Quick answer
Most acquisitions are funded in layers rather than from one loan: a senior lender for the bulk, vendor finance or an earn-out for part of the price, and your own cash for the rest. Budget separately for stamp duty where it applies, stock at completion, legal and due diligence costs, and working capital for the first months under new ownership.
Key points
- The purchase price is only one line: duty in some states, stock, legal and accounting costs, and a working capital cushion often add a meaningful slice on top
- Vendor finance and earn-outs let the seller carry part of the price, which can lower the cash you need and keeps them invested in the handover
- Transfer duty on business assets differs by state: Queensland, Western Australia and the Northern Territory charge it on goodwill and similar assets, while NSW, Victoria, South Australia, Tasmania and the ACT generally do not, though land and leases still attract duty
- Lenders back the cash flow of the business you are buying, so normalised earnings and clean records matter more than the headline price
- Plan the stock and debtor purchase at completion separately; they are usually paid on top of the agreed price
The sale price on a business listing is the figure everyone talks about and the one that tells you the least about what you’ll actually need on the day. A café listed at $350k can ask for well over that by the time stock, duty, legal fees and the first month’s wages are counted. Buyers who plan the funding around the listing price are the ones who end up short at settlement.
This guide takes the other approach: build the total cost first, then decide who pays for each slice. That is also how lenders read an acquisition, so it is the shape of the case you will end up presenting anyway.
What does an acquisition really cost beyond the price?
Make a table before you speak to anyone. Typical lines:
| Cost | Notes |
|---|---|
| Agreed price (goodwill, plant, fit-out) | The headline figure in the contract |
| Stock at completion | Counted on the day and paid on top, in most deals |
| Transfer duty | Depends on the state and what you’re buying (see below) |
| Legal and conveyancing | Contract review, lease assignment, transfer documents |
| Accountant and due diligence | Reviewing the financials and the add-backs |
| Lease costs | Bond or bank guarantee, assignment fees |
| Licences and registrations | A new ABN or ACN, liquor, food, trade or professional licences |
| Working capital | Wages, rent and supplier payments until takings stabilise |
| Contingency | Something always costs more than it should |
The two lines that most often blow out are stock (it can move a lot between the contract date and settlement) and working capital. A change of owner often unsettles customers and suppliers for a few weeks. Suppliers who gave the seller 30-day terms may ask you for cash on delivery until you’ve built a record.
Who can fund each layer?
Few purchases are funded from one source. Think in layers.
- Your own cash. Most lenders want to see the buyer put in something real.
- A senior lender. A bank or non-bank lender takes the largest share, secured over the business assets and, often, other property. See business acquisition loans.
- Vendor finance. The seller lets you pay part of the price over time. See vendor finance and the vendor finance guide.
- An earn-out. Part of the price is contingent on later performance.
- Property equity. Equity in a home or investment property can fund the deposit or a larger share.
- Asset finance for the vehicles, plant and equipment that come with the business, which can free up the main loan for goodwill (see equipment finance).
Banks are often the cheapest senior funding, and if the business and your own position fit their criteria, a bank offer should be taken seriously. If your bank has declined, hesitated or can’t meet the settlement date, the layers above can still be rearranged, and non-bank lenders will look at the same deal differently. Our guide to borrowing against property covers the equity route.
How do vendor finance and earn-outs work in practice?
These two are often confused. They do different jobs.
Vendor finance is a loan from the seller. The agreed price is fixed, but you pay a chunk later, in instalments over a set period, often secured by a charge over the business. It reduces the cash you need at settlement and signals the seller believes in the numbers. It also keeps them tied to the business: if you default, they may have rights over the assets.
An earn-out is not a loan. The final price depends on performance. For example, a base payment now and a further amount in each of the next two years if revenue stays above a stated level. The advantage is sharing risk: if a major customer leaves after the sale, you don’t pay for a business that no longer exists. The danger is argument. The contract needs to define revenue, who controls pricing and expenses during the earn-out period, and what happens if you sell on.
A seller who refuses to carry any part of the price is telling you something. It’s reasonable to ask why, and to value the business accordingly.
What do lenders look at when you’re buying a business?
They are backing the future cash flow of the target and your ability to run it. Expect them to ask for:
- Three years of financial statements and tax returns for the target, and recent management accounts.
- Bank statements showing the takings.
- The contract of sale or heads of agreement, plus the lease.
- Evidence of normalised earnings, meaning the profit after adjusting for the seller’s one-off or personal costs. The add-backs glossary entry explains the idea. Anything a seller adds back needs paperwork.
- Your own financial position, experience in the industry and the deposit.
- Details of any security you are offering.
