Key Takeaways
- There’s no universal business purchase LVR; your maximum loan is set by whichever factor, cash flow, valuation, security or lender policy, produces the lowest workable figure.
- Lenders normalise earnings and scrutinise seller add-backs before applying a debt-service test, so a seller’s marketed EBITDA rarely equals what a bank will actually lend against.
- Goodwill-heavy businesses generally support less leverage than asset-backed ones, and property security can widen your options but can’t fix an unsustainable cash flow.
- The same deal can get very different offers from different lenders, which is exactly why a proper scenario assessment beats a generic online calculator.
If you’ve started looking seriously at buying a business, you’ve probably already noticed that this question doesn’t have a simple answer the way it might for a home loan. There’s no widely quoted “80 per cent of the purchase price” rule to lean on, and every business, and every lender, seems to look at things a little differently. That uncertainty can be frustrating when you’re trying to work out whether a business you’ve found is actually within reach.
The honest answer is that your borrowing capacity for a business purchase isn’t set by one number or one formula. It’s shaped by how much sustainable cash the business genuinely generates, what a lender believes it’s actually worth, what security you can offer, and how experienced you are in the industry you’re moving into. Sometimes it’s your cash flow that limits the loan. Other times it’s your security. Occasionally it’s simply a matter of one lender seeing the deal differently to another.
This article walks through exactly how lenders arrive at a borrowing figure for a business acquisition, so that when you sit down with financials for a business you’re considering, you’ll have a genuine sense of what’s realistic rather than guessing.
What actually determines how much you can borrow
Before getting into the mechanics, it helps to see the full picture of what a lender is weighing up. None of these factors works in isolation, and understanding how they interact is really the whole point of this article.
| Factor | Why it matters |
| Sustainable earnings | Determines whether the business can repay the proposed debt |
| Purchase price versus valuation | Establishes what the lender believes the business is actually worth |
| Buyer contribution | Reduces the lender’s exposure and demonstrates commitment |
| Security available | Can broaden lender options and improve terms |
| Goodwill exposure | Generally carries more risk than tangible, recoverable assets |
| Industry | Lender appetite and risk tolerance vary significantly by sector |
| Buyer experience | Influences how the lender views execution risk |
| Loan term | Changes the size of annual repayments and therefore what’s serviceable |
The single most useful thing to understand upfront is this: your maximum loan amount is generally set by whichever of these factors produces the lowest acceptable figure, not by the biggest number in the mix. A lender might be entirely comfortable lending $800,000 against your available security, but if the business’s cash flow can only comfortably support $650,000 in acquisition debt, $650,000 is closer to your real borrowing capacity for that deal.
Is there a standard business purchase LVR
No, and this is worth being upfront about because it’s one of the most common misconceptions buyers bring into their first conversation with a lender or broker. In residential lending, most people have an intuitive sense that borrowing 80 per cent of a property’s value is fairly standard. There’s no equivalent universal figure in business acquisition finance.
The reason comes down to what you’re actually buying. A home is a fairly uniform, recoverable asset that behaves predictably in the market. A business purchase price might be made up mostly of equipment and stock in one case, and almost entirely of goodwill, brand and customer relationships in another. Two businesses selling for exactly $1 million can represent very different levels of risk to a lender, which means the loan-to-value ratio (LVR) a lender is comfortable with can vary enormously from one deal to the next. Treat any percentage figure you come across as a general starting point for a conversation, not a number to bank your plans on before you’ve had your specific deal assessed.
How lenders actually calculate borrowing capacity
This is the part that most sources skip over, and it’s genuinely the most useful thing to understand if you want a realistic sense of what a business can support. Lenders generally work through a sequence of steps to get from a business’s reported financials to an actual serviceable loan amount.
Step one: review historical earnings
The starting point is the target business’s financial statements and tax returns, typically covering at least the past two to three years. Lenders are looking for a consistent pattern rather than relying on one particularly strong, or unusual, year.
Step two: normalise the profit
Reported profit on a tax return often isn’t the figure a lender will actually use. They’ll adjust it to reflect what the business would realistically earn under new, arm’s-length ownership. This process, known as normalising earnings, accounts for things that wouldn’t necessarily continue or that are specific to the current owner.
