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Business Financing To Purchase An Existing Business In Canada
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Financing & Cash flow are the biggest issues facing business today
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We've spoken of buying a business and the types of business purchase financing and loan that will help you accomplish that goal - i.e. buy and existing business.
BANK FINANCING FOR BUSINESS ACQUISITION LOANS
If you are using a more traditional approach and utilizing a Canadian chartered bank to finance the purchase we highlighted 3 key elements of a successful close :
Management depth and experience,
Strong business plan ( business owners want to know they can pay back the loan )
Solid financial projections.
Don't forget also that typically in a more traditional process of buying a business, i.e. through a bank you will also be required to provide personal financials and the guarantees that come with that. At the end of the day, you want to be viewed as an owner or management team that has a strategy and objective, and that you are going to truly focus on growth and profits. Due diligence around the value of the business and the best method of business valuation in that industry is also important.
THE PERSONAL GUARANTEE ISSUE AROUND A BUSINESS ACQUISITIONS
That issue of personal guarantees always comes up in client discussions. While we can in a general sense that any business purchase in the SME sector in Canada will come with that personal guarantee of the owner we can also quite safely say that you have some negotiating power on that issue that you might not know you had. Your personal credit score and net worth will always become factors in business financing.
Are there any alternatives to the whole issue of the personal guarantee? We can offer up that different banks and finance firms have different focuses on the personal guarantee, and the reality is that if you are dealing with an experienced credible banker that has credibility with the bank underwriters you definitely have someone on your side in this issue. As a final comment, you can focus on some restrictions to your guarantee commitment, and you can even have a long term objective with your banker of then focusing on a release of the guarantee sometime in the future. Depending on whether you choose traditional or alternative financing the lender will likely place a different emphasis on the value of the guarantee.
STRUCTURING A BUSINESS PURCHASE TRANSFER FINANCING
When we get down to the actual finance structure of your transaction it's critical to focus on the key assets of the business - accounts receivable, inventory, fixed assets, and in some cases real estate. One key issue that you want to determine early on is the issue of ' concentration ‘... for example if a huge part of the business volume is coming from one or two customers. This ' concentration ' issue alone can sometimes make or break your financing on the deal.
How Much Money Can You Borrow To Buy A Business?
Cash flow is the solution that will take you to the goal line if there are not enough assets to complete the financing. On the other hand, if cash flow is light or poor the actual assets might be the one element that allows you to successfully complete a purchase.
A SHORTLIST OF 5 KEY ELEMENTS FOR SUCCESSFUL ACQUISITION FINANCING
At a time like this, it's actually useful to have a shortlist of the key elements that a bank or finance firm will focus on when it comes to approving your transaction - In ' old school ' terms they will be :
Character and management depth,
Current financial condition
4 NON TRADITIONAL WAYS TO BUY AND FINANCE A BUSINESS ACQUISITION
If you can't, or choose not to finance the business purchase through a bank numerous other solutions are available. Interest rates will vary on the size and type of financing as well as the overall risk profile as determined by lenders. They include:
Temporary bridge loans
Unsecured cash flow loans
Receivable and inventory financing firms
SBL Loan - this is the Candian version of the U.S. ' SBA loan ' and is a government-guaranteed loan sponsored by Industry Canada. We recommend this solution to purchase a smaller business or franchise. Repayment terms are flexible government loans are one of the best ways to finance your purchase.
Real estate can also be financing under the Canada Small Business Financing Program but in our experience here at 7 Park Avenue Financial this is typically better suited to a commercial mortgage.
Never forget you have the option to go ' ' conventional' or ‘alternative’. While term financing is usually the main part of an acquisition finance structure don't forget the need to provide operating funding needs such as a business line of credit. Three years to five years is a typical payback on the term loan period of time.
Any type of business can be financed, although specific lending solutions work better with asset-based fixed asset types of businesses - services businesses and technology businesses typically lack collateral assets and have intangible assets instead, and require more of a cash flow focus.
We have covered off how you get a loan, how a loan amount might be determined, as well as funding to buy a business in Canada via various options. A combination of your own equity contribution, seller financing, and traditional or alternative financing via a bank or commercial finance company will allow you to successfully complete a transaction. At 7 Park Avenue Financial, we are committed to helping you succeed and helping you finance that final purchase price.
If you are looking for financing to purchase an existing business in Canada Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the right type of loan when you buy a firm and are seeking business purchase financing.
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