Best Loans to Buy a Business (Australia)

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Getting a loan to buy a business in Australia

If you’re planning to get into business or expand, buying an existing business has a lot of advantages. Not least the reduced risk. Only about half of new Australian businesses survive beyond three years of operating. In other words, it’s a coin flip.

Buying an established business is a very different proposition, but one possible barrier is cost. If you’re buying an existing business with assets, customers, cash flow and an established brand, you’ll be paying for that.

It’s why finance is usually required. Here's what a loan to buy a business offers:

Access funds to buy an existing business

Borrowing limits up to $5 million

Loan terms up to five years

Loans can be secured or unsecured

Fixed and variable rate finance available

You'll be required to submit an extensive business and financial plan

What type of finance is best for buying a business?

Secured loans for buying a business

A secured business loan is likely to be the most cost-effective option for financing the purchase of an existing business.

To apply for a secured business loan, you’ll need an asset to use as collateral. This could be a personal asset, such as your home, or an asset from a business you already own.

It may also be possible to get a loan secured against the business you are buying if it meets the lender’s criteria.

Unsecured loans for buying a business

You could also consider an unsecured business loan to finance the business purchase. You won’t need an asset to directly secure the loan and the funds can be used with fewer restrictions.

Unsecured business loans are riskier for the lender. This is why they have higher interest rates and you may not be able to borrow as much.

On the plus side, they may be faster to get approval for, provided you can demonstrate capacity to repay the loan.

There is always more than one way to finance your needs

Vendor finance

With vendor finance, you only pay part of the sale price up front and then pay the rest to the seller (plus interest) in instalments. Essentially the seller is financing part of the sale.

Peer-to-peer finance

This is similar to business finance provided by a bank, but the funds are provided by investors looking for a return on their money. There are several peer-to-peer lenders in Australia who facilitate loans for business purposes.

How to qualify for a loan to buy a business

You can apply for finance to purchase an existing business from a bank, credit union, online lender or peer-to-peer lender. The eligibility criteria will depend on which one you choose and the specific provider.

Whatever avenue you take, the lender will assess your eligibility based on information about you and your current business (if you are already a business owner), and the business you’re buying.

The vast majority (73%) of businesses applying for a loan to purchase another business have been operating for at least three years, our data shows. These businesses have made it through the challenging first few years and are primed for expansion.

The lender will ask you to demonstrate that:

You are an Australian citizen or permanent resident

You have the necessary qualifications and experience to run the business you intend to purchase successfully

You do not have an major issues in your credit history (if you do, some lenders offer bad credit business loans)

Your personal income, assets and liabilities demonstrate your capacity to borrow (there are low doc business loans available for borrowers who cannot provide standard documents as proof)

The lender may also want to know how much of your own money you are investing into the business

If you’re a business owner already, lenders will want to see that your business is in a strong financial position based on its revenue and balance sheet. Among the thousands of loans we analysed, the largest group of borrowers report over $51,000 in monthly revenue (41.9%), and they secure the highest loan amounts – around $1 million on average.

Your track record in business matters

Money's asset finance expert, Phil Collard

Phil Collard, Money.com.au Business Finance Expert

"Most lenders will want to see at least 12 months worth of GST. Some lenders might have an even higher hurdle when it comes to time trading or you’ll pay a higher interest rate if you do qualify. So if you're trading for less than three years, you're not going to get their top pricing."

Phil Collard, Money.com.au Business Finance Expert

Expect a lender to ask for the following information about the business you plan to buy:

How is the business structured?

Where is it located?

How long has it been in business and in what industry?

What is the turnover and profit of the business?

How healthy is its current cash flow?

What assets does the business own?

What current debts does it have?

As well as this, the lender will almost certainly ask to see a detailed business plan showing forecasts for revenue, cash flow and other key indicators for the first two years of operations.

If you're financing a franchise purchase, the requirements may be slightly different.

The business plan for the business you intend to buy will be crucial to getting your finance approved. Ideally it should show:

Competitor analysis
Detailed analysis of the industry, market and competitors, plus the position of the existing business within the market.
Challenges
Any significant challenges or threats faced by the business, and detailed strategies for addressing them.
Financials
Clear and transparent figures relating to business turnover and cash flow, and how you plan to manage cash flow to maintain or improve profitability.
Your goals
Short, medium, and long-term business goals, including the timeframes for reaching each and how you plan to measure business performance.
Operational planning
How you plan to operate the business, to ensure you make the most of current resources and assets to remain competitive in your market.

Once you’ve found an existing business you are interested in purchasing, the first thing you’ll need to do is arm yourself with the information your lender will ask for when you apply for finance. Even an attractive-looking business on paper will likely have its issues. It’s better that you — and not a potential lender — discover these. Here are the questions we generally suggest borrowers think about when assessing a business to buy:

Why is the vendor selling the business?

