The best way to finance buying a business

Buying a business with customers, staff and cash flow already in place can be a faster path than starting from scratch. It’s also one of the hardest purchases to finance, because so much of what you’re paying for can’t be touched: the name, the customer list, the reputation, the systems. Lenders call it goodwill, and most of them won’t lend much against it alone.

What are you actually paying for?

A small business sale price usually breaks into:

• Goodwill: the value of the ongoing earnings, customer base and brand.
• Plant and equipment: vehicles, machinery, fit-out items.
• Stock: usually valued separately at settlement.
• Property: only if the freehold is included, which is less common for small businesses.

The more of the price sits in goodwill, the more the deal depends on security from elsewhere.

What are the main ways to finance it?

Test	Property-secured loan	Vendor finance	Unsecured loan	Asset finance
Covers	Most or all of the price	Part of the price	Smaller deals, stock, working capital	Equipment and vehicles in the sale
Security	Residential or commercial property	Agreement with the seller	Director guarantee	The assets
Term	Longer	Negotiated	Shorter	Matches asset life
Strength	Larger amounts	Seller stays invested	Faster to arrange	Uses tangible assets
Watch	Property on the line	Disputes if the business falters	Repayments on top of purchase costs	Only part of the price

Our verdict on acquisition finance

Property-secured lending wins because it solves the goodwill problem. The lender’s security is the property, not the intangible parts of the business, so the amount and term can reflect what the business earns rather than what it would fetch in a fire sale. Repaying over several years keeps the debt in line with how long it takes the business to return its price.

Vendor finance is the ideal partner. A seller who agrees to be paid part of the price over time is telling you they believe the earnings are real. They also have every reason to make the handover work.

An unsecured loan has a supporting role: funding stock at settlement, the first months of wages, or the whole price on a smaller deal with strong cash flow. Our secured versus unsecured verdict explains where the line usually falls. You can also tell us about the business you’re looking at and get a specialist’s view.

How do you check the numbers before you borrow?

The business.gov.au guide to buying an existing business recommends reviewing three to five years of tax returns, BAS, receivables and payables, balance sheets, profit and loss statements, cash flow statements and sales records, and verifying them independently.

Pay particular attention to “add-backs”, the owner’s expenses that the seller says won’t continue under you. Some are fair; others inflate the profit. Our guide to checking seller add-backs shows how to test them.

Illustrative example: buying a regional bakery

Illustrative only. A couple want to buy a long-running regional bakery. Most of the asking price is goodwill, with some ovens, mixers and a delivery van. They own their home with substantial equity.

They negotiate for the seller to carry part of the price as vendor finance, repaid over two years, and to stay on for a handover period. A property-secured term loan covers most of the rest. The van and some of the newer equipment go on asset finance, and a small facility covers stock and wages for the first few months.

Verdict for this couple: property-secured loan plus vendor finance, with working capital held back.

What costs do buyers forget?

• Stamp or transfer duty. Depending on the state and what’s being transferred, duty can apply. Revenue NSW’s transfer duty page lists business purchases among the transactions it covers.
• Legal and accounting fees for due diligence and contracts.
• Lease assignment costs, bonds and any bank guarantee.
• Stock at settlement, valued separately from the price.
• Working capital while you learn the business.

If property is your key to the deal, our page on the best loan when you own property covers first versus second mortgages and how much equity matters. For the term, see our verdict on short-term versus long-term loans.

What do lenders look at for an acquisition?

Expect questions about the business’s verified earnings, your experience in the industry, the deposit you’re contributing, the security available, any vendor finance and the lease. A clear, honest pack of information speeds things up and builds confidence.

Ready to make an offer you can fund?

Before you commit to a price, get clarity on how you’ll pay for it. Start a short enquiry with the asking price, what’s included and the security you have, and a specialist will tell you what’s realistic.

There’s no credit check when you first enquire, and your details go to one person rather than being spread across a list of lenders. Share the real figures, including anything awkward in your own credit history, and you’ll get advice you can build an offer around.