Loan to buy a business

Using a loan to buy a business can help you save cash and make the purchase sooner.

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Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Swoop Finance Business Loan
$1,000
$100,000,000
1 to 20 years
Depending on your loan contract
Apply online and borrow between $1,000 and $100,000,000. Options for good and bad credit borrowers.
BOQ SME Recovery Loan Scheme Business Loan
$20,000
$5,000,000
Up to 10 years
No approval or administrative fees
This loan only applies to businesses eligible under the SME Recovery Loan Scheme. An Australian Government backed business loan to help businesses recover from the Coronavirus pandemic.
Zip Business Loan
$10,000
$500,000
Up to 5 years
No establishment fee
Borrow up to $500,000 with loan terms of up to 5 years. Flexible weekly, fortnightly and monthly repayment options available with no early repayment fees.
Lumi Unsecured Business Loan
$5,000
$300,000
3 months to 3 years
2.5% establishment fee
Apply for up to $300,000 from Lumi and benefit from short loan terms, no early repayment fees and once approved receive your funds in just one business day.
ebroker Business Loan
$5,000
$5,000,000
1 month to 30 years
$0 application fee
Small business loans available between $5,000 and $5,000,000. Get access to 70+ non-bank lenders on this independent platform.
Valiant Finance Business Loan Broker
$5,000
$1,000,000
3 months to 5 years
$0 application fee
A Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 70 lenders. Loans between $5,000 and $1 million are available. Request a call – your loan can be funded in 1 business day.
Moula Business Loan
$5,000
$250,000
1 to 2 years
2% Establishment fee
A loan of up to $250,000 that can be approved and funded within 24 hours. Available to businesses with 6+ months operating history and $5,000+ monthly sales.
Max Funding Unsecured Business Loan
$3,000
$30,000
1 month to 1 year
$0 application fee
An unsecured business loan from $3,000 that offers convenient pre-approval and no early repayment fees.
OnDeck Business Loans
$10,000
$250,000
6 months to 2 years
3% of loan amount
Apply for up to $250,000 and receive your approved funds in one business day. Minimum annual turnover of $100,000 and 1 year of trading history required.
ANZ Unsecured Business Loan
$10,000
No maximum amount
Up to 30 years
Subject to negotiation and will be detailed in your Letter of Offer
Apply for a loan from $10,000 with no security required and benefit from flexible repayment terms.
ANZ Secured Business Loan
$10,000
No maximum amount
Up to 30 years
Subject to negotiation and will be detailed in your Letter of Offer
Benefit from a low rate when you secure this loan with property and/or business assets. Loans from $10,000 available.
Prospa Business Loan
$5,000
$300,000
3 months to 3 years
3% origination fee
Small business loans are available from $5,000 - $300,000 on terms of up to 3 years. At least six months trading history and a monthly turnover from $6,000 is necessary.
Octet Trade Finance
$100,000
$10,000,000
1 month to 2 years
Transaction fee 2.5%
Access a line of credit to pay suppliers in over 65 countries. Borrow from $200,000 up to $7 million.
Westpac Business Loan
$20,000
$3,000,000
1 to 30 years
$0 application fee
Purchase a new vehicle, equipment or support your cash flow with a business finance solution from Westpac.
ANZ Business Loan under the Government SME Recovery Loan Scheme
$5,000,000
Up to 10 years
No approval or administrative fees
This loan only applies to businesses eligible under the SME Recovery Loan Scheme. Bounce back from lockdowns with a loan of up to $5,000,000 with this Australian government backed business loan. Variable rates between 2.49% p.a. and 2.99% p.a.
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Whether you're looking to buy a small business or a large enterprise, a business loan can give you access to the funds you need.

There are a range of finance options you can apply for, from traditional business loans to funding from venture capitalists and angel investors.

To get approved for the loan, you will usually need financial projections of the business, previous management experience, a clear budget and a good credit score.

However, before all of that, you'll need to do your research to determine whether it's a good investment.

How does a loan to buy a business work?

Buying an already established business has its advantages over starting a business from scratch. The business already has ongoing cash flow and established infrastructure. You can avoid set-up costs. It's also unlikely that you'll have to experiment or deal with the business's growing pains.

