Key Takeaways
- Your total funding requirement is usually higher than the purchase price once you factor in stock adjustments, transaction costs and a working capital buffer, so budget for the whole deal, not just the sale figure.
- Lenders assess normalised earnings, debt-service capacity, buyer experience, goodwill and lease terms, not a fixed deposit percentage, so there’s no universal “20 per cent” rule.
- Vendor finance can bridge a funding gap but usually needs senior lender approval and is often subordinated, so don’t assume it counts as cash equity.
- Underfunding working capital after settlement is one of the most common and costly mistakes, even when the purchase itself is fully financed.
Buying an established business is one of the more efficient ways to build wealth in Australia right now, particularly compared with starting from scratch in a higher-cost environment. An existing business comes with a trading history, customers, staff and cash flow already in place, which gives a lender something concrete to assess. But that also means financing a business purchase works quite differently to financing a home, and a lot of buyers approach it with the wrong mental model.
If you’ve found a business you’re interested in, or you’re starting to look, the real question isn’t simply “what loan should I get.” It’s closer to this: does the business generate enough sustainable cash flow to support the debt you’re proposing, how much of your own money do you need to put in, what security is available, and how do you structure everything, including the seller’s involvement, so the deal actually settles and the business survives its first year under your ownership.
This article walks through how business acquisition finance actually gets assessed and structured in Australia, so you can go into negotiations, due diligence and your finance application with a realistic picture of what’s achievable and what a lender will want to see.
How business purchase finance actually works
Financing the purchase of an existing business is fundamentally different from applying for a standard home loan, and it’s worth understanding why before you get further into the process.
With a home loan, a lender is largely assessing your personal income and the value of the property. With business acquisition finance, the lender is assessing two things at once: the business itself, including whether its earnings can sustainably support the proposed debt, and you as the purchaser, including your financial position, industry experience and what you’re contributing. There’s no single formula that applies across every deal. The right structure for a $400,000 café purchase looks nothing like the right structure for a $3 million manufacturing business, because the earnings profile, security available and risk factors are completely different.
How much money do you actually need to buy a business
One of the most common mistakes buyers make is assuming the purchase price is the only number that matters. In reality, the total funding requirement is usually higher than the headline sale price, and underestimating it is one of the fastest ways to end up in trouble shortly after settlement.
A useful way to think about it is as an equation: purchase price, plus any stock or asset adjustments at settlement, plus transaction costs like legal and accounting fees, plus a working capital buffer to keep the business running smoothly while it transitions to new ownership.
Here’s what that might look like for a mid-sized acquisition.
| Item | Amount |
| Business purchase price | $800,000 |
| Stock adjustment at settlement | $70,000 |
| Legal, accounting and due diligence costs | $25,000 |
| Working capital buffer | $80,000 |
| Total funding required | $975,000 |
That total might then be funded through a combination of sources.
| Source | Amount |
| Buyer contribution | $250,000 |
| Senior business acquisition loan | $575,000 |
| Vendor finance | $100,000 |
| Working capital facility | $50,000 |
Notice that the $800,000 purchase price is only around 82 per cent of the total funding requirement. This is the calculation buyers most often skip, and it’s exactly where a good broker earns their keep.
What finance options are available
Most acquisitions draw on more than one type of finance, rather than relying on a single loan to cover everything. Understanding what each option is best suited to helps you build a structure that actually fits your deal.
Business acquisition term loan
A dedicated loan to fund the purchase, typically repaid over a set term with either principal and interest or, in some cases, an initial interest-only period. Terms and structure vary significantly between lenders and depend heavily on the strength of the deal.
Property-secured business loan
If you or a related party own residential or commercial property with sufficient equity, a lender may be more comfortable extending finance secured against that property. This often leads to stronger pricing and more flexible terms, but it does expose that property if the business runs into difficulty.
Cash-flow or goodwill-based finance
Where there isn’t property security available, some lenders will finance an acquisition primarily against the strength and sustainability of the target business’s earnings. This tends to be more policy-sensitive and is assessed deal by deal.
Equipment or asset finance
Where a meaningful portion of the purchase price relates to plant, equipment or vehicles, a separate asset finance facility secured against those specific items can sometimes be used alongside a broader acquisition loan.
Vendor finance
The seller agrees to leave part of the purchase price in the business, to be repaid over an agreed period. We’ll come back to this in more detail, because it’s genuinely useful but needs to be structured carefully alongside any bank debt.
