OVERVIEW – Business acquisition loans in Canada . Information on financing options for purchasing an existing business.
Business acquisition loans in Canada require some key considerations for those contemplating acquiring or merging with another company, no the least of which are purchase price amount. In the SME (small to medium enterprise) sector various financing options exist to consummate your transaction. Let’s dig in.
Experts agree that a poorly executed purchase of a company often has the buyer too focused on price without planning around terms associated with the financing, as well as a poor focus on future sales growth.
While it’s no ‘ cake walk’ around your finance options there does exist several key alternatives around successful finance execution of your purchase. Safe to say the global 2008-2009 financial crisis didn’t help, with lenders such as banks changing borrowing rules on almost every aspect of their business, including mergers and acquisitions.
Your equity (aka ‘ down payment ‘) on the transaction will typically be in a large range of 10-50%. Ultimately the purchase price will depend on some combination of down payment / seller financing/bank financing/third party commercial financing company. It’s safe to say that down payment/equity needs have risen over the last few years.
Anytime the seller chooses to participate more in your transaction (known as the ‘ vendor take back) your chances of total finance success increases. Note though that some banks and finance firms will also possibly view the seller take back as potential debt – it varies among lenders. Sellers tend to secure their ‘ VTB’ typically with a promissory note of some type. A typical rate range is in the 5-10% area.
When it comes to interest rates and financing costs associated with business acquisition loans those will vary depending on what source of capital you choose – traditional or a commercial alternative lender.
If there was a ‘ perfect world ‘ ( apparently it isn’t )scenario around the target company that firm would have minimal or no debt , a solid asset base, and demonstrable past , present and future cash flows. Those are key areas that will drive your financing cost… and success. When those criteria are proven your transaction is an excellent candidate for Canadian chartered bank financing – if they are missing other sources of finance will often have to be considered.
A good way to look at your financing challenge around purchasing a business is to think of it in ‘ layers’. More often than not it might include several of those layers of capital. Here it’s important to have a strong sense of value of the assets and how cash flow will be generated for debt repayment and growth of the business.
Firms with little or no assets can still be financed if they have receivables, cash flows, or both. More often than not these are ‘ service based’ firms. One can assume that unsecured cash flow loans are more challenging to acquire!
Many purchasers often forget the Government Small Business Loan as a source of finance. The one limitation is the maximum loan amt., which is 350k, clearly defining the size of the transaction that it can successfully complete. Nevertheless it’s a solid alternative.
What then are the key sources for financing options for your acquisition? A summary is:
Canadian chartered banks
Government Crown Corporation Bank
Govt Small Business Loan
Asset based lenders
Specialty Lenders – receivables /inventory/ asset bridge loan solutions
Cash Flow / Mezzanine finance solution
At the end of the day a well thought out financing strategy will help your chances of success in getting a solid deal structure in place. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in identifying financing options for a merger or acquisition strategy.
7 Park Avenue Financial :
http://www.7parkavenuefinancial.comBusiness financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 100 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS ACQUISITION FINANCING EXPERTISE
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ Canadian Business Financing With The Intelligent Use Of Experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with start ups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing