YOUR COMPANY IS LOOKING FOR A BUSINESS ACQUISITION LOAN!
FINANCING A BUSINESS TAKEOVER OF AN EXISTING BUSINESS
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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 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 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.
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 of time. Seller financing a business is also a recommended strategy that allows for substantial creativity potential.
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 amt. 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 personal finances in order!
Overall it is one of the best loans to purchase a small business in Canada. Your application process should include a strong and solid business plan - 7 Park Avenue Financial business plans we prepare for clients 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.
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.
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
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.
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
What Is a Business Acquisition Loan?
A business acquisition loan is a commercial loan solution to purchase a business - the type of business being acquired might be a franchise or an existing business in any Canadian industry. The purchase 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.