Business Acquisition Loans and Financing Options Canada | 7 Park Avenue Financial

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Business Acquisition Loans In Canada: Simple Rules And Financing Options
Captain’s Log: Types of  Acquisition Loans &  How To Finance A Business Purchase



 

YOU ARE  LOOKING FOR A BUSINESS ACQUISITION LOAN!

FINANCING A BUSINESS TAKEOVER OF AN EXISTING BUSINESS

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Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

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EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

BUSINESS ACQUISITON LOANS AND FINANCING OPTIONS FROM  7 PARK AVENUE FINANCIAL

 

 

 

"Discover the key to unlocking your business purchase  potential through strategic acquisition financing"

 

 

 

 

INTRODUCTION  

 

Business acquisition loans and financing options in Canada offer a lifeline, providing the necessary capital to seize opportunities to acquire a business.

 

From traditional bank loans and government programs to innovative alternative financing solutions via alternative financing  let the 7 Park Avenue Financial team show you the unique advantages while working with you through eligibility criteria, and application processes that are  tailored to meet your needs,  Whether you're a small enterprise looking to take your first significant leap or a large business  aiming to consolidate your market position, understanding the landscape of acquisition financing is key

 

Business acquisition loans in Canada require some key considerations for those contemplating acquiring or merging with another company, not the least of the purchase price amount. In the SME (small to medium enterprise) sector, various financing options exist in acquisition financing to consummate your transaction. Let's dig in on your business purchase loan.

 

 

 

 

THE IMPORTANCE OF A STRATEGY AND PLAN IN BUYING A BUSINESS   

 

Experts agree that when it comes to a loan to buy a business, a poorly executed purchase of a company often has the buyer too focused on price without planning around terms associated with the financing and a poor focus on future sales growth.

 

 

 

UNDERSTANDING  YOUR ALTERNATIVES IN ACQUISITION FINANCING & BUYING  A BUSINESS

 

 

While it's no ' cake walk' around your acquisition finance options, there do exist several key alternatives around successful finance execution of your purchase. Safe to say, the global 2008-2009 financial crisis didn't help, as well as Covid !,  with lenders such as banks changing borrowing rules on almost every aspect of their business, including mergers and acquisitions.

 

THE IMPORTANCE OF YOUR EQUITY / DOWN PAYMENT CONTRIBUTION

 

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 financing needs have risen over the last few years.

 

 

 

 

 

WHAT IS SELLER FINANCING/ VENDOR FINANCE AND HOW CAN IT HELP YOUR TRANSACTION   

 

 

When financing an acquisition anytime, the seller as the current business owner chooses to participate more in your transaction  (known as the ' vendor take back), your chances of total finance success increase. Note that some banks and finance firms will also possibly view the seller takeback as potential debt on the balance sheet financial statement - it varies among lenders when it comes to the ' vendor financing' issue.

 

Sellers tend to secure their ' VTB' typically with a promissory note of some type. A typical rate range is in the 5-10% area with a monthly payment or some other agreed-upon period. Seller financing a business is also a recommended strategy that allows for substantial creativity potential and a smooth ownership transition.

 

Partner buyout financing is often a part of many business acquisitions. When it comes to financing a buyout or a loan to buy out a business partner, mutually agreed-upon valuation and timing are important.

 

 
 
INTEREST RATES AND THE COST OF FINANCING
 

 

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 - a traditional business loan or a commercial alternative lender.

 

 

 

SOME KEY DRIVERS IN SUCCESSFUL ACQUISITIONS

 

Suppose a ' perfect world ' ( apparently it isn't ) scenario around the target company 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 finance sources will often have to be considered, given the bank's focus on debt service coverage ratios, etc.

 

A good way to look at your financing challenge around purchasing a business is to think on in ' layers.' More often than not, it might include several of those layers of capital. It's important to have a strong sense of the assets' value and how cash flow will be generated for debt repayment and business growth.

