Buying a business: what to prepare before applying for finance
Buying a business is different to buying property. Here's what lenders typically want to understand — and how to get ready.
By Moss McEwen
2 min read
I bought and ran businesses for the best part of two decades, so I know the mix of excitement and nerves that comes with signing on the dotted line. Getting your finance sorted is a big part of that. Being well prepared can make the process smoother and help you understand your options before you commit.
First, know what you're buying
Buying a business is not the same as buying commercial property.
- When you buy a business, you're typically buying its goodwill, customer base, equipment, stock, systems and future earnings.
- When you buy commercial property, you're buying the building or land.
Some deals include both. Lenders assess these very differently, so it's important to be clear on exactly what's included in the sale.
What lenders usually want to understand
Requirements vary depending on the lender, the industry and the size of the deal, but lenders commonly look at:
The business itself
- Financial statements and tax returns for recent years
- Recent BAS and trading figures
- The reason for sale
- Key customers, suppliers and any reliance on the current owner
- The lease (if the business operates from leased premises), including its remaining term and options
The deal
- The sale contract and purchase price
- What's included — goodwill, equipment, stock, intellectual property
- Any vendor finance, earn-out or staged payments
- Settlement timing
You
- Your experience in the industry or in running a business
- Your personal financial position, assets and liabilities
- How much you're contributing
- Available security, such as property
The plan
- A business plan or cash flow forecast may be requested, particularly for larger purchases or if you're planning changes
Get your team together early
Buying a business usually involves more than finance. Consider bringing in:
- An accountant to review the financials and advise on structure and tax
- A solicitor to review the contract and lease
- A broker to understand finance options and lender requirements
Getting everyone involved early can help avoid delays.
Watch the timing
Business sale contracts often have finance and due diligence periods. Make sure the timeframes are realistic for gathering documents and getting a lender's decision. If you're unsure, ask your solicitor to review the dates before you sign.
Questions worth asking yourself
- Can the business comfortably cover the loan repayments, your wages and a buffer for quieter times?
- What happens if trade dips after the sale?
- Do you have a cash reserve for working capital, stock and unexpected costs?
These aren't just lender questions — they're the questions I'd want answered before buying any business.
General information only. This article doesn't take into account your objectives, financial situation or needs. Lender criteria change and all finance is subject to approval. Speak with me about your situation, and with your accountant or financial adviser for tax or investment advice.
Moss McEwen
Mortgage and finance broker at Bay Finance Co, based on the Fleurieu and helping clients across Adelaide and Australia. Former café owner, chef and small business operator. More about Moss