If you have the know-how and drive to make it work, it can seem like an appealing idea. However, purchasing a business requires a lot of money. This is where taking out a loan to buy a business comes in, but loans to buy established businesses are not as straightforward as getting a business loan for a company you're already running.

There are several factors you'll need to consider before you begin the loan application process. These include:

  • How much money will you need? You'll have to work out how much money you need to borrow. If you borrow too much, you'll be paying more in interest than you need to. If you borrow too little, you won't have enough to cover your costs. As a result, you may need to apply for a second loan. You need to take into consideration all the costs involved. If relevant, you'll also have to ensure you have enough capital to keep your business going.
  • Do you have a sound business plan? It's not just about buying the business – it's also about how you'll manage it. The lender will want to know your plan. You should be able to demonstrate how the business will manage expenditure and income, how it will achieve profitability and how long this will take.
  • Have you considered your application timeline? It can take anywhere from hours to months to qualify for a business loan. You need to consider whether you'll get funding when you want it. This may be a consideration if the timeline to buy the business is tight. You should take into account how long lenders take to process loan applications. Bank loans generally take longer, sometimes even months. However, alternative lenders have faster approval and processing times. You could even receive funds the same day or the next working day.
  • How will you make your repayments? You'll need to work out how long it will take for you to pay back the loan. How much will you be able to afford to repay every month? Will it be a consistent amount or can you pay back more as the business grows? Will you be able to make your repayments from the cash generated from the business?

9 ways to finance the purchase of a small business

Getting a loan can be challenging. But with a good business plan, there is no shortage of options. Here are 9 ways to get money to buy or start a business:

  1. Banks. Most of Australia's big banks have funding available for capable new businesses. You're likely to find that small business loans from banks require security. This is usually in the form of commercial or residential real estate.
  2. Credit unions. These are not-for-profit financial institutions owned by their members. Some of these members may be entrepreneurs looking for a good investment. If you're a member of a credit union, you may be able to get funding from them.
  3. Alternative lenders. Traditional lenders aside, there are online lenders like neobanks and peer-to-peer lenders that may be open to financing the purchase of the business. Compared to traditional lenders, their flexible lending criteria is more flexible and they have fast application processes. However, the borrowing limits may be lower than that of traditional banks.
  4. Borrow against the business you buy. Did you know you can get a loan by borrowing against the assets of the business you'll buy with the loan? If you're buying a company with valuable assets in the form of property, vehicles, equipment or machinery, these can be refinanced or used as collateral for a secured loan. Similar options exist for borrowing against the projected value of the business you buy. You can also borrow against outstanding invoices.
  5. Vendor finance. With this form of finance, the loan is built into the terms of the sale and repaid with future profits. For instance, someone may want to sell a business for $500,000, but you can only afford $200,000. A vendor finance agreement might involve the seller building a $300,000 loan into the sale. The loan will be repaid in the form of 10% of business profits. The exact terms and conditions of these deals vary depending on what you negotiate with the seller.
  6. Venture capitalists. These investors are groups or individuals looking for big returns on investment. They have a particular interest in new startups. They typically offer funding in exchange for equity or shares of the company ownership. When the company grows and succeeds, this equity multiplies in value. This makes investing a high-risk, high-return strategy for venture capitalists. To attract venture capitalists, you should have a plan for enormous, potentially global business growth.
  7. Angel investors. A more specific type of venture capitalist, angel investors are usually individuals rather than groups. They, too, want to acquire equity. But they usually take a more active role in the success of the company and offer money as well as advice, experience, clout, connections and other intangibles.
  8. Family and friends. The terms, conditions and benefits you get from this kind of loan will depend on a number of factors. This includes how much money your friends and family have and how much they're willing to invest in you. Many successful enterprises got their start with loans from family and friends, so this option shouldn't be disregarded. Remember to keep everything official and professional by keeping a written record of any deals made. Keep the paperwork waterproof.
  9. Your own savings. If you believe in your business plan, this is a good place to start. Keep loans down by putting up as much of your own personal savings as you feel comfortable. Some lenders, particularly angel investors and venture capitalists, will regard this highly. They are more likely to invest in your business if you have this kind of personal stake in its success.