 

In some cases, a real estate component might be a part of your transaction. Fixed assets and real estate are excellent collateral for funding business acquisitions, unlike intangible assets such as goodwill or intellectual property/patents, etc which can be a financing challenge if not addressed properly.

 

Firms with little or no assets can still be financed if they have receivables, cash flows, or both. More often than not, these ' service-based firms.  One can assume that unsecured cash flow loans from cash flow lenders are more challenging to acquire!

 

 

 

 

CONSIDER GOVERNMENT LOANS TO BUY A BUSINESS  

 

 

 

Many purchasers often forget the Government Small Business Loan as a source of finance. The one limitation is the maximum loan amount. 350k, clearly defining the transaction's size that it can complete in a company acquisition, but it’s a solid alternative.

 

 

 

WHAT TYPES OF BUSINESSES CAN YOU BUY WITH A GOVERNMENT LOAN? 

 

Although there are numerous types of loans to buy companies, small acquisitions can easily be accomplished through the 'SBL' government loan - franchise loans are a good example. The small business loan down payment varies between 10-50%. Transactions are structured as term loans - the program is not a lump sum cash loan or line of credit.

 

No personal assets are taken as collateral, and a large part of the bank loan is guaranteed to the bank by the federal government

 

Loan amounts for real estate under the program can be up to 1 Million dollars. Canadian banks and some business credit unions administer the program. Personal credit scores typically in the 600+ range are required. Let our team help you through the government loan process. Bottom line - get your finances in order!

 

Overall it is one of the best loans to purchase a small business in Canada and to successfully secure financing. Your application process should include a solid business plan - 7 Park Avenue Financial business plans we prepare for clients to meet and exceed the requirements of banks and commercial lenders.

 

 

WHAT ARE SOURCES OF FINANCE TO BUY A BUSINESS / HOW DO YOU FINANCE A COMPANY ACQUISITION? 

 

 

What then are the key sources for financing a business and financing options for your acquisition? A summary of acquisition financing lenders for your business acquisition funding needs  :

 

Canadian chartered banks - traditional bank loans - a solid overall business credit score on profits, clean balance sheet, and cash flow is a necessity for bank business acquisition financing for a traditional loan

 

Government Crown Corporation Bank - talk to our team about the offerings of Canada's entrepreneur bank and their competitive interest rates. A minimum credit score in the 650 range is typically required for individual borrowers.

 

Govt Small Business Loan - the government loan program is an excellent method of acquiring a smaller business or a franchise - the loan cap is 350k - the credit history of the owner must be good enough to qualify for this term loan - a franchise is a type of business that can easily be financed under the Canada Small Business Financing Program. A limited personal guarantee is also required under the program.

 

Asset-based lenders  - financing the balance sheet assets via lines of credit and asset monetization and invoice financing/accounts receivable funding - The cost of borrowing is higher but more capital can be accessed.

 

Specialty Lenders - receivables /inventory/ asset bridge loan solutions

 

Cash Flow / Mezzanine finance solutions

 

Equipment Financing

 

 

KEY TAKEAWAYS

 

  1. Eligibility Criteria: Understanding the qualifications for acquiring a business loan in Canada—such as creditworthiness and equity investment, business performance, and security offered—is pivotal. This foundational knowledge helps in preparing for successful loan applications.

  2. Types of Loans: Familiarize yourself with the primary financing options available, including traditional bank loans, government-assisted programs, and alternative lenders. Each category serves distinct needs and preferences, shaping your approach to securing funds.

  3. Interest Rates and Terms: Grasping the intricacies of how interest rates and repayment terms vary among different lenders can significantly impact the total cost of financing. This insight allows for informed decision-making, and optimizing financial outcomes.

  4. Application Process: Knowing what documents and information lenders require streamlines the application process. Efficient preparation accelerates approval times, facilitating quicker access to needed capital.

