Acquisition lending is built around the cashflow of the business being purchased, not just the buyer's personal financial position. Lenders want confidence the business can generate enough income to cover loan repayments and ongoing operating costs after the sale.

What lenders assess

• Historical financials, usually the last two to three years

• EBITDA (earnings before interest, tax, depreciation and amortisation) or net profit

• Add-backs and adjustments to normalise owner-related costs

• Debt servicing ability, including a buffer for interest rate movement

• Working capital requirements post-settlement

• Purchase price relative to earnings

If the fundamentals are strong, banks will typically fund a meaningful portion of the purchase price. Where earnings are inconsistent or the business is asset-light, lenders take a more conservative view and equity requirements rise accordingly.

An EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) multiple compares the purchase price of a business to its annual earnings. It's the single figure most lenders (and most experienced buyers) use as a first sense-check on whether a deal is sensibly priced.

(See FAQs at the bottom to get an explaination around with EBITDA is).

Worked example

Annual EBITDA = $500,000

Purchase price = $1,500,000

Implied multiple = 3.0x

Lower multiples are generally lower risk, since the debt can be repaid faster out of the business's own cashflow. Higher multiples increase risk and typically require more equity, additional security, or a more structured approach - for example, part of the price deferred as vendor finance rather than funded on day one.

Most New Zealand SME acquisitions are priced in the 2x to 3x EBITDA range. Businesses with strong recurring or contracted revenue - subscription models, long-term service contracts, or businesses with sticky, predictable income - can command noticeably higher multiples, occasionally up to 8x or 9x, since lenders and buyers place a premium on income that's less likely to walk out the door with the previous owner.

How the purchase price splits between goodwill and tangible assets has a direct effect on how much a lender will fund. Where a business has strong tangible assets i.e. plant, equipment, vehicles, property - banks are generally more comfortable lending against that value, since it can be recovered if things go wrong.

Where the value is largely goodwill i.e. brand, customer relationships, systems, forward earnings - lenders take a more conservative approach, because that value depends on the business continuing to perform after the ownership changes.

This is why two businesses selling for the same price can land very different funding outcomes.

As a general guide, buyers in New Zealand typically need between 30% and 50% of the purchase price as equity. Where that equity sits within that range depends on the shape of the deal.

Higher deposits are more common where:

• Goodwill makes up a large portion of the purchase price

• Earnings are volatile or seasonal

• Industry risk is higher

• The buyer has limited ownership or sector experience

• The EBITDA multiple is on the higher side

Lower deposits may be possible where:

• Cashflow is strong and stable

• Tangible assets support the purchase

• Additional security is available

• Vendor finance is part of the structure

• The purchase price itself is sensible relative to earnings

Equity doesn't have to be cash sitting in the bank. In New Zealand, property equity is a common part of the deposit - either directly or as additional security that reduces the amount of cash a bank requires.

Almost all New Zealand SME acquisition lending - bank or non-bank - requires two things from the buyer, regardless of how strong the deal is:

• A Personal Guarantee from the buyer, even where the purchase is settled through a new limited company.

• A General Security Agreement (GSA) over the business itself, giving the lender security against its assets.

This is routine practice rather than a sign a deal is weak, and it's worth going in expecting both. Some lenders will consider releasing the personal guarantee once the loan has been paid down to a lower leverage position - typically around 1x to 1.5x EBITDA - though this is negotiated case by case rather than automatic.

Business acquisition loans in New Zealand are typically structured over terms of up to 5 years, with some lenders occasionally offering longer amortising terms where the business is well-established and additional security, such as property, is offered alongside it. Shorter terms are common where the loan is being repaid mainly from business cashflow.

On timing: straightforward deals with clean financials are often approved within 2 to 4 weeks. More complex transactions - earn-outs, multiple vendors, industry-specific risk can take longer.

Having financials, forecasts and a clear ownership structure ready before you approach a lender is the single biggest factor in how smoothly this moves.

Our Deal Viability Review gets your financials and structure lender-ready ahead of time.

The earlier business acquisition finance is considered, the more options tend to be available.

It's easier to walk away from - or restructure a deal before an offer is made than after a conditional agreement is signed.

It's worth talking to us when you're:

• Assessing a business opportunity.

• Reviewing financials before making an offer.

• Structuring a buy-in or partial purchase.

• Preparing an offer or negotiating terms.

• Acquiring a competitor.

• Planning a management buyout.