How to finance the purchase of an existing business

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How to finance the purchase of an existing business in Australia

Buying an established business is less risky than starting your own, but it comes with higher upfront costs. A business loan is usually the best (and most common) option to buy an existing business, but alternative finance options are also available. We explore them all in detail in this guide.   

Key points about raising finance to buy a business  

  • The median loan amount requested to buy an existing business is $175,000, according to Lend proprietary data
  • A term loan is the most common type of finance to buy an existing business
  • You may be asked to provide a deposit or security for the loan
  • Lenders will consider both your current business financials and the finances of the business you want to buy when assessing your loan application
Buy Business

Can I get a loan to buy an existing business?  

Yes, you can get a business loan to buy an established business. A term loan is the most common type of finance for business acquisition. This is when you borrow money from a lender or bank and repay it over a period of time with interest. Business loans are either secured — when you offer collateral as security for the loan — or unsecured (no security). If your business loan is unsecured, lenders will only provide finance based on your current business revenue, not the business you intend to buy.

How much money can I borrow to buy an established business? 

The median loan application to buy an existing business in Australia is $175,000, according to Lend proprietary data. Your borrowing capacity will depend on your credit score, whether you can put up a deposit or use equity in your home as security for the loan — all of which reduce the risk to the lender. You may be able to borrow up to $1million if you can advance a percentage of the purchase price as a deposit or use property as collateral.  

How to qualify for a loan to buy a business 

The minimum eligibility requirements for a business loan include:   

  • Australian citizenship or permanent residency
  • An active ABN or ACN
  • Sufficient regular revenue to repay the loan in full
  • The ability to provide business bank statements and other financials
  • Some lenders may require security options
  • A good credit score — the minimum credit score for business lending is around 400 

Lenders will want to see detailed financial information about your current business (if you have one) and the business you want to buy. You’ll be required to provide balance sheets, profit and loss (P&L) statements, and cashflow projections. Lenders will assess:  

  • Assets: It’s easier to get approved for finance if the business has assets, such as property, or equipment. Assets may also include vehicles and intellectual property. 
  • Liabilities: Your borrowing capacity may be reduced if your business has outstanding debts or debts owing on secured assets registered in the Personal Property Securities Register (PPSR). 
  • Business revenue: The business will need sufficient revenue to cover operating expenses and business loan repayments.  

You’re more likely to get approved for a loan if the business you intend to buy has a solid financial track record, as opposed to a business with a poor financial history which lenders would deem risky. 

You will also have to demonstrate that you have enough experience and qualifications to manage the business you intend to buy. Write down a thorough business plan that details your business objectives and how you plan to achieve those goals.  

Pros & cons of buying an existing business with a loan  

Pros Cons
  • Finance for buying an existing business is easier to secure than for a startup 
  • You could secure the loan against business assets or equipment to get a lower interest rate
  • It’s easier to prove loan serviceability if you’re buying an established business with stable revenue
  • Established customer base, supply chain and processes   
  • Taking on debt to buy a business can be a big financial risk
  • Some lenders will ask for collateral (property) or a sizable deposit
  • You could default on the loan if the business is not making enough money or lose your house if you’ve used it as collateral for the loan
  • Buying an existing brand or franchise comes with additional responsibilities and risks like managing employees and dealing with legal and financial issues    

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Best finance options to buy an existing business in Australia 

Loans to buy a business are available from banks, credit unions and non-bank lenders. Here are the best loan options to buy a business with no money in Australia. 

Secured Business

Secured business loan  

A secured business loan is the cheapest option for business acquisition finance. It involves using residential property as collateral for the loan in exchange for lower interest rates. Secured loans have longer terms of up to five years. 

It can be a relatively easy way to increase your borrowing capacity, but it means your house is on the line if your business fails. It’s definitely not a decision you should make lightly, so be sure to discuss your options with your financial advisor. 

Unsecured Business

Unsecured business loan  

If you don’t have property you can (or want to) use as collateral, you get an unsecured business loan to help you get the funds to buy a business, but interest rates are generally higher since there’s no security on the loan. Unsecured business loans tend to be a short-term financing option, so you may only be able to borrow a portion of the purchase price with a loan term of up to three years. 

