You are Buying The Business and The Building. That is Two Different Loans, and They Do Not Approve at The Same Speed.

You are Buying The Business and The Building. That is Two Different Loans, and They Do Not Approve at The Same Speed.

A hospitality operator came to us part way through buying a shop and the business trading out of it. One transaction in their head, one handshake with the vendor, one settlement date in the contract.

Three separate funding problems on paper.

They had been told that short-term private lending was the only way to get it done inside the deadline. By the time anyone looked properly at the whole position, including the equity sitting in property they already owned, the deadline was close enough that the options had genuinely narrowed. Not because the deal was weak. Because the finance had been approached as one question when it was always three.

This is the most common way a good business purchase gets expensive, and it is almost entirely avoidable.

The scenario above is illustrative and anonymised. Individual circumstances differ and outcomes are not guaranteed.

Why is buying a business and its premises harder to finance than either one alone?

Because you are asking a lender to take two completely different kinds of security in one transaction, and lenders do not assess them the same way.

The building is real property. A lender can value it, register a mortgage over it, and sell it if everything goes wrong. It is the kind of security the entire commercial lending market is built around.

The business is not. What you are buying there is some combination of goodwill, plant and equipment, stock, customer relationships and in many cases a lease. Goodwill in particular is the part people underestimate: it is usually the largest number in a business sale contract and the part a lender is least willing to lend against, because if the business fails the goodwill generally fails with it.

So in most cases this is not one loan. It is a commercial property facility and a business purchase facility, written on different terms, often at different levels of security, and sometimes with different lenders entirely. They have to settle together and they are assessed separately.

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What does a lender actually lend against when you buy a business?

Different parts of the purchase price get very different treatment, and this is the single most useful thing to understand before you negotiate.

Real property is the strongest security in the deal. Plant and equipment can usually be financed, though a lender will care about its age, condition and whether it is specialised to the point of being hard to resell. Stock is sometimes fundable. Goodwill is the hardest, and where it is funded at all, it is typically on the strength of the business's demonstrated earnings and often with additional security supporting it.

Which means the way the contract apportions the price between property, plant, stock and goodwill is not just a tax question for your accountant. It directly affects how much of the deal a lender can fund and against what. That apportionment is worth having a conversation about before the contract is signed, not after.

How do the two halves fit together?

Usually through a structure rather than a single product, and often with a third element: equity you already hold.

A common shape is a commercial facility against the premises, a business purchase facility for the business itself, and a contribution funded from equity in property you already own. That third piece is where most of the flexibility in a deal like this lives, and it is also where the most care is needed.

Using residential property to support a business purpose changes the legal character of that borrowing. As we covered in our guide to commercial loan reviews, credit provided wholly or predominantly for business purposes sits outside the National Credit Code, which means the consumer protections attaching to an ordinary home loan do not follow the money. Your home can be perfectly good security for a business purchase. It is just worth understanding what you are changing when you offer it.

The entity holding each piece matters too. Property, business and borrowing do not have to sit in the same entity, and the right answer depends on asset protection, tax and succession as much as on finance. If you are also restructuring around this purchase, the timing interacts badly with lender assessment, which we set out in our guide to changing business structure.

What Victorian rules catch people out?

Three, and they have real consequences.

The vendor's statement for a small business sale. Under section 52 of the Estate Agents Act 1980, the vendor of a small business at or below a prescribed price threshold must give the purchaser a statement in the prescribed form, covering the business's financial performance over the preceding years and the current financial year to the most recent quarter. If it is not provided, the contract can be voided. That is not a technicality. It is a live risk sitting in the file.

Assigning the lease. If you are taking over the premises as a tenant rather than buying the freehold, Part 7 of the Retail Leases Act 2003 governs the transfer, and the obligations run in both directions. The outgoing tenant must give you the disclosure statement they received from the landlord plus any known changes, and failing to do so is an offence. Where an ongoing business is being sold, they must also give you several years of business records. The request for the landlord's consent has to be in writing and has to include your financial resources and business experience, which is precisely the information a lender will be assessing at the same time.

Two parts of that process are worth knowing. If the landlord neither consents nor refuses within the prescribed period after a compliant request, consent is taken to have been given. And where the outgoing tenant provides a new disclosure statement that is not false, misleading or materially incomplete, they and their guarantors are released from later obligations under the lease. Landlords can withhold consent, but only on specified grounds, including a reasonable view that the proposed tenant has insufficient financial resources or business experience.

Victorian duty on the property is mid-reform, and generic advice is now wrong. Victoria is progressively replacing land transfer duty on commercial and industrial property with an annual property tax. For qualifying properties transacting under the reform, duty is paid one final time on that transaction, after which a transition period runs before the annual tax begins. A purchaser may be able to pay that duty upfront or finance it through a government transition loan with annual repayments. Later sales generally do not attract duty again while the property keeps a qualifying commercial or industrial use.

The practical consequence is that two apparently identical commercial purchases can have completely different cash flow profiles depending on whether the property has already entered the reform. A property that entered it earlier may attract no duty on your purchase but carry an inherited start date for the annual tax. Anyone telling you flatly that you will pay stamp duty on a Victorian commercial purchase is working from a pre-reform understanding.

What due diligence will a lender expect?

Broadly the same work you should be doing anyway, which is convenient, because the lender will ask for most of it.