Equity from investors or partners
Some buyers bring in a business partner or investor to reduce the amount of debt required. This changes the ownership and decision-making structure of the business, so it’s worth thinking through carefully rather than purely as a funding mechanism.
Working capital facilities
A separate facility, such as a business overdraft or line of credit, held in reserve for operating the business after settlement rather than for the purchase itself.
The right finance structure will depend on what you’re buying, the security available and how much of the purchase price relates to assets versus goodwill. If you’re still comparing your options, understanding the main commercial loan types can help narrow down which facilities may suit your situation. Buyers can also explore broader commercial loan options, while those specifically purchasing an established business may want to look more closely at business acquisition finance and how it can be structured around the target business and their contribution.
How much deposit do you actually need
This is probably the single most common question, and it’s also where a lot of the generic advice circulating online can lead buyers astray. There is no fixed Australian rule that says you need 20 per cent, or any other specific percentage, to buy a business. The required contribution depends on the interaction of several factors.
- The lender’s individual policy and risk appetite for the industry involved
- How much of the purchase price relates to tangible assets versus goodwill
- Whether property security is available
- The strength and consistency of the business’s historical cash flow
- Your own experience in the industry or in running a business generally
- Whether the business operates under a franchise system with an established lender panel
A well-established trade business with solid equipment, consistent earnings and a buyer with 15 years of relevant experience may require a comparatively modest contribution. A goodwill-heavy service business, with a first-time buyer and no property security, is likely to need a considerably larger contribution, if it’s financeable at all without additional support such as vendor finance. Treat any blanket deposit percentage you see quoted online as a general starting point for discussion, not a number to plan your finances around before you’ve had a proper assessment done.
Can you buy a business without property security
It’s possible, but it generally depends on the strength of the underlying business rather than being a straightforward yes. Without residential or commercial property to secure the loan, lenders will lean more heavily on the business’s own assets, its cash flow, and your buyer contribution.
In practice, this often means a combination approach works best: a cash-flow or asset-secured facility for part of the purchase, a solid buyer contribution to reduce the lender’s exposure, and potentially vendor finance to bridge any remaining gap. It’s worth having a frank conversation with a broker early, because knowing whether property security is realistically needed for your specific deal will shape how you negotiate and structure the purchase from the outset.
How lenders actually work out how much you can borrow
This is the part most guides skip over, and it’s genuinely the heart of the decision. Lenders aren’t simply looking at the purchase price and applying a percentage. They’re working through a chain of assessment that determines whether the business can sustainably support the debt you’re proposing.
Historical earnings
The starting point is the target business’s financial statements, tax returns and, ideally, recent management accounts. Most lenders will want to see at least two to three years of financial history to establish a pattern rather than relying on a single strong year.
Normalised earnings and add-backs
Reported profit often isn’t the number a lender actually relies on. They’ll typically adjust for legitimate non-recurring or owner-specific items, known as add-backs, such as an above-market owner’s salary, a one-off legal dispute, or an unusual repair bill that isn’t likely to recur. This process is called normalising earnings, and it’s meant to reveal the business’s true, ongoing profitability. It’s worth being realistic here though. Not every add-back a seller proposes will be accepted, and different lenders can take different views on the same item, which is one reason the same business can be assessed quite differently by two different lenders.
Debt-service capacity
Once normalised earnings are established, the lender asks whether that sustainable cash flow comfortably covers the proposed loan repayments, with some buffer left over for the unexpected. This is the commercial-lending equivalent of serviceability in home lending, but instead of assessing your household income and living expenses, the lender is assessing the business’s ability to generate cash after its own costs.
Industry risk
A profitable business in a declining or highly volatile industry can still be harder to finance than a moderately profitable business in a stable sector, because the lender is thinking about sustainability over the loan term, not just current performance.
Buyer experience
Lenders do pay attention to whether you have relevant industry or management experience. An experienced physiotherapist buying an established physiotherapy practice is likely to be viewed differently to someone moving into the same purchase from an unrelated career, even where the target business’s financials are identical. This isn’t a judgement on your ability, it’s simply that execution risk is part of what a lender is pricing.
Customer and key-person concentration
If a large proportion of revenue comes from one or two customers, or if the business’s goodwill is heavily tied to a departing owner or founder, a lender may discount the headline earnings figure accordingly. A business earning $500,000 with 55 per cent of revenue from a single customer carries meaningfully more risk than one with a broad, diversified customer base, even at identical reported profit.
Security available
As discussed above, whether you can offer property security, versus relying on the business’s own assets and cash flow, significantly influences both how much you can borrow and the terms you’re likely to be offered.