There are many types of business startup loans. It's preferable to have a plan before settling on a specific type of loan.

What do I need to get approved for a loan to buy a business?

The main obstacle between you and finance is your ability to convince the lender you can buy a small business and make it profitable. You will need the following to get approved for a business loan:

  • Evidence
    You will first need to prove that the business you're looking to buy will be profitable. This means financial statements to back your claim and financial modelling for the future. You will need to consider how profitable the business will be in concrete dollar values and back it up with as much evidence as possible. The lender will make a yes or no decision based largely on whether it's convinced the business will be profitable. You must have formal financial projections.
  • Experience
    The lender needs to know you have the experience and capability to bring home these profits. Having relevant small business management and financial experience will inspire more confidence. Don't hesitate to mention how your own business history can help you succeed.
  • A strong personal and business credit score
    Your credit score determines your creditworthiness. Lenders may consider your personal credit score. If you own an existing business, your business credit history will also be taken into account. The stronger your credit score, the more likely you are to be approved for the loan. You may also be able to secure a lower rate.
  • A budget
    You'll need to give the lenders a breakdown of how you plan to spend the money. This information will help the lenders determine when a return on investment can be expected. For instance, if the money is to go towards staff or refurbishment costs, they might expect a slower return on investment. If it's going towards inventory and marketing, they might expect a quicker return.
Top tip: Identify a small number of good loan products and lenders to whom you can present your case. Compare business loans and rule out loans with a low rate of success and unreasonable interest rates or excessive fees.

How much can I borrow to buy a small business?

In general, the borrowing amount for bank loans varies based on the type of loan. It's typically lower for unsecured loans and higher for secured loans. Some banks offer up to $250,000 for unsecured loans and loan amounts over $1,000,000 for secured loans.

The exact amount you're able to borrow when buying an existing business comes down to a number of factors. These include the business's financials, how much the business is valued for, whether or not you're also purchasing property and the supporting documents you provide, such as business plans and cash flow projections.

Banks don't always perform business valuations. For instance, if the business is turning over less than $1 million a year, the bank will generally not perform a valuation. But a valuation will be performed if the business turns over more than $1 million, or if it's a business that's particularly affected by market forces, such as a pub.

Depending on the bank's risk appetite and its assessment of the industry, you may be required to provide security. Without security, you may not get as large a loan as you were hoping for.

How much deposit do I need?

In instances where the lender asks for a deposit, the amount will be a percentage of how much you're looking to borrow. Some banks, like CBA, ask for a minimum deposit of 30%. With a deposit, the lender's risk of lending reduces. This increases the chance of your application being accepted. It also shows your personal commitment and stake in the business.

What should I consider when buying a small business?

Before you apply for a loan, you should research the business thoroughly. You need to know the insides of the business. There is every possibility that things are not as great as they seem on paper. This is where research comes in.

There are a number of factors to consider when purchasing an existing business. It's important to do your due diligence because that's exactly what the lender will be doing. If something doesn't add up, it's unlikely you'll get the funding.

Here's what you need to consider to judge whether the business is a good investment:

