Finance question
Will a lender finance the goodwill when I buy a business?
Often yes, but rarely all of it. Goodwill cannot be repossessed, so banks rarely fund more than 50 to 70% of it, and the rest comes from a deposit, property equity or the seller. The exceptions are assets with contracted income or a favoured borrower, such as rent rolls and dental practices, where lenders go much higher, subject to lender assessment.
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The short answer
Lenders fund goodwill on what the business earns
Goodwill is the part of the price that pays for customers, contracts, reputation and trading history. It is often most of the price, and it is the part a lender can least recover, because there is nothing to repossess if the business fails. So lenders ask three things: are the earnings provable, usually through two to three years of financials and BAS, do they survive the owner leaving, and what other security sits behind the loan. Equipment, vehicles and stock in the sale usually fund separately against their own value, which leaves a smaller goodwill amount to fund.
How much goodwill gets funded depends on the asset. In trades businesses, banks rarely fund more than 50 to 70% of goodwill, deposits run 20 to 30%, and vendor finance commonly bridges the gap (trades business guide). Rent rolls are the standout, one of the few goodwill assets with published bank lending policy: one major bank publishes gearing of up to 80% for suitable books of 100 or more residential managements, against a standard band of 50 to 65% across the wider market, and the guide sets that beside most goodwill purchases, where 50% is the ceiling (rent roll guide). Dentists sit at the other end, with specialist health banks publishing up to 100% of the purchase price of an established practice, secured on goodwill and equipment (dental practice guide).
What lifts the amount is evidence that the income will stay. Lenders want signed, assignable contracts with term left, no client over 15% of revenue, and two years of BAS that match the listing (cleaning business guide). A handover from the seller helps too. Ventas is a broker across 40+ lenders, not a single bank, so we place the goodwill with a lender whose policy fits the asset. There is no upfront fee to you; the lender pays us on settlement.
Do you qualify?
What makes goodwill easier to fund.
Provable earnings
Two to three years of financials and BAS that match the listing.
Contracts that transfer
Signed, assignable contracts with term left, not one-off work.
A spread of customers
No single client carrying too much of the revenue.
Security behind it
Property equity or a larger deposit covers what the goodwill loan will not.
Why goodwill is the sticking point
Nothing to repossess
A lender cannot sell goodwill if the business fails, so it caps the amount.
Split deals fund better
Plant, vehicles and stock fund against their own value, leaving less goodwill.
Some assets are different
Contracted income, like a rent roll, earns higher lending than a customer list.
A worked example
A licensed agent buys a 160-property Brisbane rent roll priced and valued at $1.2 million. At the 50 to 65% standard band a lender advances $600,000 to $780,000, leaving $420,000 to $600,000 for the buyer, covered from savings and equity in an investment property. At the 80% one major bank publishes for suitable books, the advance would be $960,000. Illustrative only.
Common questions
Frequently asked questions
How much of the goodwill will a lender fund?
In trades-type deals, banks rarely fund more than 50 to 70% of goodwill. Contracted assets such as rent rolls go higher, up to 80% at one major bank, and dentists can borrow up to 100% from specialist health banks.
Why do lenders ask for property when I am buying goodwill?
Because goodwill cannot be repossessed. Property gives the lender something to hold, which is why a business that is mostly goodwill is usually backed by property equity or a larger deposit.
Does the equipment in the sale count as goodwill?
No. Plant, vehicles and equipment are tangible and usually fund separately against their own value, often on a chattel mortgage, which shrinks the goodwill amount that needs another source of funding.
What if customers follow the owner, not the business?
Lenders discount goodwill heavily when that happens. Staff who hold the relationships, written contracts and a handover period all help, and a seller who stays on for a set period is a positive signal.