Buying A Business and The Shop it Trades From

Buying A Business and The Shop it Trades From: A Victorian Client Story

In short: Our clients, who operate in Victorian hospitality, needed to buy a business and the retail shop it traded from. The first funding structure they were offered left a cash shortfall, and a settlement deadline was approaching. Looking at the properties, the premises and the business purchase as one transaction produced a structure that settled in time.

Where the first structure fell short

The clients already owned an owner-occupied property and an investment property. Even so, the cash they had available wasn’t enough to complete the purchase under the structure they had first been offered.

They also needed funding for the business itself. The challenge wasn’t only whether their income could service the debt. It was how to combine residential equity, commercial property lending and business finance without leaving a funding gap they couldn’t manage.

A deadline and a suggested shortcut

After shopping around, the clients were close to their settlement deadline. They had been advised that private lending might be the only path.

The private option they had been considering came with a lower loan-to-value ratio and additional establishment and risk fees. That would have required a larger cash contribution from them, which was the very thing they were short of.

What we reviewed

We looked at the properties they owned, their existing debts, the business purpose of the funds, the proposed commercial security and how the lending would service. From that review we identified a major lender with a business-purpose policy that could consider access to a larger portion of the residential equity. That was always subject to valuation, credit approval, pricing and risk assessment.

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How it came together

The residential equity release helped fund the contribution for the commercial property. Commercial lending was arranged for the retail premises, and a separate cash-flow business loan was arranged for the purchase of the business.

Arranged together, the facilities meant the clients didn’t have to rely entirely on a higher-cost private lender. They also didn’t need the same additional cash the earlier structure required, and they avoided the establishment and risk fees tied to the private option. The commercial property and the business purchase both settled within four weeks.

What this case doesn’t show

Four weeks was what this transaction required. It isn’t a standard timeframe, and it isn’t something we can promise on another deal. The structure was specific to these clients and to that lender’s policy. It was not a standard home loan, and it should not be read as borrowing the full value of a property.

Borrowing against residential property for a business purpose also means the property offered as security can be exposed if the business can’t meet its obligations. We explain how that risk works in our guide to using property equity to buy a business.

What we take from it

The gap in this deal didn’t sit inside any one loan. It sat between them. When a business and its premises are bought together, treating each loan as a separate application can hide that gap until late in the process.

Buying a business, its premises, or both? Book a 15 minute commercial and business finance strategy call or complete the Finance Square free 2-minute quiz before you sign anything unconditional, and we’ll map the deposit, equity, security, business contribution, working capital and timeline as one transaction.

Priya Dey is the founder of Finance Square Group, a Melbourne-based finance broking firm specialising in self-employed borrowers, investors and business owners.

This is an anonymised case study, general information only, and does not constitute credit, financial, tax or legal advice. Details have been changed or generalised to protect client privacy. The outcome reflects one client’s circumstances at the time. Lending policies, fees and eligibility criteria can change, and approval is not guaranteed. Every application is assessed on its own merits by the lender.

Finance Square Group is a trading name of Sioux Property Solutions Group Pty Ltd, Credit Representative 543438, authorised under BLSSA Pty Ltd, Australian Credit Licence 391237.