Financing an E-Commerce Brand Acquisition

Acquiring an E-Commerce Brand

Buying an existing e-commerce business lets you skip the painful early stages of product development, customer acquisition, and brand building. But acquisitions require significant capital, and most buyers cannot pay cash for a profitable business. Understanding acquisition financing options helps you compete for quality deals.

E-commerce businesses typically sell for 2.5-4x annual profit (seller's discretionary earnings or SDE), meaning a business generating $200K in annual profit might sell for $500K-$800K.

Typical E-Commerce Acquisition Prices

Valuations vary based on business quality, growth trends, and market conditions:

Financing Options for E-Commerce Acquisitions

Several financing approaches work for e-commerce business purchases:

• SBA 7(a) Loan - The most common approach. Finances up to 90% of purchase price, 10-year terms, competitive rates.
• Seller Financing - Seller carries a note for part of the purchase price. Often combined with SBA.
• Conventional Term Loan - Faster than SBA but typically requires 20-30% down payment.
• Earnout Arrangements - Portion of price tied to future performance. Reduces upfront capital needed.
• Partner/Investor Capital - Bring in equity partners for larger deals.

The SBA Acquisition Loan Structure

SBA 7(a) loans are the standard for small business acquisitions under $5 million. Here is how they typically structure:

Combining SBA with Seller Financing

Many e-commerce acquisitions use a combination of SBA and seller financing. This structure benefits both parties:

• Seller carries 10-20% on standby note (payments deferred or interest-only)
• SBA finances 70-80% of purchase price
• Buyer provides 10% equity injection
• Total: 100% financing from buyer perspective
• Seller note on full standby for 2 years satisfies SBA requirements

What Lenders Evaluate in E-Commerce Acquisitions

SBA lenders scrutinize e-commerce acquisitions carefully:

• Quality of earnings - adjusted financials removing one-time expenses
• Traffic and customer acquisition sources
• Customer concentration - dependence on single channels or customers
• Amazon/platform dependence risk
• Transferability of supplier relationships
• Buyer's relevant experience
• Working capital needs post-acquisition

Example Deal: $600K E-Commerce Acquisition

Target business: DTC e-commerce brand, $1.2M revenue, $200K SDE, 3x multiple = $600K asking price.

Due Diligence for E-Commerce Acquisitions

Before financing an acquisition, thoroughly investigate:

• Traffic analytics (not just claimed, but verified)
• Email list size and engagement metrics
• Customer lifetime value and retention
• Amazon seller account health (if applicable)
• Supplier agreements and pricing
• Brand registrations and trademarks
• Employee contracts and key person risk
• Pending legal issues or complaints

Mistakes to Avoid

Common acquisition financing errors:

• Over-leveraging - ensure cash flow comfortably covers debt payments
• Ignoring working capital needs - budget for inventory and operations
• Skipping quality of earnings analysis - normalize financials properly
• Rushing due diligence to close faster