If you already have some capital, an unsecured loan could be enough to bump your funds to what you need to acquire the business, or to boost your working capital during the takeover period. 

Equipment Loan

Business loan secured by machinery or equipment 

You may qualify for a secured loan if you’re buying a business that has valuable assets (other than property) like vehicles, equipment or machinery you may be able to use as collateral for finance. The downside is that if you want to sell or upgrade that equipment before you’ve paid off your loan, you’ll have to get permission from the lender. 

Many lenders will offer loans secured in this way, or you could turn to a specialised equipment lender. 

Factoring Invoice

Invoice finance   

If the business you’re looking to buy offers payment terms to its customers, you can get a cash advance or line of credit secured against outstanding invoices to raise finance. 

This option, known as invoice finance or factoring, involves selling your unpaid invoices to a factoring company to get a percentage (up to 80%) of their value in advance. The lender will then collect the payment(s) from clients and pay you the remainder of the invoices, keeping a percentage as their fee.

Like an unsecured business loan, factoring is a short-term financing option that’s better suited to helping you keep the cash flowing during the first few months of operations, rather than covering the cost of buying a business. 

Borrow from Seller

Vendor finance  

In some cases, the previous owner of the business may be willing to accept a down payment and let you pay off the rest of the purchase price in instalments over time. This is known as vendor finance and it’s a common way to buy an existing business if you’re struggling to secure a normal business loan (e.g. if you’re self-employed, have a low deposit or have a poor credit rating). The vendor will generally expect you to contribute a significant portion of the business’ value upfront, so you’ll need some initial capital or a deposit. 

You can expect to pay more for vendor finance than you would for an ordinary business loan. You could always get a more affordable business loan later, when your finances are in better shape, and pay off the rest of the purchase price in a lump sum. 

Alternative finance options to buy an existing business 

If you don’t qualify for a business purchase loan or don’t want to take on huge debts to buy a new business, there are some alternative finance options available.

Borrow from Investor

Investor or equity finance  

Investor or equity finance involves finding an investor (or multiple investors) willing to give you capital in exchange for equity stake in the business.The biggest advantage to this is that you won't start your career as a business owner with crippling debts. If you find the right investor, you’ll also get the benefit of their business knowledge, resources and network of valuable contacts.

There are also disadvantages to equity finance like sharing ownership of the business with partners who may not share your same vision, but will expect a cut of the profits.

There are two types of investors — angel investors and venture capitalists.  

Angel Investors

Angel investors

These are generally wealthy people who have experience in particular sectors or industries, and are keen to share their funds and their expertise.

Venture Capitalists

Venture capitalists

These are investment firms that usually have clear guidelines on the type of businesses they’re willing to invest in.

Crowdfunding Loan


This option is more common for financing startups, but you can also turn to crowdfunding to raise money to buy an existing business. You’ll need to create a campaign on a crowdfunding platform like Kickstarter and make a compelling pitch to raise the money. These platforms charge fees and take commissions on the funds you raise. Some have strict rules on the types of projects you can list. GoFundMe is another popular site, and less selective about what you can raise funds for. 

Peer to Peer

Peer-to-peer lending (P2P) 

Peer-to-peer lending works like a marketplace that connects investors looking for opportunities to make a good return with people looking for a loan. There’s a number of platforms that match investors with entrepreneurs, with both sides getting a better deal because there’s no middleman or bank getting a cut. 

Grants business


Federal, state and local governments offer several grants to help develop existing businesses in regional areas or in priority industries like healthcare, advanced manufacturing, renewable energy, agriculture, etc. You can use the site to search for grants available in your state, and program dates, and to check your eligibility. 

What to consider when buying an existing business 

Business valuation 

Get the business independently valued by an accountant or business broker to ensure it’s a worthwhile investment. This will give you a clear picture of the business’ current market value and its growth potential. Getting a valuation may also give you an advantage in the negotiation process and when deciding what you’re willing to pay for it.  Profit and Loss  

Financial records  

Do your financial due diligence by examining the business finances from the past three to five years. Lenders will specifically look for proof of profitability, cashflow, sales forecasts and future revenue projections.  

