Business acquisition loans reviewed

Buying an established business can be quicker and less risky than starting from nothing: the customers, staff, suppliers and systems already exist. But it means paying for all of that upfront, usually including a large amount for goodwill. Acquisition finance is how most buyers bridge the gap between their savings and the price, and lenders approach it very carefully.

What you are actually paying for

Component	How lenders view it
Goodwill	Hard to value and impossible to repossess, so little security value
Plant and equipment	Can secure finance, especially common, resaleable items
Stock	Some value as security, depending on type and turnover
Premises (if included)	Strong security through a commercial property loan
Customer contracts	Supports repayment if they transfer reliably

Because goodwill is often the largest part of the price, lenders usually look for a buyer contribution, property security or both.

What lenders assess

Lenders look at two businesses: the one being bought and the person buying it. For the target, they want verified financial statements, tax returns and BAS, ideally for several years, plus the premises lease and key contracts. For the buyer, they want industry experience, a realistic plan, a deposit and a clean credit history. A buyer with ten years in the industry purchasing a well-documented business is a very different proposition from a first-time owner buying on the vendor’s word.

Structuring the funding

Acquisitions are often funded from several sources:

• a buyer deposit or equity contribution;
• a term loan, often secured against property;
• equipment finance for plant and vehicles, through our equipment finance options;
• vendor finance, where the seller accepts part of the price over time;
• a working capital facility for the first months of ownership.

Leave enough working capital after settlement. A new owner who spends every dollar on the purchase price can struggle with the first quarter of wages, rent and BAS.

Due diligence protects your loan too

The business.gov.au guidance on buying an existing business is a good checklist. Verify sales against BAS and bank statements, check the lease term and assignment, confirm which staff and contracts will stay, search the PPSR for securities over assets, and check for tax debts. Lenders will ask for much of this anyway. Our guide to due diligence and finance when buying a business walks through each step.

Franchises

If the business is a franchise, the franchisor’s approval, the franchise agreement and the system’s track record all feed into the lending decision. See our franchise finance review.

An illustrative example

A made-up buyer with twelve years managing cafés wants to buy an established café for its asking price, which includes a large goodwill component, a recent fit-out and kitchen equipment. The buyer has savings for a deposit and equity in their home.

A lender reviews three years of the café’s financial statements and BAS and finds the sales are consistent with bank records. It agrees to fund the kitchen equipment through asset finance, and part of the goodwill through a loan secured over the buyer’s home, with the buyer’s deposit covering the balance. The buyer also negotiates a short handover period with the vendor, which the lender sees as reducing risk.

The structure works because the business’s numbers are verifiable, the buyer has directly relevant experience, and the goodwill is supported by other security. If the café’s figures could not be verified, the same buyer would likely struggle to finance goodwill at all.

Red flags in a business sale

• Sales figures that do not match BAS or bank statements.
• A lease with little time left or no option to renew.
• Heavy reliance on one customer, one staff member or the owner personally.
• Reluctance to provide records or allow inspection of the books.
• Unpaid tax or securities registered over assets that are meant to be sold free and clear.

Buying a business?

If you have found a business to buy and need finance to complete the deal, it pays to start the conversation early, before deadlines in the contract bite. To explore options, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than a crowd. Include the purchase price, the type of business, your deposit and any property you could offer. The settlement date is worth adding to your enquiry as well.