YOUR COMPANY IS LOOKING FOR BUSINESS SALE FINANCING!
SELLER FINANCING & OTHER STRATEGIES IN BUYING A BUSINESS
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 to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business Purchase Financing solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Business purchase financing empowers entrepreneurs to acquire and grow businesses, driving economic success and expansion.
Struggling with business financing? Discover how to secure funds to buy the business of your dreams!
FINANCING FOR BUYING A BUSINESS IN CANADA
Potential buyers must have solid expertise and common-sense logic to finance a business sale in Canada.
In many cases, owner financing can make or break the deal. It's all about the asking price / final sale price. Let's dig in.
BUSINESS PURCHASE FINANCING: STRATEGIES FOR SUCCESS
Business purchase financing is a key finance tool for entrepreneurs looking to acquire an existing business or expand their operations. In today’s competitive market, securing the correct type of financing for your business purchase can be the key to unlocking growth and long-term success.
Let the 7 Park Avenue Financial team show you the different financing options available, their benefits, and essential tips for obtaining funding successfully in the sometimes complex world of business acquisitions.
WHY BUY A BUSINESS?
Buying a business in Canada revolves around a small handful of scenarios. Sometimes, the entrepreneur sees an attractive opportunity to build and grow a company.
A business owner might see this as a chance to leverage their skills and resources to create a thriving enterprise. In other cases, it’s all about acquiring assets or sales in a merger/acquisition type scenario. Many business owners seek funding sources and understand the importance of valuing a business before purchasing.
WHAT EXPERTISE IS REQUIRED TO BUY A BUSINESS
The process around those scenarios in small businesses involves some technical expertise in financing and tax and some common-sense logic from the seller and potential buyer.
Choosing a financial institution that sets interest rates for loans, whether variable or fixed, is essential as these rates can significantly impact affordability.
Transactions that are not large or have a story attached are typically more challenging to finance. One of the more creative strategies around such deals is to have an ‘owner financing’ component.
That amount of finance, plus the buyer’s equity or down payment, can nicely complement a successful transaction. Should the seller be required to take back the transaction, he or she has a vested interest in making it happen.
HOW DO YOU CALCULATE OWNER FINANCING AND CASH FLOW
The amount of capital a buyer puts into a deal to make a down payment revolves around the risk the purchaser is willing to take relative to the total financing required and is sometimes mandated by a lender as to the minimum equity required.
The danger is just around the corner if there is too little equity and leverage issues are too high to allow the company to operate comfortably without a significant debt load.
Equity investment, which involves raising funds by selling shares of stock to stockholders, can be a crucial method to ensure sufficient capital and reduce leverage issues.
As we have alluded, a critical aspect of many deals is the seller’s participation via a seller financing component. In many cases, that becomes a challenge if the seller is focused on a share sale rather than an asset sale. Share sales are complicated to finance in the SME (small to medium enterprise) sector.
HOW DOES OWNER FINANCING WORK WHEN BUYING A BUSINESS
There’s some significant and positive logic around owner financing and the pros and cons around that.
An optimal financing structure is crucial for designing the best financing plan for a smooth ownership transition and company growth. That revolves around the fact that the owner's finance contribution almost always allows the seller to receive a higher selling price, complemented by the ability to close a deal successfully because less financing is required.
If the buyer defaults, the seller has various options to regain company control.
Critical factors in a seller financing strategy contemplated by business owners include the interest rate on the ‘ take back’, as well as the term or amortization of the Vendor Take Back component.
Buyer beware: In some cases, your lender or lenders may view the VTB as debt, which hinders the buyer and seller's goal. On the other hand, many lenders view the VTB as very positive! Go figure.
THE VENTURE CAPITAL / EQUITY INVESTMENT ROUTE?
Very few transactions in the SME sector in Canada are financed via Private equity groups, or the infamous ' VC'. The main reason is that these deals are not attractive relative to the financing terms offered and size and future liquidity events.
