How to Finance the Purchase of a Business in Portugal

Purchasing a small or medium-sized enterprise (SME) in Portugal is rarely paid for solely with the buyer's cash. In practice, it combines equity, bank debt with mutual guarantees, deferred payment to the seller, and, in some cases, investors. The weight of each part depends on the price, the company's results, and who is buying.

The usual components are six: equity, bank credit (often with mutual guarantees and public lines such as the Impulsar Portugal Line), deferred payment to the seller, earn-out indexed to results, private or mezzanine debt and investment from investors in the capital.

This guide explains each one, what is usually required, and how they combine. It is not financial advice and does not replace the analysis of a credit institution.

How the purchase of a business is usually financed

An SME acquisition almost always involves more than one source. An example with round numbers, just to illustrate the mechanics: in a purchase of €800,000, the buyer may contribute €240,000 in equity, obtain €400,000 in medium-term bank debt, and agree with the seller to pay the remaining €160,000 over three years.

None of this is a rule. The proportions change with the sector, the quality of results, the assets that serve as collateral, and the experience of the buyer. What remains is the logic: the purchased business must be able to pay the debt created by the purchase, and that is what any financier will check first.

How much equity may be needed

There is no universal percentage. There are deals closed with little equity when there are strong assets to provide as collateral, and others where the financier asks for a substantial part even with good results.

What usually weighs in the decision:

• Demonstrable results: a stable and documented EBITDA reduces the equity requirement.

• Assets given as collateral: real estate, equipment or fleet change the conversation.

• Buyer's experience: someone who has already managed in the sector has an argument that someone new does not have.

• Part paid by the seller over time: every euro deferred is a euro that does not need to be financed today.

Before speaking with a bank, it is worth knowing how much you can apply without financing. It is the first number they will ask you.

Bank credit for acquisition

The medium or long-term loan is the basis of most operations. The bank analyses the company being purchased — not just the buyer — because it is from it that the money will come to pay.

It is usually requested:

• Accounts from the last financial years and regularised tax and contribution situation.

• A plan showing how the company continues to operate after the change of ownership.

• Guarantees — real, personal or mutual guarantees.

• The contract or the draft of the purchase and sale operation.

The decision, conditions, and rate are from the credit institution. No one can promise approval before this analysis.

Mutual guarantee and public programmes

The mutual guarantee is a mechanism in which a Mutual Guarantee Society (SGM) guarantees part of the financing with the bank. For the company, it serves to unlock operations that otherwise would not have sufficient guarantees; it has an associated guarantee fee, paid by those who benefit from it.

It does not eliminate risk analysis nor guarantee approval: it adds a guarantee to the operation, it does not replace the bank's decision.

Impulsar Portugal Line

The Impulsar Portugal Line is a financing line with mutual guarantee from the Portuguese Development Bank, with a total allocation of up to €1.5 billion, organised into four axes. What matters to those buying a business is the axis Strategic Investment.

According to the conditions published by the Portuguese Development Bank, this axis is intended for medium and long-term financing for:

• Acquisition of equity interests within the scope of business succession processes, scaling up, or Management Buyout (MBO) and Management Buyin (MBI) operations aimed at the continuity or development of the target company;

• Leasing of movable and immovable property, including the sharing of the leased asset;

• Financing for viable companies that intend to acquire companies in financial difficulty or in insolvency.

Published conditions for this axis:

• Maximum amount per company: up to €25,000,000.

• Mutual guarantee: 70%.

• Maturity: up to 144 months.

• Grace period: up to 36 months.

• Duration of the line: until 31 December 2028, extendable by announcement from the Portuguese Development Bank if the allocation is not exhausted.

• How to apply: with a participating Credit Institution or at the Mutual Guarantee Society.

The spread is determined by the risk rating of each credit institution and the maturity of the operation, and the interest is borne by the beneficiary. These conditions are those published at the time of this update and may change: always confirm the Disclosure Document in the catalogue of the Portuguese Development Bank before relying on them.

Acquisition of equity interests

Buying equity interests means purchasing the company with what it has inside — contracts, licenses, employees, but also liabilities and tax history. It is the usual route when legal continuity is desired: contracts with clients and suppliers do not need to be renegotiated.

The alternative is to buy only assets or the establishment (business transfer), leaving the company out. This simplifies the inherited risk but requires redoing licenses and contracts. The choice changes what is financed and what guarantees exist.

Business succession

Many Portuguese SMEs come to market due to lack of succession: the owner wants to retire and there is no one to continue within the family. These operations are of interest to financiers because the company usually has history, results, and stable clients.

It is one of the cases expressly covered by the Strategic Investment axis of the Impulsar Portugal Line.

MBO and MBI

In a MBO (Management Buyout), it is the current management team that buys the company where they already work. In a MBI (Management Buyin), it is an outside manager who comes in by buying.