  • Reason for the sale. Why is the current owner selling the business? Is it because they are retiring or because there's new and stiff competition? If the business is as good as it sounds, why sell it? Is the owner in a hurry to sell, and if so, what's the rationale behind a quick sale? There could be instances where the seller knows something you don't, and they're looking to sell it quickly and under time pressure. While this may compel them to take whatever offer they get, you should consider why. It's important to remember that sellers often gloss over the weaker parts of the business. They do this to make their business look good to anyone who wants to buy it.
  • Profits, assets and inventory. What does the business make and what does it own? Is the owner selling only the trading part of the business? Are the business assets included in the sale?
  • Costs and liabilities. You need to have a clear idea about all the costs associated with the business. This includes the cost of the loan itself, fees inclusive. You'll also need to know the cost of training staff, the cost of new equipment if required, and transfer fees associated with buying the business, if any. Note down everything the business spends to keep it running day to day. Also make note of any debts it currently has.
  • Overall financial health. You walk past a company's location all the time and it always seems to have customers. How can it not be doing well? Foot traffic may not be the best way to judge a business. The only way to know for certain is if you request for key financial information, such as financial statements going back 3 years. This includes balance sheets, profit and loss statements and tax returns. Get the latest business audit, look into the stock levels, consider the debts. You should look at historical information and trends. Take note of growth in sales, the profit margin, overheads and working capital.
  • Trading history. Make sure you look at the past performance of the business and note any successes and failures. Look into what worked and what hasn't and find out why. Is the business affected by market conditions? Has it made it through difficult economic periods?
  • Business structure and legalities. What's the current business structure and will this work for you? If you're looking to keep the current structure in place, make sure you're aware of the legal and tax requirements. You need to look into the company structure, whether it is compliant with the laws and if it has all the relevant registration. You need to confirm legal ownership of all key assets and check for any lawsuits, whether past, current or pending. Look into all contractual obligations, including with third-party customers and suppliers. You should also consider the effect a change of ownership will have and if you will lose any contracts.
  • Business network. Talk to as many people connected to the business as you can. What is the company's reputation in the industry, among its customers, competitors and suppliers? Get in touch with as many suppliers as you can and find out what kind of client the business is. Does the business pay on time, what's it like compared to its competitors? Speak to as many customers as you can and find out what they think about the product or service. Are they indifferent to the brand or does the business have many loyal customers? Do these customers also patronise competitors, and are you likely to lose business if the management changes? You should also look into online customer reviews, if any, and overall brand equity.
  • Industry. How is the industry performing? This will help you determine where the business stands and will continue to stand in the future. Look into the current and future demand for the services or products offered by the business. What is the competition like, is the market changing, are the prices and margins rising or falling, is the business you're buying keeping up with the pace of change? You could contact the relevant industry association and find out more about the industry and what the future looks like.

3 tips to learn more about the business you're buying

  1. Try before you buy. The easiest way to learn more about the business is by using its products or services for yourself. This will help you find out more about what the business offers and how it compares to its competitors. It can also help clarify whether you'd like to make changes to the offering.
  2. Conduct market research. The best way to get to know the business and how likely it is to succeed is by getting to know your customers and competitors. What does the competition offer that the business doesn't? What is the customer profile and what do the demographics look like?
  3. Seek professional advice. A business broker can help you throughout the business purchasing process. A chartered surveyor will also be able to help you assess the value of the business's property.

How do I value the business I want to buy?

Valuing a business can be tricky. There are many factors that affect the value of the business, and not all of these are tangible. Here are some of the steps you can take to find the value of the business:

  • Figure out what metrics you will use to measure the value of the business
    Not all businesses are created or operate alike. Businesses operate in different verticals and markets. Some businesses deal directly with other businesses. Others may deal with their customers directly. Depending on this, your approach to valuation may change. For instance, an asset-light tech company is valued differently to an asset-heavy manufacturing company. The number of active users for a tech company may be a key factor in the valuation. For a manufacturing or production company, the value of their fixed assets may play a larger role.
  • Collect financial information
    Once you understand the valuation metrics, the next step is to gather financial information. This can include profit and loss statements, balance sheets and any forecasted or projected financials. This includes revenue, costs and headcount. Based on this information, you may either have to make revenue forecasts or adjust and update prior forecasts.
  • Select your valuation approach
    There are different methods to value a company. Some of the most common approaches base their calculations on:

    • The current marketplace value of similar businesses
    • Return on investment
    • The business value of the assets, including both tangible and intangible assets, goodwill and depreciation
    • The estimated cost of starting a similar business from scratch
    • The projected future profit of the business

Given that valuations can be a complex process, you should consider getting professional advice from your accountant, business advisor or business broker.

What to do before making an offer?

  1. Get professional advice. Professional help is invaluable as you go through the negotiation, valuation and purchasing process. Advice from a good solicitor and accountant can go a long way.
  2. Set your goals. Before making an offer, you need to have clearly outlined goals. You need to know what you'd like out of your investment and how you'll achieve it. You should also map out a timeline of when you will meet your goals.
  3. Work out the specifics of the offer. Yes, you want to buy the business, but have you worked out the details of the offer yet? Before making the offer, you should look at your finances. Work out how much you can give as a down payment and how much you will need to operate the business. This will ensure that the offer you make won't leave you struggling financially.
Did you know?
According to Forbes, only 1 in 15 prospective business buyers make it 100% through the business-buying process. But don't let this statistic deter you. Ensure you do the right amount of research and preparation and you can vastly improve your chances of success.

