Short answer: Business acquisition finance is lending used to fund the purchase of an existing business, a franchise, or a controlling stake in a company. It can be structured as a secured term loan, asset-based finance, vendor finance, or a blend of these, and the right structure typically depends on the target’s assets, cash flow and your own equity contribution.
Buying an established business can be faster and less risky than starting from scratch, but it usually comes with a bigger upfront price tag than most buyers can fund from savings alone. Business acquisition finance bridges that gap. It is a broad category of commercial lending, and getting the structure wrong (too much debt, the wrong security, or an unrealistic repayment schedule) is one of the more common reasons acquisitions run into trouble in year one.
What is business acquisition finance?
Business acquisition finance is any lending arrangement used specifically to fund the purchase of a business or a share in one. It differs from a standard business loan in that the lender is assessing not just your financial position, but the target business’s trading history, assets and the sustainability of its earnings once ownership changes hands.
Depending on the deal, acquisition finance can cover:
- The purchase price of the business itself (goodwill, stock, plant and equipment)
- Working capital to run the business through the transition period
- Costs associated with the purchase, such as due diligence, legal fees and stamp duty where applicable
Lenders typically want to see that the business has a track record of stable or growing earnings, that the purchase price is reasonable relative to that trading history, and that the buyer has relevant industry experience or a credible management plan.
How much can you typically borrow to buy a business?
There is no fixed rule, but many lenders will look to fund a portion of the purchase price against tangible security (property, equipment, debtors) and assess the balance against the business’s cash flow and the buyer’s own equity contribution. A buyer bringing 20 to 40 percent of the purchase price as a deposit or equity injection is often viewed more favourably, though this varies significantly by industry, deal size and lender appetite.
Vendor finance, where the seller finances part of the purchase price and is repaid over an agreed term, can sometimes reduce the amount of external debt required and may also signal the vendor’s confidence in the business’s ongoing performance.
What do lenders look at when assessing an acquisition loan?
Acquisition lending is assessed differently to a straightforward asset purchase because the “asset” being financed is largely the earning capacity of a business. Lenders commonly review:
- Historical financials: typically two to three years of profit and loss statements, tax returns and balance sheets for the target business
- Normalised earnings: earnings adjusted for one-off items, owner’s wages and non-arm’s-length expenses, to understand the business’s true cash-generating capacity
- Buyer experience: whether the purchaser has relevant industry or management experience
- Security available: property, business assets, or a General Security Agreement (GSA) over the company
- Transition risk: how much of the business depends on the outgoing owner’s relationships and whether there is a handover period built into the deal
Because these deals can be complex, working with a broker who can package the application and present the business case clearly to lenders often helps avoid delays.
Secured, unsecured or asset-based: which structure fits?
Most acquisition deals use a mix of finance types rather than a single facility. The table below outlines how the common structures typically compare.
| Structure | Typical use | Security required | Indicative term |
|---|---|---|---|
| Secured term loan | Funding the core purchase price | Property, business assets or GSA | 3 to 15 years |
| Asset-based / equipment finance | Funding plant, vehicles or equipment included in the sale | The equipment itself | 2 to 7 years |
| Vendor finance | Bridging a gap between price and available debt/equity | Often unsecured or second-ranking | 1 to 5 years |
| Unsecured business loan | Working capital or transition costs | None, typically a personal guarantee | 3 months to 3 years |
| Low doc loan | Buyers with limited formal financials | Usually secured against property | Varies by lender |
Figures are indicative only and will vary by lender, asset and applicant.
What does the application process look like?
A typical acquisition finance process runs through several stages: initial deal review and structuring, gathering financials for both the buyer and the target business, lender submission and due diligence, conditional approval, and final settlement alongside the business sale contract. Timeframes vary considerably depending on deal complexity, but buyers should generally allow several weeks from application to unconditional approval, and build this into the sale contract’s settlement conditions.
It’s worth having finance pre-approved in principle before signing a contract of sale, or including a finance clause that gives you time to secure funding without losing your deposit if the deal falls through.
What should you check before committing to a purchase?
Finance approval is only part of the picture. Before signing a contract of sale, it’s worth working through a due diligence checklist alongside your accountant and solicitor, separate from the finance process itself. Key areas often include:
- Lease terms: whether the business premises lease can be assigned to you, and on what terms, particularly if the location is central to the business’s trade
- Key customer and supplier contracts: whether major relationships are tied to the outgoing owner personally or transfer with the business
- Staff arrangements: entitlements, employment contracts and whether key staff intend to stay on after settlement
- Restraint of trade clauses: whether the vendor is restricted from opening a competing business nearby
- Working capital position: stock levels, debtor ageing and creditor obligations at settlement, which can materially affect day-one cash flow
Operators who skip this step sometimes find that a business which looked strong on paper has hidden cost pressures once they’re in the driver’s seat. A finance broker won’t replace legal and accounting due diligence, but a well-structured facility with some working capital headroom built in can make the first six to twelve months of ownership considerably less stressful.
For a general read on how commercial lending rates are set across different facility types, see our guide to business loan interest rates in Australia, and if your financials are limited, our explainer on low doc business loans covers an alternative path. The Australian Small Business and Family Enterprise Ombudsman also publishes general guidance on buying a business at asbfeo.gov.au.
Every acquisition is different, and the right finance structure depends on the target business, your own financial position and how the deal is put together. If you’re weighing up how to fund a purchase, get in touch with TYG Finance to talk through the options before you sign anything.
Frequently asked questions
Can I get 100 percent finance to buy a business?
It’s uncommon. Most lenders want to see the buyer contribute some equity or deposit, often somewhere between 20 and 40 percent of the purchase price, though this varies by deal and lender. Vendor finance can sometimes reduce the cash equity needed.
Do I need property as security to buy a business?
Not always. Some lenders will lend against the business’s own assets, debtors or cash flow, particularly for established businesses with strong trading history. Property security can typically improve pricing and borrowing capacity, but it is not always mandatory.
How long does business acquisition finance take to arrange?
It varies with deal complexity, but buyers should generally allow several weeks between application and unconditional approval. Getting finance pre-approved before signing a contract, or including a finance clause, can help protect your position.
Can I use acquisition finance to buy a franchise?
Yes, franchise purchases are commonly funded through similar structures, and some lenders have specific franchise finance products, particularly for established franchise networks with a track record.
What happens if the business doesn’t perform as expected after purchase?
This is why lenders and brokers focus heavily on normalised earnings and transition planning during assessment. Buyers should build a contingency buffer into their cash flow forecasts and discuss repayment flexibility with their lender before committing to a repayment schedule.