Mr says
Yes. Business purchases are commonly funded with a property-secured loan, sometimes combined with the buyer's own contribution. Lenders look at the business's past performance under the seller, your experience running something similar, the price against the profits, the lease, and the security you can offer. Have the contract of sale, the seller's financials and BAS, and a plan for the first year ready before you apply.
Key points
- Lenders assess the business you're buying and you as its new owner.
- Property security is the most common way to fund a purchase.
- The seller's financial records are central to the application.
- Budget for stamp duty where it applies, stock, legal costs and working capital.
- Usual route
- Property-secured loan, $20k – $5m
- Key documents
- Contract of sale, seller's financials, lease
- Due diligence period
- 3–5 years of records (business.gov.au)
How do lenders look at a business purchase?
As two applications in one. The first is about the business: does it make enough money, reliably enough, to justify the price and service the loan? The second is about you: can you run it at least as well as the seller did?
A café that has made steady profits for six years, bought by someone with years of hospitality experience, reads very differently from the same café bought by someone who has never pulled a coffee.
What records will the lender want?
business.gov.au’s guidance on buying an existing business recommends looking at three to five years of records, including tax returns, business activity statements, accounts receivable and payable, balance sheets and cash flow statements. Lenders want much the same:
| Document | Why |
|---|---|
| Contract of sale | Price, inclusions, conditions, settlement date |
| Seller’s financial statements | Profit history the price is based on |
| Seller’s BAS | Independent check of turnover |
| Lease and assignment details | Can the business stay where it is? |
| Stock and equipment list | What you’re actually buying |
| Your experience | Resume or summary of relevant background |
| Your first-year plan | How you’ll keep (or grow) the profits |
| Security details | Property you’re offering |
business.gov.au also suggests checking for debts and for assets registered on the Personal Property Securities Register — you want to know the equipment you’re paying for isn’t someone else’s security.
Why is property security so common for purchases?
Because a business’s goodwill is hard for a lender to rely on. If things go wrong, goodwill can evaporate. Property doesn’t. So most business purchases are funded with a property-secured loan — from $20k to $5m — over the buyer’s home or investment property, sometimes combined with the buyer’s cash contribution.
If you already have a home loan you’re happy with, a second mortgage can fund the purchase without refinancing it. If settlement is close and longer finance won’t be ready, a short caveat loan can bridge to it.
What will the purchase really cost?
The price is only the start. Budget for:
- legal and accountant’s fees for due diligence and the contract;
- stamp duty, where your state charges it on the transfer of business assets;
- stock at valuation on settlement day (often on top of the price);
- lease costs — bond, assignment fees, landlord’s legal costs;
- loan costs — establishment, legal, valuation;
- working capital — wages, suppliers and rent for the first months while you learn the ropes.
Mr’s rule: if you’d have less than three months of running costs left after settlement, the deal is too tight.
An illustrative example
A Geelong couple are buying an established bakery for $420k plus stock. They have $100k saved and a home worth around $950k with $380k owing. A second mortgage covers the balance plus $60k working capital, and the bakery’s five years of steady BAS and financials support the repayments. One partner has run a bakery section in a supermarket for eight years, which the lender weighs positively.
What are the warning signs in a deal?
- Profits that appear only in the seller’s verbal claims, not in the records.
- A lease with little time left and no option to renew.
- A big drop in turnover in the last year with no clear reason.
- Key customers or staff who might leave with the seller.
- Equipment with finance still owing.
Get your accountant and solicitor involved early, before you’re emotionally committed.
How do lenders judge whether the price is fair?
They don’t value the business the way a broker or accountant would, but they do sense-check it. The main question is whether the profits the business has actually made — evidenced in tax returns, financials and BAS — can comfortably cover the new loan repayments and pay you a reasonable wage for running it. If the price only works on the seller’s projected growth, or on cash takings that never appear in the records, expect a cautious lender.
Normalising the figures helps: take out the seller’s personal expenses run through the business, add a market wage for the owner’s role, and remove one-off items. Your accountant can prepare this. A clear, realistic picture of what the business earns makes the lending conversation much easier.
What about vendor finance?
Sometimes a seller agrees to receive part of the price later, effectively lending to the buyer. It can bridge a gap and shows the seller’s confidence in the business. Lenders will want to know about it, because those repayments compete with the main loan for the same cash flow. Disclose it from the start and make sure the combined repayments still work.
When should I talk to a lender in the buying process?
Earlier than most buyers do. Ideally before you sign a contract, or at least before finance conditions in the contract expire. A specialist can tell you what a lender will want to see, so you can ask the seller for it during due diligence instead of scrambling afterwards. If the contract has a finance clause, check how many days it allows and work back from there.
Buying a business?
Bring Mr in before you sign, not after. Make a 60-second enquiry with the price, settlement date, your contribution and any property. There’s no credit check to enquire, your details aren’t circulated to a pile of lenders, and a real person will tell you how a lender is likely to view the deal and what to gather. Accurate figures on the form mean realistic answers. If this is your first business, also read whether a new business can get a loan. See if you qualify.
Frequently asked questions
Can I buy a business with no deposit?
Sometimes, if you have enough property equity to secure the full amount plus costs. Without property, buying with little or no contribution is difficult.
Will the lender rely on the seller's figures?
They'll read them closely and compare them with BAS and bank records. Unverifiable or 'cash' income the seller claims but can't evidence won't usually count.
What about the lease?
For many businesses the lease is crucial. Lenders want to see enough remaining term, or options, to support the loan, and that the landlord will assign or grant a new lease.
Can I borrow for working capital as well as the purchase price?
Yes, and it's wise to. Many purchases stumble because the buyer spends everything on the price and has nothing left for stock, wages and the first few months.