Understanding the basics of acquiring another business

Why Acquiring Another Business Makes Sense

For established businesses in Glen Iris, buying a business can be an effective strategy to expand operations, enter new markets, or acquire valuable assets. Whether you're looking to purchase a competitor, supplier, or complementary business, securing the right funding is crucial for success.

Business acquisitions require substantial capital, and most companies need external financing to complete these transactions. Understanding your financing options and choosing the right loan structure can make the difference between a successful acquisition and a missed opportunity.

Types of Business Loans for Acquisitions

When applying for a business loan to acquire another business, you'll encounter several financing options. Each loan type offers different benefits depending on your specific circumstances and the acquisition details.

Secured Business Loan

A secured Business Loan uses collateral to reduce lender risk, typically resulting in lower interest rates and higher loan amounts. Common collateral includes:

• Commercial property or real estate
• Business equipment and machinery
• Inventory and stock
• The business being acquired

Unsecured Business Loan

An unsecured Business Loan doesn't require collateral but relies on your business's creditworthiness and cash flow. These loans often feature:

• Faster application process
• Higher interest rates than secured options
• Lower loan amounts
• Stricter eligibility requirements

Financing Structures for Business Acquisitions

The loan structure you choose should align with your acquisition timeline and cash flow projections. Several structures work well for business purchases:

Progressive Drawdown

This structure allows you to draw funds as needed during the acquisition process. You only pay interest on the amount drawn, making it cost-effective for staged purchases or when dealing with settlement conditions.

Revolving Line of Credit

A revolving line of credit provides ongoing access to funds up to an approved limit. This flexibility helps manage working capital needs during the integration process and covers unexpected expenses that may arise post-acquisition.

Interest Rate Options

Choosing between variable interest rate and fixed interest rate options depends on your risk tolerance and market outlook.

Variable Interest Rate Benefits:

• Potential for rate decreases
• Often lower initial rates
• Flexible repayment options
• Redraw facilities typically available

Fixed Interest Rate Benefits:

• Predictable repayment amounts
• Protection from rate increases
• Easier budgeting and cash flow planning
• Stability during acquisition integration

Key Considerations Before Applying

Successful business acquisition financing requires thorough preparation. Consider these factors before submitting your application:

Financial Documentation

• Three years of financial statements for your business
• Tax returns and BAS statements
• Cash flow projections including the acquired business
• Details of the business being purchased

Due Diligence Requirements

• Professional valuation of the target business
• Legal and financial audit results
• Market analysis and growth projections
• Integration cost estimates

Working with AXTON Finance

As experienced mortgage and finance brokers, AXTON Finance can access Business Loan options from banks and lenders across Australia. This broad network ensures you receive competitive terms tailored to your acquisition needs.

Our team understands the complexities of business acquisitions and can help structure financing that supports your growth objectives. We work with lenders who specialise in acquisition financing and understand the unique requirements of expanding businesses.

Maximising Your Application Success

To improve your chances of approval and secure favourable terms:

1. Demonstrate strong cash flow from your existing business
2. Present a detailed business plan for the combined entity
3. Show how the acquisition improves your market position
4. Provide evidence of management experience and capability
5. Maintain adequate working capital reserves

Whether you need funds to purchase equipment, acquire property as part of the deal, or ensure sufficient working capital during the transition, the right financing structure makes all the difference.

Acquiring another business represents a significant opportunity for growth and expansion. With proper financing in place, you can focus on successful integration and realising the strategic benefits of your acquisition.

Call one of our team or book an appointment at a time that works for you to discuss your business acquisition financing needs.