What Not to Do When Acquiring Another Business

Buying an established business requires a finance structure that supports both the transaction and what follows.

Brunswick's commercial strip along Sydney Road hosts a mix of mature retail and hospitality operators, alongside professional service firms and light industrial businesses in the pockets around Weston and Lygon streets. When these businesses change hands, the acquisition finance used to fund the purchase directly affects the buyer's working capital position during the handover period.

The most common mistake is treating the purchase as a single lump sum requirement without separating the components. A business acquisition involves the purchase of goodwill, plant and equipment, stock, and sometimes commercial property. Each component can attract different lending terms, and combining them into a single unsecured facility often means paying a higher interest rate on assets that could have been financed at a lower cost.

Secured vs Unsecured Structures in a Business Purchase

A secured business loan uses the purchased assets as collateral and typically offers lower rates than unsecured options.

If the business you are acquiring includes valuable equipment, fitout, or vehicles, those assets can often be used as security. A cafe on Sydney Road purchasing an established venue with commercial kitchen equipment may be able to secure part of the loan amount against those fixed assets, reducing the cost of borrowing. Goodwill and stock are harder to secure, so those portions may need to be funded through unsecured business finance or via a business line of credit if the amount is manageable. Splitting the finance this way means you are not paying unsecured rates on the entire purchase price.

Some buyers opt for full unsecured funding because the approval process can be faster, particularly when the vendor wants a short settlement period. The trade-off is a higher variable interest rate and often stricter debt service coverage ratio requirements, which can restrict cash flow immediately after settlement.

Working Capital and the Post-Settlement Gap

Funding the purchase price alone is not enough if you do not account for the working capital needed in the first three to six months.

Consider a buyer acquiring a Brunswick graphic design studio with established clients and recurring contracts. The purchase price covers the goodwill, client list, and equipment, but the new owner still needs to meet payroll, pay suppliers, and manage accounts receivable cycles during the handover. If the entire loan amount is used to fund the acquisition, there is nothing left to cover these operating expenses until invoices are paid. This is where buyers get caught.

The solution is either structuring part of the finance as a progressive drawdown facility, where funds are released as needed rather than upfront, or including a separate working capital component. A business overdraft or revolving line of credit attached to the acquisition loan provides access to funds for operating expenses without requiring a second application. This approach also avoids the need to dip into personal savings during the transition period, which is particularly relevant when the business being acquired has irregular cash flow or long payment terms.

What Lenders Assess Beyond the Purchase Price

Lenders want to see a cashflow forecast that extends at least 12 months beyond settlement, along with evidence that the business can service the debt.

You will need to provide the business financial statements for the entity being acquired, usually covering the past two to three years. If those statements show declining revenue or irregular profitability, the lender will want to understand the reason and see your business plan for turning that around. A buyer planning to acquire a Brunswick homeware retailer that has underperformed may still secure finance if the plan includes a credible strategy such as expanding online sales or updating the product range, supported by your own financial position and experience in the sector.

Your business credit score is also assessed, particularly if you have existing business debts or directorships. A low score does not automatically block approval, but it may mean the lender requires a personal guarantee or additional collateral. If you are buying the business through a new entity, the lender will assess your personal credit history and financials instead.

If the business involves commercial property, whether owned or leased, the lease terms or property valuation will form part of the assessment. A short remaining lease term can weaken the lending case, as it introduces uncertainty about the business location.

Fixed vs Variable Interest Rate on Business Acquisition Finance

A fixed interest rate locks in repayments for a set period, which helps with budgeting during the first years of ownership.

Variable interest rates offer more flexibility, including redraw facilities and the ability to make additional repayments without penalty. If the business generates surplus cash flow, a variable rate loan allows you to pay down the debt faster. The downside is exposure to rate movements, which can increase repayments unexpectedly. Some buyers split the loan structure, fixing part of the debt to stabilise repayments and leaving part variable to retain flexibility.

For a Brunswick buyer acquiring a business with predictable revenue, such as a franchise or subscription-based service, a higher proportion of fixed debt can make sense. For businesses with seasonal or project-based income, variable or split structures are more practical.

When to Involve Asset or Equipment Finance Separately

If the business acquisition includes significant plant, machinery, or vehicles, separating those assets into a dedicated equipment finance or asset finance arrangement can reduce the overall cost.

These facilities are secured against the specific equipment and typically offer longer loan terms than a standard business term loan, which spreads the repayments and reduces pressure on cash flow. A buyer acquiring a light industrial business in Brunswick with machinery worth $150,000 might fund that component over five to seven years through asset finance, while funding goodwill and working capital over a shorter three to five year term. This approach also keeps the business loan amount lower, which can improve serviceability calculations.

The downside is managing multiple facilities, but the cost saving and cashflow benefit usually outweigh the administrative load.

Timing the Application and Settlement Window

Express approval options exist, but they are not suitable for every acquisition structure.

Fast business loans are typically unsecured, lower in loan amount, and come with higher rates. They work when the business being purchased is small, the buyer has a strong financial position, and the vendor is willing to settle quickly. For larger or more complex acquisitions, a standard assessment process through commercial lending is more appropriate. The approval timeline is longer, usually four to six weeks, but the loan structure and terms are more tailored.

If you are negotiating the purchase of a Brunswick business, factor in the likely finance approval time before committing to a settlement date. A rushed timeline often forces buyers into suboptimal funding arrangements.

Andor Financial works with buyers across Brunswick to structure business acquisition finance that fits both the transaction and the operating period that follows. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions