Fixing Your Business Acquisition Financing Challenge
OVERVIEW – Information on financing a business purchase in Canada . What are the key issues in SME acquisition finance for the owner/entrepreneur . What solutions are in fact available?
Financing a business purchase in Canada often has the business person juggling various acquisition finance solutions. Which solution makes sense and how do you access that capital properly? Let’s dig in.
At the end of the day it’s all about a proper valuation and moving forward with a source, or sources of financing that make sense for your transaction.
Suffice to say, but often forgotten by many, it’s critical to start assessing financing solutions for a business purchase well in advance of when funds are needed. The analog we could also use is one of getting ‘ pre qualified ‘ for a home mortgage, which then gives the buyer both security and negotiating power when it comes to price, or in our case ‘ valuation’ .
Management depth and experience is also critical to your financing. Your lender/lenders, whether that is a bank or a commercial finance firm, will want to know the ability you can demonstrate to properly manage and run their business – with their focus on getting repaid! That goes for both traditional and alternative sources of capital, as both of those are used to finance the purchase of a company.
Without getting to technical on some higher level business concepts and jargon it needs to be clear that you understand capital structure and debt and equity. Those later two points are of course your 2 sources of finance to properly execute your transaction.
Debt financing will come from commercial sources such as banks and finance companies. In the case of banks many smaller transactions can be financed under the auspices of the Government Small Business Loan. Major changes to the program, including removal of previous borrowing limits make this option, aka, the ‘SBL ‘ very attractive.
The other side of debt in your transaction is equity. Family, Angel, and private investors, will demand ‘ shares’, diluting your own ownership. This then becomes the difficult balance act of sourcing the right amount of debt and equity. Naturally if your own investment into the firm, along with debt will cover the transaction no ‘ dilution’ of your investment will be required.
By the way, ‘ share sales’ are difficult, if not impossible to finance given the bank or finance company has no way to liquidate or monetize their loans. Going public is of course a whole different story.
While many owners focus on closing the acquisition they sometimes forget to focus on the working capital and cash flow requirements of the newly acquired business. That’s a recipe for failure.
Debt financing for a business acquisition can come from:
Canadian chartered banks – term loans, operating lines of credit
Asset based lending
Term acquisition loans from Canada’s crown corp. bank
Receivable /inventory monetization…
If you’re focused on putting the proper’ fix’ in place for financing a business purchase seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you ‘juggle ‘ those solutions into a successful business acquisition.
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
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing