- Lenders commonly fund 50 to 70 per cent of the price of an established business. Strong buyers offering property security can sometimes borrow 90 to 100 per cent.
- The loan is assessed mainly on the last two to three years of the business you are buying, not only on you.
- Vendor finance, where the seller is paid part of the price over time, can reduce what you need to borrow.
- Talk to a broker before you sign the contract, or make the contract subject to finance.
A loan to buy a business works differently from most business lending. When you borrow for your own business, the lender looks at your trading history. When you buy someone else's, the lender looks mainly at the business you are buying, because that business has to make the repayments. This guide explains how much lenders fund, what they check and the order to do things in.
How a loan to buy a business works
The product is called business acquisition finance. It is used to purchase an existing business, buy out a partner or acquire a competitor.
The lender reviews the last two to three years of the target business's financials, the sale contract and the price. It then funds a proportion of the purchase. The rest comes from your own contribution and sometimes from the seller. Repayments are structured so the cash flow of the business you are buying services the debt.
Loans typically range from $100,000 to $10,000,000, over terms of 24 to 120 months. Select lenders on our panel will go as high as $20 million for the right deal.
How much you can borrow and how much deposit you need
Lenders in Australia commonly fund 50 to 70 per cent of the purchase price of an established business when the loan relies on the business and its goodwill. You are expected to contribute the balance, often 30 to 50 per cent. That contribution can come from savings, equity in property or vendor finance.
Lenders will go higher in two situations:
- You offer property as security. This increases the amount you can borrow and lowers the rate. For a strong buyer with property security, select lenders will sometimes fund 90 to 100 per cent of the purchase price.
- The business is in a sector lenders know well. Pharmacies, childcare centres, accounting practices and franchises with a recognised brand are examples.
Registered practitioners buying a medical or dental practice can often borrow up to 100 per cent of the price, because lenders treat practice income as stable.
Acquisition finance is not well suited to first-time buyers with no deposit, or to businesses whose value is almost entirely goodwill.
What lenders look at
Lenders assess the business first and the buyer second.
The business you are buying
- Profit and cash flow over the past two to three years.
- Whether the earnings depend on the outgoing owner.
- The lease on the premises and how long it has to run.
- The price relative to earnings.
You as the buyer
- Your experience in the industry.
- Your contribution to the purchase.
- Your credit history.
- Any security you can offer.
A business with consistent profits, a long lease and a buyer who has worked in the sector is the strongest case. A declining business or an inflated price is the weakest.
The ways to fund the purchase
Most purchases use more than one source of money. A broker structures them so the total works.
An acquisition loan. This is the main loan, assessed on the target's financials. Strong businesses can be financed partly on goodwill, with a director's guarantee and a general security agreement over the acquired business.
A property-secured loan. A secured business loan against residential or commercial property is often used for part of the price or for the deposit. For larger acquisitions a mix is typical: goodwill lending for part, property or equipment security for the rest.
Vendor finance. The seller agrees to accept part of the price over time instead of all at settlement, usually over one to three years with interest. Lenders often like it because it keeps the seller invested in a smooth handover. They will still expect you to contribute genuine equity, and they will want the vendor loan to rank behind theirs.
Equipment finance. If the business comes with vehicles or machinery, these can be financed separately against the equipment itself. That keeps each part of the deal on terms that suit it.
An unsecured loan. An unsecured business loan can cover a smaller purchase or a shortfall. Terms are shorter, so it rarely suits the whole price of a larger business.
Step by step: from offer to settlement
- Get the financials early. Ask the seller or the business broker for the last two to three years of financial statements.
- Have the deal pre-assessed. A finance broker can tell you what is fundable before you commit, so you know your budget and your contribution.
- Make the contract subject to finance. Start the finance conversation before you sign, or include a finance condition. This avoids pressure on the timeline.
- Complete due diligence. Your accountant checks the numbers and your lawyer checks the contract and the lease.
- Apply. The lender will want the target's financials, the sale contract, a handover plan and evidence of your relevant experience. It may also require a valuation of the business or its property.
- Settle. Allow three to eight weeks from application to settlement.
You can compare indicative pricing on our business acquisition finance rates page while you plan.
Asset sale or share sale
There are two ways to buy a business, and they affect the finance.
In an asset sale you buy the assets, goodwill and contracts and start fresh. In a share sale you buy the company itself, including its history and liabilities.
Lenders can finance either. A share sale usually requires more due diligence because you inherit past obligations, and the security is taken over the company's shares and assets. Your accountant and lawyer advise on the structure, and your broker aligns the finance to it.
Buying a franchise or buying out a partner
Franchise resales. An existing franchise outlet is assessed the same way as any business acquisition, on its own trading figures. Lenders also look at the lease, the franchisor's consent and your experience. For brands a lender has accredited, the lender will typically fund a higher share with lighter paperwork. See franchise finance for how new sites differ from resales.
Partner buyouts. Buying out a business partner is financed on the same basis as an acquisition. Because you already run the business, lenders view these favourably. A valuation of the business and a formal shareholder or partnership agreement setting out the buyout terms are usually required.
Frequently asked questions
Can I get a loan to buy a business with no deposit?
It is difficult without security. Lenders expect buyers to contribute, often 30 to 50 per cent of the price. Equity in property and vendor finance can form part of that contribution. There are two main exceptions. A strong buyer who offers property as security can sometimes borrow 90 to 100 per cent of the price with select lenders. Registered health practitioners buying a practice can often borrow the full price too.
Do I need property as security?
Not always. Lenders will finance strong businesses partly on goodwill with a director's guarantee and a general security agreement over the business. Offering property increases the amount you can borrow and lowers the rate. With property security, a strong buyer can sometimes borrow 90 to 100 per cent of the price.
How long does it take to get a loan to buy a business?
Allow three to eight weeks from application to settlement. The lender reviews the target's financials and the contract, and may require a valuation. The sale itself often has a due diligence period built in.
What is vendor finance?
Vendor finance is where the seller accepts part of the price over time, usually one to three years with interest. It reduces the amount the lender needs to fund. The lender will want the vendor loan to rank behind its own.
Does the lender look at my finances or the business's?
Both, but mostly the business's. Acquisition finance is assessed largely on the target business's financial history. Your experience, contribution, credit history and security complete the picture.
Next step
If you have a business in mind, send us the asking price and the financials you have been given. Lyft Money can pre-assess the deal across our lender panel and tell you what is fundable before you sign. Start on the business acquisition finance page or use the borrowing capacity estimator for a rough guide.
This article is general information, not financial, legal or tax advice. Lending is subject to each lender's assessment and approval.