Banks in Australia - Typical leverage limits/metrics used?

January 21, 2025

by a searcher from Northwestern University - Kellogg School of Management in Melbourne VIC, Australia

Hello friends and colleagues,

I am starting my conversations with banks in Aus, and would be interested to hear others experience.

What are the best banks to work with for business acquisition loans?
What are their typical lending limits - multiple on EBITDA, % of enterprise value, DTE ratios?

Interested to hear! Happy to also share the outcomes of my conversations with banks in the coming weeks

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Reply by a professional
from University of Queensland in Melbourne VIC, Australia

Hi ^redacted‌, I am happy to take you through some key metrics over a Zoom call, as I've done with many Australian searchers over the years. Debt sizing is a key consideration, and how this interacts with The Code of Banking Practice is a key regulatory framework that can apply to smaller transactions. Some key amendments are currently being implemented and take effect in February###-###-#### Other key considerations will be the deal's capital structure, including the timing of vendor payments. Industry and Revenue model risks will also influence the overall risk profile. To be over-simplistic, I suggest searchers start by thinking about debt capacity with the following framework - maximum 50% gearing (debt to EV); 2x operating leverage day 1 (debt/earnings) and debt service cover ratio (DSCR) of greater than 2x over a 5 year fully amortised profile. These are guardrails rather than final structuring metrics, but the three metrics will triangulate when you have a valuation of between 3-4x historical earnings. Ultimately, every business/ deal is different and have different risk profiles that need to be considered and generally, the final structuring metrics will be the product of multiple inputs.

Reply by a lender
from University of Technology Sydney in Sydney NSW, Australia

Generally speaking, lending limits will be 50% of the acquisition price in debt (some industries like medical can see 80%), other half can be a mix of cash, property, vendor finance. Multiples conservatively 2x EBITDA, but have seen near 3, depends on the business (and security, leverage, industry etc). This is baseline metrics, there are ways to work around them if you mitigate and structure the deal the right way. We work with all the banks and could help facilitate some introductions or assist with the deal. There are also non-bank lenders who are more flexible.

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