Buying a business with property as security

Buying an established business is often the fastest way to own a working enterprise: customers, staff, suppliers and systems are already in place. The finance is the sticking point. Most of the price of a small or mid-sized business is goodwill, and goodwill is something banks are cautious about lending against.

Property equity gets around that. If you own a home, an investment property or commercial real estate, a private lender can secure the loan on that property and let you buy the business on the seller’s timetable.

Can I use my property to buy a business?

Yes. Buying a business is a business purpose, and a private property-secured loan can fund some or all of the price, plus stock and working capital where the equity allows.

The lender’s focus is on three things:

• the property: its type, location, condition and what is already owing on it;
• the exit: how the loan will be repaid within its term;
• the purchase: a signed contract or heads of agreement that shows the price and completion date.

Because the security is the property, you are not asking a lender to bet on the goodwill. That changes the conversation from “prove this business will keep trading” to “show us the property and the plan”.

What makes up the price, and who will lend against each part?

Part of the price	What it is	How lenders tend to view it
Goodwill	Reputation, customers, location advantage	Hard to secure; most lenders won’t rely on it
Plant and equipment	Machinery, vehicles, fitout	Some value, but may already be financed; check the PPSR
Stock	Inventory on hand at completion	Changes daily; limited security value
Lease	The right to occupy the premises	Essential to the business, but not security for a loan
Property security	Real estate you own	The asset a private secured lender lends against

That table explains why buyers so often turn to property equity: it is the part of the picture a lender can rely on.

What due diligence should I do before buying?

The loan is secured on your property, so the lender’s risk is covered. Yours is not. business.gov.au sets out a sensible due diligence list:

• review the financial records, operations and legal documents;
• confirm licences and permits are current and transferable;
• check whether the landlord will assign the lease or grant a new one;
• look at agreements with suppliers;
• inspect plant, equipment and fixtures, and confirm what the business actually owns;
• confirm what stock is included and its condition;
• check for liabilities, including debts secured against assets;
• collect three to five years of tax returns, BAS, profit and loss, balance sheets and sales records.

Run a PPSR search as well. The Personal Property Securities Register is the official register of security interests in personal property, including company assets. A registration tells you someone claims an interest in an asset you are about to pay for.

How should the loan be structured?

It depends on what you own and what is owing on it.

• Debt-free property: a private first mortgage. Our page on unencumbered property loans explains why a clear title is the simplest security.
• Property with a bank loan: a second mortgage behind the bank, keeping the existing loan in place.
• Not quite enough equity in one property: two properties offered together.

Interest can be prepaid or capitalised, so there may be no monthly repayments while you take the reins. Capitalising means more is repaid at the end, so size the loan carefully.

What does a property-funded business purchase look like?

Illustrative example: a Toowoomba mechanic who has worked in the trade for 15 years agrees to buy his employer’s workshop business for $480k, covering goodwill, hoists, diagnostic equipment and stock. The seller wants to complete in five weeks. The mechanic and his partner own their home worth about $950k with $300k owing. A $520k second mortgage behind their bank funds the purchase, legal costs and $30k of working capital, with interest capitalised for 12 months. A PPSR search before completion finds a registration over one hoist, which the seller pays out at settlement. After 12 months of trading under the new owner, the bank refinances the second mortgage into a business loan.

The seller got a quick, certain sale. The buyer got the business without asking a bank to lend on goodwill.

Have a business lined up? Ask a specialist how your property could fund it.

How do I line the loan up with the sale contract?

Timing is where business purchases most often wobble, because several parties have to be ready on the same day.

• Get an early read on the property. Before you sign, a specialist can tell you roughly what the property supports, so you negotiate knowing your ceiling.
• Make the contract realistic. Allow enough time for due diligence, the landlord’s lease decision and licence transfers, not just the finance.
• Send documents in one go. ID, entity details, the signed contract, property details and the exit plan. Funding is possible within 24–48 hours for up to $5m once documents are in.
• Coordinate the solicitors. The business sale and the property security settle together, so the lawyers need the same date in their diaries.

When the loan is ready before the business contract is, you hold the stronger hand.

What exit fits a business purchase loan?

Every private loan needs a clear exit. The most common after a business purchase:

1. Bank refinance once the business has traded under your ownership and you can present your own financials.
2. Sale of a property, often an investment property, to clear the loan.
3. Business cash flow, where profits comfortably clear the balance within the term.

Our guide comparing a private lender vs bank explains why the bank usually becomes the long-term lender once the business has a record under you, and how much equity you can use helps you size the loan.

Key terms

• Goodwill: the part of a business’s price that reflects its reputation, customers and earnings.
• PPSR: the Personal Property Securities Register, which records security interests over things like equipment and company assets.
• Lease assignment: the landlord’s consent to transfer the existing lease to the buyer.
• Exit: the refinance, sale or income that repays the loan.

Buying a business? See if you qualify

Enquiring is free of any credit check, because none is run at the first step. A real specialist reads the purchase, the property and the timeline, and your details aren’t pushed out to multiple lenders. Our lending partner fundU is the direct lender, with no formal valuation required.

Tell us the business price, the completion date, the property you would offer and what is owing on it. Precise information about the property and its debts means the answer comes back right the first time. Start your enquiry.