Ideally, the owner will be looking to retire or cash out of a healthy business to pursue other interests. If they are selling because they need to clear personal debt they required to fund the business, this could be a major red flag.

Is there a rush to sell the business?

There could very well be legitimate reasons for an owner wanting a speedy cash out. But you’ll want to make sure this isn’t a tactic to rush a sale to avoid scrutiny of the business accounts. If there’s a legitimate reason for a rush to sell, you could leverage this when making an offer.

How are the business finances looking?

The three key financial statements used by businesses that you’ll want to understand are its balance sheet, profit and loss statement and cash flow statement. If you're not confident in navigating these, get the help of an accountant.

Is the business being sold in full or in part?

Will you have complete control and freedom in how you operate the business? If it's a part sale, it may be that the owner wants to continue receiving some benefit (income) from the business, while relinquishing control of the daily operations.

What do the business’s employees and customers think?

Visit the business and speak to employees and customers. Ask them what they like and dislike about the business, or if there have been any changes in how the business operates recently.

What are the market conditions?

Look at competitors, both locally and overseas, and see how the business compares. Assess the potential for growth. Even if you have experience with business finances and analysis, it’s a good idea to get independent expert advice.

Is buying an existing business a good idea?

Pros

Start operating immediately

Established customer base

Existing systems, facilities, equipment

Potentially less risky if you buy well compared to starting from scratch (survival rates among newly-established business are generally low)

Cons

More expensive up-front cost

Extensive due diligence required

Not all the risks will be apparent before you take over

Existing businesses can be difficult to value as some intangible factors (like the brand, reputation and customer loyalty) can be almost impossible to objectively assess

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Your questions answered

Can you get a business loan to buy an existing business?

Yes, it’s possible to get a business loan to buy an existing business. You will need to first meet lender criteria for loan approval, and fully understand the amount you need to borrow to finance the purchase and continued operation of the business under your ownership.

How much can I borrow to buy a business?

Small business lenders will generally lend anything up to $1 million to borrowers looking to finance the purchase of a business. But the actual amount will depend on the business being bought, the financial position of the borrower and whether the loan is secured or not.

How much deposit do you need to buy a business?

There are no hard and fast rules for this but generally lenders like to see that the person or business looking for finance is investing some of their own capital.

Is it better to buy an existing business or start a new one?

There are benefits to buying an existing business over starting your own. You may be able to acquire a business that already has established processes and regular income streams. You could also benefit if the existing staff will stay on following the change of ownership.

How much does it cost to buy a business?

The cost to buy a business will vary depending on the seller’s asking price for the business, your valuation of it based on your assessment, and how well you can negotiate the price. Of course, there will be many other costs on top of the actual sale price, including fees for legal advice, expert financial and accounting advice and stamp (transfer) duty.

Can I get a loan to buy a franchise business?

Yes, many lenders will consider loans for franchise purchases, though the process and requirements can be different compared to buying an independent business. Some franchises have preferred lenders or established finance processes.

Do I need to provide security for a business acquisition loan?

Most lenders will require security—this might be in the form of property, business assets, or sometimes the assets of the business being acquired. Some unsecured options may be available, but usually at higher rates and lower loan amounts.

What documents will I need to apply for a business purchase loan?

Typically, you’ll need to provide financial statements for your existing business (if applicable), a detailed business plan, personal identification, evidence of your experience, information about the business being purchased (financials, valuation, contracts), and possibly personal financial details.

How long does it take to get approved for a loan to buy a business?

Approval times vary. Some online and specialist lenders may approve loans in a few days, but traditional banks may take several weeks, particularly for larger or more complex deals.

What fees are involved when getting finance to buy a business?

Expect to pay loan establishment fees, ongoing account fees, valuation fees, legal costs, and possibly early repayment fees. You may also have due diligence and professional advice costs.

What happens if the business underperforms after I buy it?

You are still responsible for repaying your loan regardless of business performance. It’s crucial to conduct thorough due diligence and have a realistic business plan to avoid financial stress.

Can I borrow the full purchase price of a business?

Some lenders will allow you to finance the entire purchase through a loan, but it’s generally preferable to put up some of the funds yourself as this reduces risk for the lender.

What is vendor finance and how does it work when buying a business?

Vendor finance means the seller allows you to pay part of the purchase price over time. The seller becomes a lender, and you repay them in instalments (with interest). This can sometimes be combined with a traditional business loan.

What professional advice should I seek before buying a business?

Consider getting advice from an accountant, lawyer, business loan broker, and industry specialists. They can help you assess financials, legal contracts, and the value of the business.

Can I get pre-approval for a business acquisition loan?

Yes, most business lenders offer pre-approval. Getting conditional approval can help you negotiate with confidence and move quickly when you find the right opportunity.

Loans to Buy a Business