Purchase price relative to valuation
If a lender’s own valuation of the business comes in below the agreed purchase price, this can reduce the amount they’re willing to lend, potentially leaving a funding gap that needs to be covered through a larger buyer contribution or vendor finance.
Remaining lease term
For location-dependent businesses such as cafés, retail stores, medical practices or childcare centres, the lease is often just as important as the financials. A lender may be reluctant to fund a seven-year loan against a business with only 18 months left on its lease and no reliable option to renew.
Does the lender finance goodwill
Goodwill is the value of a business beyond its tangible, physical assets, things like brand reputation, customer loyalty, staff, location and supplier relationships. It’s a real and often substantial part of what you’re paying for, but lenders don’t always treat it the same way they treat a piece of machinery or a vehicle.
Consider two businesses, each selling for $1 million. Business A includes $700,000 of machinery and equipment that could be sold if the business failed, giving the lender recoverable security. Business B is a service business where almost the entire value sits in brand and customer relationships, assets that are much harder to recover value from if things go wrong. Even with identical purchase prices and similar reported earnings, these two deals can look quite different to a lender, and goodwill-heavy purchases often require a larger buyer contribution or additional security to bridge that gap.
Asset purchase versus share purchase
Buyers can typically structure an acquisition in one of two ways: purchasing the underlying business assets and operations, or purchasing shares in the company that owns the business. This decision has real implications for tax, legal liability, and how the transaction is financed, and it’s genuinely a decision for your accountant and solicitor rather than something to decide informally. What’s worth knowing upfront is that the structure you choose can affect what security a lender can take, what liabilities transfer with the business, and how the deal is documented, so it’s worth raising early with your broker rather than after finance discussions are already underway.
What documents will you need
Having your documentation organised early speeds up the whole process considerably. Lenders will generally want information on both the target business and on you as the purchaser.
For the target business
- Two to three years of financial statements, including profit and loss and balance sheet
- Business tax returns for the same period
- Recent management accounts or Business Activity Statements where relevant
- Aged receivables and payables reports
- A copy of the lease, including remaining term and any option periods
- The sale contract or heads of agreement
- A business plan or forecast, particularly for larger or more complex acquisitions
For you as the purchaser
- Recent personal tax returns
- A statement of your assets and liabilities
- Recent bank statements
- Evidence of your funding contribution
- A summary of your relevant industry or business experience
- Identification documents
- Details of any existing debt commitments
Why due diligence and finance approval overlap but aren’t the same thing
It’s worth being clear on this distinction, because relying on a lender’s credit assessment as a substitute for your own due diligence is a genuine risk. A lender is assessing whether the deal is financeable and whether the debt can be serviced. You, as the buyer, need to independently satisfy yourself that you’re paying a fair price for a genuinely sound business.
Your own due diligence should extend to verifying sustainable revenue rather than taking headline figures at face value, reviewing financial records in detail, understanding the lease terms and options, checking licences and legal compliance, confirming the condition and ownership of business assets, understanding any existing liabilities, and speaking with key staff where appropriate. It’s also worth checking whether any assets you’re acquiring have existing security interests registered against them, which brings us to a step that’s easy to overlook.
What is the PPSR and why it matters
The Personal Property Securities Register (PPSR) is the national register where lenders record security interests over personal property, things like equipment, vehicles and business assets, that don’t fall under real estate. If you’re buying business assets, it’s important to check the PPSR to confirm whether any of those assets already have a registered security interest from an existing lender of the seller’s.
This matters because, in some circumstances, property with an existing registered security interest can potentially still be recovered by that secured party, even after you’ve paid for it, if the interest wasn’t properly cleared before settlement. On the finance side, your own lender will typically register a General Security Agreement (GSA), a broad security interest over the business’s assets, on the PPSR to protect their position. Making sure any of the seller’s existing registrations are cleared as part of settlement is a standard but essential step that shouldn’t be left to chance.
How vendor finance can help bridge the gap
Vendor finance, sometimes called seller finance, is when the seller agrees to leave part of the purchase price outstanding, to be repaid by you over an agreed period, often with interest. It’s a genuinely useful tool, particularly where there’s a gap between what a senior lender is comfortable funding and what you can contribute yourself.
Returning to our earlier example, a $1 million purchase might be structured as $250,000 from the buyer, $600,000 from a senior lender, and $150,000 through vendor finance. There are a few things worth understanding about how this works in practice. Your senior lender will usually need to approve the vendor finance arrangement as part of the overall deal. The vendor’s debt is often subordinated, meaning it ranks behind the senior lender’s security and may only be repayable once certain conditions or milestones are met. Whether vendor finance is treated as genuine equity or simply as another form of debt varies by lender, so it’s worth clarifying this early rather than assuming it will automatically strengthen your position the way cash equity would.
