What a lender is actually buying into
When you buy a business, a lender is lending against the earnings that will keep flowing after the current owner leaves, plus whatever assets come with the sale. So the first question is never the price. It is what the business earns, how reliably, and how much of that depends on the person selling it.
- Earnings. Profit before interest, tax and depreciation, over at least two years, adjusted for one off items and for what the owner pays themselves. This is the number a lender sizes the debt against.
- What is in the sale. The trading business alone, or the equipment, stock, premises or freehold as well. Real estate in the sale changes the financing completely, because the property can carry most of the debt.
- Customer concentration. A business where one customer is half the revenue is a different risk from one with two hundred customers.
- Transferability. Contracts, licences, key staff, a lease that can be assigned, and whether the goodwill walks out the door with the seller.
Why goodwill is the hard part
Most businesses sell for more than their physical assets are worth. That difference is goodwill, and it is the part lenders are least comfortable funding, because it cannot be repossessed and sold. The gap is usually filled by three things in combination: the buyer's own money, security over property, and the seller leaving some of the price in the deal.
Where the money comes from
| Source | What it funds | What it needs |
|---|---|---|
| Your own contribution | The part no one else will fund | Cash, or equity released from property |
| Bank term debt | The bulk, where earnings are clean and verified | Strong financials, usually property security or a substantial contribution, and guarantees |
| Private credit or specialist lender | More of the price than a bank will do, on earnings | Verified earnings, a credible plan, guarantees, and a higher cost |
| Property secured funding | Any part of the price, cheaply | Equity in property you or the business owns |
| Vendor finance or an earn out | The gap, and the part that depends on the business performing after settlement | A seller who believes in the handover, and a lawyer who documents it properly |
| Equipment or asset finance | The plant and vehicles in the sale, freeing other funding for goodwill | Identifiable assets with resale value |
What strengthens an acquisition in a lender's eyes
- Industry experience. Buying a business you understand changes lender appetite more than almost anything else.
- A real handover. A seller who stays for a transition period, and an earn out that keeps them interested in the result.
- Verified numbers. Tax returns and financial statements that agree with each other, and an accountant's analysis of the adjusted earnings.
- Security. Property, even partially, lowers the cost and widens the options.
- Headroom. Repayments that fit comfortably inside earnings after you have paid yourself, with room for a bad quarter.
Buyers are told surprisingly often that a business purchase has to be done on property security alone. At most deal sizes there is a market that lends against earnings, at a price. The right answer is to work out what each route would need, then pick the one that fits the deal, rather than giving up on the one that is harder to arrange.
What to prepare
- Two to three years of financial statements and tax returns for the business, plus year to date figures.
- The adjusted earnings, with the add backs explained.
- The contract or heads of agreement, and what is included in the sale.
- Your contribution, where it comes from, and any property available as security.
- Your own experience, and who stays on after settlement.
Most private lending is for a business or investment purpose, which sits outside the National Credit Code. That is part of why it moves fast. It also means the consumer protections attached to a regulated home loan do not apply: the loan is short, the cost is higher, default interest can be steep, and the security can be enforced quickly. Read the terms, take legal advice, and be sure of your exit before you sign.
Common questions
How much of a business purchase can be borrowed?
It depends on what the business earns, what assets come with it, and what security you can offer. A deal with property in it can usually be funded far more heavily than one that is purely goodwill. The honest answer for any specific deal comes from the numbers, not from a rule of thumb.
Can I buy a business without property security?
Yes, it happens regularly, on earnings, with guarantees and usually with a meaningful contribution from the buyer and often some vendor finance. It costs more than a property secured facility.
What is vendor finance?
The seller leaves part of the price in the business, repaid over an agreed period, sometimes tied to performance through an earn out. Lenders like it because the seller stays invested in a clean handover, and it reduces the debt needed at settlement.
Does the business purchase need a licence check?
Depends on the industry. Liquor, childcare, health, trades, transport and finance businesses all have licences or registrations that have to transfer or be reissued, and a lender will want to know the plan for that before settlement.
Sources
- ASIC Report 814, Private credit in Australia (22 September 2025), checked 26 October 2026
- Reserve Bank of Australia, Financial Stability Review, October 2026: resilience of the Australian financial system (private credit), checked 26 October 2026
- ASIC: FAQs, does the credit legislation apply?, checked 26 October 2026
- National Credit Code, section 13 (business purpose declaration), National Consumer Credit Protection Act 2009 Schedule 1, checked 26 October 2026
General information only, not credit advice. It doesn’t take your objectives, financial situation or needs into account. Rules and figures change; check them, or talk to Joshua, before you rely on them.