Buying a business

Whether you are buying your first business or acquiring an additional business, we have the knowledge and experience to help you navigate the banks and get the right finance for you. 

The best time to think about business finance is before you make an offer! Call or email me to discuss your business purchase goals so when the right business comes along, you are ready to make the best offer with confidence.

There are numerous business lending options available when you find the right business. For many business purchases, a combination of lending facilities is established to cover different purposes such as purchase cost, working capital and equipment. 

Please see our dedicated working capital and equipment finance pages for more details on those facilities. Below are some details on term business loans. There are a lot of options - so give me a call and I can use my 20 years commercial banking experience to narrow down the right options for your business purchase.

Business Term Loans - A lump sum of money leant to your business by the lender. You can often choose either fixed or variable interest rates. Most lenders offer a range of repayment options from monthly to yearly.  The loan term can range from 1-30 years depending on the lender and product. There are unsecured and secured options available. 

Unsecured Business Loans - Unsecured business term loans generally have shorter terms, lower limits and higher interest rates than secured loans. They are therefore normally more expensive than a secured option.

Secured Business Loans - When it comes to security, there are several different types of security lenders may consider for securing your loan. These include cash, residential property, commercial property or business assets. Lenders may apply different rates to different security types. Secured loans generally have longer terms, higher limits (subject to security) and lower interest rates when compared to unsecured business loans.

Bank Bill Business Loan - Known as a BBBL is a flexible loan option, generally for loans over $250,000. Interest rates are linked to the bank bill swap rate (see ASX about BBSW). Some lenders provide multiple rollover terms for example every 30, 60, 90, 120, 150, or 180 days.  At the end of each rollover term, your existing loan facility is effectively repaid by a new facility. The lender sources this new facility on the money market.   The new facility’s interest rate is determined by the current Bank Bill Swap Rate (BBSW) at that time, plus any applicable margin. 

Advantages:

• Interest Rate Flexibility: The interest rate is linked to the bank bill swap rate, which can be advantageous if rates decrease.
• Long Loan Terms: You can choose a loan term of up to 30 years, providing flexibility for repayment.
• Repayment Options: Tailor your repayments—interest-only, principal and interest, or a combination.
• Large Borrowing Amounts: Suitable for businesses needing substantial funds (over $250,000).
• Security Options: You can provide security (such as property) to support your loan.

Disadvantages:

• Interest Rate Risk: If rates rise, your interest costs may increase.
• Complexity: Linked rates and various repayment options can be complex to understand.
• Eligibility Criteria: Lending criteria can be more stringent.

Owning and operating your own business is another "Great Australian Dream" for many of us. With over 2.5 million "small" businesses (under 19 employees) in Australia, we make up 97% of all business and are Australia's largest employer. 

On the flip side, it is estimated one in three businesses fail in their first year, with only 25% making it to year five. Buying an established, well run, profitable business can be less risky than starting from scratch. The potential benefits of purchasing an established business include:

• Immediate cashflow.
• An established customer base.
• Established supplier relationships.
• Easier to finance with financial history.
• Established policies, procedures and plans.
• Goodwill, equipment, plant and stock included.

The purchase of an existing business is not one to be rushed. A thorough due diligence process is vital. See below due diligence section for more detail.

When offering to purchase a business, it is important to get advice on the contract before signing and to ensure it has a due diligence clause. Think of the due diligence clause a bit like a building and pest inspection clause on a house purchase. It is normally done in the first 2-3 weeks after offer and acceptance; and the offer is conditional on the clause being satisfied.

Due diligence is crucial when buying a business as it helps you thoroughly assess the risks, opportunities, and overall health of the business. Due diligence is about making an informed decision to minimise the chance of an unexpected surprise after purchase. Below are just some of the reasons due diligence is so important.

Risk Mitigation:

• Identifying potential risks allows you to make informed decisions.
• You can uncover legal, financial, operational, and environmental risks that might impact the business’s future success.

Financial Assessment:

• Review financial statements, tax records, and cash flow projections. 
• Understand the business’s profitability, debt, and financial stability. Profit is generally used to calculate the business sale price, so you need to ensure the financial claims are actual and consistent over several years.

Operational Insights:

• Evaluate processes, systems, and management practices.
• Assess the quality of products or services offered.
• Review the employment history, understand key personnel.
• Understand key suppliers, customers and contract terms.

Legal and Regulatory Compliance:

• Ensure the business complies with laws, licenses, permits, and contracts.
• Verify intellectual property rights and identify any potential legal issues.

Understanding the Market:

• Review the competitive landscape and market trends.
• Assess customer demographics and preferences.