Loan to Buy a Business in Australia: How Funding Actually Works

Buying an existing business almost always needs a loan, and the finance stack is rarely one lender writing one cheque. Most Australian business purchases mix a deposit, a vendor loan, and either a bank or non-bank facility, often against property security. The right structure decides whether the deal settles at all.

A loan to buy a business in Australia funds 50 to 70 per cent of the purchase price. The buyer covers the balance from cash, vendor finance, or property equity. Banks lend from around 7.5 per cent per annum on strong secured deals. Non-bank and private lenders sit around 9 to 14 per cent per annum where the deal falls outside bank policy, and settle faster.

• Most Australian business acquisition loans fund 50 to 70 per cent of the purchase price, with the buyer covering the balance from cash, vendor finance, or property equity.

• Banks price from around 7.5 per cent per annum for strong deals with property security; non-bank and private lenders sit around 9 to 14 per cent per annum where the deal profile does not fit the banks.

• Lenders assess the business earnings, the buyer's industry experience, the security position, and the exit strategy, not just the purchase price.

• Business-purpose lending is generally not regulated under the NCCP; consumer lending has different obligations. Borrowers should confirm the lender's position before proceeding.

Why buying a business is a different lending problem

A residential mortgage is a straightforward asset-backed loan. A business acquisition is not. The lender is being asked to fund an intangible asset, goodwill, that walks out the door if the buyer runs the business badly. That single fact reshapes every part of the deal.

Banks respond by lending conservatively against goodwill, usually up to 50 per cent of the purchase price, and requiring extra security, almost always residential property. Non-bank and private lenders take a broader view: they will look at property equity, plant and equipment, stock, and the buyer's ability to run the business, and price for the risk.

Understanding this is what separates a borrower who gets funded from one who wastes six weeks on an application that never had a chance.

The typical Australian business purchase stack

Most real deals combine three or four sources of funding. A realistic structure for a $1.2 million business purchase in metro Sydney or Melbourne might look like this:

Source	Typical share	Notes
Buyer cash deposit	20 to 30 per cent	Verified savings, gifted funds, or business sale proceeds
Vendor finance	10 to 30 per cent	Seller carries part of the price, repaid from business cash flow over 2 to 5 years
Bank or non-bank acquisition loan	40 to 75 per cent	Usually secured by property or business assets
Working capital line	Variable	Overdraft, invoice finance, or short-term facility for the first 90 days

Not every deal uses vendor finance. Where the vendor wants a clean exit, the buyer has to cover more of the price from cash and borrowing, which is where property equity becomes critical.

What lenders assess before they lend

Every acquisition lender in Australia asks the same core questions, whether they charge 7 per cent or 14 per cent. Understanding the assessment framework lets a buyer prepare a deal that actually funds.

Lenders look at the target business earnings, usually normalised EBITDA over three years, adjusted for owner wages and one-off costs. They test whether the business can service the new loan and still pay the buyer a wage. Debt service coverage of 1.5 times or better is typical.

They look at the buyer's industry experience. A first-time buyer of a manufacturing business faces a harder assessment than a general manager buying out their employer.

They look at the security position. Property, plant and equipment, and stock all reduce risk. Deals with only goodwill security are the hardest to fund and attract the highest rates.

They look at the exit strategy. Even a term loan needs an answer to "how does this get repaid?" beyond monthly instalments, especially if the buyer plans to refinance within two to three years.

Realistic scenario: buying a $1.5 million distribution business

A buyer in Western Sydney is acquiring a plumbing supplies distribution business for $1.5 million. The business earns $380,000 EBITDA on $4.2 million turnover. Assets include $220,000 of stock and $80,000 of plant, with the balance being goodwill.

The buyer has $250,000 cash and owns a home worth $1.4 million with $650,000 owing.

Funding structure

Component	Amount	Terms
Buyer cash deposit	$250,000	Verified savings
Vendor finance	$250,000	3-year term, 8 per cent per annum, repaid from cash flow
Bank acquisition loan	$600,000	5-year term, 8.5 per cent per annum, secured by second mortgage over the home
Private second mortgage top-up	$400,000	12-month term, 12.5 per cent per annum indicative, capitalised interest, exit by bank refinance

Total funding raised: $1.5 million.

The private second mortgage bridges the gap while the buyer waits for the bank to complete its full assessment. Once the business is trading under new ownership and six months of financials are available, the buyer refinances the entire debt into a single bank facility at a lower blended rate.

Rates, LVR limits, and terms are indicative and subject to valuation, lender assessment, and credit approval.

Bank versus non-bank versus private lending for business acquisition

Each funding source has a distinct role in Australian business purchases.

Banks (CBA, NAB, Westpac, ANZ, and second-tier banks like BOQ, Bendigo, Suncorp)

Rates from around 7.5 to 9 per cent per annum on secured deals. Terms of 5 to 15 years. Slow assessment, often 4 to 8 weeks. Deep dive on financials, tax returns, business plan, security. Best for well-established businesses with strong track records, property-secured, borrowers with clean credit.

Non-bank lenders (Prospa, Moula, Lumi, Liberty, Pepper, Judo)

Rates from around 10-18 per cent per annum, depending on security. Terms of 6 months to 5 years. Faster assessment, typically 5 to 15 business days. More flexible on credit history and documentation. Best for borrowers who fall outside bank policy but have a sound business case.

