Freehold going concern finance: buying the business and the building

Some businesses are inseparable from their buildings. A motel is its rooms. A country pub is its licence and its front bar. A childcare centre is its approved, compliant premises. When these businesses sell, they often sell with the freehold, as one deal.

That makes them some of the most rewarding purchases in small business, and some of the most complicated to fund. A bank must assess a specialised property, the trading business and the buyer’s ability to run it, often with licences or approvals still transferring. Settlement dates don’t move to suit. A private first mortgage can settle the purchase on time, and a bank refinance follows once the business is trading in your hands.

What is a freehold going concern?

It’s a sale of an operating business together with the land and buildings it trades from, so that the buyer can keep running it from day one. Common examples:

• Motels, caravan parks and holiday accommodation. See accommodation and tourism.
• Hotels and pubs with liquor licences and, in some states, gaming entitlements. See hospitality.
• Childcare centres with service approvals. See childcare centres.
• Service stations, car washes and automotive sites.
• Medical centres, pharmacies and specialist clinics where the building is fitted to the purpose.
• Farms and agribusinesses sold as operating enterprises, which are considered case by case.

When is the sale GST-free?

GST can add a tenth to a large price, so this is the first question to settle. The ATO says a sale of a going concern is GST-free when all three of these apply:

• There is a price. The ATO requires the supply to be made for payment.
• The buyer is in the GST system, either already registered or required to be.
• It’s documented. Buyer and seller record their agreement on going concern treatment in writing, normally in the contract.

The ATO adds that the seller must supply everything necessary for the business to continue operating and must carry on the business until the day of sale. Real estate sold on its own, without the enterprise, doesn’t qualify. For a freehold going concern, that means the contract should transfer the land, buildings, plant, goodwill and whatever licences or rights the business needs, and the seller must keep trading until settlement.

If any condition fails, GST may apply. A late failure, such as the seller shutting the business before settlement, can create a GST bill nobody budgeted for. If that happens, read how buyers fund GST on a commercial property purchase and recover it later.

Licences and approvals: what transfers, and when?

Funding has to fit around the regulator’s timetable, not just the contract’s.

Liquor licences in NSW. Liquor & Gaming NSW sets out four transfer routes. Where the outgoing licensee gives written permission, it’s a two-step process:

• Provisional approval, usually given within ten business days of a complete application.
• Confirmation, usually about 60 days later if no objections are received.

Liquor & Gaming NSW says a transfer doesn’t become effective until provisional approval is given, though the business can continue to operate while the application is assessed. All transfers carry a fee, and where the licence includes gaming machine entitlements, an updated direct debit form is needed for every transfer.

Childcare service approvals. Under the National Quality Framework, ACECQA’s guide says an approved provider can transfer a service approval to another approved provider, but:

• The transferring and receiving providers must jointly notify the regulator at least 60 days before the intended transfer date.
• The transfer can happen only with the regulatory authority’s consent. Consent is deemed given if the regulator hasn’t signalled intervention 28 days before the transfer.
• The regulator may intervene and refuse consent, and a transfer without consent is void.

So a childcare purchase can’t sensibly settle on a timeline shorter than the approval process. Line up the funding term to match.

Other licences, such as food business registrations, environmental approvals and fuel supply agreements, have their own rules. Your solicitor will build the conditions into the contract.

How private funding settles a freehold going concern

1. Exchange with sensible conditions, including approvals and licence transfers, and a realistic settlement date.
2. Confirm GST treatment and registration with your accountant.
3. Send us the deal: the freehold’s address, other real estate you could pledge, the purchase price with costs, and how you plan to refinance.
4. Set the security. The freehold usually carries a private first mortgage. If the numbers need more, a second mortgage on a house or investment property can fund the deposit, duty, opening working capital or any shortfall. Commercial freeholds are covered on commercial property first mortgages.
5. Settle on the contract date, with licences and approvals transferred or in progress as the contract allows.
6. Trade, then refinance. Most banks want to see a period of trading under new ownership before refinancing.

Contract signed and the bank wobbling? Send us the deal for a quick read; it costs nothing and there’s no credit check.

