the senior debt.
The same primer notes that asset-based lenders advance against collateral at a discount, typically 80% to 85% against receivables and 50% to 75% against inventory and fixed assets.
Can you get 100% acquisition financing?
Rarely. Lenders almost always expect the buyer or a sponsor to put equity into the deal, because that equity is the cushion that protects the loan. The exact share depends on the target's cash flow, its assets, the industry and the lender's risk appetite. The example above shows a deal where the equity cushion was far larger than the debt beneath it, but every deal is different.
A buyer who asks for near-total debt funding should expect more scrutiny and possibly higher pricing.
Bank loans and private credit compared
Banks and private credit funds both lend for acquisitions, but they differ in pricing, speed and how much risk they will take. The table below summarizes the main differences.
| Factor | Bank senior debt | Private credit (non-bank) |
|---|---|---|
| Typical pricing | Lower | Higher; per Cyprium Partners, the rate gap between bank and non-bank senior debt can range from 200 to 900 basis points |
| Credit appetite | Often more conservative | Often more flexible on structure |
| Speed and terms | Varies by bank | Varies by fund |
| Best fit | Strong, stable cash flow | Growth deals, sponsor buyouts, deals banks decline |
The right choice depends on the deal, not on a general rule.
How to approach private credit for an acquisition
A borrower should prepare a clear picture of the target: revenue, EBITDA, debt already on the books, the purchase price and how much equity is available. Lenders will ask for these first.
Thrive Funding is a private credit arranger for middle-market companies. It is not a lender, and the lender makes every credit decision. Thrive works with requests from about $1 million to $100 million and up, across senior debt, asset-based lending, mezzanine and acquisition financing.
The process runs in five steps:
- The borrower applies at thrivefunding.com/apply with the amount, the use of funds and a short deal profile: revenue, EBITDA, existing debt, collateral and whether there is a PE sponsor.
- Thrive compares the deal with each lending partner's criteria, such as deal size, revenue and EBITDA minimums, industry, state and loan type.
- With the borrower's permission, matching lenders first see a summary without the company's name.
- The borrower decides which introductions to take, and each lender talks with the borrower directly.
- Lenders issue term sheets on their own letterhead, and the borrower picks one. Any estimate before that is indicative and is not an offer.
Thrive is paid by its lending partners, not by the borrower.
To discuss a specific deal, contact contact@thrivefunding.com or call +1 (305) 912-2096.
What to bring to a lender
Whether you work with a bank, a fund or an arranger, lenders will usually ask for:
- The target's revenue and EBITDA for recent periods
- Existing debt and its terms
- The proposed purchase price and the source of equity
- The industry, location and the reason for the acquisition
- The loan size and the structure you want
Having these ready shortens the time to a first conversation.
FAQ
What is middle market financing?
It is lending to companies with roughly $10 million to $1 billion in revenue, which covers growth, equipment, working capital, refinancing and acquisitions. Balboa Capital reports that these businesses make up one-third of private sector GDP.
What is acquisition financing?
It is borrowed money used to buy another company, typically a mix of senior debt, subordinated debt, asset-based loans and buyer equity.
What is considered the middle market for M&A?
The usual range is companies with about $10 million to $1 billion in annual revenue, though lenders also set their own cutoffs using EBITDA and deal size.
Can I get 100% acquisition financing?
Rarely. Lenders typically require an equity cushion beneath their debt. How much depends on the target's cash flow, assets and the lender's appetite.