Financing Options for Buying a Business in Australia

Buying an established business is the one of the most lucrative decisions for aspiring individuals. Instead of spending years establishing brand awareness and trust in the market, budding entrepreneurs can inherit existing operations that already have a loyal clientele, streamlined processes, immediate cash flows, and a steady revenue stream. Also, novices rely more on the hands on training and support offered by the seasoned sellers for a seamless transition. It helps them sustain the profits while taking the brand to new heights of success.

However, the most crucial part of business acquisition is securing funds. Whether it’s a small food takeaway shop or a tech startup in Sydney, you need enough funds to buy a high performing business, its assets, plant and equipment, initial operating costs, etc. It is important to know your lending potential before making an entrepreneurial investment decision. Let's help you explore the best financial options for buying a business in Australia if you don't have the necessary capital. It will help you opt for the best business opportunity in Sydney, Brisbane, Melbourne and other prime locations with ease and without bearing a financial crunch.

1. Bank Loans to Secure Funds

Traditional business purchase loans from Australian banks can help you arrange funds for acquiring an existing business. They are known for their reliability. The best part is that they offer competitive interest rates if you meet their strict eligibility criteria.

Secured loans are the most common type of financing. Under this, you need to provide collateral, which includes your personal assets or residential property. This can help reduce the bank's risk while letting you enjoy lower interest rates. On the other hand, unsecured loans do not require collateral but typically have a higher interest rate. They rely on your credit history and financial track record.

The banks thoroughly evaluate borrowers' profiles to know their financial stability and experience. Plus, they strictly assess the financial health, revenue and profit forecasts, and the debt to equity ratio of the business. Thus, it is essential to conduct a thorough due diligence before buying a business and provide the banker with the following documents:

- The current balance sheet of the business
- Tax return files for two years
- Buyer’s qualification to operate the business
- Details about your personal assets and liabilities (for secured loan)
- Information about the equity you have to invest in the venture
- Expected profit and loss forecast for the first two years (depending on the business's revenue and your potential)

These things will help you secure a loan at the most affordable price to acquire an established business easily. However, the downside of a traditional bank loan is that you must provide security over some of your assets, along with a personal guarantee, which can turn into a risky venture in the event of business failure.

2. Alternative Lending Option

Potential business buyers who don't have the required financial credentials or documents can't secure a loan from traditional banks. In such a scenario, they can opt for an alternative lending option. These don't require collateral or follow strict eligibility criteria. While traditional banks take a lot of time to assess papers and documents, alternative lending has a quick turnaround time, saving you a lot of time when arranging funds.

However, it comes with higher interest rates and may have a shorter term as compared to business loans. From peer to peer loans and invoice financing to lines of credit and equipment financing, you can select from a range of alternative lending options when buying a profitable business for sale in Sydney, NSW.

3. Vendor Financing (Seller Financing)

Many business sellers in Australia offer partial financing to potential buyers to pay the upfront capital required. Believe it or not! Vendor financing is one of the most common options in Australia for acquiring small or medium sized businesses.

Under this, the seller funds a part of the purchase price. On the other hand, the buyer pays the seller an initial upfront amount on settlement, along with the balance of the purchase price (which comprises interest) over an agreed period of time and in instalments. This can help attract investors to raise necessary funds easily.

This financing option is viable if you are finding it hard to secure funds from banks and other lenders. However, these options are not always reliable for the selling party, but it allows vendors to get the desired price, which can be a win win situation for them. The seller also receives the benefit of interest. So, it is important to thorough read the vendor financing document as it includes the following details:

- The borrowed amount
- rate of interest (which is between 7 to 15 per cent annually)
- the repayment schedule (monthly, quarterly, annually)
- loan term
- Buyer’s guarantor and obligations of that guarantor
- The seller's right if the buyer defaults
- The parties usually include these terms into the Contract of sale buying a business, or else draft them into a separate vendor finance loan agreement for better clarity.

4. Government Supported Loans and Schemes

You can leverage programs like the Small Business Loan Guarantee Scheme to fund your business acquisition. The Australian government offers several support programs to assist small entrepreneurs in their business journey, and SBLGS is one of them.

Under this, the government guarantees a portion, which is 50 to 80 % of the loan, to reduce the lender's risk while streamlining the approval process. Depending on the scheme plans, the government supported loans can be used for buying a business for sale in Sydney, working capital or even refinancing certain debts. The best part is that these are easier to obtain for new and small businesses due to government backing.

Some state governments also offer targeted grants as well as low interest loans for small businesses. Ensure you do proper research and know the criteria to access government supported loans and schemes.

5. Bootstrapping Your Business Purchase

This is one of the fundamental options where you use your hard earned savings to fund your business purchase. The buyers may use their assets to raise necessary funds or borrow money from friends and family members. This type of funding is based on trust. However, remember that using your savings can be a bit risky, and you need to conduct thorough research and check legal documents to prevent lawsuits and other challenges.

Wrapping Up

Acquiring an existing business is not rocket science if you have already secured funds for your thriving investment. Potential business buyers in Australia can arrange necessary capital from traditional banks, alternative lenders, government backed loans, grants and vendor financing. Instead of draining your savings, focus on making a viable decision to make the most of your business buying decision.