Guide To Financing A Business Purchase In Canada – A Guide For Business Buyers
When it comes to ‘ how do I finance a business purchase ‘ business loans to buy an existing business is not just all about negotiating the sale price – in other words, it’s also about the necessary funding solutions & understanding other financing options from potentially multiple sources of funding, and a financing package that must be put in place to ensure business survival and profitability via conventional financing and/or alternative financing. Let’s dig in.
WHAT LENDERS CONSIDER
The pros, of course, call it ‘ due diligence, when it comes to considering a business investment loan and how to buy a business at the right purchase price – On the other hand, as well financing a business for sale is all about a pretty basic common sense premise: ensuring sales, inventory, accounts receivable and accounts payable are all reasonable, and that projected sales volumes make sense in the long term. The right business acquisition loans are an integral part of planning future growth to fund acquisitions.
Bottom line- the proper business purchase loan finance solutions tie together your plans for mgmt, mfg or delivering services, and marketing.
The essence of any business, large or small, is cash management. Working capital solutions and business financing rates must also be considered for effective ongoing operations.
A/R Financing/factoring -funding daily operational costs and maintaining adequate cash reserves
Bank Loan & revolving credit lines – repayment terms based on fluctuations in revolving credit facilities -A senior lender requires the loan to be paid off and has to meet financial covenants. A senior lender such as a bank requires the loan to be paid off in a relatively short period ( typically 5 years ) and will want you to meet certain financial covenants.
Non-bank asset-based lines of credit – applicable to leveraged buyout scenarios for firms with substantial assets – these loans come with a higher interest rate but can provide significantly more capital for your purchase
Tax Credit Financing
Business Credit Cards / Short Term Working Capital Loans – Certain conditions such as good owner personal credit scores apply – these loans are readily accessible and are a term loan structure but come with a higher interest rate
Small business govt guaranteed loans (maximum 1 Million $) Small Business Loans To Purchase A Business Can Often Come From The Government Of Canada Small Business Loan Program – In the U.S. the question is the same, ie bank or sba loan. The Canada Small Business Financing Program was somewhat modelled after its U.S. counterpart.
The Canada Government Guaranteed Loan provides guarantees and safety measures to participating financial institutions when they lend money for a business purchase. Intangible assets and intellectual property cannot be financed under the program but leasehold improvements and real estate are part of the program for this business loan.
Banks and credit unions are the most popular type of financial institution participating in the program. Monthly payments are based on competitive interest rates under a term loan structure.
Firms that are not profitable or that have ‘ challenged’ balance sheets will not qualify for what we call ‘ traditional’ finance. These types of companies can’t comply with the financial ratios and collateral demanded by our Canadian chartered banks. Almost all businesses that sell on credit, large or small, need some sort of business credit line.
Numerous alternative financing solutions are in fact available – but at the same time, new owners/mgr must be able to address and talk to items such as gross margins, operating inefficiencies, etc.
At 7 Park Avenue Financial, we speak to many clients who wish to purchase a franchise business. That can be achieved via various financing programs, and might often include some ‘ seller financing ‘ when it comes to an overall finance strategy. That seller finance assistance in essence is another alternative capital that can allow the buyer to successfully complete the transaction. We also note that both new and used franchises can be purchased and financed.
BUSINESS ACQUISITION FINANCING CANADA – HOW TO FINANCE THE PURCHASE OF A BUSINESS
Buying a business for ‘ all-cash ‘ is almost never the option available to purchasers. Top experts tell us that not even a 1/3 of businesses purchased are done via 100% financing. Unfortunately, sellers like/want cash! More often than not the final structure of your transaction will be:
Owner Cash / Equity Financing / Dissolving Retirement accounts
Vendor Note Take Back – Vendor Financing /Seller Financing (not always, but often) –
‘ABL ‘ (Asset Based Lending) is often a solid solution for a business financing strategy, often in the case of leveraged buyouts with a focus on ‘ assets’. These types of facilities allow you to borrow heavily against inventory, accounts receivable and equipment/fixed assets.
One legal/technical issue often becomes a critical point in acquisition financing. That is the issue of ‘asset sales’ vs. ‘share sales’. From a buyer’s perspective asset sales tend to make more sense – sellers focus on share and tax strategies for selling their businesses. This can often complicate financing as it relates to specific assets of the business and cash flows.
We’ve seen there are some critical issues that can make or break the success of financing a business purchase. Those issues include proper valuation pricing, debt load, working capital and cash flow financing challenges. A solid business plan and proper cash flow projections are key to successful approval of financing – 7 Park Avenue Financial prepares business plans that meet and exceed bank and commercial lender requirements.
CONCLUSION – THE BEST BUSINESS ACQUISITION LOAN FOR YOUR NEEDS
There are few people who can buy a business with cash and without borrowing. If you’re focused on a winning deal and financing a business purchase properly seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs for a successful acquisition. We’ll show you the most efficient way to fund your acquisition with a higher percentage of success!
FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION
Can I finance the purchase of a business?
When someone purchases a business, they typically use a combination of their own funds and external financing.
How much down payment do you need for a business loan?
There is no set deposit amount for business loans, as each business is unique. 10% to 30% is a commonly used amount.
What is a business acquisition loan?
A business acquisition loan is a small business loan for financing the purchase of an existing business.
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7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Direct Line = 9053024171
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7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
Business 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.
‘ 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. He is an experienced
business financing consultant
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 financing 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 startups 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.
Click here for the business finance track record of 7 Park Avenue Financial