Step three: assess which add-backs are accepted
Sellers and their accountants often present a business using “adjusted EBITDA” (earnings before interest, tax, depreciation and amortisation) or “adjusted profit,” which typically adds back items like the owner’s above-market salary, personal vehicle expenses, or a one-off legal cost. This is a genuinely important distinction to understand: a seller’s adjusted profit figure is not automatically the same as the income a lender will use for serviceability. Different lenders can, and do, take different views on the same add-back.
Step four: allow for a realistic operator wage
If you’re planning to work in the business yourself, or if a replacement manager will need to be employed, the lender will typically factor in a realistic wage for that role rather than assuming all of the current profit is available to service debt on top of your living costs.
Step five: calculate the proposed debt repayments
Once adjusted earnings are established, the lender models what your proposed loan amount and term would actually cost in annual repayments.
Step six: apply the lender’s debt-service requirement
Lenders typically want to see sustainable earnings cover the proposed debt repayments with a reasonable buffer left over, often described in terms of debt-service coverage. In plain English, debt-service coverage measures how comfortably the business’s ongoing cash flow can cover the loan repayments, not just meet them exactly with nothing to spare.
Step seven: check valuation, security and lender policy
Even where cash flow comfortably supports a loan, the lender will still weigh this against their own valuation of the business, the security available, and their internal policy limits for the industry involved.
Here’s a simplified illustration of how that might look in practice.
| Item | Amount |
| Reported EBITDA | $350,000 |
| Add back owner discretionary expenses | +$25,000 |
| Remove one-off legal expense (non-recurring) | +$15,000 |
| Deduct realistic replacement manager wage | -$110,000 |
| Adjusted earnings available for debt service | $280,000 |
From there, the lender models what loan amount and term $280,000 in sustainable earnings can realistically support, after allowing for tax, existing debts and a working capital buffer. The exact formula and buffer requirements differ between lenders, but this is the underlying logic almost all of them are working through.
What financial figure do lenders actually use
It’s worth being clear that revenue alone tells a lender very little about borrowing capacity. A business turning over $5 million with thin margins and only $100,000 of genuinely sustainable profit is likely to support considerably less acquisition debt than a business turning over $1.5 million with a healthy $400,000 in sustainable earnings.
Lenders will typically work through a hierarchy of figures, starting with revenue and gross profit, moving to EBITDA and EBIT (earnings before interest and tax), then to net profit, and ultimately arriving at normalised or adjusted earnings, the figure they consider genuinely sustainable and repeatable under new ownership. That final figure, not the headline revenue or even the seller’s marketed EBITDA, is what really drives the borrowing conversation.
How much deposit do you actually need
As with the LVR question above, there’s no fixed percentage that applies across every business acquisition. It genuinely depends on the interaction of several factors specific to your deal.
- How strong and consistent the business’s sustainable cash flow is
- Whether the purchase price is weighted towards tangible assets or goodwill
- What property or other security you can offer
- The lender’s appetite for the specific industry
- Your own relevant experience and qualifications
- Whether the transaction includes vendor finance or other supporting structures
A useful way to think about it is this: a lower-risk deal, backed by strong security and reliable cash flow, tends to support a smaller buyer contribution relative to the purchase price. A goodwill-heavy or higher-risk deal, without much tangible security behind it, generally requires a larger buyer contribution to give the lender enough comfort. Rather than anchoring on a specific percentage you’ve seen quoted elsewhere, it’s more useful to have your specific deal assessed against these variables.
Can you borrow 100 per cent of the purchase price
This comes up often, and the honest answer is that it’s possible in some structures, but it’s rarely as simple as it sounds. If you’re able to secure the purchase using residential or commercial property with substantial usable equity, a lender may be comfortable funding the full acquisition price against that security, because their risk is anchored to a recoverable asset rather than the business’s own performance.
What’s worth understanding clearly is that 100 per cent funding of the purchase price doesn’t mean no buyer equity is genuinely at risk. If your home is securing the loan, you have real skin in the game, even if no cash contribution was required at settlement. Borrowing 100 per cent of the price purely against the business itself, its cash flow and its assets, without any other security or buyer contribution, is a much rarer and more tightly assessed scenario, generally reserved for exceptionally strong, well-documented businesses.
