Loans to buy a business in NZ

How do you finance buying a business?

In New Zealand, most people buy a business using a mix of their own money and a loan. The loan usually comes from a bank and is often secured against your home, or from a specialist lender like Line Capital. Some sellers may also let you pay part of the price over time from the business's profits.

Lenders look for two things: proof that the business makes enough to cover repayments, and proof that you can run it. Putting in your own money shows you're sharing the risk.

Business acquisition loans

Line Capital's AcquisitionLine is the main online loan in New Zealand designed for buying a business.

• Amount

  AcquisitionLine

  Up to $500,000, generally 70% to 85% of the purchase price

• Term

  AcquisitionLine

  6 to 60 months

• The business you're buying

  AcquisitionLine

  An established NZ business that has traded for at least 3 years, with $200,000 or more a year in turnover

• You

  AcquisitionLine

  Relevant experience and your own contribution

• Security

  AcquisitionLine

  Personal guarantees and business security, sometimes property

• Cost

  AcquisitionLine

  Fixed rates from 16% a year, set by risk, plus a 2.5% origination fee

Most other online lenders base their loans on your current business's trading history, so they can't help if you don't already own the business.

Bank loans to buy a business

Banks offer term loans for buying a business, which can last longer and usually cost less than online loans. ASB's term loans range from 6 months to 25 years, and ASB says you might be able to use your house as security if you have enough equity and a business plan. The other main banks offer business term loans too, and the business loans guide compares them.

Have the business's financial statements from the past few years, your business plan, a cash flow forecast and details about the security you're offering ready before you apply. If you borrow against your home, you'll usually get a lower rate, but your home is at risk if the business can't pay back the loan.

Vendor finance

Sometimes the seller lets you pay part of the price after you take over, using the business's profits. business.govt.nz suggests offering a gradual handover like this and says some owners prefer it because it shows you expect to make the business work. It also gives the seller a reason to help with the handover.

Ask a lawyer to include these terms in the sale agreement, including what happens if the business makes less than expected.

What lenders look at

Lenders look at the business you're buying just as closely as they look at you:

• **The business's accounts** for at least the last few years, and whether its profits can cover the repayments with room to spare.
• **What you're paying for.** The price is split into assets and goodwill, and goodwill is harder for a lender to get back if the business fails.
• **Your experience** in the industry or in running a business.
• **How much of your own money** you're putting in.
• **Security**, like your home, the business's assets or a personal guarantee.

Before you buy

Do your due diligence before taking out any loan. business.govt.nz suggests checking for legal disputes, confirming the business owns its key assets, reading every contract, finding out which staff will stay and asking your accountant to check the financial forecasts against the books. Make the sale agreement conditional on finance so you can walk away if a lender says no.

Common questions