SOURCES OF FINANCING FOR BUYING A BUSINESS FROM FINANCIAL INSTITUTIONS
So, the best sources for financing include the Government SBL loan, a bank loan from a Canadian chartered bank, and commercial finance companies via asset-based lenders who craft creative term loans and revolving credit strategies based on assets.
Financial institutions such as venture capitalists, investment bankers, and traditional lenders like banks and credit unions provide various funding options to startups and small businesses. In some cases, real estate financing might be involved.
Interest rates will vary based on credit quality, asset quality, cash flow, and transaction size. Small businesses can explore funding and financial support options like government-guaranteed lending schemes and angel investors.
Purchasers should investigate their business funding options regarding the ability to pay back loans and understand that alternative financing will result in a higher interest rate on the transaction.
Unsecured loans, such as personal and credit cards, offer immediate access to money through specific financial institutions. Closing costs should also be factored into your calculations.
Considering the seller financing calculations, almost all transactions should include a business plan and cash flow projections. 7 Park Avenue Financial business plans meet and exceed the requirements of banks and commercial lenders.
Banks will focus on owner equity, personal assets, management experience, cash flow, and assets if they participate.
WHO BENEFITS FROM OWNER FINANCING OPTIONS
So, what's our bottom line on that purchase price challenge? Business owners and buyers should consider a VTB strategy and seller-financed solutions, which will often make or break the deal.
These solutions bring higher prices for the seller and easier access to financing by the buyer. Purchasing existing businesses offers numerous advantages over starting from scratch, such as established structures, operations, and a ready customer base.
KEY TAKEAWAYS
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SBL Canadian Government Guaranteed Loans: Government-backed loans offering favourable business acquisition terms.
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Seller Financing: The seller provides a loan to the buyer, easing the purchase process.
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Commercial Bank Loans / Commercial mortgages: Traditional loans from banks with structured repayment terms.
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Business Line of Credit: Flexible funding that can be used for various acquisition-related expenses for an SME /Small business
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Asset-Based Lending: Loans via leverage buyouts secured by the business's assets provide an alternative financing option.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with common sense and appropriate financing strategies for buying or selling a business in Canada.
Seller financing works and can help you complete a business acquisition. Buyers and sellers work together to close the deal when a higher price is the challenge.
FAQ
What is business purchase financing?
Business purchase financing involves securing funds to buy an existing business, using various loan and investment options.
How do SBL loans help with business purchases?
Government SBL loans offer government-backed funding with favorable and flexible payment terms, making it easier for entrepreneurs to acquire businesses. Leasehold improvements and intellectual property can also be financing under the CSBF program, as it is also called.
What is seller financing?
Seller financing is when the seller provides a loan to the buyer, allowing for easier acquisition terms and less reliance on traditional lenders and personal cash reserves.
Can I use a business line of credit for purchasing a business?
Yes, a business line of credit provides flexible funding that can be used for various expenses related to acquiring a business.
What are the benefits of asset-based lending?
Asset-based lending offers loans secured by business assets, providing an alternative to traditional bank loans and potentially easier approval. In some cases intangible assets can also be included in the facility.
How can I improve my business credit score?
Improving your business credit score involves timely payments, reducing debt, and maintaining sound financial records as well as proper financial statements.
What are the benefits of a business plan?
A business plan provides a roadmap for growth, helps secure financing, and guides decision-making processes.
How do I choose the right location for my business?
When choosing a location for a business venture, consider factors like customer accessibility, competition, cost, and local market conditions.
What is the importance of cash flow management?
Effective cash flow management ensures your business has enough liquidity to meet its obligations and invest in growth opportunities.
How can I diversify my business revenue streams?
Diversifying revenue streams can involve introducing new products or services, entering new markets, or forming strategic partnerships.
What factors should I consider when choosing business purchase financing?
To choose the best financing option, consider loan terms, interest rates, repayment flexibility, and the lender's reputation.
How does mezzanine financing work?
Mezzanine financing combines debt and equity, providing capital with higher interest rates and potential ownership stakes for the lender.
What role do private equity firms play in business purchase financing?
Private equity firms invest in businesses, offering significant capital in exchange for equity, which can facilitate large-scale acquisitions.