Private lenders

Rates from around 9 to 14 per cent per annum for first-mortgage deals, 12 to 18 per cent per annum for second mortgages and caveats. Terms of 3 to 18 months. Fastest settlement, often 5 to 15 business days. Property security almost always required. Best for time-critical settlements, deposit top-ups, refinance-ready buyers, or complex deals that need a bridge.

Innovate Funding works across all three tiers, helping borrowers access private and non-bank lenders where a bank cannot move fast enough or where the deal profile falls outside bank policy.

When property security changes what is possible

Property equity is the single biggest lever available to Australian business buyers. A borrower with $500,000 of usable equity in a home or investment property can often access a full business purchase price that would otherwise be unfundable.

Property security lowers the lender's loss-given-default and lets them price closer to a mortgage than a business loan. It also opens the door to secured business loan structures, first mortgage refinance, second mortgage top-ups, and caveat loans for short-term funding gaps.

Business-purpose loans against residential property are generally not regulated under the NCCP, which gives private and non-bank lenders more flexibility on documentation, income verification, and structure. Borrowers should still take independent legal advice before pledging the family home, and understand that failure to repay puts the security at risk.

When a loan to buy a business will not work

Not every deal should be funded. Some situations that consistently do not get across the line:

• Deals where the purchase price sits above three to four times normalised EBITDA and there is no property security to backstop the goodwill component.

• Deals where the buyer has no industry experience, no operational plan, and no complementary skills.

• Deals where the target business has declining revenue, deteriorating margins, or heavy customer concentration.

• Deals where the vendor refuses to carry any of the price and the buyer cannot cover the deposit shortfall from savings or property equity.

• Deals with unresolved tax debts, disputed liabilities, or pending litigation against the business.

A private lender may fund a bridge in some of these scenarios, but the exit strategy has to be credible.

How long does a business acquisition loan take to settle?

Bank timelines are typically 4 to 8 weeks from application to settlement, longer if the security valuation is complex or the business financials need re-cutting. Non-bank timelines are 5 to 15 business days for straightforward deals. Private lenders often settle in 5 to 10 business days, occasionally as fast as 48 to 72 hours for a caveat loan facility where the loan sits behind an existing mortgage and the property valuation supports the deal.

Speed matters. Vendors selling a business will often walk if settlement drags beyond the contract date without a strong reason.

How Innovate Funding helps borrowers structure the deal

Innovate Funding works with private and non-bank lenders across Australia to structure business acquisition funding. The team helps borrowers assess the deal profile, model the funding stack, identify the right lender for each layer of the structure, and coordinate settlement with the vendor's solicitor.

Where the bank is doing part of the funding but cannot move fast enough, a private short-term business loan or caveat facility can bridge the gap and then be refinanced into the bank facility after settlement.

Key takeaways

• Australian business acquisition loans usually fund 50 to 70 per cent of the price, with the buyer contributing the balance from cash, vendor finance, or property equity.

• Bank rates start around 7.5 per cent per annum for strong deals; non-bank and private lenders sit around 9 to 14 per cent per annum for deals that fall outside bank policy.

• Property security is the single biggest lever a buyer has, both to increase the amount available and to lower the rate.

• Every lender wants to see business earnings, buyer experience, security, and exit strategy.

• Vendor finance covering 10 to 30 per cent of the price is common and helps a deal fund where the bank will only go to 50 or 60 per cent.

• Settlement takes 4 to 8 weeks with a bank, 5 to 15 business days with a non-bank or private lender.

FAQ

Can I get a loan to buy a business without any property?

Sometimes, but usually only for smaller deals up to around $250,000, with strong financials and a personal guarantee. Larger unsecured facilities exist at 15 to 25 per cent per annum, subject to credit approval. Most deals above $500,000 need property or business asset security.

How much deposit do I need to buy a business in Australia?

Typically 30 to 50 per cent of the purchase price, from cash, property equity, or vendor finance combined. Deals with strong recurring revenue, franchise backing, or property assets included can sometimes go higher LVR, subject to lender assessment.

Can I use my home as security to buy a business?

Yes, subject to available equity, valuation, and lender assessment. Business-purpose loans against residential property sit outside the NCCP in most cases, giving lenders flexibility. Borrowers should get independent legal advice before pledging the family home.

What is vendor finance and how does it work?

Vendor finance is where the seller carries part of the purchase price. The buyer pays a reduced amount at settlement, then repays the vendor loan over 2 to 5 years, usually from business cash flow. It reduces the amount the buyer needs to borrow from a bank or non-bank lender.

Do I need a business plan for a business acquisition loan?

Most lenders want a short business plan covering the purchase rationale, transition plan, operational changes, and cash flow forecast. Banks require more detail than non-bank or private lenders. A well-prepared plan often changes the terms offered.

What is capitalised interest and when is it used?

Capitalised interest means the interest accrues to the loan balance rather than being paid monthly. It is common on short-term private lending where the borrower does not want a monthly repayment during a bridging period. Capitalisation is subject to LVR limits and lender approval.

Ready to structure your business acquisition?

Every deal is different. If you are looking at buying a business and want to understand what funding structure will actually work, talk to our team at Innovate Funding. We work across bank, non-bank, and private lending to help borrowers put a workable stack together.