How to buy a business with finance: the funding stack, step by step

Buying an established business is a shortcut past the hardest year of any venture. There are customers, staff, systems and a bank account that already works. The price of that shortcut is one large cheque, and the person writing it is often someone who has never borrowed at this size before.

This guide follows the order in which a purchase actually unfolds, from sizing the real cost to settlement day, and explains why a business is harder to finance than a house.

What is the real cost of buying a business?

The agreed price is only the first line. Before approaching a lender, build a total.

Item	Why it’s easy to miss
Purchase price (goodwill plus assets)	The headline figure
Stock at valuation	Often priced separately and counted on settlement day
Transfer or stamp duty, where it applies	Rules differ by state and by what is being sold
Legal, accounting and valuation fees	Due diligence is not free
Lease costs and bond or bank guarantee	The landlord may want a new one
Working capital for the first 60 to 90 days	Trade creditors and wages don’t wait
Rebranding, licence transfers, systems	Small items that add up

The working capital line causes the most trouble. A buyer who spends every dollar on the price and has nothing left for the first payroll has bought a business they can’t run. Many lenders will include working capital in the facility if you ask for it at the start; it is much harder to add later.

How do lenders see a business purchase?

A lender buying into a business purchase is asking one question: if this goes badly, what do I get back?

For a house, the answer is the house. For a business, much of the price is goodwill, the value of the customers, reputation, brand and earnings stream that come with the name. Goodwill is real, but it can’t be repossessed and sold the way a truck can, and it can shrink fast if the owner leaves or the lease isn’t renewed. Our goodwill glossary page explains this.

So lenders typically work from three things:

1. The earnings. Usually three years of financials, tax returns and BAS. They want to see profit after a fair wage for the owner-operator, which is why how to value a small business matters to your loan, not just your negotiation.
2. You. Industry experience, personal financial position, and what you put in yourself.
3. Security. The plant, stock and any property in the sale, plus additional security you can offer, such as a property you own.

Banks can be excellent for this when the numbers and security fit, and their acquisition lending is often the lowest-cost option. When the bank’s answer is “not without more security” or “not at that size”, the business can still be financed another way.

What does a typical funding stack look like?

Most purchases are funded in layers rather than from one source.

• Your deposit. Savings, sale proceeds from another asset, or equity drawn from property. Lenders usually like to see genuine buyer contribution.
• A senior loan. An acquisition or term loan from a bank or non-bank lender, secured over the business assets, often with a personal guarantee, sometimes with extra property security. See business acquisition loans.
• Vendor finance. The seller is paid part of the price in instalments after settlement, which bridges the gap and signals confidence in the business. We explain it in vendor finance when buying a business.
• Earn-outs. A portion of the price depends on how the business performs after you take over.
• Equipment finance. If the sale includes vehicles or machinery, the lender may finance them separately; see equipment finance.

Layering lowers the cheque you need on settlement day and shares the risk with the seller. It also adds paperwork: if there is vendor finance behind the lender, the lender will want the vendor’s debt subordinated, which means it ranks behind their own.

How should you structure the deal to protect yourself?

The contract matters as much as the loan. Four clauses do the heavy lifting.

• Finance condition. The contract is conditional on you obtaining finance by a date, with enough time for valuation and legal review. Without one you can lose your deposit if the lender declines.
• Due diligence condition. Time to examine the books and operations, then walk away if the picture doesn’t match. Our due diligence checklist shows what to examine.
• Lease assignment. If the premises matter, the contract should depend on the landlord consenting to assign the lease or granting a new one on acceptable terms and length. No lease, no business.
• Restraint of trade. A reasonable restriction stops the seller opening next door and taking customers with them.

Is the sale GST-free, and what about the staff?

Two rules of thumb catch buyers late.

GST. The sale of a going concern can be GST-free, which can avoid a large tax bill appearing in the purchase price. The ATO’s conditions include that the buyer is registered (or required to be registered) for GST, the seller supplies everything necessary for the business to keep operating, and both parties agree in writing that it is a going concern. That agreement must exist on or before the day of supply. A buyer who forgets can end up owing 10% on top of the price. Get your accountant to confirm treatment before you sign.

Employees. Under the Fair Work Act’s transfer of business provisions, if you take on the seller’s staff to do the same or substantially the same work within three months of their employment ending, some entitlements and service can carry across. A sale contract can’t override that. Price the accrued leave in your offer.

Need to know what a lender would offer on a purchase like yours? Tell us the price and your security, and we’ll start on a structure.

A worked example: buying a physiotherapy clinic

This is an illustrative case. A physiotherapist, Priya, plans to buy a two-room clinic from a retiring owner for $420k: $300k goodwill and $120k equipment and fit-out.

Source	Amount	Notes
Priya’s deposit	$80k	From savings
Vendor finance	$60k	Repaid over 24 months, subordinated to the lender
Senior loan	$240k	Secured over the business assets, plus a second mortgage on Priya’s home
Working capital facility	$40k	For the first quarter of wages and rent

Priya’s contract is conditional on finance, due diligence and the landlord’s consent to assign a five-year lease. The sale is structured as a going concern with the written GST agreement signed before settlement. The two existing staff are offered employment on the same terms.

Without the home as additional security, the bank would have approved a smaller loan. That is the usual shape of these deals: the business supports most of the debt, and the extra security closes the gap.

What should you do if the bank says no?

Decline letters are common when the purchase involves heavy goodwill, a first-time owner or a seller who wants a quick settlement. It doesn’t mean the deal is dead.

• Ask the bank exactly why: price, security, your experience or the seller’s records. Each has a different fix.
• Add security, reduce the price, or bring in vendor finance.
• Consider a non-bank or private lender that looks at the combined position: the business, your property and your plan. See declined by the bank.
• If settlement is close, a short-term facility secured on property can complete the purchase, with refinance into cheaper debt afterwards. The bridging loans guide explains the trade-offs.

Ready to put a funding structure together?

Buying a business is a decision you’ll want to make from strength, with the numbers in front of you. We can help with the finance side. Filling in our form takes about a minute, and enquiring doesn’t touch your credit file, so you can ask before you sign anything. We don’t pass your details around to a crowd of lenders, which means no flood of phone calls. A real person reads your situation, considers the price, the security and the timetable, then calls you. Please enter the figures as accurately as you can, since the right structure depends on them.

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