How to Finance the Purchase of a Business in Australia

Buying a business is one thing. Funding it is another.

In Australia, most business acquisitions are financed through a combination of buyer capital, bank lending and, in some cases, vendor finance or earn-out structures. The right structure depends on the size of the deal, the risk profile of the business and your financial position.

Here's how financing typically works.

1. Bank Finance

For established, profitable businesses, bank funding is often the primary source of finance.

Banks assess business acquisitions based on serviceability. They want to see consistent earnings, clear financial statements and a business that can comfortably meet loan repayments after the buyer takes over.

Lenders will examine:

• Two to three years of financials
• Adjusted profit (after normalising owner wages and one-offs)
• Lease security
• Industry risk
• Your experience and background

The stronger and more stable the earnings, the more comfortable a bank will be. Businesses with secure leases and predictable cash flow are easier to finance than volatile operations.

Buyers should expect to contribute their own capital. Banks rarely fund 100% of the purchase price. A typical structure may involve 30% to 50% buyer equity, with the balance funded through lending, depending on risk and asset backing.

Preparation matters. Clean financials and realistic pricing improve the chances of finance approval.

2. Vendor Finance

Vendor finance is when the seller agrees to leave part of the purchase price in the business as a loan to the buyer.

This is common where:

• The buyer's deposit is slightly short
• The bank will not fund the full amount
• The seller wants to broaden the buyer pool

Vendor finance is usually structured with clear repayment terms and interest. It can bridge funding gaps and signal seller confidence in the business.

However, it must be properly documented. Clear repayment schedules, security arrangements and default provisions are critical. It is not an informal handshake arrangement.

In some cases, vendor finance can also improve deal flexibility by allowing a higher headline price while easing upfront cash requirements.

3. Earn-Out Structures

Earn-outs are increasingly used where future performance is uncertain.

Instead of paying the full price at settlement, part of the purchase price is tied to the business achieving agreed performance targets after takeover. If revenue or profit reaches certain benchmarks, additional payments are made.

Earn-outs are common in:

• Businesses with fluctuating earnings
• Rapid-growth sectors such as ecommerce
• Situations where recent performance needs to be proven sustainable

From a buyer's perspective, earn-outs reduce risk. From a seller's perspective, they can support a higher total sale price — but only if performance continues.

Earn-outs must be clearly defined. Performance metrics, reporting standards and timeframes need to be agreed in detail to avoid disputes.

4. Combining Structures

Many business purchases use a combination of funding sources.

For example:

• Buyer equity
• Bank loan
• Small vendor finance component

The goal is to create a structure that protects both parties while ensuring the business can comfortably service debt.

Over-leveraging is one of the most common mistakes buyers make. A business that looks profitable on paper can become stressful if loan repayments absorb too much cash flow.

5. What Lenders and Sellers Look For

Whether funding comes from a bank or vendor finance, credibility matters.

Buyers who present:

• Relevant industry experience
• A clear transition plan
• Strong personal financial history
• Realistic projections

are more likely to secure favourable terms.

Preparation before making offers improves negotiating power and speeds up transactions.

6. Structure Matters More Than Price

The way a deal is structured can be as important as the headline price.

A well-structured purchase protects cash flow, reduces personal risk and provides breathing room in the early stages of ownership. A poorly structured deal can strain working capital and create unnecessary pressure.

Before committing to any purchase, ensure the funding structure aligns with the true earning capacity of the business.

At SBX Business Brokers, we work with buyers and sellers to structure transactions that are commercially realistic. We understand how banks assess risk, when vendor finance makes sense and how earn-outs should be structured to protect both parties.

If you are considering buying a business and want clarity on how to finance it properly, contact SBX Business Brokers for a confidential discussion. The right funding structure can make the difference between a smooth transition and unnecessary financial stress.