The fewer surprises in the records, the smoother the process. Gaps in the books or cash takings that don’t appear in the accounts make lenders cautious, and for good reason: a price is only as solid as the earnings behind it. Work through due diligence before buying a business and the valuation guide before you commit.
Will I pay stamp duty on a business purchase?
It depends on where the business is and what you’re buying. As a general picture (confirm for your contract with the relevant state revenue office):
- Queensland charges transfer duty on most business assets, including goodwill, based on the total price.
- Western Australia and the Northern Territory also charge duty on business assets, with exclusions that differ between them.
- New South Wales, Victoria, South Australia, Tasmania and the ACT generally do not charge duty on non-land business assets, though land, leases and fixtures can still be dutiable.
How the price is allocated between assets can change the duty, so the split in the contract matters, and it should be reasonable rather than engineered. A solicitor or accountant should check it. Our stamp duty guide covers the property side.
An illustrative example
A buyer is purchasing a regional trade supplies shop. The deal on paper:
- Goodwill, plant and fittings: $480k
- Stock at completion (to be counted): about $140k
- Duty, legal and accounting: around $35k
- Working capital for the first three months: $60k
That makes about $715k of cash needed, not $480k. The buyer’s funding mix:
- $120k of their own savings
- $150k deferred to the seller under vendor finance, repaid over three years
- A senior loan of $330k secured over the business and a residential property
- Equipment finance on the delivery vehicle included in the price
- A line of credit of $60k set up before settlement for working capital
The figures are only an illustration, but the structure shows the point. The buyer can get through a slow first quarter because the working capital was planned, not found afterwards.
Mistakes to avoid
- Treating the price as the budget. Add stock, duty and working capital before you decide how much to raise.
- Letting due diligence slip to meet a deadline. A rushed deal is the most expensive kind.
- Accepting add-backs without evidence. If you can’t prove them, a lender won’t count them.
- Ignoring the lease. A short remaining term or a landlord who won’t consent to assignment can sink the deal.
- Borrowing the maximum. Leave headroom for a bad first year.
- Starting the finance conversation after exchange. Contracts have dates. Begin before you sign.
If you’re also weighing whether to bring in a partner instead of borrowing, see debt vs equity for growing businesses. For a general walk-through of the purchase process, see how to buy a business with finance.
Got a contract in hand or a deal you’re still weighing up? Send us the outline and we’ll tell you what we’d need to see.
Time to test the funding mix
A purchase is the moment when good funding structure matters most, because the dates are fixed and the seller won’t wait for a second attempt. The sooner you know what’s achievable, the better your negotiating position.
Asking us takes around a minute. Your credit file isn’t touched when you enquire, so you can test the water without any cost to your score. We don’t scatter your information across a pile of lenders; one real person reads your situation, then calls you to talk through the layers that might work. Put the real price, the stock estimate and your deposit into the form so the first idea we offer is the right fit.
Frequently asked questions
How do I get finance to buy a business?
Lenders assess the earnings of the target and your own position. You'll usually provide the sale contract or heads of agreement, three years of financials for the target, your own financial statements and a deposit. A bank may fund a large share if the business and your own record are strong. Alternatives include vendor finance, non-bank lenders and security over other property.
How much deposit do I need to buy a business?
There isn't a fixed percentage. Lenders commonly want a meaningful contribution from the buyer, and it can be cash, equity in property you own, or a part of the price deferred by the seller. The weaker the target's records or the shorter its trading history, the more a lender tends to look for from you.
Is stamp duty payable when buying a business?
It depends on the state and the assets. Queensland charges transfer duty on most business assets including goodwill, Western Australia and the Northern Territory also tax business assets, while NSW, Victoria, South Australia, Tasmania and the ACT generally do not tax non-land assets. Leases, land and fixtures remain dutiable, and how the price is split between assets matters. Ask the state revenue office or your accountant for your contract.
What is an earn-out?
An earn-out makes part of the purchase price depend on how the business performs after you take over, for example a payment each year if revenue stays above an agreed level. It shifts some of the risk to the seller and reduces the cash you need at completion. The contract must define precisely how results are measured.
Can I fund a purchase with a home equity loan?
Yes, if you have enough usable equity, a secured loan against your home or another property is a common way to provide the deposit or the full price. It carries real risk, because the property backs the debt, so make sure the repayments hold up even if the first year of trading is weaker than forecast.
Should the stock be included in the price?
Usually it is valued separately at completion, by a stocktake, and paid on top of the goodwill and plant figure. Build that number into your funding plan early. For a retailer or a trade supplier it can be a large amount, and it can move between contract and settlement.