Quick answer
Funding a business purchase usually combines the buyer's own contribution with a loan, and because goodwill can't be repossessed, most acquisition lending is secured against property: from $20,000 to $5,000,000 through a first or second mortgage. Lenders look at the business's past financials, the buyer's experience, the price paid relative to profit, and whether the business can service the debt and pay the new owner. Due diligence should be finished before the finance is finalised.
Key points
- Goodwill has no resale value to a lender, so property security is common.
- Lenders check the business's profit, the price and your experience.
- Finish due diligence before you lock in finance.
- Budget for working capital after settlement, not just the price.
- Usual security
- Residential or commercial property
- Secured range
- $20,000 to $5,000,000
- Lenders review
- Three to five years of the business's financials
- Also needed
- Contract, lease transfer, licences
Buying an established business skips the hardest part of starting from scratch: finding customers. The trade-off is a bigger upfront price, much of it for goodwill, which is the value of the customers, reputation and systems you’re taking over. Funding that price is one of the largest purchases most owners ever make, and it works differently from buying a machine or a van.
Why is buying a business funded differently?
A lender funding a truck knows it could take the truck back. A lender funding goodwill can’t take back a customer list or a reputation. So lenders look for something else to rely on:
| Part of the price | Can a lender rely on it? | Typical funding |
|---|---|---|
| Goodwill | No resale value on its own | Property-backed loan, vendor finance, your contribution |
| Equipment and vehicles | Some, depending on age | Business loan or asset finance |
| Stock | Some, but it’s sold quickly | Business loan, part of the settlement |
| Freehold property (if included) | Yes | Commercial property loan |
That’s why most acquisition funding is secured against property, usually the buyer’s home or an investment property, through a first or second mortgage.
What do lenders look at when you buy a business?
- The business’s history. Several years of financials, BAS and bank statements showing real profit.
- The price. How it compares with profit. A price that relies on growth you haven’t delivered yet is a risk.
- Your experience. Running a similar business, or working in the industry, matters a lot.
- The lease. Remaining term, options, rent and whether the landlord will transfer it.
- Servicing. Whether profit covers the loan repayment and a fair income for you.
- Your contribution. Cash or equity you’re putting in.
What due diligence should come first?
business.gov.au recommends checking a business thoroughly before buying. In practice that means:
- Reviewing three to five years of financial records with your accountant.
- Checking contracts, supplier agreements, equipment, stock and any outstanding debts.
- Confirming licences and permits are current and transferable.
- Talking to the landlord about the lease transfer.
- Speaking with customers, staff and nearby business owners where you can.
- Getting a professional valuation for larger deals.
Finance should be finalised after due diligence, not before. If something turns up, you want room to renegotiate or walk away.
How can a business purchase be structured?
Most deals combine several pieces:
- Your contribution: savings or equity.
- A property-backed loan for the bulk of the price.
- Vendor finance: the seller takes part of the price over time.
- A smaller loan for stock at valuation and working capital.
- Earn-outs: part of the price depends on future performance.
Illustrative example. A couple in Launceston are buying an established hardware and garden store for $520,000 plus stock at valuation of about $140,000. The business has made a steady profit for four years. They put in $120,000 from savings, the seller agrees to $80,000 in vendor finance over two years, and a second mortgage over their home funds most of the rest. A separate working capital buffer covers the first winter, when garden sales slow.
What should you budget for beyond the price?
- Stamp duty where it applies to business assets in your state.
- Legal and accounting fees.
- Stock at valuation on settlement day.
- Working capital for wages, rent and restocking in the first months.
- Any immediate repairs or upgrades the business needs.
Our page on stock and inventory finance covers the working capital side.
What questions should you ask the seller?
Due diligence isn’t only about documents. A frank conversation with the seller often reveals what the numbers don’t. Ask:
- Why are you selling? Retirement and a new venture are very different from a big customer leaving.
- How much of the work depends on you personally? If clients are loyal to the owner, plan a handover period.
- Who are the top five customers, and what share of revenue do they make up?
- Which staff are key, and are they staying?
- What’s coming up? Lease renewals, equipment replacements, new competitors, contract expiries.
- Would you consider vendor finance or an earn-out? A seller who believes in the business’s future often will.
Write the answers down and check them against the financials. Where they don’t line up, dig deeper before the finance is locked in. Lenders will often ask the same questions, so having clear answers ready makes the application stronger.
It’s also worth asking the seller to stay on for a transition period, paid or as part of the deal. Customers, suppliers and staff are far more likely to stick with a business when the old owner introduces the new one in person. Lenders like seeing a structured handover too, because it lowers the risk that revenue drops the month after settlement.
Ready to buy?
If you’ve found a business worth owning, let’s work out how to fund it. Asking us won’t put anything on your credit file; a check is only discussed once you choose to proceed. We don’t scatter your enquiry across a pile of lenders. A real person looks at the business, the price and any property you could use, and calls you with options.
Please be accurate about the price, the business’s profit, your contribution and any property, so the first structure we suggest can actually settle. Start your business purchase enquiry.
Frequently asked questions
Can I borrow to buy a business without property?
It's harder. Without property, lenders rely on the business's own assets and cash flow, which often won't cover the goodwill part of the price. Some deals work with vendor finance, where the seller is paid part of the price over time, combined with a smaller unsecured loan.
How much of my own money do I need?
Lenders like to see the buyer contributing, either cash or equity in property. The more of your own money in the deal, the more comfortable lenders are, and the less the business has to repay from its profits.
What is vendor finance?
Vendor finance is when the seller agrees to receive part of the price after settlement, in instalments. It shows the seller believes in the business and reduces what you need to borrow. Get the terms documented properly by your lawyer.
What due diligence should I do?
business.gov.au suggests reviewing three to five years of financial records, plus contracts, supplier agreements, equipment, stock, intellectual property and debts. Check licences and that the landlord will transfer the lease. Your accountant and lawyer should be involved.
Can the loan include stock and working capital?
Yes. Stock at valuation is often added to the price at settlement, and it's wise to fund a working capital buffer for the first months of ownership too.