Buying an existing business: funding it in three steps

Why buy rather than start?

An existing business comes with customers, staff, suppliers, systems and, crucially for finance, a track record. Instead of forecasting from scratch, you and your lender can look at what the business has actually done.

That doesn’t mean it’s risk-free. You’re buying the past as well as the future, including any problems the seller hasn’t mentioned. That’s why due diligence is step one.

Step one: what should I check before I buy?

Business.gov.au’s guide to buying an existing business recommends reviewing:

• Licences and permits needed to run the business
• Contracts and leases, including whether the landlord will consent to transferring the lease
• Supplier agreements and any outstanding obligations
• Equipment and fixtures: condition, function and licensing
• Assets and intellectual property included in the sale
• Stock: how it’s managed and its condition
• Liabilities, including searching the Personal Property Securities Register for security interests over business assets
• Financial records for three to five years: tax returns, BAS, receivables and payables, balance sheets, profit and loss and cash flow statements, and sales records

The PPSR records security interests in personal property such as vehicles, equipment and stock. A search can reveal whether equipment you’re buying is still under finance.

Lenders will review much of the same material, so good due diligence makes your application stronger too.

Step two: what’s the full budget?

The asking price is just the start:

Cost	Notes
Purchase price	Goodwill plus included assets
Stock at valuation	Often added on top at settlement
Legal and accounting fees	Due diligence, contracts, structuring
State duties	May apply to some business assets depending on the state
Lease costs	Bond, bank guarantee, assignment fees
Equipment upgrades	Anything that needs replacing soon
Working capital	Wages, rent and stock for the first months

Working capital is the line people underestimate most. Customers, suppliers and staff all adjust to a new owner, and income can dip during the handover.

Step three: how do I fund it?

Most purchases use a combination:

1. Your contribution. Lenders like to see you have skin in the game.
2. Property-secured lending. From $20,000 to $5,000,000 over residential or commercial property. It’s a common way to fund purchases because the lender relies on the property as well as the business. See first mortgage business loans.
3. Equipment finance for major assets, where the asset itself is the security.
4. A working capital facility, such as a line of credit, to carry the first months. See working capital loans.

If you’re waiting on funds from selling a property or another business, a bridging loan can cover the gap.

Want help shaping the funding mix? Send a 60-second enquiry; there’s no credit check to ask.

Can the seller help?

Sometimes. Some sellers agree to:

• Vendor finance, where part of the price is paid over time
• An earn-out, where part of the price depends on future performance
• A handover period, helping you keep customers and staff

Each of these reduces how much you need to borrow upfront or reduces the risk, and lenders may view them positively. Get legal advice on the terms.

An illustrative example

Illustrative only. A couple buys an established bakery in a regional town. Their accountant reviews four years of financial records and BAS; a PPSR search shows the main oven is still under finance, which is paid out at settlement. They fund the purchase with their savings and a loan secured over their home, include the stock at valuation in the budget, and set aside three months of wages and rent. During the first winter, when trade is slower, the buffer means no scramble.

Buying a franchise instead?

Buying into a franchise system follows similar steps, with extra protections and disclosure under the Franchising Code. See franchise finance.

What makes lenders nervous about a business purchase?

Knowing the warning signs helps you negotiate with the seller and present a stronger application. Lenders tend to slow down when they see:

• Figures that don’t reconcile. Sales in the financial statements that don’t match BAS or bank deposits. Ask the seller to explain any gap before you go further.
• Heavy reliance on the owner. If key customers buy because of the seller personally, income may fall when they leave. A handover period or earn-out reduces that risk.
• One dominant customer. A business with half its revenue from a single client is fragile.
• A short or unassignable lease. Without secure premises, the goodwill you’re paying for may not last.
• Undisclosed finance on assets. A PPSR search should match what the seller has told you.

None of these automatically kills a deal, but each one should be priced in, fixed before settlement or addressed in the contract. Lenders respond well to buyers who’ve spotted the issues themselves and have a plan.

If you’re new to running a business, read our page on new business loans, which explains how lenders view first-time owners. If you’re weighing up a franchise instead of an independent business, the franchise finance page covers the different protections that apply.

Ready to take the keys?

Buying a business is one of the biggest steps an owner can take. Funding it properly, including the months after settlement, gives you the best possible start.

When you enquire, we don’t check your credit. A real person reads your details and calls you, and we don’t share your information with a long list of lenders. Please be accurate on the form about the purchase price, your contribution and any property, so the first call can map out a realistic funding mix. Start your purchase enquiry.