As a small business owner myself who’s helped over 3,000 other business owners, I have seen many people struggle with business loans to buy a business – particularly falling into some common traps that can be avoided.
The idea of stepping into an established business with a customer base, history, and brand is very attractive. But the path to business ownership comes with a big hurdle – funding, often in the form of acquisition financing.
In this guide I’ll take you through everything you need to know to get the right business loan to buy an existing business in Australia, based on my experience over the past 15 years.
Key Takeaways
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Business loans to purchase a business can provide the necessary capital to acquire an established enterprise with existing cash flow and customer base.
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Types of loans include secured business loans, unsecured business loans, and specialised business purchase loans.
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A strong business plan, thorough due diligence, and a good credit score are important factors in loan approval.
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Consider alternative financing options such as vendor finance, equity finance, or invoice finance.
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Avoid common pitfalls like underestimating working capital needs, neglecting due diligence, or overextending financially.
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The loan application process typically involves assessing finances, developing a bank loan business plan, choosing a loan type, preparing documentation, and submitting the application.
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Professional advice from accountants, lawyers, and business brokers can be invaluable during the business purchase process
Why Buy an Existing Business?
Before we get into the details of business loans, let’s quickly go through why a business acquisition might be a good idea. The most obvious is cash flow; unlike starting from scratch, an existing business has cash flow straight away.
It can also bring you a proven business model that has been tested in the market, and an existing customer base that you can tap into from day one, without the up-front marketing costs. Add to that an established brand that’s known in the local community, and trained staff that already know how to do their job, and the benefits are clear – but they come with a cost. That’s where business lending comes in.
Types of Business Loans to Buy a Business
When it comes to funding the purchase of an existing business, there are several types of business loans and financing options in Australia. Let’s go through the most three:
1. Secured Business Loans
A secured business loan is backed by collateral, usually business assets or property. This type of loan has lower interest rates as the risk is lower for the lender.
Example: Sarah wants to buy a successful café in Melbourne. She gets a $500,000 loan against her residential property to fund the purchase.
2. Unsecured Business Loans
Unsecured business loans don’t require collateral but have higher interest rates. These are best for those who don’t have significant assets to offer as security.
Example: Tom wants to buy a small online retail business. He gets an unsecured loan of $100,000 based on his good credit score and the business’s strong financials.
3. Business Purchase Loans
Some lenders offer loans specifically for buying an existing business. These loans are designed for business acquisitions.
Example: Lisa finds a successful accounting firm for sale. She applies for a business purchase loan that covers 70% of the purchase price, with flexible repayment terms that match the business’s cash flow projections.
8-Point Checking for Getting a Business Purchase Loan
Getting a loan to buy a business requires preparation. Here’s a step-by-step guide to increase your chances of approval during the loan approval process:
Item |
Action |
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1. Check your finances |
Review your personal and business finances. Lenders will look at your credit score, assets and liabilities. |
2. Create a business plan |
Outline your business vision, financial projections and growth strategy. |
3. Do your due diligence |
Review the existing business’s financials, customer base and market position. |
4. Work out how much you need |
Calculate how much you need to borrow, including the purchase price and working capital requirements. |
5. Choose the right business loan |
Secured business loan or unsecured business loan? |
6. Get your documents ready |
Financial statements, tax returns, business plans and other relevant documents. |
7. Shop around or use a broker |
A business loan broker can help you find and compare loan offers from banks, credit unions and alternative lenders. |
8. Submit your application |
Provide all the required info and be ready to answer questions about your business plans. |

What Affects Getting Your Loan Approved?
When assessing your application lenders will consider:
Credit score
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A good credit score, which reflects your creditworthiness, improves your chance of getting an approval, and may even get you better interest rates and terms.
Business performance
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The existing business’s financials and growth prospects are key.
Industry outlook
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Lenders look at the industry stability and growth.
Collateral
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If you’re applying for a secured loan, the value of your assets counts.
Deposit
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The amount you can put down affects your loan terms.
Business experience
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Your business management experience will impact the lender’s decision.
Other Options
While traditional business loans are popular, they’re not the only way to fund a business purchase. Alternative financing options can provide different methods to secure the necessary funds.
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Vendor finance: The seller agrees to accept payment over time, becomes your lender.
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Equity finance: You sell a portion of the business to investors in exchange for cash.
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Invoice finance: Use the business’s outstanding invoices as collateral for a loan.
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Angel investors or venture capitalists: These individuals or firms invest in businesses in exchange for equity.
Tips to Get Approved for a Business Purchase Loan
The first thing to look at is fixing any credit issues you may have by paying off any personal debts and fix any errors on your credit report. Next is to save a large enough deposit – the more you put down, the better your loan terms may be.
When you put your cash flow projections together – don’t overestimate – be honest and realistic with your forecasted financials and financial projections, and be sure to get help from an experienced commercial finance broker, account of your financial advisor. Lastly, be prepared to negotiate, the people making lending decisions are human after all – don’t be afraid to ask for a better deal and negotiate with different lenders.
Common Mistakes to Avoid
When buying a business with a loan, be aware of these pitfalls:
Underestimating working capital needs
New business owners often don’t borrow enough to cover initial expenses. Remember, it’s not just the purchase price of the business.
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Calculate your working capital needs for at least 6-12 months.
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Consider seasonal fluctuations in cash flow, especially if you’re in retail or hospitality.
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Factor in unexpected expenses or slow periods.
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Don’t assume immediate profitability; it may take time to implement your strategies and see results.
Example: Sarah bought a café but didn’t account for the slow winter months. She struggled to pay suppliers and staff until business picked up in spring.
Not doing due diligence
Research is crucial before you buy. Skipping this step can lead to nasty surprises down the line. The due diligence process is essential to ensure you are making an informed decision.
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Review at least 3 years of financial statements, including profit and loss, balance sheets and cash flow statements.
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Verify all claims about revenue, profits and customer base.
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Check for any outstanding legal issues or potential liabilities.
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Check the condition of equipment and inventory.
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Understand why the current owner is selling.
Example: Tom didn’t check the financials of the retail business he bought. He later discovered significant outstanding debts that weren’t disclosed, putting immediate pressure on his cash flow.

