Bank loans are still difficult to obtain for a business sale even if the security to guarantee the loan is based on substantial clear equity on real property.

Since the Global Financial Crisis, Australian lending institutions have been making it very difficult for a buyer to get a loan to purchase a business without a high level of security based on three things:

1. The amount of clear equity available on the buyer’s real property with a recently completed ‘conservative’ bank valuation
2. Complete financial records for the business being purchased, based on the (fully verifiable) seller’s taxation or accountant’s records for several years
3. The banks’ assessment of the risk level of the business and the potential Future Maintainable Earnings (FME) of the business

How do banks assess the risk level of the business?

Banks take a number of factors into account in assessing business risk levels. First, they look for stability in sales and net profit for the business over a 3-5 year period as well as longevity and ownership – in general the longer a business has been trading and the longer the business has been owned by the current owner the better.

The banks also look to see if the business is overly reliant on particular people, either inside or outside the business. This could be:

• the owner him or herself, in terms of special skills, licenses or qualifications that cannot be easily replaced
• staff members, as above, particularly for example Class E truck drivers for transport businesses, heavy machinery operators for construction businesses, chefs for restaurants or cafes, doctors for medical centres, child carers for child care centres etc.
• a major client, or small number of main clients (the broader the customer base, the better)
• a major supplier (as above)

Risks related to the business premises

Is the business at risk due to the lack of security of tenure at the current premises? It is at high risk if the business can only offer a buyer a short term lease remaining, or if no current lease exists for the premises or no option periods are available, or if the landlord will not grant additional option periods or an extension of the current lease until the current lease expires. The banks also want to know if the location is critical to the business and, if it had to relocate, where  would main clients work or live and whether moving the business would jeopardise the current staff employment. 

External Threats

Finally, the banks assess possible external threats to the business, such as possible competition from overseas products, or a large operator (eg Woolworths/Bunnings etc) moving to the local area.


The lending criteria for many banks has substantially altered from the days before the GFC with lenders now making it very difficult for business buyers to be granted finance without substantial business and financial information including fully verifiable tax returns or accountant’s financial information. Tax return information is the most acceptable level of financial information on any business provided it only relates to the particular business being sold and the business is not combined with other businesses investments.