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Business Acquisition Financing In Canada: Finance Solutions Not Built On Sand
Opening The Wallet On Financing Acquisitions In Canada In The SME Commercial Market



YOUR COMPANY IS LOOKING FOR  BUSINESS ACQUISITION FINANCE SOLUTIONS!

BUYING A BUSINESS? HERE'S HOW YOU FINANCE A BUSINESS ACQUISITION

 

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?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting  for more information and to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

how to finance a business acquistion  and financing solutions for an acquisition

 

 

ACQUISITION LOANS IN CANADA FOR A NEWLY ACQUIRED BUSINESS STRATEGY

Business acquisition financing in Canada, when successful, requires that the finance component of the transaction be not built on sand.  Here is an area of small business where strength is needed, so let's open the wallet ' on acquisitions acquired properly. Larger companies often have a distinctive advantage, so we're focusing on smaller companies and mid-market transactions -  Let's dig in on how to finance an acquisition for the many buyers contemplating buying a business.

 

WHAT IS ACQUISITION FINANCING?

Acquisition finance is simply the sourcing of business capital to purchase another company. In traditional and alternative finance, successful acquisition financing via acquisition financing lenders allows buyers to meet their purchase goals with resources and capital to complete a transaction.

Many businesses wish to avoid equity from a third party investment source as that solution dilutes ownership versus a bank loan or commercial finance firm solution.

 

WHICH METHOD OF FINANCING A BUSINESS PURCHASE MAKES SENSE FOR YOUR  BUSINESS ACQUISITION LOAN?

 

Business acquisitions come down to the purchase price of the target firm very quickly! There are numerous methods of acquiring a business and raising the right amount of capital to finance the transaction and buy another company - One of those that are less known to business folks is  ' subordinated debt ' - in effect, an unsecured cash flow loan. When you finance a business for a specific acquisition price, it is necessary to determine which overall financing structure works best for all parties - those being, of course, the seller, a lender/lenders, and yourself, the buyer.

 

HOW DOES ACQUISITION FINANCING WORK?

 

More significant transactions in Canada can be facilitated by private equity and venture capital type funding, but those are not for most businesses in the SME/SMB sector. In some cases acquiring firms may choose to remain separate entities.

 

THE CASH FLOW LOAN

While a cash flow loan is almost always more expensive than traditional bank term loans, it is more flexible and can often carry a large part of the total financing needed to complete a deal.  This loan ranks 2nd behind any secured debt, and hence it's ' subordinate' to the secured finance part of the transaction. Certain conditions around cash flow must be met.

 

specific solutions for buyouts and acquistions and acquistion finance structures

 

UNSECURED LOANS

 

In business credit If the loan is ' unsecured,' how does the lender, i.e. a commercial finance company or a bank, view chances of repayment. Here it's down to 2 words - ' CASH FLOW.'  So if you're contemplating a cash flow loan as a part of your deal, it's safe to say you should spend some time on:

 

Past cash flow analysis via  the financial statements

 

Present Cash Flow

 

Future projected cash flow (by the way - we've never met a projection we didn't like '  in an acquisition deal, said one of our mentors)

 

 

CASH FLOW FINANCING VERSUS ASSET FINANCING - WHICH ONE WORKS BEST FOR YOUR OPTIMAL FINANCING  STRUCTURE  

 

Why would owners/financial managers consider a   bank cash flow loan for business acquisition financing? Simply because 100% secured asset financing might not be possible, the other alternative,  ' owner equity,' is less desirable because it’s either unavailable from the owners or more dilutive. Many business buyers choose to focus on a leveraged buyout on the target company they are considering - here, it's all about the business's assets and financing them to the maximum within cash flow capability to repay the loan. Client lists are also an important consideration.

Mezzanine financing can be added into capital structures to augment a final transaction, undoubtedly an alternative to equity financing.

Surplus cash from the acquiring company can also be utilized based on various types of structures.

