Financing a business succession: How to pay for the takeover.

A business succession is almost never paid for from a single source. A mix of your own equity, a bank loan, development loans and a vendor loan from the current owner is typical. The big advantage compared to a startup is that the business is already making money. You repay the financing from exactly this cash flow.

The key points in brief.

• Plan your financing with several components, not just one.
• Development loans from KfW (Germany's state development bank) are also explicitly available for takeovers. You must apply for them through your main bank before you start.
• A vendor loan reduces your capital needs and gives banks more confidence.
• You usually do not need a VC round for this.

Component 1: Equity.

Some of your own money is almost always required. It shows the bank that you are taking on risk yourself. The amount depends on the purchase price, your experience and the collateral available. With development loans and guarantees, financing is also possible with a smaller amount of equity.

Component 2: Bank loan with KfW funding.

Your main bank is your most important partner for takeovers, as they also handle the development loans. Two programmes are particularly relevant:

ERP-Gründerkredit StartGeld (067): From the end of 2025, KfW will use this to finance projects of up to 200,000 euros, explicitly including the takeover of a business (KfW). The requirement is that the company is small according to the EU definition, meaning it has fewer than 50 employees and a maximum annual turnover of 10 million euros. KfW assumes part of the bank's default risk, which makes banks more likely to agree to a loan even with little collateral (KfW, programme 067/)).

ERP-Förderkredit Gründung und Nachfolge (077): For larger projects, up to 500,000 euros is available, secured with a guarantee from a guarantee bank (KfW, programme 077/)).

Important: you apply for the development loan through your bank before you start the project. If you sign first and then look for funding, you will often end up with nothing. It is also worth looking at the development banks and guarantee banks in your federal state.

Component 3: Vendor loan.

With a vendor loan, the previous owner defers a part of the purchase price. You pay it back over several years from the company's earnings. This has three advantages:

• You need less money from the bank.
• The bank sees that the seller believes in the future of the business.
• The seller remains motivated to support the handover well.

In practice, the vendor loan is one of the most important components for small and medium-sized takeovers.

Component 4: Earn-out.

With an earn-out, a part of the purchase price depends on how the business develops after the handover. This helps if you cannot agree on the price. The seller gets more if things go well, and you pay less if expectations are not met. The criteria for this must be very clearly defined. You should definitely get legal support for this.

Component 5: Equity capital.

For larger companies, business angels, silent partnerships or mid-market private equity firms can close the gap between equity and debt. Unlike with startups, this is not about hyper-growth but about solid repayment. Pay attention to how many shares and voting rights you give away.

A simplified example.

A business is to cost 450,000 euros. A possible structure is:

• Equity. Amount: 50,000 euros.
• Vendor loan. Amount: 100,000 euros.
• Development loan via the main bank, with a guarantee. Amount: 300,000 euros.
• Total. Amount: 450,000 euros.

This is just an illustration. The right structure depends on profitability, collateral and your personal situation, and should be developed with your bank and tax advisor.

How to proceed.

• Have the purchase price and profitability assessed realistically.
• Talk to two or three banks early on, not just one.
• Check funding programmes with the bank before you sign anything.
• Talk to the seller about a vendor loan.
• Create a financial plan that shows how the instalments will be paid from the cash flow.