Overborrowing
Taking on more debt than you can manage can lead to financial stress and business failure. Effective debt management is crucial to avoid the risks of overborrowing.
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Be conservative in your revenue projections.
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Consider your personal financial commitments alongside business loan repayments.
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Factor in potential interest rate increases over the loan term, particularly for an unsecured business loan.
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Don’t use all your available credit; keep a buffer for emergencies.
Example: Lisa took out a large loan to buy a promising tech startup. When a key client pulled out unexpectedly, she struggled to meet loan repayments and had to sell personal assets.
Not reading the fine print
Loan agreements can be complex, but you need to understand all the terms before signing.
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Pay attention to interest rates, fees and charges. Even small differences can add up over time.
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Understand any prepayment penalties if you plan to pay off the loan early.
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Be aware of any covenants or conditions that could trigger a default.
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Consider getting legal advice to review the loan agreement.
Example: Mike didn’t realise his loan had a clause that allowed the bank to call in the full amount if his business’s debt-to-equity ratio fell below a certain level. When a tough year affected his balance sheet, he faced unexpected pressure from his lender.
Not planning for contingencies
Business doesn’t always go to plan. You need to have contingency planning and backup strategies in place.
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Develop multiple financial scenarios: best case, expected case and worst case.
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Have a contingency fund to cover unexpected expenses or revenue shortfalls.
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Consider insurance options to cover various risks.
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Develop relationships with potential funding sources before you need them.
Example: When a fire damaged Jenny’s restaurant, she was glad she had comprehensive insurance and an emergency fund. This allowed her to continue paying staff and loan repayments while repairs were made.
Not seeking professional advice
While it may seem cost effective to go it alone, professional advice can save you money and headaches in the long run.
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Get a business accountant to review financials and tax implications.
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Get legal advice, especially for reviewing contracts and understanding liabilities.
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Consider working with a business broker who knows your industry.
Example: David thought he could handle the purchase of a small manufacturing business on his own. He later regretted not getting a lawyer when he discovered some intellectual property issues that could have been identified during the purchase process.
Not understanding the business
You need to have a deep understanding of the business you’re buying, including its business operations, market position, and growth potential.
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Spend time in the business before you buy, if possible.
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Understand the key drivers of revenue and profitability.
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Assess the competitive landscape and market trends.
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Evaluate the strength of supplier and customer relationships.
Example: Emma bought an e-commerce business without fully understanding its reliance on a single product line. When market trends shifted, she struggled to pivot quickly enough to maintain profitability.
So be aware of these and you’ll be more likely to buy and run a business. Remember, preparation and reality are key.

Ready to get started?
Getting a business loan to buy an existing business in Australia can be tricky but it’s also a great way to fast track your entrepreneurial journey. By knowing your options, preparing well and avoiding the pitfalls you’ll be set up for success.
Remember buying a business is a big decision and requires careful consideration and expert advice. Don’t hesitate to get advice from financial professionals, business brokers and legal advisors throughout the process.
With the right preparation and finance you could be at the helm of your own established business soon and taking it to new levels.
FAQs – Business Loans to Buy a Business in Australia
How much can I borrow to buy an existing business?
The amount you can borrow depends on various factors, including the business’s value, your credit score, and available collateral. These factors collectively determine your borrowing capacity. Generally, lenders may finance up to 50-70% of the purchase price, but this can vary.
What interest rates can I expect on a business purchase loan?
Interest rates vary widely based on the loan type, your creditworthiness, and market conditions. As of 2024, rates for business loans in Australia typically range from 4% to 15% per annum.
How long does it take to get approved for business loans to buy a business?
The approval process can take anywhere from a few days to several weeks, depending on the lender and the complexity of the loan application.
Do I need collateral to get a loan to buy a business?
While secured loans require collateral, there are unsecured business loans available. However, unsecured loans often come with higher interest rates and stricter eligibility criteria.
Can I use a business loan to buy a franchise?
Yes, many lenders offer loans specifically for franchise purchases. Some franchisors also have relationships with preferred lenders to facilitate financing.
What documents do I need to apply for a business purchase loan?
Typically, you’ll need to provide personal and business tax returns, financial statements of the business you’re purchasing, a business plan, and details of any collateral you’re offering.
How important is my personal credit score when applying for a business loan?
Your personal credit score is crucial, especially if you’re a new business owner. It can significantly improve your chances of getting a loan approved, while helping you secure better terms.
Can I get a business loan if I’m a first-time business owner?
Yes, it’s possible, but it may be more challenging. Lenders may require a larger down payment or additional collateral. A solid business plan and relevant industry experience can help strengthen your application.
Are there government programs to help finance business purchases in Australia?
Yes, the Australian government offers various programs to support small businesses. Check with the Department of Industry, Science, Energy and Resources for current programs.
How can I improve my chances of getting approved for a business purchase loan?
Improve your credit score, save for a substantial down payment, develop a comprehensive business plan, and thoroughly research the business you’re planning to buy. Consider seeking professional advice to strengthen your application.