Funding a business purchase

Buying a business is different from buying equipment or property, because most of the price is usually goodwill: the value of the business’s customers, reputation and earnings. Lenders are cautious about goodwill, so the funding structure matters.

Typical funding stack

Source	Typical role
Buyer’s own funds	Shows commitment, reduces borrowing
Vendor finance	Seller accepts part of the price over time
Property-secured loan	Funds the bulk of the price
Equipment finance	Funds specific assets being acquired
Working capital facility	Funds stock, debtors and wages after settlement

Property-secured loans from $20k to $5m are common because they rely on property rather than goodwill. No valuation is needed, and interest can be paid up front or capitalised through the handover period.

Vendor finance

A seller willing to accept part of the price over time shows confidence in the business and reduces what you need to borrow. Document it properly, including what happens if payments are late and whether it ranks behind other lenders.

Quick sense check? Tell us the amount and the purpose. A person will call with an honest read, and your credit file stays exactly as it is.

Due diligence lenders expect

• Two to three years of financial statements, tax returns and BAS.
• Customer concentration and any key contracts.
• Lease term and options on the premises.
• Staff, entitlements and key people.
• Equipment condition and stock valuation.
• Any debts or obligations passing to the buyer.

Your accountant and lawyer should review the figures and the contract. ASIC and Australian Business Register searches confirm who you are dealing with.

Budget the whole transaction

1. Purchase price.
2. Stamp duty or transfer costs, depending on your state and what is being bought.
3. Legal and accounting fees.
4. Stock at settlement, often valued separately.
5. Working capital for the first few months.

Underfunding the working capital is the most common mistake. The business may be profitable, but you still need cash for wages, suppliers and rent before your first full month of takings.

Structure matters

Buying through a company or trust affects the paperwork and guarantees. See company vs trust borrowing. If you are buying out a co-owner rather than a whole business, see partner buyouts.

An illustrative example

A buyer purchases an established plumbing supplies store for $650,000, including $180,000 of stock. The vendor agrees to $100,000 over two years. The buyer contributes $120,000. A first mortgage over an investment property funds $430,000, and a $60,000 line of credit covers working capital through the first quarter.

After settlement

The first ninety days after buying a business are when cash surprises appear: a supplier who wants new account terms, staff entitlements that were larger than expected, a customer who leaves with the old owner. Keep the working capital facility in place through that period and review the business’s cash weekly until the new routine settles.

Related reading

• Funding to buy a business: How to fund the purchase of a business: what lenders look at, how property security helps, due diligence basics and keeping working capital after settlement.
• Property-secured business loans: Property-secured business loans from $20k to $5m against residential or commercial property, with no valuation needed and flexible repayment options.
• Funding a partner buyout: Buying out a business partner or co-director? How to fund it, value the share, protect cash flow and structure the deal well.
• Borrowing through a company or a trust: How lenders treat business loans to companies and trusts: director guarantees, trust deeds, trustee powers and what to have ready before you apply.
• Working capital loans: Working capital loans cover the gap between paying out and getting paid. How they work, how much is typical and when a line of credit suits better.

Key terms, in plain English

• Line of credit: an approved limit the business can draw, repay and draw again, usually paying interest only on the drawn balance.
• Working capital: the cash a business needs to keep running while money is tied up in stock and unpaid invoices.
• First mortgage: the senior mortgage on a title, which takes priority over any later loans secured on the same land.
• BAS: the business activity statement used to report and pay GST, PAYG withholding and other amounts to the ATO.

Before you accept an offer

• What will this cost in total, not just per week?
• Are there establishment, line or exit fees?
• Can the term be extended if a sale or refinance is delayed?
• Which assets or properties are being used as security?
• How quickly can the facility be closed if I no longer need it?

Who else to talk to

A good accountant can save you from borrowing too much, too little or in the wrong structure. Share the quote, the purpose and your forecast with them. If they spot something, such as an upcoming tax bill or a better way to structure an asset purchase, it is much easier to adjust before the documents are signed.

In a nutshell

• Mix own funds, vendor finance and a loan
• Property security often carries goodwill-heavy purchases
• Lenders review the target’s history and your experience
• Fund working capital for after settlement too

How we work through it with you

One enquiry, one team, one clear answer. That is the whole approach. We read what you send, call you, ask for the documents that matter and lay out the options in plain English with the total cost attached. Your details are not shopped around, and your credit file is only checked if you choose to accept an offer. If the answer is no, you will hear it quickly and with a reason, so you can plan your next move.

When borrowing helps, and when it does not

Funding works best when three things are true: the need is specific, it is temporary or it pays for itself, and there is a clear source of repayment. If all three hold, the right loan can take real pressure off the business. If the business is losing money month after month with no change in sight, borrowing only postpones a harder decision, and we would rather say so than arrange a loan that makes things worse.

Before you send the enquiry

You do not need a folder of financial statements to start an enquiry. For most unsecured and property-secured funding, these few items cover the essentials:

• Photo ID for each director or owner.
• Access to your business bank account for a secure statement link.
• Your latest BAS, if it is handy.
• Details of existing finance, including any daily or weekly repayments.
• For property-secured funding, the property address and current loan balance.

Getting the enquiry right

Every question on the form is there for a reason: it changes which funding fits. Describe the business as it stands today rather than the version you expect in six months. Mention any default, tax debt or recent decline in the notes. We look at those situations all the time, and knowing early lets us head straight for options that can actually work.

Let’s see what fits

It costs nothing to find out. Check your eligibility in about a minute, with no credit check and no obligation. One team handles your enquiry from start to finish, and you will hear from a person, not an automated system. Fill the form in as accurately as you can; a careful minute now saves days later.