Business Acquisition Loan: Your Path to Strategic Growth | 7 Park Avenue Financial

 

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YOU ARE LOOKING TO BUY A BUSINESS WITH THE RIGHT TYPE OF LOAN 

FINANCING ACQUISITIONS IN CANADA

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

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

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

CONTACT US :  Direct Line = 416 319 5769

Email:  sprokop@7parkavenuefinancial.com

 

 

 

"Securing a Business Acquisition Loan is a game-changer for entrepreneurs aiming to elevate their market presence by acquiring an existing enterprise."

 

How to Secure a Business Acquisition Loan: A Step-by-Step Guide

 

 

INTRODUCTION 

 

 

Acquiring another company presents a great opportunity for entrepreneurs looking to acquire and scale a business.

 

A Business Acquisition Loan is a critical tool in this journey, offering the financial backing to navigate the complexities of purchasing an existing business. This type of financing is designed to address the unique challenges of acquisitions, providing a pathway through which businesses can leverage borrowed capital to fund the purchase price and any related expenses.

Understanding the nuances of acquisition loans, including the types available, eligibility criteria, and strategic planning for repayment, is essential for any business owner.

 

 

 

HOW  TO  FINANCE A BUSINESS ACQUISITION  

 

Business financing sometimes presents an acquisition opportunity. How do acquisitions finance solutions work when the opportunity arises, and what loan scenarios might match your needs when the goal is growing a business? We're talking about the ' buy-side '.


Let's dig in on an acquisition financing model and optimal financing structure that works for your purchase when arranging financing for various types of capital and working through the due diligence process.


Naturally, the reasons for purchasing or merging with another company vary regarding a business acquisition. Some of the most typical scenarios include growing sales faster (i.e. non organically), entering new geographies for sales revenue opportunities, different client or market segments, etc.


The need then arises for financing to purchase an existing business via a solid acquisition finance strategy that helps guarantee the business's financial health while maintaining a reasonable balance sheet.

HOW DO COMPANIES FINANCE ACQUISITIONS

Financing acquisitions allows firms to leverage target companies' assets and cash flow, allowing them to complete acquisitions with a combination of debt solutions, owner equity, cash flow financing, and a potential seller financing component.

 
SME ACQUISITIONS VERSUS ' BIG COMPANY FINANCING ' 

SME/SME entrepreneurs in Canada don't have the advantages of the ' big boys ' when it comes to financing the purchase of an existing business  -  this certainly can limit deals! Those folks seem to be able to access private equity firms, venture capital, debt swaps, stock swaps,  all-cash transactions, IPO's, issuing bonds, large corporate loans, etc - Equity if of course the most expensive form of business capital.


While the proverbial ' friends and family ' financing is undoubtedly one alternative that has been used in the past most top experts will also warn against that scenario; as well pledging personal assets is also high on the not desirable list!

 

HOW ARE MERGERS AND ACQUISITIONS FINANCED FOR PRIVATE COMPANIES FOR  SMALL AND MEDIUM-SIZED BUSINESSES IN CANADA? 

 Some key basics quickly emerge for business owners/ financial mgrs when contemplating a business loan and buying and financing another firm. Knowing these allows you to access and talk to acquisition financing lenders as you are prepared. Those basics?

 

THE FINANCE BASICS AROUND A SOLID ACQUISITION STRATEGY

Your business loan requirements investigation should  include, but not be  limited to:


Determining proper value


Understanding financial strengths and weaknesses


Knowing the optimal amount of debt/equity to make the transaction work - funding acquisition with debt is a balancing act.

Knowing where to seek financing and what type of finance alternatives exist when you're buying a business.

THE SELLER FINANCING / VENDOR TAKE-BACK  SOLUTION

Sometimes, the vendor  'seller note' equity investment can be essential in closing a transaction with original shareholders or owners. If they have the proper personal or financial incentives, their ability to help structure a  ' seller financing ' component to the transaction could be crucial to success in addition

Sometimes, that might mean adjusting the purchase price or agreeing to a delayed payment with the seller paid back over time.

