Looking For The Best Way To Finance The Purchase Of A Business
OVERVIEW – Information on finance a business purchase in Canada . What type of loans and asset monetization will make your deal work?
Financing a business purchase in Canada . Numerous situations occur that make buying a company a very attractive situation. You’ve become opportunistic in a positive manner. One question that comes up pretty quickly for the business owner/management is pretty straightforward: HOW ARE WE GOING TO FINANCE THE PURCHASE? The good news – both traditional and alternative strategies exist to successfully complete the deal. It’s our kind of ‘ FIELD GUIDE ‘!
Let’s dig in.
No one denies that financing an existing or business purchase is a cake walk. Not to belabor the point but we recently pointed out that in recent Canadian owner surveys over 60% of all owners/mgmt felt that any type of capital access was more than a job!
The size of your acquisition will in many ways determine what type of financing that you need and what’s available. For business purchases on the smaller size, i.e. less than 350k the Government SBL loan from a qualified provider is a solid route to take. It finances hard assets and leaseholds, comes with excellent terms, and allows you to step into other financing that you need re working capital, etc.
In any transaction, of any size, it is important to the purchaser that he or she understands that a certain equity component be available to compliment the deal. That’s a polite way of saying you can’t finance a business purchase with 100% of other peoples money – aka OPM!
The amount of capital that you put in, in effect your ‘ risk money ‘ can often sway the deal, certainly in terms of finance. While that’s more of an emotional comment hard reality kicks in when you understand that your equity/down payment component affects the leverage and debt to equity analysis that lenders focus on.
A great way to compliment any financing structure in the business purchase is the VTB, the infamous Vendor Take Back. It’s a great deal for you the purchaser; the challenge is that the seller’s typical desire is to exit whole, and to complicate things, they prefer for tax and other reasons a share sale. Share sales are difficult to finance. Asset deals are preferable.
We see many firms in the SME sector that contemplate acquisitions focus on VC funding
or alternatively Private Equity. Unfortunately the majority of these efforts are wasted as these two methods of more sophisticated financing focus on larger deals with extremely sophisticated people that are look for a major, and we repeat major home run. Inevitably the majority of deals funded by Cdn VC’s and PEG’S (private equity groups) are mostly in the tech sector.
Banks in Canada, the consummate ‘ Traditional Lenders ‘ will in fact finance a business purchase. But ensure you have a business plan, proven historical cash flows, reasonable owner equity, and leverage that is in tune with the banks appetite. Experts in the field say that only about 20% of all business acquisitions are financed successfully by Canadian banks directly.
Another tremendously successful way to finance a company acquisition is to consider Asset based lending. Here the total assets of the new entity can be monetized in a combination of term and revolving debt that maximizes cash flow and de-emphasizes the issue of leverage.
If you’re looking for a mix of technical smarts, creativity, and access to numerous financing vehicles to complement a business purchase seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with this very specific type of financing challenge.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of 90 Million $$ of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Phone = 905 302 4171
Email = firstname.lastname@example.org
7 Park Avenue Financial
Canadian Business Financing