Funding options compared

Option	Typical speed	Security	Suits	Limitations
Bank commercial loan	Weeks to months	Freehold, business assets, guarantees	Established operators with strong financials	Specialised properties and new owners attract conditions
Specialist industry lender	Weeks	Freehold and business	Sectors with niche lenders	Narrow criteria; process times
Vendor terms on part of the price	Negotiated with the vendor	Commonly a mortgage in the vendor’s favour	Retiring owners willing to wait for part of their money	The vendor stays involved until paid; see vendor finance payouts
Private first mortgage to settle, bank later	A day or two possible once paperwork is complete	The freehold, topped up with other real estate if required	Settlement dates that can’t move, bank approvals that stall, borrowers with tax arrears or blemishes (assessed individually)	Built for months, not years; dearer than bank money

Who it suits

• Buyers with a fixed settlement date whose bank approval has stalled on trading figures.
• Experienced operators expanding into a second motel, pub or centre before the bank is ready.
• Owner-operators buying from a retiring vendor who won’t extend settlement.
• Buyers with property equity but a short trading history in the sector.
• Purchasers who need time for licences or approvals to transfer before a bank will lend.

When this isn’t the right move

• The bank will settle on time. It is almost always cheaper for a long-hold freehold. Use it.
• You have no experience in the sector and no backup exit. A bank may never refinance a business you haven’t shown you can run. Make sure another property sale or refinance could repay the loan.
• Approvals are uncertain. If a licence or service approval might be refused, don’t settle unconditionally on borrowed money. Restructure the contract.
• The price relies on optimistic trading. If the purchase only works with a big jump in revenue, the refinance is at risk.
• The freehold only suits one use in a weak location. Specialised properties in thin markets are harder to refinance and to sell.

What it costs (without the guesswork)

We don’t publish a price for freehold going concern loans. Each is priced on the freehold, any other security, the amount borrowed against them, the term and the credibility of the refinance, and the aim is the keenest price that particular deal supports. You’ll see:

• Interest, prepaid or capitalised, so cash stays in the business for the handover months.
• An assessment fee, varying by loan and set out on the Letter of Offer.
• Legal and registration costs for each mortgage.

With no formal valuation required, there’s one fewer third party to wait on before a fixed settlement date. Debt secured as a second mortgage costs more than first mortgage debt; where both a bank and a private lender are involved, a deed of priority may set out who ranks where.

Documents you’ll need

• Identification for all borrowers, directors and guarantors.
• The contract of sale, including the going concern and GST clauses.
• Business information memorandum and recent trading figures from the vendor.
• Licence and approval details, and the status of any transfer applications.
• Details of any additional security property and statements for loans on it.
• The refinance plan: a bank’s indication, or the property you’d sell if needed.

How fast

Funding is possible within 24 to 48 hours for up to $5m once documents are in. In practice, regulators and conveyancing set the pace: plan the term around licence and approval steps, not just settlement. For the full sequence, see settling a property purchase on time.

Illustrative example: a regional motel when the bank stalls

Illustrative example: A couple contract to buy a 20-room motel in regional NSW, freehold and business, for $3,200,000 as a GST-free going concern. Their bank approval stalls four weeks before settlement over the vendor’s trading records. They have $700,000 of cash and own a Newcastle house worth about $1,300,000 with $400,000 owing. For illustration, a 60% band on the motel freehold gives a first mortgage of about $1,920,000, and a 70% band across all debt on the house leaves roughly $510,000 for a second-ranking loan.

Settlement funding	Amount
Price (GST-free going concern)	$3,200,000
Duty, legals and stock adjustment (estimate)	$190,000
Working capital for the first months	$80,000
Total needed	$3,470,000
Buyers’ cash	$700,000
Shortfall	$2,770,000
Available at the illustrative bands	about $2,430,000
Gap	about $340,000

The numbers don’t work as first proposed. The buyers renegotiate a $300,000 vendor finance component for 12 months and trim working capital, bringing the borrowing within the illustrative security. They settle on time, trade the motel for nine months, then refinance the freehold with a bank and pay out both the private loan and the vendor. For regional security notes, see regional and rural property loans.

The lesson: test the structure before exchange, not four weeks out.

Related situations

If you’re buying the building your business already leases, read buying your business premises. Buying a business without the freehold? See buying a business with property security. If stamp duty is the gap, funding stamp duty on a property purchase covers it.

See if you qualify before you exchange

The best time to test a freehold going concern deal is before the contract is unconditional. An enquiry won’t touch your credit file, and it lands with one direct lender, fundU, rather than a broker’s panel. A specialist weighs the freehold, the business and the refinance as one picture. Give precise numbers for the purchase, any extra security and existing mortgages, and the answer you receive will survive the paperwork.

Ask whether we can settle your going concern purchase, or read about secured business loans first.