Don’t forget working capital after settlement
This is one of the most important and most commonly underestimated parts of financing a business purchase. It’s entirely possible to arrange finance that covers the purchase price in full and still end up in a genuinely difficult position within the first few months, simply because there’s no cash left to run the business day to day.
After settlement, you’ll typically need funds available for wages and superannuation, supplier payments, GST and other tax obligations, rent, insurance, stock replenishment, and any seasonal dips in revenue while you settle into the business. A buyer who puts every available dollar towards the purchase price, with nothing held back, is taking on considerably more risk than the purchase price alone would suggest. Building a realistic working capital buffer into your funding structure from the outset, as in our earlier $80,000 example, is one of the most effective ways to protect yourself in the first year of ownership.
Stock is often a separate consideration
For retail, hospitality, wholesale and manufacturing businesses in particular, stock can be handled a few different ways. It might be included in the headline purchase price, excluded and adjusted separately at settlement based on an actual stocktake, or valued and negotiated independently. If your finance is arranged purely around the advertised sale price without accounting for a stock adjustment, you can find yourself short of funds right at settlement, which is an avoidable problem if it’s factored into your total funding requirement from the start.
Financing a franchise purchase
Buying into a franchise adds a few extra considerations to the finance process. Lenders will often look at the franchise system itself, including its track record, brand strength and the level of support the franchisor provides, alongside the specific location and franchise agreement you’re taking on. Some established franchise systems have existing relationships or informal panels with certain lenders, which can sometimes make the assessment process more straightforward than for a standalone independent business. It’s still worth treating each franchise opportunity on its own merits though, since location, remaining agreement term and local trading conditions all still matter.
What costs should you budget for beyond the purchase price
A realistic funding structure accounts for more than just interest on the loan. Here’s a broad guide to what else is commonly involved, though actual costs vary considerably depending on the size and complexity of the transaction.
| Cost | What it covers |
| Interest | The ongoing cost of your borrowed funds |
| Loan establishment fee | Charged by the lender to set up the facility |
| Valuation costs | Independent valuation of the business, property or security |
| Legal fees | Preparing and reviewing the sale contract and finance documents |
| Accounting and due diligence fees | Verifying the target business’s financial position |
| Stock adjustment | Inventory value confirmed at settlement |
| Lease assignment or new lease costs | Transferring or negotiating the premises lease |
| Working capital reserve | Funds held back to operate the business post-settlement |
A small café purchase and a multi-million dollar company acquisition will have very different cost structures, so treat this as a checklist to work through with your accountant and broker rather than a fixed percentage to apply to any deal.
A word on using self-managed super to fund a purchase
It’s sometimes suggested that a self-managed superannuation fund (SMSF) can be used to invest in or help fund a business purchase. This is an area where caution is genuinely warranted. The Australian Taxation Office (ATO) places significant restrictions on SMSFs, including limits on providing financial assistance to members or related parties, acquiring assets from related parties, in-house asset limits, and strict rules around when an SMSF can borrow at all. If your business or trust structure has any connection to your super fund, this isn’t a mainstream funding avenue to consider casually. It requires specialised legal and tax advice before going anywhere near it, and should be treated as a specialist structuring question rather than a standard part of your acquisition funding plan.
Should you get finance approval before making an offer
It’s tempting to focus on winning the deal first and worrying about finance afterwards, but this can put you in a genuinely difficult position if the numbers don’t stack up the way you expected. Getting a preliminary finance assessment before you make a formal offer gives you a realistic sense of what’s achievable, so you’re negotiating from an informed position rather than hoping the finance will follow. It’s also worth making sure any offer or sale contract includes appropriate finance and due diligence conditions, giving you a way out if the lender’s valuation or credit assessment doesn’t support the deal as structured. The specific legal wording for these conditions should always be drafted by your solicitor, but raising the need for them early, before you’re under pressure to sign, puts you in a much stronger position.
A step-by-step view of the process
While every acquisition is different, most follow a broadly similar sequence from initial interest through to settlement.
