Can I get a loan to buy an existing business?

How is buying a business usually funded?

Few purchases are funded by a single loan. The typical mix has three parts:

Part	What it is	Why it matters
Your contribution	Cash or equity you put in	Shows commitment; reduces the amount borrowed
Business loan	Unsecured or property-secured	Funds most of the price and working capital
Vendor finance	Part of the price paid to the seller later	Bridges a gap; signals the seller’s confidence

The right mix depends on the price, the business’s profitability, your security and how much cash you want to keep for running the business after you take over. Don’t forget that last part — buying the business is only step one; you’ll also need working capital from day one.

How do lenders assess a business purchase?

A purchase is unusual because the lender is judging a business you don’t yet run. They look at:

• The business’s financial history — tax returns, profit and loss, balance sheets and BAS, usually for several years.
• What’s changing — will customers, staff, suppliers and the premises lease carry over?
• The price — is it reasonable relative to profit and assets?
• Your experience — industry and management background.
• Your contribution — how much of your own money is going in.
• Security — property, and sometimes the business’s assets.

business.gov.au suggests buyers review the past three to five years of financials during due diligence. Those same documents form the core of a finance application, so gathering them early does double duty.

Why does property security matter so much for acquisitions?

Because the lender can’t yet see your trading history with this business. The business’s past performance under a different owner is useful but not the same thing. Property security — a buyer’s home, an investment property or the business’s premises if they’re included — fills that gap. Property-secured loans range from $20,000 to $5,000,000 for business purposes, including acquisitions.

Unsecured acquisition funding exists but is narrower, and amounts depend heavily on the target’s trading. For more on using your home, read using your home for a business loan.

What documents will I need?

• Contract of sale or heads of agreement.
• The business’s financials — tax returns, profit and loss statements, balance sheets and BAS for recent years.
• Recent business bank statements from the vendor, if available.
• Lease details for the premises, including term and options.
• Your ID, experience summary and personal financial position.
• Property documents if property is the security.
• A simple plan covering the first year: what stays the same, what changes, and cash flow.

Our documents checklist covers the general list. If you’d like to know what a lender would want for your specific purchase, send a short enquiry — there’s no credit check when you first enquire.

What are the common pitfalls?

• Leaving no working capital. Stretching every dollar to the purchase price leaves nothing for wages, stock and surprises after settlement.
• Relying on the vendor’s add-backs. Adjusted profit figures that assume big cost cuts need scrutiny.
• Ignoring the lease. A short remaining lease can undermine a business that depends on its location.
• Key person risk. If customers are loyal to the seller personally, revenue may drop after they leave.
• Finance arranged too late. Contracts often have finance clauses with deadlines; start early.

How does a purchase come together? (Illustrative example)

Illustrative only — invented business and figures.

A buyer with ten years in the trade plans to buy a Fremantle bakery for $450,000, including equipment. The bakery has four years of steady financials and a lease with options running well into the future.

• Contribution: the buyer puts in savings.
• Vendor finance: the seller agrees to receive a portion over two years, showing confidence.
• Loan: a property-secured loan over the buyer’s home covers the rest, plus working capital for the first few months.

The lender’s assessment focuses on the bakery’s financials, the buyer’s experience and the equity in the home. Settlement of the loan is timed with settlement of the business purchase — see what happens at settlement.

Should I get finance approval before signing?

Ideally, talk to a lender or specialist before you sign, and make the contract subject to finance with a realistic deadline. That protects you if the finance doesn’t come together and gives time for valuation and documents.

What happens in the first few months after the purchase?

Lenders care about this period because it’s when purchased businesses are most fragile, and you should plan for it too:

• Customers test the new owner. Some loyal to the seller may drift; others may give you a chance. Budget for a dip rather than assuming continuity.
• Suppliers may reset terms. Credit extended to the old owner doesn’t automatically transfer, so you may need to pay faster at first.
• Staff watch closely. Keeping key people through the handover protects revenue.
• Systems change. New bank accounts, payment terminals, software logins and insurance all need to be in place from day one.

A working-capital buffer — built into the loan or kept separately — is what gets you through these months without stress. If the purchase price uses every dollar available, consider negotiating the price, increasing vendor finance or adding working capital to the loan before you sign.

Buy with the right finance behind you

The right funding structure makes a good purchase a great one. Enquiring doesn’t involve a credit check, your details aren’t hawked to a crowd of lenders, and a real person looks at the business, the price and your security together. Please give accurate details of the purchase price, your contribution and any property on the form, so the plan you hear is one that works.

Talk to us about buying a business →