Getting a loan to buy a business, explained properly.

What a lender is actually funding

Rockwall Finance is an Australian finance broker specialising in business acquisition funding: loans to buy a business, partner and management buyouts, franchise purchases and professional practice acquisitions. This guide is the plain version of what we explain to buyers every week.

When you borrow to buy a home, the lender funds a building it can value and, if everything fails, sell. When you borrow to buy a business, the lender is funding a stream of future earnings, and most of the questions that decide your application come back to one idea: will those earnings survive the change of ownership?

That is why two businesses with the same price can be completely different lending propositions. A business with contracted, recurring revenue and systems that run without the owner is highly fundable. A business where the customers are loyal to the departing owner personally is much harder, no matter how good the profit looks on paper.

The numbers that shape every deal

• Deposit: typically 20 to 50 percent of the purchase price. Strong tangible assets and reliable earnings sit at the low end; goodwill heavy prices and first time buyers sit at the high end.
• Goodwill: the part of the price above the tangible assets. Lenders cap how much goodwill they will fund, and the cap moves by industry and earnings quality. See our guide to goodwill finance.
• Security: property security is not always required, but it changes the shape of the deal, often reducing the cash deposit and improving pricing.
• Serviceability: the business's earnings, sensibly adjusted for how they will look under your ownership, must cover the repayments with room to spare.
• You: industry background, management experience and a credible transition plan all count as real credit factors, not formalities.

The funding stack: where the money actually comes from

Most business purchases in Australia are funded from a stack rather than a single loan. A typical structure combines your cash deposit or equity from property, a bank or specialist lender term loan for the core of the price, sometimes vendor finance for a slice of it, and a working capital facility so wages, suppliers and stock are funded from the day you take over, not from the day your first invoices are paid. The proportions move deal by deal, and getting them right up front is most of the game.

Buyers are often surprised that the purchase price is not the whole number. Stock at settlement, transfer and legal costs, due diligence, any stamp duty, and a buffer for the first weeks of trading all belong in the funding plan. Map it before you make an offer with our business purchase funding estimator.

The process, from offer to keys

1. Test the finance before you sign anything. The cheapest place to find a problem is before the heads of agreement. We sense check the price, the goodwill, the lease and the structure against real lender appetite first.
2. Assemble the evidence. Two to three years of the business's financials, current management accounts, BAS, the contract or heads of agreement, the lease, your own financials, and your CV or industry history.
3. Match the deal to the right lender. Lenders differ widely on goodwill caps, industry appetite and security requirements. The right match is the difference between an approval and a month of wasted time.
4. Structure, then lodge. Deposit, term debt, vendor finance and working capital designed together, then submitted as one coherent application that reads well to a credit team.
5. Manage approval to settlement. Conditions, valuations, lease assignment and timing managed in step with your solicitor and accountant so settlement lands cleanly.

Where deals come unstuck

The patterns we see most: offers signed before anyone tested whether a lender would support the price. Goodwill assumed to be fundable at 100 percent when the lender caps it far lower. Vendor finance bolted on at the end instead of designed in. Working capital left out of the funding plan, so the new owner spends the first months under cash pressure instead of building momentum. And structures, asset purchase versus share purchase, locked in for tax reasons before anyone checked how a lender views them. Every one of these is avoidable if the finance conversation starts early.

We are not tax or legal advisers, and the structure of a purchase is a decision for you, your accountant and your solicitor. Our job is to make sure the structure they recommend is also a structure a lender will fund, which is why we prefer to be in the room before terms are final.

Buying in WA or anywhere in Australia

We are based in Perth and work with buyers across Australia. If you are buying locally, start with our guide to buying a business in Perth. For the deeper credit mechanics of larger or more complex deals, including management buyouts and succession purchases, see our acquisition finance service. If the price is mostly goodwill, the goodwill finance guide explains how lenders treat it. And if a rent roll or professional practice is the target, we cover rent roll finance separately because lenders treat it as its own category.

Frequently asked questions