Quick answer
Buyers often fund a business acquisition by borrowing against property they already own, because banks can be slow to lend on goodwill alone. A private secured loan over a home or investment property can fund the purchase price, stamp duty and working capital, with a plan to refinance once the business has a trading record under the new owner or once vendor terms are paid.
Key points
- Banks are often cautious about lending on goodwill
- Property equity lets you move at the vendor's pace
- Budget for duty, legal costs, stock and working capital
- Plan the refinance or repayment before you settle
- Combine with vendor finance where it makes sense
Why acquisitions are hard to finance
Buying an established business is often less risky than starting one. There are customers, staff, systems and a trading history. Yet many buyers find that banks are reluctant to fund the purchase. Much of what you are paying for is goodwill, which is hard for a bank to value and harder to sell if something goes wrong. Bank processes can also be slow, and vendors with other interested parties do not always wait.
Property equity changes the equation. If you own a home, an investment property or commercial premises with equity in it, a lender can secure a loan over that property and fund the purchase without relying on the business’s goodwill. The business itself still matters, but mainly as the source of the exit.
What the money needs to cover
Buyers often underestimate the total amount required. Beyond the agreed price, consider:
- Stamp duty or transfer duty on business assets in some states, and duty on any property included
- Legal and accounting due diligence
- Stock at valuation on the settlement date
- Employee entitlements that transfer with staff
- Working capital for the first few months, including wages, rent and supplier accounts
- Lease assignment costs, bonds and any landlord requirements
- Licences, permits and changes to signage or systems
A loan sized only for the purchase price can leave the new owner short of cash in the first critical months. The equity release estimator can help you work out what your property may support.
How lenders assess an acquisition loan
A private secured lender looks at three things. First, the property: its value, location, type and existing debt. Second, the buyer: experience in the industry, other income and credit history. Third, the exit: how the loan will be repaid.
For acquisitions, the most common exit is a refinance once the business has traded under new ownership for long enough to satisfy a bank, often six to twelve months. Other exits include the sale of a property, the release of funds from another source or payment from business profits over the term.
The lender will usually want to see the sale contract, a summary of the business’s recent financial performance and a short plan for the first year.
Combining with vendor finance
Some vendors agree to leave part of the price owing, repaid over time from the business’s earnings. Vendor finance reduces the amount you need to borrow and signals the vendor’s confidence in the business. A secured loan can cover the upfront portion while vendor finance covers the rest. Make sure the two arrangements fit together, including what happens if the business underperforms, and get legal advice on the vendor terms.
Timing and settlement
Business sales often have conditions: lease assignment, licence transfer, franchisor approval or due diligence. Coordinate the loan settlement with the business settlement, so funds are available on the right day without paying interest for weeks beforehand. Tell the lender the expected date early and keep it informed if conditions are delayed. The settlement checklist can help keep everything on track.
Due diligence is still your job
A lender that secures a loan on your property is not vouching for the business you are buying. Do your own due diligence. Check the financials with an accountant, review the lease and key contracts, speak to suppliers if possible, and understand why the vendor is selling. Borrowing against your home to buy a business that was not what it seemed is the worst outcome for everyone.
Illustrative example
A couple buy an established plumbing supplies outlet from a retiring owner. The bank is willing to lend later but cannot meet the vendor’s timeline. The couple own their home with substantial equity. A private lender advances a first mortgage over the home to cover the purchase price, stock at valuation and a working capital buffer, with interest capitalised over twelve months. After a year of trading, with updated financial statements showing steady performance, they refinance to a bank facility secured over the home and the business, repaying the private loan.
This example is illustrative only.
Planning the refinance
If the exit is a bank refinance, start preparing on day one. Keep bookkeeping current, lodge BAS and tax returns on time, avoid new tax debts and separate personal and business spending. Ask your accountant what a bank will want to see and when. Our guide to preparing a bank refinance while on a private loan has a step-by-step plan.
When to think twice
An acquisition loan secured over your home carries real risk. If the business struggles and the refinance does not happen, the home could be at stake. Be confident in the business, keep a buffer, and have a backup exit, such as the sale of an investment property. Consider whether a smaller purchase or a staged buy-in would reduce the risk.
Getting started
If you have found a business to buy and have property equity to support it, check your eligibility with no credit check. Tell us about the business, the purchase price, the property you own and the timeline, and we will outline the likely structure.
Begin your enquiry in a few minutes.
Frequently asked questions
Can I borrow to buy a business without owning property?
It is harder. Secured lenders need property as security, so if you do not own any, look at vendor finance, an equity partner, or third-party security from someone willing to help.
Will a lender look at the business I am buying?
Yes, but mainly to understand the exit. The property is the main security, and the business's trading record supports a later refinance.
How quickly can an acquisition loan settle?
When the property and exit are clear, private secured loans can settle quickly, sometimes in a few days. Allow extra time if a first mortgagee needs to consent.
Should I borrow extra for working capital?
Usually, yes. New owners often face unexpected costs in the first few months. A buffer reduces pressure while you learn the business.
Prefer to start now? Enquire here
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