OVERVIEW – Unique challenges and opportunities exist for Canadian entrepreneurs who are looking for financing for business acquisition opportunities . Here are 5 methods that work
Financing a business acquisition , or merger, can be accomplished in a number of ways in Canada. In fact 5 obvious solutions exist, and yes, here’s one thing you need to know about them – They all work. Let’s dig in.
When it comes to purchasing an existing business we think it’s all about knowing your alternatives. Entrepreneurs who wish to purchase a business understand that buying , ( or turning around ) an existing business can often happen a lot more quickly than organic growth or starting from true ‘ start up’ mode.
Those same entrepreneurs also often quickly realize that it’s not that easy to finance the purchase through what some might term ‘ traditional ‘ sources of capital .– a lot of that having to do with tightening of business credit since the 2008-2009 global financial meltdown.
It might seem too obvious but in fact one the ways to finance the purchase of a company is via personal savings. We think the best route to follow is to ensure you have a good ‘ combo’ of both personal equity and additional 3rd party financing. That often leaves you with the right combination of both ‘ debt’ and ‘ equity ‘- too much of either is rarely good.
Naturally a lot of risk is eliminated when significant personal finances are utilized. but putting all your personal capital at risk also has its downside! It should be also mentioned that 3rd party financing often, (but not always) requires a solid equity component
An obvious form of financing a business acquisition opportunity is often not that obvious. It’s financing via the seller, via a ‘ VTB’ – its seller financing via a vendor take back. Your ability to structure a transaction creatively is unlimited when it comes to working with a responsible seller who is motivated to participate in the successful financing, often at the risk of giving up some of the tax benefits that come with his or her sale of the business.
Want to waste a lot of time in financing a business opportunity. Hands up for that one! What we’re referring to the endless search we’ve seen many clients take on in dealing with Private Equity, Venture Capital, and Angel Investors relative to financing the purchase or merger of a business in the Commercial SME sector in Canada. Our quick summary on that one? Simply that those sources of finance are meant for much larger transactions in the millions and tens of millions , take a lot of time to consummate, and have some stringent requirements around the financial criteria .
Going to the other end of the extreme have you considered the Canadian government as a partner in financing an acquisition. That is accomplished very nicely via the Govt BIL/CSBF program which provides financing up to 350k for transactions. It’s a great source of financing for SME type transactions. and can also be utilized for existing franchises.
Canadian chartered banks and commercial financing companies (Asset based) also provide financing under criteria relating to assets, leaseholds, current capital structure, and current operating success of the business. An asset based financing can often properly be accomplished via an ABL facility that monetizes current and fixed assets.
There you have it, 5 solid methods behind the financing of a business purchase in Canada. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your acquisition finance needs.
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