Business loans for older owners planning to sell

Plenty of owners in their late fifties and sixties assume the time for borrowing has passed. The business is paid off, the plan is to sell in two or three years, so why take on debt now?

Sometimes that instinct is right. But a business that’s being prepared for sale often needs money: a fit-out that’s looking tired, a machine on its last legs, a partner who wants out first, or stock to show a buyer a strong final year. Lenders will fund those things. What they need from you is a clear answer to one question.

What do lenders actually want to know?

Lenders aren’t allowed to turn you down simply because of your age, and the good ones don’t want to. Their question is practical: if you’re planning to sell or retire within the term of this loan, how does it get repaid?

There are three answers that lenders generally accept:

• The loan finishes before you sell. A two-year equipment loan for an owner who plans to list in three years raises no issue.
• The sale clears it. The loan is paid from proceeds at settlement, and the lender’s security is released. Lenders like to see a realistic timeline and some evidence the business is saleable.
• Something else clears it. A property you’ll sell or downsize, a super payout you’ll access, or another clear source of funds.

What lenders don’t like is a long unsecured loan with no plan, sitting beside an owner who says “I’ll probably sell at some point”. Being specific about your exit is the single biggest thing you can do to get a yes.

Why borrow before a sale at all?

Because buyers pay for what they see, and most small businesses are priced on profit. A few common reasons owners borrow in the run-up to a sale:

Purpose	Why it can help the sale	Usual finance
Refreshing a dated fit-out	Buyers discount for work they’ll have to do themselves	Unsecured term loan or property-secured
Replacing failing equipment	A machine about to die is an obvious price deduction	Equipment finance
Stock for a strong final season	Lifts the trading figures a buyer will scrutinise	Short-term working capital or a line of credit
Buying out a partner	Gives one owner full control of the sale	Business loan or property-secured
Clearing an ATO debt	Tax debts surface in due diligence and spook buyers	Property-secured or a tax debt loan
Buying the freehold	Selling business and premises together can attract a wider pool of buyers	Commercial property loan

There’s one point worth knowing here. Small businesses are commonly valued on a multiple of earnings, often EBITDA, which is calculated before interest. So a well-chosen loan that lifts earnings doesn’t necessarily drag down the multiple, because the interest isn’t counted in that figure. What matters is that the extra profit is real and sustainable, not a one-off.

If buying out a co-owner is part of your plan, read our page on buying out a business partner first.

How does a loan get cleared when you sell?

Most small business sales in Australia are done on a cash-free, debt-free basis. In plain terms, the buyer pays for the business as a going concern, and the seller uses part of the price to pay off any business debt at settlement.

That has practical effects:

• Security has to be released. Any lender with a general security agreement or a registration on the PPSR must discharge it before the buyer’s solicitor will settle. Ask for a payout figure early.
• Equipment finance can sometimes transfer. If the buyer wants to take over a vehicle or machine on finance, the financier may agree to a transfer after assessing the buyer. It’s not automatic.
• Early payout costs count. Some loans charge for early repayment. Know the cost before you sign, because a sale is by definition an early repayment.
• Due diligence will find everything. A buyer’s accountant will see every loan on the bank statements, so keep borrowing purposeful and well documented.

Tax: talk to your accountant before you borrow

Selling a business can trigger capital gains tax, and the small business CGT concessions can make a very large difference to what you keep. Two that matter most to older owners are the 15-year exemption, generally for owners aged 55 or over who are retiring and have held the asset for 15 years, and the retirement exemption, which has a $500k lifetime limit.

To use the concessions at all, you generally need to pass either an aggregated turnover test or a net asset value test, where your business and related assets must be worth less than $6m net of related liabilities. Because debt is part of that calculation, how you borrow before a sale can affect the result. This is accountant territory, so have the conversation before you sign anything. Business.gov.au’s guide to selling a business is a useful starting checklist.

Wondering whether borrowing now would help your sale or hurt it? Talk it through with us.

Worked example: an engineering workshop two years from sale

This example is made up to show how a pre-sale loan can be structured.

A 62-year-old owner runs a precision engineering workshop turning over about $2.2m a year and plans to sell in roughly two years. The main CNC machine is ageing and breaking down every few weeks, and a broker has warned that buyers will deduct the cost of replacing it from any offer.

The owner looks at two approaches:

1. Pay cash from reserves. Simple, but it drains the working capital that keeps the final two years’ trading smooth.
2. Finance the $180k machine over three years. The machine is the security, repayments come from the extra output it produces, and the remaining balance is paid out at settlement or transferred to the buyer with the financier’s consent.

The owner chooses finance and uses our equipment finance calculator to check the repayments. Downtime falls, monthly output rises, and when the business is sold two years later, the buyer takes over the machine finance after the financier assesses them. The owner’s accountant had reviewed the structure first to protect the CGT position.

A two-year plan before a sale

1. Two years out: get a realistic valuation and ask what a buyer would discount for. Fix the expensive items first.
2. Speak to your accountant about CGT concessions, how debt affects the asset tests, and your super.
3. Match each loan to the exit: short terms, assets that secure themselves, or property-secured lending with sale proceeds as the planned payout.
4. Keep the books clean: BAS on time, no ATO debt, tidy statements. Buyers and their lenders read them as closely as yours do.
5. Twelve months out: request payout figures for every facility so settlement holds no surprises.
6. At sale: clear the debt from proceeds, confirm every PPSR registration is discharged, and keep the paperwork.

Mistakes older owners make

• Taking a five-year loan for a two-year plan with no thought about how it ends.
• Borrowing to dress up figures that a buyer’s accountant will see through.
• Forgetting early repayment costs when the sale itself is an early repayment.
• Leaving tax advice until a buyer turns up, by which time the structure is hard to change.
• Putting the family home on the line for a business you’re about to leave, without a firm exit plan.

Finishing well, with finance that fits the timeline

You’ve spent years building something worth selling. The right loan in those last years should add to the sale price, sit quietly in the background and be gone the day you settle.

You can enquire in about a minute, and doing so is invisible to the credit bureaus. We keep your enquiry with our own team rather than distributing it across the market. A real person reads your plans for the sale and the business’s numbers, then gives you a call. Include your expected sale timing and an accurate picture of turnover and existing debt, so we can suggest an option that suits your timeline straight away.

Plan your pre-sale finance with us →