- Review the target business’s available financial information
- Estimate your total funding requirement, not just the purchase price
- Get a preliminary finance assessment from a broker or lender
- Work out your likely funding structure, including buyer contribution, debt and any vendor finance
- Make an offer subject to appropriate finance and due diligence conditions
- Complete detailed financial and legal due diligence
- Submit your formal finance application with supporting documentation
- Lender completes valuation and credit assessment
- Receive formal approval and finalise security and settlement documentation
- Settle the purchase
- Draw down your working capital facility and begin the transition
Common mistakes worth avoiding
Some mistakes come up often enough in business acquisition finance that they’re worth calling out directly, so you can steer clear of them in your own deal.
- Assuming a home-loan style 80 per cent funding ratio applies to business purchases
- Putting every available dollar towards the deposit and leaving no working capital buffer
- Relying entirely on seller-provided financials without independent verification
- Assuming every lender will accept the same profit add-backs the seller has proposed
- Overlooking how much lease term remains on a location-dependent business
- Ignoring customer concentration risk in an otherwise profitable-looking business
- Signing an unconditional contract before finance is genuinely confirmed
- Assuming vendor finance will automatically be treated the same as cash equity
- Underestimating the transition risk of moving into an unfamiliar industry
How a commercial finance broker can genuinely help
Business acquisition finance is far less standardised than home lending, and that’s exactly where a broker’s knowledge of lender policy differences becomes valuable. A good broker can help you work out which lenders are likely to be comfortable with your specific industry, whether your deal can realistically be funded against cash flow or needs property security, what buyer contribution is likely to be expected, and how a lender is likely to view goodwill in your particular transaction. We can also help you think through whether vendor finance makes sense, how much working capital to build into your structure, what documentation to prepare in advance, and how to present the overall deal to a lender in a way that reflects its genuine strengths. What we can’t do is replace your accountant’s advice on tax and structuring, or your solicitor’s advice on the contract itself, so the strongest acquisitions tend to be the ones where finance, accounting and legal advice are all brought in early and working from the same information.
Frequently Asked Questions (FAQs)
1. How much deposit do I need to buy a business in Australia?
There’s no fixed percentage that applies universally. Your required contribution depends on factors including the lender’s policy, how much of the purchase price relates to tangible assets versus goodwill, whether property security is available, the strength of the business’s cash flow, and your own industry experience. It’s best treated as a deal-specific question rather than a fixed rule.
2. Can a bank finance the entire purchase price of a business?
It’s uncommon for a lender to fund the full purchase price without any buyer contribution, particularly for goodwill-heavy businesses. Most acquisitions are funded through a combination of buyer contribution, a senior loan, and sometimes vendor finance, rather than one facility covering the entire amount.
3. Can I buy a business without owning property?
Yes, it’s possible, though it generally depends on the strength of the target business’s cash flow and assets. Without property security, lenders will place more weight on the business’s own financial performance, your contribution, and potentially vendor finance to help structure a deal that works.
4. Do lenders finance goodwill when I buy a business?
It depends on the deal. Goodwill, the value attributable to things like brand, customer relationships and reputation, is generally viewed differently to tangible assets like equipment, because there’s less recoverable value if things go wrong. Goodwill-heavy purchases often require a larger buyer contribution or additional security to offset this.
5. How many years of financial statements will I need?
Most lenders will want to see at least two to three years of the target business’s financial statements and tax returns, to establish a genuine pattern of earnings rather than relying on a single strong or unusual year.
6. Can vendor finance count towards my deposit?
Whether vendor finance is treated as equivalent to cash equity varies by lender. Some lenders view it favourably as it demonstrates the seller’s confidence in the business, while others treat it purely as another layer of debt. It’s worth clarifying this with your broker or lender before assuming it will strengthen your funding position the way genuine cash equity would.
7. Should I get finance approval before signing a business sale contract?
Getting a preliminary finance assessment before making a formal offer is generally a sound approach, since it gives you a realistic picture of what’s achievable before you’re financially or legally committed. It’s also worth ensuring any offer is made subject to appropriate finance and due diligence conditions, drafted by your solicitor, in case the lender’s valuation or assessment doesn’t support the deal as agreed.
The Bottom Line
Financing a business purchase isn’t about finding one loan that covers the sale price, it’s about working out whether the business can genuinely sustain the debt you’re proposing, how much you need to contribute, what security is realistically available, and how much working capital you’ll need to keep the business running smoothly once you take over. The buyers who navigate this well are the ones who start with a realistic total funding requirement rather than just the headline purchase price, get an honest read on their deal before making an offer, and build in enough of a buffer to protect the business, and themselves, through the transition. If you’re weighing up a purchase, working through these numbers properly before you commit is what turns a promising opportunity into a deal that actually settles and thrives.
