Looking to boost your chances of getting a business loan approved? In this article, Broker.com.au’s Managing Director, Matt Board, shares key factors business owners should focus on when crafting a strong business plan to support their loan application.
How to Prepare a Strong Business Plan for a Business Acquisition Loan in Australia
Acquiring an existing business can be an exciting opportunity, but securing financing for the purchase requires a well-structured business plan. Whether you’re borrowing from a bank or a non-bank lender, your ability to secure a loan depends on how well you present your case.
Lenders want proof that the business is financially viable and that you can meet loan repayments. If you’re using personal property (such as your home) as collateral, the lender will also assess your personal financial position and the potential risks.
This guide will walk you through everything you need to know about preparing a business plan that meets lender requirements. We will cover:
- Why a business plan is essential for acquiring a business
- What lenders look for in your business plan
- How to structure your financials for a strong application
- The role of loan security (collateral) in the approval process
- How tax implications affect your funding strategy
- Key reasons why business acquisition loans get rejected
- Steps to improve your chances of approval
1. Why a Business Plan is Essential for Business Acquisition Loans
A business acquisition loan is different from a standard business loan. Instead of funding day-to-day operations, this loan is used to purchase an existing business. Lenders want reassurance that:
- The business is profitable and stable
- You have the skills and experience to manage it
- The loan amount is appropriate for the value of the business
- You can comfortably meet loan repayments
Unlike start-up loans, where lenders assess the viability of a new business idea, business acquisition loans focus on historical performance and future projections of the acquired business.
Example: A Medical Practice Loan
If a doctor wants to purchase an existing GP clinic, the lender will look at:
The clinic’s patient records and billings over the past 3 years
The lease agreement for the premises
The reputation of the clinic and existing clientele
The doctor’s industry experience
2. What Lenders Look for in Your Business Plan
Key Sections of a Strong Business Plan
A solid business plan should include:
1. Executive Summary
- A brief introduction of the business you’re acquiring
- Your professional background and experience
- Loan amount required and its purpose
2. Business Overview
- Nature of the business (industry, services/products, target market)
- Location and operational structure
- Key suppliers and business dependencies
3. Financial Performance (Historical & Projected)
- Business financial statements for the past 2-3 years
- Projected cash flow statements
- Budget for loan repayment
4. Risks & Mitigation Strategies
- Identify industry risks (e.g., competition, regulatory changes)
- Strategies to improve profitability and efficiency
- Details of personal property used as security (if applicable)
- How you will meet repayments through revenue
3. Structuring Your Financials for a Strong Application
Lenders will evaluate the financial health of both you and the business. Here’s what they typically assess:
1. Income & Expenses
How much revenue the business generates
Fixed vs variable expenses (rent, wages, utilities)
Profitability trends over the past few years
- A DSCR above 1.5 is preferred by most lenders
- If DSCR is too low, lenders may reject the application
- Monthly sales reports showing steady income
- Supplier contracts proving operational stability
- Customer retention data demonstrating ongoing demand
4. The Role of Loan Security (Collateral) in the Approval Process
Most lenders require collateral to reduce their risk. One common option is using your home as security for the loan.
How Collateral Works
If using personal property, lenders will assess:
- The current mortgage balance (if any)
- The equity available in the home
- Your Loan-to-Value Ratio (LVR)
A home with low LVR (<80%) improves approval chancesExample: Using Home Equity to Acquire a Business
Sarah, a business consultant, wants to buy a marketing agency for $500,000.
- She owns a house worth $800,000 with a mortgage of $300,000
- She has $500,000 in equity
- Her lender allows her to borrow up to 80% of her home’s value
Sarah refinances her mortgage and uses $400,000 in home equity to fund the acquisition, reducing the need for high-interest business loans.
5. Tax Implications: Business Debt vs Home Loan Debt
From a tax perspective, business debt is often more advantageous than personal home loan debt.
Interest on business loans is tax-deductible
Interest on home loans used for personal purposes is NOT tax-deductible
If you’re using your home loan for business acquisition, it’s crucial to:
- Seek advice from a tax professional
- Keep separate business & personal debt
- Ensure proper loan structuring for tax efficiency
6. Why Business Acquisition Loans Get Rejected & How to Avoid It
Here are common reasons lenders reject business acquisition loans:
1. Weak Cash Flow
✔ Ensure strong revenue projections
✔ Show lender how debt repayments will be covered
2. High Risk Business Model
✔ Avoid industries with high failure rates (e.g., nightclubs, retail startups)
3. Lack of Industry Experience
✔ Prove you have skills to run the business successfully
4. Poor Credit History
✔ Review your credit file before applying
5. Overestimating Business Value
✔ Provide an independent valuation to justify loan amount
7. Steps to Improve Your Chances of Loan Approval
✔ Work with an Experienced Business Loan Broker
✔ Have a Backup Plan (Alternative Funding Sources)
✔ Show Growth Potential of the Business
✔ Highlight How the Business Can Repay Debt Without Strain
Government Support for Business Loans
- Australian Business Growth Fund (ABGF) provides equity financing
- Small Business Loan Guarantee Scheme helps businesses access funding
Final Thoughts: Strengthening Your Business Loan Application
Applying for a business acquisition loan requires strong financials, a well-documented business plan, and a clear repayment strategy. Lenders want low-risk investments, so showcasing financial stability and growth potential is key.
If you’re unsure about loan structuring, tax implications, or lender requirements, seek professional advice from:
- A finance broker
- A tax accountant
- A business adviser
By taking the right steps, you can increase your chances of approval and secure the best financing for your business acquisition.
Reach out to our team who are well equipped to guide you through this process: email us at [email protected] or phone 1300 373 300.
To explore more resources and gain insights into securing business loans and other financial solutions, visit our comprehensive Resources & Learning page.