Does owning property increase how much you can borrow
Generally, yes, but it’s important to understand exactly what property security does and doesn’t do. Offering residential or commercial property as security can broaden your options considerably, because the lender has a tangible, recoverable asset behind the loan rather than relying purely on the business’s ongoing performance.
What property security cannot do is make an otherwise unsustainable business cash flow serviceable. If the business genuinely can’t generate enough sustainable earnings to cover proposed repayments, a lender is unlikely to approve the full amount you’re hoping for purely because you’ve offered your home as security, particularly given responsible lending obligations. Security and serviceability are two separate tests, and it’s worth understanding which one is actually constraining your borrowing capacity in your specific situation.
Can you buy a business without property security
Yes, this is genuinely possible, though it usually means the lender is relying more heavily on other elements of the deal to get comfortable. Without property behind the loan, lenders will typically look more closely at the business’s own assets, such as equipment, stock and receivables, the strength and consistency of its cash flow, your own contribution, and potentially vendor finance to help bridge any gap.
Consider two versions of the same scenario. In the first, a purchaser has $300,000 in cash and $600,000 of usable equity in an investment property, buying a well-established business with strong, consistent earnings. Lender appetite here is likely to be considerably stronger because the real-property security supports the transaction regardless of how the business performs. In the second scenario, the same business is being purchased by someone with no property to offer. The lender will lean more heavily on the business’s own cash flow, its recoverable assets, and the buyer’s own contribution, and the amount ultimately available may look quite different as a result, even though the target business itself hasn’t changed.
How does goodwill affect how much you can borrow
Goodwill, the portion of a business’s value attributable to things like brand, customer relationships, reputation and staff, tends to be treated more cautiously by lenders than tangible assets, because there’s generally much less to recover if the business doesn’t perform as expected.
Compare an equipment-heavy business, where a $1 million purchase price might comprise $600,000 in machinery, $150,000 in stock and $250,000 in goodwill, against a consultancy selling for the same $1 million but made up of only $50,000 in equipment and $950,000 in goodwill. Even with identical reported earnings, these two deals typically look very different to a lender. The equipment-heavy business offers meaningful recoverable security if things go wrong. The consultancy relies almost entirely on the ongoing strength of the business and the transferability of its client relationships once you take over, which is inherently harder to guarantee.
What happens if the lender’s valuation is below the purchase price
This is a genuinely common scenario and worth planning for rather than being caught off guard by. If you’ve agreed to pay, say, $1.4 million, but the lender’s own valuation or acceptable assessment of the business comes in at $1.2 million, you’re generally left with a gap to cover through one or more of the following.
- Increasing your own cash contribution to cover the shortfall
- Offering additional security, such as property, to support the higher loan amount
- Negotiating vendor finance to bridge part of the gap
- Renegotiating the purchase price with the seller
- Approaching another lender who may take a different view of the valuation
This is conceptually similar to a valuation shortfall in property lending, but it’s often more complex in a business context because business value frequently includes goodwill, which different valuers and lenders can genuinely assess quite differently.
Can vendor finance increase what you’re able to buy
Vendor finance, where the seller leaves part of the purchase price outstanding to be repaid by you over time, can be a genuinely effective way to bridge a funding gap, but it’s not a substitute for a properly structured deal.
Take a $1,000,000 purchase where a lender is comfortable advancing $600,000 and you have $250,000 in cash. That leaves a $150,000 shortfall, which a vendor finance arrangement could potentially cover. What’s important to understand is that your senior lender will usually need to approve this arrangement, and will often require the vendor’s loan to be subordinated, meaning it ranks behind the bank’s security and may only start being repaid once certain conditions or milestones are met. Vendor finance is a genuinely useful tool for closing a gap, but it needs to be structured properly alongside your primary lender rather than treated as an informal side arrangement.
Working capital is a separate question from acquisition borrowing
This is one of the most important distinctions in the whole process, and it’s easy to overlook when you’re focused on simply getting the purchase across the line. Consider a $900,000 purchase where you’ve arranged $700,000 in acquisition finance and you’re contributing $200,000 in cash. On paper, that deal looks fully funded.