What should I avoid when buying a business?

  • Don't let sentiment get in the way
    The coffee shop you're buying may have been your favourite hangout. But if the financials don't look good, you shouldn't let sentiment dictate. Similarly, if tastes have changed, it may not be financially viable to fight against the tide. You may want something to succeed, but if the figures state otherwise, it may not be a good idea to invest. Keep your expectations realistic.
  • Not doing your research properly
    You may have to step into Sherlock's shoes while you collate data, speak to sources like former employees and customers, suppliers, etc. Your data collection methods will have to go beyond Google searches or armchair research. You may have to go on field, scout the location of the business you're buying, watch foot traffic at different times of the day and on different days. You don't want to be surprised.
  • Not having the right or enough experience
    You may already have experience running a business, but do you have experience running a business similar to the one you're buying? If you're looking at buying a cafe, having zero food industry experience may prove to be a problem.
  • Thinking short term
    Can you see yourself in the industry for more than a year? If you're unwilling to commit when the commitment is needed, it may not be a good idea to proceed.

What to expect during the loan application process

Here's what the loan application process for the purchase of a small business will look like:

  • Lodge an enquiry. You've carefully compared your options and found a loan you think is right for you. The first step is lodging an enquiry. To do this, click "Go to site" on the lender of your choice. Most online lenders have a short online enquiry form for you to fill out. Some lenders may require a phone call instead. Almost all lenders will get back to you with more information within 48 hours.
  • Provide key information. Your lender will want your business plan, including financial figures and information about the business you are hoping to buy. This generally includes data about its profitability, cash flow, sales forecasts and growth potential. The lender in question will be looking for evidence that the business and plans for growth are sound. This is to ensure you're able to repay the loan.
  • Provide equity. Depending on the lender, you may need to invest some of your own money into the purchase of the business. This reassures the lender you're invested in the company's success moving into the future.
  • Provide proof of security. If you're applying for a secured business loan, you will have to provide details of your asset security, as well as proof of ownership. This may include a copy of the deeds to your house or a commercial property you own, or an invoice from your car dealer, etc.
  • Receive funding. If everything has been approved by your lender, you will receive the funding you require for your new business. You may be able to apply for further business funding in the future, should you require it. This will depend on the loan you opt for and the arrangement you have with your lender.

What obstacles could I face during the application process?

There are a number of obstacles you could run into when applying for a business loan. These include:

  • Your credit history
    Lenders will usually look at both your personal and business credit history during the application process. If you have no or insufficient business credit history, you may find it harder to qualify for a loan than if you are a long-standing business owner. Alternatively, you will have to rely more heavily on your personal credit score.If your score is less than perfect, you might find it harder to qualify than someone with good credit. However, there may still be finance options even if you have limited business credit and poor personal credit.
  • Lack of collateral
    Purchasing a small business can be viewed as risky by potential lenders. As a result, many lenders may require an asset as security. If you don't have commercial property yet, this may mean having to use your personal home as collateral. This can be risky for you. If you don't have either form of property, you will have to consider a potentially more expensive unsecured personal loan.
  • Low income and pre-existing debt
    If your business doesn't have steady income as yet, and/or already has a considerable debt, a lender may regard you as high risk.
  • Insufficient capital investment
    As mentioned earlier, many lenders will want you to supply some of the capital. If you don't have enough capital to invest and are relying too heavily on outside investment, a lender may be less inclined to give you a loan.

What do I need to apply for a loan?

To get a loan to buy a business, you'll generally need to provide the following information:

  • The current balance sheet of the business
  • Tax returns and profit and loss statements
  • Your personal information, including your qualifications and details of your assets and liabilities
  • Financial information of the sale or how much you plan to invest in the business
  • A business plan including profit and loss forecasts and expected cash flow

You can click through to the review pages from the table above. Once you've found a loan you're eligible for and you wish to apply, click "Go to site" to start your application.

Picture: GettyImages

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