YOU’RE LOOKING FOR BUSINESS ACQUISITION FINANCE!
HOW TO BUY A BUSINESS IN CANADA VIA BUSINESS ACQUISITION LOANS
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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
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Financing for a business purchase in Canada has some entrepreneurs, business owners and other professionals wondering if there is perhaps a secret book of rules to success in this aspect of Canadian business financing and buying an existing business. We're claiming to have a copy of that publication around the business you want to buy - so let's dig in!
DO YOU HAVE YOUR FINANCE STRATEGY IN PLACE FOR FINANCING THE PURCHASE OF AN EXISTING BUSINESS?
One key issue in all the work and due diligence that goes into purchasing an existing business (or even an existing business such as a franchise) in the Canadian marketplace is the necessity to start the financing strategy of your purchase well in advance of any final formal undertaking or offer you might make. A bank loan may not necessarily be your solution for acquiring a business. However, it's the first go-to for many entrepreneurs when they are looking at buying a firm selling products or potentially a firm that is a service provider.
YOUR DOWN PAYMENT FOR BUSINESS LOAN ACQUISITIONS / THE EQUITY COMPONENT
While the current business credit markets are certainly much better than they posted 2008 - 2009 recession, and let's not forget about Covid/Pandemic issues, one key issue is the amount of personal equity or down payment required by any bank or other commercial lender. (Yes, there are non-bank options for financing your new business!)
HERE ARE THE SOURCES OF FINANCING FOR BUYING A BUSINESS IN CANADA
Typical sources of financing for buying a business in Canada include:
Canadian chartered banks via acquisition term loans.
The government crown corporation bank / quasi-government loans
The Canadian govt (via the govt guaranteed Small business loan) / ' SBL LOANS' - Talk to 7 Park Avenue Financial about the program's eligibility criteria. When it comes to helping small businesses get loans the government funding programs are certainly worth checking out - but as we have shown there are alternate ways to finance a business purchase.
Commercial finance companies
Asset-based lenders (this might include an equipment leasing /refinancing component)
In some cases, real estate may be a part of the purchase price and consideration in the purchase and is typically addressed separately through a holding company arrangement as an example. Some businesses might have intangible assets such as goodwill, contract values, technology, etc., that require special valuation. How to get a business loan in service type/ technology businesses required additional expertise, and loan terms may vary if specialized assets are a part of your transaction.
Note that in all types of business financing in the SME sector, a good credit score and personal credit history will be one aspect of discussion with a commercial lender or bank, business credit union / financial institution.
DON'T UNDERESTIMATE VENDOR FINANCE SOLUTIONS AS A PART OF YOUR STRATEGY
Don't forget vendor financing, sometimes called ' seller financing, 'which can make or break a deal if properly structured, and of course, implementing vendor finance reduces the amount you need to borrow. It's financing solutions such as that that will help you close your transaction. When we are asked ' how to finance buying an existing business in Canada ' that's a solid go-to strategy around starting your planning around business acquisition financing.
MORE SOPHISTICATED AND LARGE TRANSACTIONS
At the higher end of the food chain are angel investors, private equity groups and VC's which aren't really our focus in today’s discussion - primarily because they are equity players, not debt/loans/asset monetization solutions. Raising finance to buy a business with these types of firms dilute equity and are rarely part of SME/SMB transactions.
THE DEBT VERSUS EQUITY QUESTION
Business owners/entrepreneurs need to understand the key difference in a debt versus equity final solution - that being simply that any equity financing you could come up with dilutes your ownership and often controls the business. The ability to ensure your interest rate on the loan amount purchase can be repaid from cash flow is key. Lenders will always scrutinize cash flow to ensure repayment terms can be met.
Your business plan is a key part of your loan application package. 7 Park Avenue Financial business plans meet and exceed bank and commercial lender and alternative lender requirements.
ASSESSING FINANCING NEEDS BEYOND YOUR ACQUISITION - RUNNING AND GROWING THE BUSINESS
When people source home and personal financing, they encounter the recommendation by many to get-qualified. ' This suggestion carries over well into buying a business, as its key, just as it is in your personal financial situation, to demonstrate asset, cash flow, and information on the company/business. Knowing the amount you need to borrow to run, operate and grow the business is also key as you develop a final financing structure. This type of business opportunity always requires a contingency plan, as Murphy’s Law is well known in business! (What can go wrong ... will)! Running a company on business credit cards is not optimal financial planning as far as bank loans go!
Assessing ongoing working capital needs is critical also. We have met and worked with many clients who made that proverbial follow-up call (we’ve hit a cash flow crunch -help!) A business owner should focus on the long term, not just the immediate acquisition.
CONCLUSION
Small business acquisition opportunities will continue to grow in Canada. While there might be an all inclusive ' how to ' in buying an existing business or franchise in Canada, it might be well considered to seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you unlock some of those secret rules to business purchase success. Small businesses should make sure they understand their financing options and use their business network of trusted advisors to complete their transactions.
Click here for the business finance track record of 7 Park Avenue Financial.
Stan Prokop
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