That seller's financing involvement can well mean a better chance of a more successful transition with additional equity financing required by buyers. It makes for a more friendly acquisition while allowing the buyer to maintain that ' control premium '.

A promissory note to allow a buyer to pay back the seller over a fixed period is also an option under the vendor financing strategy.


Sometimes, it might make sense for the seller to maintain a small stake in the combined entity or a new single entity. That might revolve around consulting or active management in the operations to work closely with the buyer and ensure ongoing success based upon their management or industry expertise.

Buyers may want to also negotiate earn-outs with the seller of the company being acquired that can be creative if the seller agrees via the change of ownership.

 

DOWN PAYMENT / OWNER EQUITY REQUIREMENTS

 

Your buyer contribution is a key part of the transaction, contributing a percentage of the purchase price your acquiring company allocated to this purchase. This lowers the amount you are required to finance via debt and demonstrates your commitment to the transaction, often called your ' skin in the game'! The vast majority, if not all, of the business purchase transactions, command a reasonable down payment by the buyer as the equity portion of a transaction.


Since receivables and growth in A/R are often a significant component of any growth strategy accounts receivable financing solutions such as debt factoring and asset-based credit lines can play a key role in acquisitions financing for the target firm, mainly where a leveraged buyout strategy is used for a combined company strategy.


'Small ' is a relative term, but don't forget to consider the Govt Guaranteed SBL Small Business Loan when acquiring a business. That loan limit now is 1 Million dollars, but critical to note that it covers only three asset categories, equipment and leasehold improvements, as well as real estate.


It is very safe to say that your acquisition plans should also include a well-crafted business plan or cash flow analysis of the new or combined operation. 7 Park Avenue  Financial business plans meet and exceed the requirements of banks and other commercial lenders to finance the ' target company.


Carefully studying your working capital and loan needs will also help identify the proper method to finance a purchase.  Those other solutions to help finance your transaction are a combo of new, alternative, traditional and non-traditional methods of Canadian business financing. They will help you complete a final financing structure.
 

 
BUSINESS ACQUISITION FINANCING 

 

Options to finance an acquisition include an asset sale versus a share sale when identifying potential acquisition targets.

 BUYOUT AND ACQUISITION FINANCE SOLUTIONS 

 

Bank term loans/ operating lines of credit - ensuring you can meet the financial covenants and cash flows required by banks , bdc,  and /or credit unions under a term loan structure is critical when negotiating senior debt via commercial banking solutions.


Asset-based bridge loans / Acquisition bridge financing / Leveraged Acquisition Finance: Asset-backed financing solutions play a key role in alternative financing solutions for buying a business -


Asset financing via asset-based lenders works when acquiring companies when the target company has variable operating performance and less-than-perfect cash flow performance in leveraged buyouts when debt is the main funding source for businesses with a solid asset base. Pricing is based on the level of risk when utilizing ' ABL'  and leveraging the company's assets.


Inventory Loans


 PO Finance


 Accounts Receivable / Factoring / Confidential receivables financing


Sale leasebacks


Commercial mortgage financing/refinance


Royalty Financing


Refundable tax credit finance ( sr&ed loans )


Unsecured cash flow/mezzanine financing loans - Financing an acquisition with mezzanine debt, aka '  cash flow loans,' requires solid cash flow projections based on the business's historical and current cash inflows.

Government Loans -  Utilizing the Canada Small  Business Financing Program for business acquisitions and acquisition debt financing for small transactions under 350k is a popular method of acquiring small businesses or funding a franchise purchase. The attractive interest rate and flexible repayment terms, including no prepayment penalty, are key attractions of Government Small Business Loans.

The ultimate choice in a unique mix of acquisition financing methods should include some analysis around your overall expected rate of return. Ultimately success in the acquisition will be demonstrated by your ability to manage, improve the value, and focus on a growth strategy and potential rapid growth of the new or combined business in a purchase that reflected the fair market value and acquisition price of the company and its growth prospects and potential revenue synergies.


