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Debt financing is one of the favorite ways of financing acquisitions. Most companies either lack the capacity to pay out of cash or their balance sheets won't allow it. Debt is also considered the most inexpensive method of financing an acquisition and comes in numerous forms.

At its simplest definition, acquisition financing is capital obtained so that a company can buy another business. Acquisition financing provides immediate funding for application to a business transaction, whether through debt, equity, or other hybrid practices.

Acquisitions are mostly funded from a combination of debt and equity. If the company doesn't have its own funds available for an acquisition, it can avail of the required capital through third party debt (bank loan, SBA loan, private debt, etc.), owners' equity, or even a line of credit.

Profit and loss statement Typically, when purchasing a business, you should request a current version of a P&L statement (no older than 180 days) to ensure you're reviewing the most recent financial history. To properly read a P&L statement, it's paramount to first understand the metrics included in this document.

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