On the business: licences and permits, complete and current. Contracts and leases, including whether the landlord will agree to transfer the lease. Outstanding supplier arrangements. The condition and licensing of plant, equipment and fixtures. Assets and intellectual property. Inventory. And liabilities, including anything secured against assets and registered on the Personal Property Securities Register, which is a search worth doing early rather than late.

On the financials: several years of tax returns, business activity statements, receivables and payables, balance sheets, profit and loss statements, cash flow statements and sales records, independently verified rather than taken on trust.

On the property: the lease if there is a tenant, the tenant's quality, and the property's use classification. For some commercial products the serviceability assessment leans on rental income rather than your trading profit, which changes what the lender is actually underwriting.

What order should this happen in?

The order is the whole game, and most people get it backwards by starting with the contract.

Work out the funding structure before you go unconditional, not after. That means knowing roughly what each part of the deal can be funded against, what equity you can genuinely access and on what terms, and which lenders can handle a combined transaction at all, because not all of them can.

Then align the moving parts. Lease consent runs on its own clock and involves a third party who has no interest in your settlement date. Valuations on commercial property take longer than residential ones. The business and the property have to settle together, which means the slowest approval sets the pace for everything.

Build the deadline backwards from that slowest piece. A transaction that looks comfortable on a settlement date chosen for the vendor's convenience often is not.

When does short-term or private lending make sense?

Sometimes genuinely, and it should not be dismissed. Where speed or policy complexity rules out mainstream options, it can be the facility that lets a sound deal complete.

What it should not be is the first answer. It is worth being assessed as the right tool only after the whole security and funding position has been reviewed, including equity you already hold and facilities you may not have considered. The cost difference between a well-structured mainstream solution and a fast one is usually significant, and the decision is much harder to reverse once the clock has run down.

That is the lesson from the scenario at the top of this article. The option set was not actually narrow. It had just been looked at too late.

Frequently asked questions

Can I get one loan to buy a business and its premises?

Usually not as a single facility. The property and the business are different security types and are generally funded through separate facilities, assessed separately and settled together.

Will a lender fund goodwill?

Sometimes, on the strength of the business's demonstrated earnings and often with additional security. Goodwill is the hardest part of a business purchase to fund, because its value generally depends on the business continuing to trade.

Can I use equity in my home to buy a business?

Often yes. Be aware that credit provided wholly or predominantly for business purposes sits outside the National Credit Code, so the consumer protections attaching to an ordinary home loan do not follow that borrowing.

Do I pay stamp duty on a commercial property purchase in Victoria?

It depends on whether the property has already entered Victoria's commercial and industrial property tax reform. Under the reform, duty is paid one final time when a qualifying property transacts, with an annual property tax replacing it after a transition period. Check the position for the specific property before you budget for it.

What happens if the landlord will not consent to the lease transfer?

Consent can only be withheld on specified grounds, including a reasonable view that you have insufficient financial resources or business experience. If a compliant request goes unanswered within the prescribed period, consent is taken to have been given.

How long does finance for a combined purchase take?

Longer than a residential purchase, and the slowest element sets the pace. Commercial valuations, lease consent and business due diligence all run on their own timelines.

How this guide was checked

Due diligence expectations are drawn from the Australian Government's published guidance on buying an existing business. The Victorian vendor's statement requirement comes from the Estate Agents Act 1980 and Consumer Affairs Victoria guidance. The lease assignment process comes from Part 7 of the Retail Leases Act 2003 and Victorian Small Business Commission guidance. The commercial and industrial property tax position comes from the Victorian Department of Treasury and Finance and the State Revenue Office.

How lenders structure and assess a combined business and property purchase is not the subject of any official Australian guidance that we are aware of. That part of this article reflects our own view from arranging these transactions, and it is not a statement of market-wide practice.

Sources and references

•    business.gov.au, Buy an existing business

•    Estate Agents Act 1980 (Vic), section 52, and Consumer Affairs Victoria guidance on contracts and disclosure statements

•    Retail Leases Act 2003 (Vic), Part 7, and Victorian Small Business Commission guidance on transfer of a retail lease premises

•    Victorian Department of Treasury and Finance, Commercial and Industrial Property Tax Reform information

•    State Revenue Office Victoria, Commercial and Industrial Property Tax

•    National Consumer Credit Protection Act 2009 (Cth), Schedule 1, National Credit Code, section 5

 

Buying a business and the building it trades from?

Before you sign anything unconditional, it is worth knowing how the deal funds.

We map these as one transaction rather than three applications: what each part of the purchase can be funded against, what equity is genuinely accessible, which lenders can handle a combined structure, and what the real timeline looks like once lease consent and commercial valuations are in the picture.

Book a 15 minute commercial and business finance strategy call or complete the Finance Square free 2-minute quiz to check your finance options. 

 

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

This article is general information only. It does not take your objectives, financial situation or needs into account, and it is not credit, financial, tax or legal advice. Obtain independent legal and tax advice on your contract, on the duty treatment of your transaction and on your lease. The scenario described is illustrative and anonymised. Lender policies and structures are set by individual lenders, are not standardised across the market, and are subject to change without notice. Government schemes, duty rules and eligibility requirements can change. Nothing on this page is a guarantee of approval. Individual circumstances differ and outcomes are not guaranteed.

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.