The Complete Guide to Buying a Business with Finance

Business acquisition finance is funding used to purchase an existing business — either as a going concern (assets and goodwill together) or as an asset sale (specific assets only). The finance typically covers the purchase price, which may include goodwill, stock, equipment, fit-out, and working capital. Unlike a standard business loan, acquisition finance is assessed against the target business's financial performance, the buyer's experience, and the security structure available. Lenders are essentially funding a change of ownership, so they need confidence that the business will continue to perform under new management.

Several funding types can be combined to finance a business acquisition. Term loans are the most common — a lump sum repaid over 3-7 years, secured against property or business assets. Goodwill funding covers the intangible value of the business above its net tangible assets (customer relationships, brand, systems, cash flow). Equipment and asset finance can separately fund plant, vehicles, and machinery included in the sale. Working capital facilities (overdrafts, lines of credit) provide operating funds for the transition period. Vendor finance — where the seller defers part of the purchase price — can reduce external borrowing requirements and signal confidence in the business. Many acquisitions use a combination of these funding types to cover the full purchase price and transition costs.

Lenders assessing a business acquisition focus on several key areas. Financial performance is paramount — they want to see 2-3 years of financial statements showing consistent revenue, strong margins, and sustainable cash flow. The debt service coverage ratio (DSCR) needs to demonstrate that the business can comfortably service the proposed loan repayments from operating cash flow. Buyer experience matters — relevant industry experience or transferable management skills significantly strengthen an application. Customer concentration is a risk factor — lenders prefer businesses where no single customer represents more than 20-30% of revenue. The security structure (property, business assets, personal guarantees) determines the loan-to-value ratio and interest rate. Finally, lenders want a clear rationale for the acquisition and a credible post-acquisition plan.

A strong acquisition finance application requires thorough preparation. You will need the target business's financial statements (minimum 2-3 years of profit and loss, balance sheets, and tax returns), a signed or draft sale contract, a business plan covering your acquisition rationale and post-settlement strategy, your personal financial position statement (assets, liabilities, income), details of any property or assets available as security, and a clear breakdown of the purchase price components (goodwill, stock, equipment, working capital). A specialist broker can prepare lender-ready credit papers, build 3-way financial models, and present your deal in the format that credit assessors expect — significantly improving your chances of approval and competitive terms.

Step 1: Feasibility assessment — before committing to a purchase, get a no-cost assessment of whether the deal is fundable. A broker can quickly identify potential issues and advise on realistic borrowing capacity. Step 2: Due diligence — financial, legal, and operational due diligence should run in parallel with the finance process. Your accountant, lawyer, and broker should be working together. Step 3: Credit paper preparation — your broker prepares financial models, cash flow projections, and a credit submission tailored to each target lender's requirements. Step 4: Lender sourcing and application — your deal is presented to the most appropriate lenders (often simultaneously), with your broker managing all lender queries and requirements. Step 5: Approval and documentation — once approved, loan documents are prepared and reviewed by your legal team. Step 6: Settlement — finance settles, ownership transfers, and you take the keys to your new business.

The security offered materially affects the terms, rate, and lender options available. Residential or commercial property is the strongest security — it unlocks the best rates and highest loan-to-value ratios (typically 70-80% LVR). Business assets (plant, equipment, stock) can be used as security but typically support lower LVRs (50-70%) and higher rates. A General Security Agreement (GSA) over the business gives the lender a charge over all present and future assets. Personal guarantees from the borrower and sometimes their spouse are standard for most business lending. Where property security is not available, lenders may use a combination of business assets, GSA, and personal guarantees — though the interest rate and terms will typically be less favourable. Some lenders offer unsecured acquisition finance for smaller deals based purely on cash flow, though rates are higher.

Underestimating working capital needs is the most common mistake — buyers focus on the purchase price and forget they need operating capital from day one. Not getting a finance feasibility assessment before signing a contract can leave you committed to a purchase you cannot fund. Relying on a single lender approach (typically your existing bank) limits your options and negotiating leverage. Ignoring customer concentration risk — if the business relies heavily on one or two key customers, lenders will see this as a risk. Not accounting for transition costs including stamp duty, legal fees, accounting fees, and potential revenue dips during the ownership change. Skipping due diligence or rushing it to meet a settlement deadline — this is where problems are uncovered, and it is worth the time.