Key Employees

Market research 

Conduct some research on the business and the market it operates in. This will give you an idea of how well the business is positioned, its reputation and potential within that market. Here’s what your market research could involve:  

  • Find out how strong the demand is for the business’ products or services. What are the competitors doing? Are there any strong new competitors or disruptive alternative products coming onto the market? Is there likely to be a need for their services in the future? If not, what could you do to keep the business fresh and relevant?
  • If it’s a retail business you’re buying, with a physical store, check out the foot traffic. Drop by on different days and at different times to see how busy it really is.
  • Check out the closest competitors and see how their traffic and profits compare to the business you’re thinking of buying.
  • Speak to the people at the heart of the business — the customers. Ask them what they like and what they don’t like. After all, without the customers, you simply won’t have a business! Do they use any of the competitors and if so, why? Will they still be willing to support the business if you take over? If they’re unsure, what would it take to secure their business?
  • Chat to suppliers and find out whether the business pays on time. How does dealing with them compare to their competitors?
  • Talk to some employees to find out what it’s like working for the company and how receptive they are to the idea of new management.  
Observe Business

Business ownership structure 

Use the Australian Securities and Investments Commission (ASIC) business name register to verify the seller's ownership of the business and that they have full rights to transfer ownership to you. Business partnerships and joint ventures will require all parties to agree to a sale agreement and that’s when things can get messy. Also, be aware of potential intellectual property rights held by other businesses. 

The seller's intent 

Always confirm the seller's intent and enquire about their reasons for selling the business. Some key questions to ask include:  

  • Is the owner in a hurry to sell the business within a certain period? If so, they might be willing to accept a lower price if you can meet their timeline.
  • Is money the prime motivation for selling or do they have to sell for specific reasons? If so, what are they? The owner could be ready to retire or switch careers. Or there could be other undisclosed reasons like competitors taking more market share or an expected downturn in the industry.
  • How much of the company is the seller selling? The whole entity, or just some or all of the trading parts?  

Make an offer 

After you’ve checked valuation, financial due diligence, and market research off your list, you can think about making an offer if you still want to go ahead with the purchase. You’ll enter into negotiations with the seller, and once both parties have agreed on a price, you can proceed with a contract to legally seal the deal.  

Contract of sale  

The contract will outline the final price, financial terms and conditions of the sale. Make sure there’s a provision that clearly confirms your legal ownership of all key assets and that states that all existing contracts with suppliers, leases and land titles are to be transferred to you.  

What happens after settlement?  

Once you’ve signed the contract, you can lodge your application for transfer of the registered business name with ASIC. Don’t forget to transfer any relevant permits, licences, registrations and certificates. Check the Australian Business Licence and Information Service (ABLIS) to see which licences you need to transfer.

The top industries to buy an existing business in 2023 

According to Lend proprietary data, the top industries in which loan applicants buy an existing business are: 

  • Other (not specified): 21%
  • Hospitality: 20%
  • Retail:13%
  • Construction & trades: 10%
  • Professional services: 8%
  • Health: 5% 

FAQs about raising finance to buy a business

Is it a good idea to buy an existing business?

Yes, buying an existing business with an established customer base and processes can be a good investment. It’s lower risk and easier to secure finance to buy an existing business with assets and a proven track record than it is to get startup funding.

How much deposit do I need to buy a business?

It depends on the value of the loan, the type of business you’re buying and whether the loan is secured or unsecured. If you’ve got property secured against the loan, you may not need a deposit. On the flip side, some lenders may require a deposit of up to 50% of the full loan amount if you don’t have security for the finance.

Can I get a good interest rate on a loan to buy an established business?

You can get better rates on a loan to buy an existing business if you have a good credit history or can provide collateral for the loan — usually property. Preferably both. Be sure to compare rates from different lenders before you settle on a loan product. Non-bank lenders can be more cost-effective as they have less overheads and more streamlined processes.

How much does it cost to buy an existing business?

Buying a business can cost thousands or millions of dollars depending on the size of the business, its current market value, the asking price and other costs like financing fees, accounting fees, conveyancing fees, etc.

Can I get a business loan to buy a franchise?

Yes, you can get a business loan to buy or set up a franchise. Just keep in mind that you'd be paying for the rights to trade under an established brand using its trademarks, products, suppliers and systems. You don’t have control over the direction of the business and you must meet your contractual obligations to the franchisor.

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