  5. Strategic Planning: Comprehending the importance of aligning your financing choice with your business’s long-term goals ensures that the acquired resources foster growth and sustainability, rather than becoming a financial burden.

 
 
CONCLUSION
 

 

Looking for the best acquisition financing options and structures? When it comes to business purchasing and buying a business loan solution and getting a solid deal structure for your business valuation.

 

Seek out and speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can help you identify financing options and a financing structure for a merger or acquisition strategy. Financing acquisitions for business owners is what we do, so let's get started on the type of financing you need to buy a business.

 

Types of financing for best loan options for your transaction will vary based on solutions from traditional lenders and the alternative finance landscape for the best acquisition loan option via business acquisition lenders.

 

FAQ: FREQUENTLY ASKED QUESTIONS  / PEOPLE ALSO ASK / MORE INFORMATION

 

 

What Is a Business Acquisition Loan?

 

A business acquisition loan is a commercial loan solution to purchase a business under an optimal financing structure and finance a business acquisition successfully - the type of business being acquired might be a franchise or an existing business in any Canadian industry. The purchase of existing businesses is completed via upfront capital via a down payment from the buyer, known as the 'owner equity ' as well as a combination of loan acquisition financing from a bank, commercial lender, as well as a potential seller financing component to bridge any gaps in achieving the total purchase price funding.

 

 

How do business acquisition loans work?


Business acquisition loans provide the capital needed to purchase another company, allowing borrowers to leverage their current financial standing to expand and grow their business through acquisitions.

 

 

What are the benefits of using financing options for acquisitions?


Financing options offer the flexibility to acquire businesses without depleting cash reserves, enabling companies to maintain liquidity and invest in other growth opportunities simultaneously.

 

 

Are there different types of financing options available for business acquisitions?


Yes, options range from traditional bank loans and government programs to alternative lenders and private equity, each with unique advantages and terms tailored to diverse business needs.

 

How do I qualify for a business acquisition loan in Canada?


Qualification criteria typically include a strong credit score, a solid business plan, proof of stable income, and sometimes collateral, varying significantly among lenders.

 

What factors should I consider when choosing a financing option?


Consider the interest rate, repayment terms, loan amount, speed of funding, and how the loan aligns with your business strategy and financial health in areas such as good personal credit and reasonable net worth.

 

What is the difference between secured and unsecured loans for business acquisitions?


Secured loans require collateral, offering lower interest rates, while unsecured loans do not, typically resulting in higher rates due to increased lender risk.

 

Can I use business acquisition financing for any industry?


While generally versatile, some lenders may have restrictions or preferences based on industry risk, so it's crucial to research lenders familiar with your specific industry.

 

 

How long does it take to secure a business acquisition loan? 


The timeline can vary widely, from a few weeks to several months, depending on the lender, loan complexity, and how promptly you provide necessary documentation such as business financial statements, federal income tax returns, bank account statements, and other key information and financial documents.

 

What impact does my business credit score have on financing options?


A higher credit score can unlock better interest rates and terms, as it indicates lower risk to lenders, while a lower score may limit options and increase costs.

 

 

Are there government programs specifically for business acquisitions in Canada?


Canada offers various programs that can be applied towards business acquisitions, especially for small businesses and startups, including those facilitated by the Business Development Bank of Canada (BDC).

 

How does the interest rate of a business acquisition loan affect its overall cost?


The interest rate directly influences the total amount you'll pay back over the life of the loan, with higher rates increasing the cost and lower rates reducing it.

 

Can I negotiate the terms of my business acquisition financing?


Yes, terms can often be negotiated, especially with private lenders or in situations where you have a strong credit profile or collateral, potentially securing more favourable conditions.

 

What happens if I default on a business acquisition loan?


Defaulting can lead to serious consequences, including loss of collateral, legal action, and negative impacts on your credit score, affecting your ability to secure future financing.

 

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

 

 

 

 

 

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil