Buying the family business from your parents: how to fund it fairly

Most people who take over the family business pay for it with a combination of a business loan, their own money and, often, part of the price paid to their parents over time. A lender treats it like any other purchase: it wants a believable price, the business’s records, confidence you can run it and suitable security. The family part changes the conversation around the kitchen table far more than it changes the loan.

That’s the real challenge. You’re negotiating with people you love, who built the business and may need the proceeds to retire, while brothers and sisters watch to see that it’s fair. Getting the money side clear early takes a lot of heat out of everything else.

How do lenders look at a family succession?

Better than most buyers expect. The two biggest worries in any acquisition are whether the figures are real and whether the new owner can keep the business going. In a family handover, you’ve often worked in the business for years, you know the customers, and the staff already take direction from you. That’s exactly the kind of experience lenders like.

What they’ll still want:

• A supportable price, ideally backed by an independent valuation.
• Two to three years of tax returns, BAS and bank statements for the business.
• A signed sale agreement with the price, payment terms and handover date.
• The existing debt position, including anything your parents have guaranteed.
• Your own position: income, assets, and any property that could act as security.

The business acquisition loans page explains how lenders weigh goodwill, equipment, stock and working capital in any purchase.

How do you set a price that’s fair to everyone?

This is the hardest part, and it’s where outside help earns its fee.

Parents sometimes want to “do the kids a favour” with a low price. Siblings who aren’t joining the business may feel that undervalues their inheritance. A lender, meanwhile, will want to see that the price stacks up against what the business earns, regardless of who’s selling.

An independent valuation solves most of this. It gives your parents a defensible number, shows siblings the deal was done properly, and gives a lender a figure it can test. If your parents choose to discount the price as a deliberate gift, that’s their decision to make with their own advisers, but it should be a documented choice rather than an accident.

The WA Small Business Development Corporation’s succession planning guidance encourages families to consider the legal obligations and the effect on family relationships before handing a business to a relative, and to bring a lawyer or adviser into family discussions to help avoid disputes over inheritance, ownership and management.

Should part of the price be paid over time?

Often, yes. It’s one of the most useful tools in a family sale.

Payment approach	How it works	What lenders think
Full price at settlement	You borrow and pay your parents in one go	Simple; the loan is larger and needs strong security
Deposit plus instalments	Parents receive part now and the rest over an agreed period	Reduces the loan, but the instalments count against affordability
Loan plus parents’ contribution kept in	Parents leave some money in the business as a loan to you	Lenders usually want it to rank behind their own loan
Staged handover of shares or units	Ownership passes in steps over several years	Workable, but lenders need clarity on who controls the business now

Your parents’ needs matter here. If they need a lump sum to buy a smaller home or fund retirement, a bigger upfront payment backed by a loan may be the only option that works for them. If they’re comfortable being paid over time, the loan can be smaller.

If you’d like to see what a loan could cover in your situation, start a short enquiry about taking over the business. There’s no credit check when you first enquire.

What tax questions should your parents ask?

The sale is a tax event for your parents, so they should get their own advice, separate from yours. Two things are worth flagging early because they can shape the price and the timing.

First, the ATO offers four small business CGT concessions for eligible owners. The ATO lists common errors it sees, including mistakes about whether aggregated turnover is above $2 million or business assets are under $6 million, and about age.

Second, the small business retirement exemption lets eligible owners disregard capital gains from active assets up to a lifetime limit of $500,000 per individual. Owners under 55 generally have to pay the exempt amount into a complying super fund; those 55 or older don’t. You don’t need to stop working to use it.

Those rules don’t change how a lender assesses you, but they can change what price and payment schedule your parents need.

There are practical paperwork points too. If the business trades under a registered business name, it needs to be formally moved to the new owner, and contracts, supplier accounts and leases may need to be assigned or reissued. If the business sits inside a company or trust your parents control, the sale might be of shares or units rather than the business assets, which changes the documents a lender asks for. Settle that question with your accountant first, because the structure decides who signs the loan and what security can be offered.

What happens to the existing loans and guarantees?

This is the part families most often forget. If the business has an equipment loan, overdraft or vehicle finance, your parents have probably guaranteed it personally. Retiring doesn’t release them. The existing lender will usually only let them go once the facility is repaid or replaced by one you’re responsible for.

So a succession loan often covers two things: paying your parents for the business and refinancing the old debts into your name. The business debt refinance page explains how consolidating facilities works, and partner buyout loans covers the similar process when one co-owner exits.

That combined figure is often too large to fund unsecured. Property-secured business loans from $20k to $5m, as first or second mortgages or caveat loans, are a common answer; many successors use equity in their own home. Unsecured options, typically $5k to $500k based on turnover and bank statements, can suit smaller handovers with strong trading.

Illustrative example

Illustrative only. A son has worked in his parents’ plumbing supplies business for twelve years and now runs the counter and the trade accounts. His parents want to retire. An independent valuation puts the business at $600k, and there’s a $90k equipment and vehicle facility both parents guarantee.

The family agrees: $400k at settlement, with the remaining $200k paid to his parents over five years. He borrows $490k with a second mortgage over his home, covering the upfront payment and paying out the old facility so his parents’ guarantees are released. The lender counts the instalments to his parents when assessing affordability and asks for them to rank behind its loan. His sister, who isn’t in the business, signs off on the valuation.

Ready to take over what your family built?

Stepping into your parents’ shoes is a proud moment, and getting the funding sorted lets everyone focus on the handover rather than the money. Whether you need to pay out a lump sum, refinance old debts or both, the first step is a quick conversation.

Filling in the enquiry takes roughly a minute, and there’s no credit check when you first get in touch. Your details aren’t farmed out to a long list of lenders, so you won’t be chased by strangers. Instead, a real person reads about the business, the price your family has agreed and the security you can offer, then gives you a call. Please answer the form accurately, including any amount your parents will leave owing, so we can match the right option first time.

See if you qualify to take over the business →