For Australian businesses pursuing growth through acquisition, debt financing can be an effective strategy. When used sensibly, it allows buyers to leverage their capital, optimise returns, and maintain financial flexibility, without dilution of equity .
Below, we outline why debt is often an important component in business acquisitions, the key advantages, practical considerations, and how business loan brokers can provide support throughout the process.
The Role of Debt Financing in Business Acquisitions
Debt financing means funding part of a business purchase with a business acquisition loan. This lets buyers extend their purchasing power beyond what’s available in cash, tailor repayments to suit operational cash flow, and retain control of their company. However, the use of leverage must be carefully aligned with your business’s ability to manage ongoing repayments under changing market conditions.
Key Benefits of Debt in Business Acquisitions
1. Tax Deductions
Interest payments on business loans are generally tax-deductible in Australia. This can directly enhance returns, as the effective cost of interest is reduced by tax savings. We always recommend working with a qualified tax advisor to maximise this advantage in line with current regulations.
2. Enhanced Returns on Equity
If the business you’re acquiring generates returns that exceed your cost of borrowing, leverage can improve your return on invested capital. The catch is sustainability—this only works when earnings are robust and risks are well managed.
3. Greater Purchasing Power
Debt financing expands the pool of potential acquisitions. Borrowed funds give you more clout—enabling you to act quickly when an opportunity arises.
4. Preserving Cash Flow
Financing acquisitions with debt means more cash on hand for day-to-day operations, growth initiatives, or unexpected expenses. This is often essential for businesses that need to invest soon after a deal closes.
'Watch-outs' when Using Finance to Buy a Business
Managing Risk
Every dollar of debt increases financial risk if it’s not managed well. Are your projected returns comfortably higher than your repayments? Stress test your acquisition plan accordingly.
Due Diligence and Valuation
Understand exactly what you’re buying. Rely on thorough financial analysis, with close attention to EBITDA and any add-backs. Scrutinise and verify all adjustments to ensure you’re looking at sustainable earning capacity—not just a rosy picture.
Structuring the Right Debt Package
Your ideal debt solution will depend on the size and nature of the deal, and your wider financial position. Common options include:
- Term Loans: Structured repayments, typically at lower rates.
- Revolving Credit Facilities: Draw down as needed to support working capital.
- Vendor Finance: Seller receives instalments over time, easing upfront capital requirements.
Choosing the right mix is critical. Overcommitting or borrowing on unfavourable terms can erode value quickly.
How BlueRock Can Help With Business Acquisitions
Business acquisitions are complex. One misstep can have serious long-term consequences. That’s why having a multidisciplinary advisory team is important. We bring together specialists across accounting, finance, law, tax and deal advisory. Here’s how we can help you make your next acquisition a success:
1. Brokering Your Debt Solution
The BlueRock Finance team works with banks and lenders every day. Our business loan brokers can help you secure the most suitable debt facilities for your acquisition, negotiate favourable rates and terms, and position your business to access the funding it needs.
2. Due Diligence & Entity Structuring
Due diligence is essential for uncovering risks and hidden liabilities. Our deal advisory team digs into financials, compliance, operational performance, and legal history, giving you the clarity to proceed with confidence. We also help structure your acquisition strategically, selecting the right entities and frameworks to optimise tax, manage risk, and future-proof your overall structure.
3. Navigating Legal Requirements
The legal side of acquiring a business is not just about signing on the dotted line. Our legal specialists guide you through contract negotiations, regulatory compliance, and all documentation required for a successful, watertight acquisition.
4. Integrated Financial Advice
Buying a business impacts your broader wealth, cash flow, superannuation, and tax position. BlueRock’s financial planners and accountants work hand-in-hand with our transaction team, providing holistic advice that supports your goals long after the deal is done.
Get Expert Advice on Financing a Business Acquisition
Debt financing can be a powerful lever for business acquisition, provided you have a disciplined plan, robust due diligence and the right structure. BlueRock brings together all the skills you need under one roof. For truly informed guidance and practical support at every stage, reach out to our team via the form below.