But if the business also needs another $100,000 shortly after settlement to cover wages, stock, GST obligations and supplier payments while it settles into new ownership, you’re actually underfunded, even though the purchase itself technically completed. The real question to ask isn’t simply “how much can I borrow to buy this business,” it’s “how much total finance do I need to buy it and safely operate it through the transition.” Building a working capital allowance into your funding plan from the outset, rather than treating it as an afterthought, is one of the most effective ways to protect yourself in the months after settlement.
What documents will lenders use to work this out
Having the right information ready speeds up the whole assessment process considerably, and gives you a much clearer, earlier read on where your borrowing capacity is likely to land.
- Two to three years of the target business’s financial statements, including profit and loss and balance sheet
- Business tax returns for the same period
- Recent Business Activity Statements or management accounts where relevant
- Cash-flow forecasts, particularly for larger or more complex acquisitions
- An independent business valuation, where applicable
- The sale contract or heads of agreement
- Your own personal tax returns and statement of assets and liabilities
- Evidence of your available cash contribution
- A summary of your relevant qualifications or industry experience
A worked example of how borrowing capacity actually plays out
Numbers make this far easier to follow than theory alone, so here’s a realistic scenario showing how the pieces fit together, and how two different lenders might reach different conclusions on the same deal.
| Deal details | Amount |
| Purchase price | $1,200,000 |
| Target business EBITDA | $320,000 |
| Normalised earnings after adjustments | $290,000 |
| Buyer cash available | $250,000 |
| Usable equity in an existing property | $400,000 |
| Working capital required post-settlement | $75,000 |
Here’s how two lenders might approach the same deal quite differently.
A more conservative lender
This lender takes a cautious view of the business’s goodwill component and applies a stricter debt-service requirement. They might offer acquisition debt of around $650,000, with a working capital limit of $50,000, meaning you’d need to find a larger combination of cash, additional security or vendor finance to make up the remaining gap.
A lender comfortable with the industry and security
This lender is familiar with the specific industry, takes comfort from the available property security, and applies a more generous view of the normalised earnings. They might offer acquisition debt closer to $800,000, along with the full $75,000 working capital facility.
The point of this example isn’t that one lender is right and the other wrong. It’s that borrowing capacity for a business acquisition genuinely is lender- and structure-specific. It’s not simply a case of applying a fixed percentage to the purchase price, which is exactly why getting more than one perspective on a deal, ideally through a broker who knows which lenders tend to view particular industries and deal structures favourably, is so valuable.
Why buyer experience affects the numbers too
It’s not only the business’s financials that shape a lender’s view, your own background matters as well. Consider an experienced dentist buying an established dental practice, compared with a corporate executive with no clinical background buying the exact same practice. Even where both scenarios are legally straightforward, lender appetite and the leverage they’re comfortable offering can genuinely differ, because the lender is also pricing in execution risk, not just historical numbers.
That doesn’t mean a lack of direct industry experience rules you out. Factors that can help offset this include relevant management or business ownership experience elsewhere, a documented transition period with the outgoing owner, retained key staff, or, in the case of a franchise, a structured onboarding and support program from the franchisor.
Why industry matters as much as the numbers
Two businesses with identical reported profit can attract quite different levels of lender appetite depending on the sector they operate in. Lenders weigh up factors like revenue volatility, the level of regulation involved, how concentrated the customer base is, how much tangible, recoverable asset backing exists, and how transferable the business’s goodwill genuinely is to a new owner. A well-established pharmacy, for example, tends to be viewed very differently to a construction business, even at similar profit levels, simply because of how each industry behaves and how recoverable the underlying value is if things go wrong. This is worth keeping in mind if you’re comparing borrowing capacity estimates across different types of businesses, because the industry itself is doing a lot of the work behind the scenes.
Why online borrowing calculators fall short here
Generic business loan calculators can give you a rough, ballpark sense of borrowing capacity for straightforward working capital or equipment finance, but they’re genuinely limited when it comes to a business acquisition. A calculator has no way of knowing your target business’s normalised earnings, how a lender might view its goodwill, what security you can bring to the table, or how your own experience factors into the assessment. Rather than relying on a calculator result, a proper scenario assessment, using your specific deal’s actual figures, will give you a far more realistic and useful picture of what’s achievable.
