Quick answer
Business acquisition finance funds the purchase of another business — typically a mix of the buyer's equity, vendor finance or deferred payments, and lender funding. Because goodwill is hard to lend against, established SMEs often secure the lending portion with property, with facilities from $20,000 to $5,000,000. Lenders focus on the combined group's cash flow, the price paid relative to earnings, and integration risk.
Key points
- Most SME acquisitions blend buyer equity, vendor terms and lender funding.
- Goodwill offers little security, so property often supports the loan component.
- Lenders test the combined group's cash flow after the new debt, not the target in isolation.
- Fund the target's working capital as well as the purchase price.
- Property-backed
- $20k – $5m
- Typical mix
- Equity + vendor + debt
- Key test
- Combined cash flow
- Often missed
- Target's working capital
How are SME acquisitions usually funded?
Established SMEs buy other businesses for sound reasons: to take out a competitor, secure a supplier, enter a new region, or acquire a founder’s business as they retire. The purchase is rarely funded from one source. A typical structure blends three layers:
- Buyer equity — cash from the acquirer’s balance sheet or its owners.
- Vendor support — deferred payments, an earn-out or vendor finance, where the seller accepts part of the price over time.
- Lender funding — a term facility, often secured over property, sometimes alongside a working capital limit for the combined business.
The proportions depend on the price, the quality of earnings, the security available and how much risk the vendor is willing to share. The more the vendor defers, the more confidence a lender tends to take — the seller is backing the business it’s selling.
What does a lender look at in an acquisition?
Acquisition lending is assessed on the combined business after the deal, not the target on its own.
| Question | Why it matters |
|---|---|
| What’s the price relative to maintainable earnings? | Overpaying leaves less cash to service debt |
| Can combined cash flow service all debt, existing and new? | Serviceability is the first gate |
| How much equity is the buyer contributing? | Shared risk and commitment |
| What security is offered beyond goodwill? | Goodwill alone rarely supports lending |
| What are the integration risks? | Customer loss, staff loss, systems |
| Is there customer or supplier concentration in the target? | A single-customer dependency can erode the deal |
A clear information pack answering these — financials for both businesses, due diligence findings, a pro-forma combined forecast and a short integration plan — speeds everything up. The guide to writing a funding proposal covers how to present it.
Why property security features so often
Goodwill is the part of a purchase price a lender finds hardest to rely on. If the combined business struggles, goodwill may be worth very little. That’s why property is so often the anchor for the debt portion of an SME acquisition.
Property-secured facilities range from $20,000 to $5,000,000 and can use residential or commercial property, via a first mortgage, second mortgage or caveat. For many acquirers, a property-backed business loan or second-ranking facility over existing equity funds the gap between equity, vendor terms and the price.
Want a quick read on how your deal might be structured? Outline the acquisition for a specialist — no credit check is involved at this stage.
Don’t forget the target’s working capital
A frequent and expensive oversight is funding the purchase price but not the working capital that comes with — or is stripped out of — the target.
- In an asset purchase, the seller usually keeps its debtors and pays its creditors. The buyer starts with fresh stock and no receivables, and must fund the entire trading cycle from day one.
- In a share purchase, working capital transfers, but the price may include a working capital adjustment at completion. Understand the mechanism and fund any shortfall.
Run the target’s cycle through the working capital cycle calculator and add the result to your funding budget.
Illustrative deal structure
Illustrative only; no real business. A $16 million turnover electrical wholesaler agrees to buy a regional competitor for a price representing a multiple of its maintainable earnings. The structure:
| Layer | Share of price | Notes |
|---|---|---|
| Buyer equity (cash reserves) | 25% | From retained profits |
| Vendor deferred payment | 20% | Paid in two instalments over 18 months |
| Property-backed term facility | 55% | Second mortgage over the buyer’s warehouse |
| Plus: working capital limit | Separate | Stock and debtors for the new branch |
Serviceability is tested on the combined forecast after all repayments, including the deferred vendor instalments. The facility is sized so that cover remains adequate even if the acquired branch loses a meaningful slice of its customers in year one.
What about timing and settlement?
Sale agreements often set a completion date that doesn’t match a bank’s approval timetable. Short-term funding can hold the deal together while longer-term debt is finalised — see bridging finance to settle a business purchase.
If the deal includes performance-based payments, plan for them now. The page on earn-out funding explains how to budget and finance future instalments.
Due diligence items a lender will ask about
- Financial statements and tax returns for at least two to three years
- Management accounts year to date
- Aged debtors and creditors, stock listing
- Key customer and supplier contracts, including change-of-control clauses
- Leases and their assignment terms
- Employee entitlements that transfer
- PPSR search and any existing security over the target’s assets
- ATO position, including any outstanding BAS or super
business.gov.au’s guide to buying an existing business emphasises examining financial records, operations and legal documents to identify and manage risk — the same list a lender will work through.
Early questions to settle
Before approaching lenders, decide whether you’re buying shares or assets, how much equity you’ll commit, what vendor terms you’ll seek, and which property could support the loan. Those four choices shape every funding conversation that follows.
Let’s look at your deal
If you’re negotiating an acquisition, the earlier the funding conversation starts, the more room you have to shape the deal. Tell us the price, the structure you’re considering, the target’s turnover and the security available.
Your enquiry won’t involve a credit check, and deal details stay with the specialist handling your file rather than being circulated among lenders. The more accurately you describe the price, vendor terms and property on the form, the more useful our first call will be. Discuss acquisition funding.
Frequently asked questions
Can we borrow 100% of the purchase price?
Rarely from one source. Lenders generally expect the buyer to contribute equity or the vendor to carry part of the price through deferred payments or vendor finance. Property security can increase the lending component, but full funding is unusual.
Why won't the bank lend against goodwill?
Goodwill has value only while the business keeps trading profitably. If the acquisition fails, goodwill may be worth little, so lenders prefer security they can realise independently, such as property.
Does the target's debt transfer with the business?
It depends on the structure. In an asset purchase, the buyer usually takes the assets free of the seller's debts. In a share purchase, the company's liabilities come with it, which is why due diligence on debts, tax and PPSR registrations matters.
Do we need due diligence before approaching a lender?
You can start the funding conversation early, but a lender will want to see due diligence findings before final approval. Starting early helps you understand how much equity to commit and what timing is realistic.
Is stamp duty payable on buying a business?
Duty treatment of business assets, goodwill and any property differs by state and territory. Check with the relevant state revenue office or your adviser, and include any duty in the funding budget.
How fast can acquisition funding be arranged?
It depends on the structure, the security and the quality of information. Property-secured components can move faster than bank acquisition lending; we'll give you a realistic timeline after the first call.