In some cases, buyers may have to address the value of intellectual property and goodwill, which can often pose a financing challenge regarding company valuation. Business valuation methods differ when assessing the value of intangible assets.

 

 

 KEY TAKEAWAYS 

 

 

   
CONCLUSION: BUSINESS ACQUISITION FINANCING

   


We've demonstrated how the optimal financing for your business purchase needs to align with your long-term personal and corporate goals in the business deal. By planning the proper acquisition financing structure to match the circumstances around your deal, you can ensure maximum flexibility that can be adapted to the transaction.


Looking for the best financial acquisition solutions and the right mix and proper funding to buy a business?

 

Call 7 Park Avenue Financial,  a trusted, credible, experienced Canadian business financing advisor who can assist you with your business finance loan needs for a solid structured acquisition finance solution.


Our goal is to ensure you secure acquisition funding at the lowest cost of capital, considering the uniqueness of structuring your particular transaction via a bank or alternative lender.

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

What is acquisition finance?

Acquisition finance is the sourcing of capital used to fund a purchase /acquisition of a business. Different combinations of financing can be used when buying a business to complete the purchase, as it is rare that one type of financing will meet all the financing needs to buy a company in an acquisition deal.

The appropriate mix of debt and equity with a reasonable cost of capital and interest rates makes a successful acquisition funding. Asset based financing and cash flow financing offer different ways to achieve the same goal.

 

 

How does a Business Acquisition Loan benefit my company?

By providing the necessary funds to purchase another business, a loan of this nature can swiftly expand your market presence, diversify your product offerings, and increase your revenue streams, setting a solid foundation for future growth.

 

 

What are the main types of Business Acquisition Loans available?

Entrepreneurs can choose from several financing options, including traditional bank loans, Government Small Business loans, and seller financing. Each comes with distinct terms and benefits, tailored to meet various business needs and situations.

 

 

How do I qualify for a Business Acquisition Loan?

Lenders evaluate your credit score, business performance, and the financial health of the business you wish to acquire. A strong application typically demonstrates a clear plan for the acquisition and how it will enhance your business's profitability.

 

 

What information must I provide when applying for a Business Acquisition Loan?

Prepare to submit detailed financial statements for your business and the acquisition target, a comprehensive business plan, and a repayment strategy. This information helps lenders assess the viability and potential success of the proposed acquisition.

 

 

How can I improve my chances of getting a Business Acquisition Loan?

Enhancing your creditworthiness, solidifying your business's financial performance, and presenting a well-researched business plan outlining the acquisition's strategic fit and growth potential can significantly boost your application's appeal to lenders.

 

 

 

What is due diligence in the context of acquiring a business?

Due diligence for acquisitions involves thoroughly investigating the target business's financial records, legal matters, operational processes, and market position to identify potential risks or liabilities before the acquisition is finalized around a final business valuation.

 

 

Can I use a Business Acquisition Loan to buy out a partner?

 

These loans can also be utilized for partner buyouts, allowing one partner to purchase another's share in the business, ensuring continuity and stability in the company's operations. A management buyout is a similar transaction strategy in company takeover financing and helps the current management team achieve its business expansion goal. The risks and challenges of acquisitions

 

How does seller financing work in business acquisitions?

 

In seller financing, the seller of the business acts as the lender, allowing the buyer to pay the purchase price over time, typically with interest. This can be a flexible alternative to traditional financing, often with negotiable terms.

 

How long does it take to secure a Business Acquisition Loan?

 

The timeline can vary widely depending on the lender and the complexity of the acquisition, ranging from a few weeks to several months. Preparing comprehensive documentation and a strong business plan can expedite the process.

 

Are any industries more favourable for obtaining a Business Acquisition Loan?

 

While lenders are generally industry-agnostic, they favour businesses in stable and growing industries with clear revenue streams and a track record of profitability. However, the strength of the individual business case is often more important than the industry itself.

 

What happens if I default on a Business Acquisition Loan?

 

Defaulting on the loan can lead to serious financial consequences, including the loss of any collateral pledged, a negative impact on your credit score, and potential legal action by the lender to recover the loan amount.