If you’re moving from a rough borrowing estimate to assessing a specific purchase, it can help to look more closely at acquisition finance and how lenders may structure funding around the business’s earnings, assets and available security. For buyers who also need funding for property, equipment or working capital, comparing broader commercial loan options can help determine whether more than one facility is appropriate for the overall transaction.
How a commercial finance broker can help you get a realistic figure
Because borrowing capacity for a business purchase depends on so many interacting factors, and because lender policy genuinely varies from one institution to the next, this is exactly the kind of question worth getting a second, informed opinion on before you commit to a purchase price. A broker can work through the target business’s financials with you, form a view on likely normalised earnings, and identify which lenders are typically comfortable with that industry, that level of goodwill, and that deal structure. We can also help you understand whether your available security or contribution is likely to be the limiting factor, whether vendor finance makes sense to bridge any gap, and how to build a realistic working capital allowance into the overall plan, so you’re going into negotiations with a genuinely informed sense of what you can afford, rather than a guess based on the purchase price alone.
Frequently Asked Questions (FAQs)
1. How much can I borrow to buy a business in Australia?
There’s no single figure or percentage that applies to every deal. Your borrowing capacity depends on the target business’s sustainable earnings, its valuation, how much of the price relates to goodwill versus tangible assets, the security you can offer, and the specific lender’s policy. It’s best assessed on a deal-by-deal basis rather than estimated from a general rule.
2. What percentage of the purchase price will a bank finance?
This varies considerably and depends on the strength of the business’s cash flow, the security available, the industry, and the individual lender’s appetite for the deal. Rather than a fixed percentage, think of it as being governed by whichever constraint, serviceability, valuation or security, produces the lowest workable figure for your specific transaction.
3. Can I borrow 100 per cent of the purchase price?
It’s possible in some structures, particularly where residential or commercial property with sufficient equity is used as security. Borrowing 100 per cent of the price purely against the business’s own cash flow and assets, without other security or contribution, is far less common and generally reserved for exceptionally strong, well-documented businesses.
4. Does owning property increase how much I can borrow?
Generally, yes, because it gives the lender a tangible, recoverable asset behind the loan, which can broaden your options and improve terms. It’s important to understand, though, that property security can’t make an otherwise unsustainable business cash flow serviceable, since serviceability and security are assessed as two separate factors.
5. Do lenders use EBITDA or net profit to assess borrowing capacity?
Lenders typically work through a hierarchy of figures, starting from revenue and moving through EBITDA, net profit and ultimately normalised or adjusted earnings, which reflects what the business is genuinely likely to earn on a sustainable basis under new ownership. That final adjusted figure, rather than the headline revenue or the seller’s marketed EBITDA, is generally what drives the actual borrowing conversation.
6. Will lenders accept the seller’s adjusted profit figure?
Not automatically. Sellers often present a business using an adjusted or “add-back” profit figure, but different lenders can take different views on which specific add-backs they’re willing to accept. It’s worth treating the seller’s figure as a starting point for discussion rather than assuming it will translate directly into your approved serviceability calculation.
7. Can vendor finance increase how much I can effectively buy?
Yes, vendor finance can help bridge a genuine gap between what a lender is willing to fund and what you can contribute yourself. It generally needs to be approved by your senior lender and is often subordinated to the bank’s security, so it’s worth structuring carefully alongside your primary finance rather than arranging it informally with the seller.
The Bottom Line
How much you can borrow to buy a business isn’t a fixed percentage of the purchase price, it’s the outcome of several factors working together, and it’s usually set by whichever one is most restrictive in your specific deal. Sometimes that’s the business’s sustainable cash flow. Sometimes it’s the security you can offer. Occasionally it’s simply that one lender takes a more favourable view of the industry or the goodwill involved than another does. The buyers who go into negotiations with the clearest sense of what’s realistic are the ones who’ve had their specific deal properly assessed against these variables, rather than relying on a generic percentage or an online calculator. If you’ve found a business you’re serious about, working through these numbers early gives you a genuine read on what’s achievable, and puts you in a far stronger position at the negotiating table.