 

VALUATION AND SELLER FINANCING

 

In business, owners/managers often find a situation whereby they can acquire another company or competitor or a strategic partner. The valuation price on the deal might be more than the assets can support - especially if current owners do not wish to be a part of the financing via some 'vendor take back.'  This type of creative financing  reduces the need for personal loans, or collapsing of retirement accounts, or other personal assets etc

 

In many cases, lender financing via  a cash flow loan might not be a part of the required debt and other ratio covenants. A seller financing company will almost always greatly help finance your transaction, and creativity abounds in creatively structuring the ' VTB. '  Your final structure will typically be a senior loan and a revolving credit facility supplemented by other forms of secured or unsecured financing. Any vendor finance solutions that the seller agrees to lower your equity required to complete the deal since acquisitions involve upfront capital / down payment needs.

 

Other sources of capital available as a financing solution from finance firms for financing a purchase include:

 

Government Guaranteed Business Loans - In the U.S., a bank or SBA loan is a preferred financing solution for thousands of entrepreneurs - The Canadian version is, of course, our ' SBL LOAN' under government and participating financial institutions auspices. This solution is a  term loan structure, and a common way to finance a franchise is this type of loan.

 

Asset-Based term loans/lines of credit/ accounts receivable factoring - The focus is on the comapny's assets of the business -  balance sheet and the ability to leverage assets, which can maximize and provide financing - in some cases, an appraisal might be valuable to a lender or the purchaser. Financial covenants in asset based lending are often less restrictive compared to traditional financing when it comes to your final capital structure.  ABL loans require that you pay interest only on the amount borrowed at any given time, ie a fluctuating balance on a business line of credit.

ABL financing is  a solid way to help fund leveraged buyouts or a  management buyout as part of a financing package.

 

Equipment Financing / Sale Leasebacks - purchase or refinancing of fixed assets, commercial real estate,  or other technology and specific assets , etc

 

Receivables/Inventory Finance -  short term effective cash management & working capital financing solutions

 

In several cases, real estate can be a vital component of a transaction. It can be financed separately or within the transaction - many firms prefer to have the real estate in a holding company outside the operating company.

 

Interest rates on any business will be a factor of the transaction's overall credit quality, the deal's size, the type of financing you choose, and general market conditions. Many industries are very in favour - some are out of favour! Others have challenges around  financing intangible assets.

External help and experiences are almost always essential to finance the acquisition, including solutions that reflect a fair interest rate on the overall transaction. Financing is often a factor of being prepared via a strong business plan, solid cash flow projections, etc . 7 Park Avenue Financial business plans meet and exceed Canadian banks and other commercial and alternative lenders' requirements. A solid business plan is a crucial requirement when acquiring a business. Owners should generally be able to demonstrate a solid personal credit score .

 

Let the 7 Park Avenue Financial team work with you to determine which financing method will work for your business purchase and precisely what is required to access capital.

 

business acquistion loans and finance the purchase of an existing business

 

CONCLUSION

 

Whether it's an opportunistic transaction you come by or a sale of a business as part of the ' graying effect ' of older business owners, the financing of a transaction, done successfully, can make your firm more strategic and competitive in your industry. 

 

Financing an acquisition brings many business people into uncharted territory. Small  businesses and middle market businesses don't really have access to a private equity firm,etc. when they want to obtain financing.

 

What type of merger or acquisition loan makes sense for your business if you're working through the m&a process? In some instances, a cash payment is a key requirement to complete a transaction.

So whether it's about cash flow, assets, profits, or sales growth, consider seeking out and speaking to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with your acquisition finance business loan needs and work closely as a long term third party with your vested interest in your unique needs and a  focus as a business partner you can trust with due diligence that counts!

 

 
FAQ: FREQUENTLY ASKED QUESTIONS / OTHER INFORMATION

Can you buy a business with no money?

In general, no money down financing is not available in Canada - Seller financing can alleviate the equity down payment required to complete a transaction and leverage assets of the company being acquired  when it comes to assets of the business and ways to finance a business purchase

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2022

 

 

 

 

 

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