OVERVIEW – Information on acquisition financing options for Canadian firms considering business purchase or mergers.
A business purchase in Canada has to come with some acquisition financing options for entrepreneurs and business people. And for those options the more the merrier and creativity is certainly welcome. The right financing at terms, rates and structures is really the hidden connection to a successful purchase/acquisition. Let’s dig in.
Bank financing is often the typical first choice among purchasers, but accessing this type of capital comes with certain criteria that sometimes can’t be met. Firms in the small to medium sized market place are often underserved when it comes to acquisition finance options. More about some of those bank criteria later.
So, those other options? One of those is ‘ seller finance’ – allowing the owner to participate in the actual business financing. Naturally owners must be both motivated and able to participate in such a transaction.
Cash flow or ‘mezzanine’ type finance is another option when bank ‘ senior debt ‘ can’t be arranged. It is in effect unsecured business financing, allowing you to rely on the cash flow, and profit margins of the business to pay back the loan which is typically 3-7 years in length. Here it’s critical to demonstrate that those cash flows we require have been there historically, now, and in the future!
When both the seller or cash flow financing is not possible another solid source of purchase finance is ‘Asset based lending’. This type of commercial lender will focus solely on the existing balance sheet of your business – and those assets of receivables, inventory, and fixed assets – as well as real estate if applicable. Be mindful also that there must be enough assets left over to also enable you to have operating working capital.
The strongest and most common ‘ sub set ‘ of asset financing is Receivables finance. A credit line against receivables provides solid liquidity.
Back to those bank criteria we’ve mentioned already. Although there is a lot of truth in the fact that banks prefer larger merger and acquisition activity they are certainly willing in the current competitive banking environment to service merger and acquisition transactions in the SME COMMERCIAL FINANCE area.
Buyers should be well warned that certain financial ratios and covenants around cash flow, debt to equity, etc will always be on the table with the bank. You can almost pre-quality yourself by spending some time determining if cash flow of 1.25:1 and debt to equity of 3:1 are in fact achievable under your finance plan. Here owner equity to some level will again, almost always be required.
Banks recognize that transactions financed properly help the new business to be stronger and more successful. That includes being able to eliminate other competition, achieve economy of scale, as well as grow the business geographically or with new products and services. A strong business plan with conservative clarity around growth, profits and cash flow is clear here.
Being able to negotiate the right price is as important as funding your business properly – many owners/mgrs/entrepreneurs will need help in the different valuation techniques employed by those ‘ big boys’ on Bay Street.
Poorly informed purchasers around financing, valuation, and creative alternatives are almost certain to fail. If you’re looking for proven financing techniques in a business purchase 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 ensuring you are not in ‘ no mans land’ when it comes to buying a business in Canada.
7 Park Avenue Financial :
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 . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS PURCHASE 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 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.