The MBO starts with an obvious advantage: the buyer already knows the accounts, the clients, and the problems. This usually reduces uncertainty for the financier. In either case, the management team's equity is typically less than the price, and the structure combines bank debt with deferred payment to the seller.

These operations are expressly provided for in the Strategic Investment axis of the Impulsar Portugal Line.

Deferred payment to the seller (seller financing)

The seller agrees to receive part of the price over time, instead of all at closing. This reduces the need for external financing and, in practical terms, keeps the seller interested in the company performing well after they leave.

To be defined are the term, interest, guarantees, and what happens in case of default. It is a negotiation piece, not a financial product: it entirely depends on the agreement between the parties.

Earn-out

Part of the price is dependent on future results — revenue, EBITDA, or another agreed indicator, measured over a defined period.

It serves when the buyer and seller cannot agree on the value because they disagree on the future of the business. The buyer does not pay today for a performance they have not yet seen; the seller receives more if the business confirms what it promised.

It requires absolute clarity in defining the indicator, how to calculate it, and who controls management during the period — this is where earn-outs go wrong.

Private and mezzanine debt

Outside traditional banking, there are funds and entities that lend to companies, often with longer terms, different collateral requirements, and higher costs. Mezzanine sits between debt and equity: it pays more than a loan and can convert into equity.

It makes sense especially when the operation does not fit the bank's criteria or when there is a gap between the available equity and what the bank is willing to finance.

Investors and entry into capital

Instead of debt, a partner with capital may enter. There is no payment to be made, but there is dilution: they now share decisions and results.

It is a more common route in larger operations or with a strong growth profile. In succession SMEs, it is less frequent than the combination of debt with deferred payment.

EBITDA and ability to pay the debt

This is where most operations are decided. The financier wants to know if the money the company generates is enough to pay the instalment, after paying everything else.

The EBITDA used is not the one from the accounts as they are: it is normalised. Personal expenses of the owner that will not continue, extraordinary results that do not repeat, and costs that disappear with the change are removed. What remains is an estimate of what the company generates under normal conditions.

From there, it is compared with the debt service — capital plus interest per year. A comfortable margin between the two is what gives comfort to those financing; a tight margin tends to require more equity, more time, or more guarantees.

What information is usually requested

• Accounts from the last three financial years and recent balance sheets.

• Regularised tax and contribution situation, of the company and the buyer.

• Structure of the operation: what is being purchased, for how much, and with what equity.

• Plan for the business after the purchase, including who will manage it.

• Available guarantees.

• Promise contract or draft of the purchase and sale.

Hybrid structures: simple examples

The numbers below are examples of structure, not market conditions or proposals.

• Succession in a company with real estate: 30% equity, 50% bank debt with mutual guarantee and the property as collateral, 20% paid to the seller over three years.

• MBO without relevant assets: 20% equity from the team, 50% medium-term debt based on results, 30% between deferred payment and earn-out linked to client retention.

• Acquisition by an existing company: the buyer uses its own borrowing capacity, with less equity and a longer term.

How the process works

1. Define the operation: price, what is being purchased, and how much equity is involved.

2. Gather information: accounts, tax situation, contracts, guarantees.

3. Talk to those financing: bank, mutual guarantee society, or specialised advisor.

4. Risk analysis: the institution evaluates the company, the operation, and the buyer.

5. Proposal and conditions: amount, term, rate, grace period, and guarantees.

6. Contracting and closing: the financing accompanies the deed or the purchase and sale contract.

Between the first contact and the disbursement, weeks usually pass, not days. Counting on short deadlines is the most frequent cause of deals that are lost for reasons unrelated to price.

Frequently asked questions

Is it possible to buy a business without equity?

It is rare and difficult. Without any equity, the operation depends on strong external guarantees or the seller agreeing to defer almost the entire price. Most financiers want to see the buyer exposed to risk.

Does the bank finance the purchase of equity interests?

Yes, it is a case provided for — specifically in the Strategic Investment axis of the Impulsar Portugal Line, for succession, scaling up, MBO, and MBI. Approval always depends on the institution's risk analysis.

How long does it take to obtain financing?

It varies with the institution and the quality of the information presented. Organised accounts and a clear operation structure shorten the process; lack of documentation is what delays it the most.

Can the purchase of a distressed business be financed?

The Strategic Investment axis of the Impulsar Portugal Line expressly provides for the financing of viable companies acquiring businesses in financial difficulty or in insolvency. It is a more demanding operation to structure.

Does the Comprar Empresa provide financing?

No. The Comprar Empresa does not grant credit, does not approve financing, and does not recommend financial products. We can forward your request to an independent partner specialised in acquisition financing; the analysis, proposal, and contracting are done directly with that partner.

Next step

If you already know which business you want to buy, the most practical thing is to start from the announcement: see the businesses for sale and request the financing analysis from the business sheet, where the price and the published financial data already accompany the request.

If you are still deciding what to look for, start with the guide to buying a business in Portugal.