Financing A Business Purchase In Canada — Acquisition Loans
Buying a business in Canada often provides a large opportunity for success. While many owners and financial mgrs may prefer the strategy of organic growth for sales/revenue and profit potential the attractiveness of not having to start a business cannot be discounted.
But financing the business purchase, i.e. putting your transaction together is another story. There are numerous options available to the entrepreneur/business person.
They include:
Bank loans (Secured and unsecured) — In some cases the actual cash flows of the business can be used to finance the entire business purchase. This can be augmented with either a fixed asset/equipment loan as well as a revolving business credit line.
Franchise loans — The booming franchise industry, which supports a huge part of the economy has niche finance programs available to acquire both ‘ new ‘ and ‘ ‘ existing’ franchises. Corporate stores owned by the franchisor can be financed, as well as existing franchisees that have chosen to sell. Tip: Find out why they are selling
Asset based Loans — These ‘ ABL ‘ loans cover the financing of assets as well as cash flow needs, including the often required credit line. These loans are ‘ non bank ‘ in nature and often provide higher ‘ loan to value ‘ financing when typically required loan and debt ratios don’t work.
Govt Small Business Loans — Here’s one great way to do it if you business fits some basic criteria — i.e. financing required for equipment and leaseholds.
While not necessarily a ‘ creative’ strategy Gov ‘t guaranteed business loans have solid ‘traditional’ type rates, no penalty for prepayment options, terms and structures, as well as.. wait for it … a very limited personal guarantee!
Finally, some help from Ottawa, but we digress…
We can’t over-emphasize the importance of ensuring you understand the financial position of the business you are looking to purchase/acquire. If the seller motivation is not 100% clear in initial negotiations it may well become clearer when the financial position of the company is understood.
In some cases owners may be willing to provide a ‘ VTB ‘ — aka the vendor take back. They may often make or break the financing as long as the seller is willing to take a 2nd position to your financing, and, more importantly, that your lenders don’t view the VTB as more ‘ debt ‘. Negotiations around the actual amount of the vendor take back will often dramatically change the nature of the selling price — upward or downward.
‘Goodwill’ is a difficult to finance part of any transaction, and the easiest financings in business acquisition tend to be ‘ asset ‘ oriented, not ‘ share sale ‘ focused.
Buying and financing that business purchase via a well thought out and executed finance strategy is a solid way to become a Canadian entrepreneur. Speak to a trusted, credible and experienced Canadian business financing advisor to kick start your business purchase.
Stan Prokop — founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years — Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :