Finance for buying a business in Australia

Buying a going business means paying for something you can mostly see (the fit-out, the vans, the stock on the shelves) and something you can’t: the customers, the reputation and the profit the place already makes. Lenders are comfortable with the first part. The second part, goodwill, is where most purchase deals are won or lost, so this page keeps coming back to it.

What exactly are you paying for?

Break the asking price into its pieces before you talk to any lender. A typical small business sale contract splits into three:

• Plant and equipment. Machinery, vehicles, furniture, computers, the coffee machine. These have a resale value, so lenders can secure against them.
• Stock. Usually sold on top of the agreed price, counted on the day of settlement and adjusted. A lender may fund some of it, but the final figure isn’t known until the count.
• Goodwill. Everything else: the brand, the customer list, the trained staff, the location, the lease. In many service and hospitality businesses, goodwill is well over half the price.

The split matters because each piece is funded differently. If you know that a $600k price is $90k of equipment, $60k of stock and $450k of goodwill, you know where the hard part sits.

Which finance options fit a business purchase?

There’s rarely one loan that does everything. Most buyers combine two or three of these.

Option	What it funds well	Security	Watch for
Bank acquisition loan	The whole purchase for an established, profitable business	Business assets, often property and a director guarantee	Full financials, slower approval, strict serviceability
Loan secured against your home or other property	Goodwill and the deposit gap	A first or second mortgage	Puts property on the line; size it carefully
Vendor finance	Part of the price, repaid to the seller in instalments	Usually a security interest over the business	The seller’s terms; whether your main lender agrees to it
Equipment finance	Vehicles and plant included in the sale	The asset itself	Only covers identifiable equipment, not goodwill
Unsecured business loan	A smaller top-up, often after you’ve taken over	None, usually a director guarantee	Lenders want trading history in your name, so it rarely funds day one
Business line of credit	Stock and working capital after settlement	Varies	Set it up before you need it

Banks are often the cheapest money for a purchase, and if you’re buying a solid business with clean books and you have property to offer, a bank deal deserves a serious look. Where the bank won’t fund goodwill, wants more security than you have, or can’t meet your settlement date, non-bank and private lenders secured against property are the usual next step. Our business acquisition loans page explains each loan type at greater length.

How do lenders assess a purchase?

Two questions sit behind every purchase application: is this business sound, and is this buyer the right person to run it?

The business. Have ready the seller’s recent annual accounts and tax returns (two or three years is typical), the latest BAS and an interim profit and loss. business.gov.au suggests buyers examine three to five years of records, and a lender will happily read whatever you have. They’ll recast the profit for the owner’s wage you’ll actually draw, and check that it covers the new loan repayments with room to spare. That buffer is the debt service coverage ratio, and it’s worth running before you make an offer.

The lease. For most shopfront and hospitality businesses, the lease is part of what the goodwill is worth. Lenders want to see enough remaining term and options to cover the loan, and confirmation the landlord will assign it to you.

You. Industry experience counts. A chef buying a restaurant reads very differently from an accountant buying the same restaurant. Your credit file, other debts and the size of your own contribution all feed in.

The security. If the business assets alone don’t cover the loan, expect a request for extra security. That’s where home equity, investment property or a guarantor usually comes in.

What will the purchase cost all up?

The price on the contract is the starting point. A realistic budget adds:

• Duty. This varies by state. NSW stopped charging transfer duty on goodwill, intellectual property and licences from 1 July 2016, though a lease assignment or fixtures can still be dutiable. Queensland still treats goodwill as a dutiable business asset, and the Queensland Revenue Office notes that goodwill can make a deal dutiable even when the contract doesn’t mention it. Get an estimate for your state before you sign.
• Advisers. A solicitor for the contract and lease assignment, an accountant to check the books, and sometimes a valuer.
• Lender costs. Establishment fees, valuation fees, legal costs for the loan documents and any guarantee documents.
• The stock adjustment. The count at settlement may come in above the estimate in the contract.
• Working capital. Wages, rent and suppliers in your first weeks, before the takings in your name build up. The seller’s debtors usually stay with the seller, so you start with an empty ledger.

Never compare loans on headline price. Get every lender to confirm in writing the full dollar cost over however long you plan to hold the loan, and line the offers up in our loan cost comparison calculator.

Weighing up a purchase now? Tell us about the deal. Sixty seconds, and no credit enquiry is lodged against you.

How much should you borrow?

Work it from the bottom up, not from the price down.

1. Add the price, the expected stock figure, duty, adviser fees and lender costs.
2. Add a working capital buffer. For many small businesses, covering two or three months of fixed costs is a reasonable place to begin.
3. Subtract the cash you’ll put in, keeping some back for emergencies.
4. What’s left is the borrowing need. Split it by what each lender will fund: equipment against equipment, goodwill against property or vendor terms.
5. Test the total repayments against the business’s recast profit. If the coverage looks thin, the price or the structure needs to change, not the projections.

The business borrowing power calculator gives a quick read on whether the numbers hang together.

Worked example: buying a regional plumbing supplies business

This is an illustration, not a real deal. Mel has run the trade counter at a plumbing supplier for eight years and agrees to buy a similar business in a Queensland regional town for $780k plus stock.

Item	Amount
Goodwill	$480k
Plant, racking and two delivery utes	$300k
Stock (estimated, counted at settlement)	$160k
Duty, legal, accounting and lender costs (estimate)	$55k
Working capital buffer	$70k
Total need	$1.065m

Mel has $150k in savings and keeps $30k aside, so contributes $120k. The seller agrees to vendor finance of $100k over three years. The utes and plant are refinanced through equipment finance of $220k. That leaves about $625k, which Mel’s lender funds against the family home, registered behind the existing mortgage, since the house carries plenty of equity. Stock top-ups after settlement are covered by a small line of credit.

On the seller’s books, the business makes a profit that, after Mel’s own wage, covers all three sets of repayments with a comfortable buffer. That buffer, not the price, is what gets the deal approved. Because this is Queensland, Mel’s solicitor flags that duty applies to the goodwill and builds it into the budget early.

Mistakes buyers make with purchase finance

• Signing without a finance clause. If the loan falls over, your deposit can be at risk.
• Skipping the PPSR search. Equipment in the sale may already be financed. A search on the PPSR shows security interests that need to be cleared at settlement.
• Borrowing the price and nothing else. The first quarter is when cash is tightest.
• Banking on add-backs the lender won’t accept. If the seller’s profit depends on unusual adjustments, expect the lender to strip them out.
• Leaving the lease to the end. A landlord who drags their feet on assignment can push settlement out and put the finance approval past its expiry.

Thorough due diligence protects the loan as much as it protects you.

Ready to fund the purchase?

You’ve done the hard work of finding the right business. The finance should fit the deal you’ve negotiated, not force you to renegotiate it. Purchases come to us at all stages, from a first look at a listing to a contract with a settlement date already circled, including deals a bank has turned down or only part-funded.

Our enquiry takes around a minute and your credit score stays untouched while you ask. We keep what you send in-house; nobody blasts it out to a string of finance companies. A specialist works through the purchase and then rings you. Give us the real price, the security you have and your settlement date, and we can point you at a structure that works on the first try.

Start my business purchase enquiry →