Financing A Business Purchase: Guide to Acquisition Funding| 7 Park Avenue Financial

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BUSINESS ACQUISITION LOANS CANADA

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        Financing & Cash flow are the biggest issues facing business today

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UPDATED 06/29/2025

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FINANCING TO BUY A BUSINESS IN CANADA 

Business purchase financing: When you or your firm has made the decision about buying an existing business in Canada, you need some solid information around how to raise funds, source funding, and finance your transaction.

Breaking Through Business Purchase Financing Barriers  

Traditional lenders often reject business acquisition loans, leaving ambitious entrepreneurs watching opportunities slip away.

Complex qualification requirements, lengthy approval processes, and insufficient collateral create seemingly insurmountable barriers.

Let the 7 Park Avenue Financial team show you how alternative financing solutions specifically designed for business purchases can bridge these gaps, enabling qualified buyers to secure funding quickly and complete acquisitions successfully.

WHY BUY A BUSINESS?

When it comes to businesses that are for sale, why buy a business in the first place?

Many clients we speak to are fortunate enough to have what we might call an "inside track" on a company or business that would accept a favorable offer based on the current situation.

Buying a business is an excellent way to get into the industry and take over from a company that is already established in that particular market. Experienced staff, customers ready for your services or product offerings, as well as other assets are key in the business purchase decision.

KEY BENEFITS TO BUYING A BUSINESS  

The obvious benefits around our ability to buy a business that is already established are simply the fact that there's a revenue stream, a client base, and assets and locations that are already in place.

That certainly beats a start-up scenario and all the work and challenges that go with that.

Is it easier to arrange funding for an established business versus a new business via acquisition financing lenders?

There's never a clear answer to that one, but many people do believe your chances of success are much higher when you buy an established concern. If you're a lender looking at a transaction such as this, it also means you're more positive than negative.

WHAT IS THE OPTIMAL FINANCING STRUCTURE - BUSINESS LOANS TAILORED TO YOUR NEEDS WITH PAYMENTS STRUCTURED TO THE CASH FLOWS OF THE COMPANY  

Seller Financing / Vendor Financing - Business purchase financing has the ability to structure a financing deal with the owner remaining in a subordinate position via a VTB (i.e., a vendor take back).

Naturally, the skills and expertise of the owner and current management team might also have significant value to your own efforts to grow the business, at least for an interim period.

Vendor take back financing can be integral to closing many transactions.

FOCUS ON FINANCIAL DUE DILIGENCE  

Naturally, cash flows and profits from the financial statements of an existing business are positive in the context that you can demonstrate immediate cash flows and profits to repay loan financing.

In some cases, you might be purchasing a franchise, and you will need the support of the franchisor to make that acquisition.

Once again, the "branding" and "reputation" around that franchise is clearly positive as opposed to negative.

VALUATION - THE PURCHASE PRICE & YOUR LETTER OF INTENT TO PURCHASE  

Valuation is a challenge when it comes to both purchase and financing when buying a business.

A higher valuation will mean you might have to finance a goodwill component, which is difficult in an asset-based transaction.

On the other side of the coin, we meet clients who are interested in buying a distressed business that has been trending downward—valuation is cheap, and they believe they can engineer a turnaround.

Easier said than done sometimes. Commercial loans and traditional bank loans can rarely fund this type of business purchase. Another complication is the issue of valuing and funding any intangible assets and intellectual property that are more common these days.

Valuations on the business and other financial records can be supplied by the owner, or you can arrange your own through a qualified advisor or appraiser. That's particularly important when it comes to an asset-based business.

Key issues to consider in the valuation and financing of the business are the quality of the financials, revenue trends, and cash flow generation—i.e., does the business use cash or throw off cash?

(The latter is better!) You or your accountant and advisor need to "normalize" the financials, making assumptions on how the business costs will look after you take ownership.

FUNDING YOUR BUSINESS PURCHASE - ACQUISITION FINANCING / DEBT FINANCING / CASH FLOW FINANCING

In Canada, businesses can be financed via:

• Term loans

• Asset-based lenders / Bridge loans

• Franchise financing

• Government Small Business Loans if it is a smaller transaction under $350K. The program promotes small business in the SME sector for Canadian economic development goals

No personal assets are pledged for the federal government SBL loan.

Various guarantees and safety measures are built into the program for authorized financial institutions participating in the loan, and repayment terms are flexible around monthly payments and the term loan structure that is utilized. A commitment from personal savings is required under the program and varies by participating institutions (banks and credit unions).

Business loan interest rates to obtain financing will always vary based on numerous factors such as transaction size, overall credit quality, owner equity, etc.

Most acquisitions will also need a working capital loan or line of credit to support ongoing working capital requirements and ongoing monthly expenses.

A business line of credit requires the borrower to pay interest only on funds that are drawn down under the credit facility.

Case Study

Case Study: Manufacturing Business Acquisition Success

Challenge: Buyer , a production manager with 15 years of experience, wanted to acquire a $2.5 million manufacturing business but faced rejection from three traditional banks due to the company's recent equipment upgrades that temporarily impacted cash flow.

Solution: 7 Park Avenue Financial structured a combination financing package including a $1.8 million acquisition term  loan, $400,000 in seller financing, and $300,000 in equipment-backed working capital funding.

Results: Buyer  successfully acquired the business with only 12% down payment, preserved $200,000 in working capital, and increased revenue by 35% within 18 months through operational improvements and new customer acquisition.

Key Benefits: The creative financing structure allowed buyer , to maintain cash reserves for growth initiatives while securing favorable interest rates and terms that traditional bank financing couldn't match.

CONCLUSION - FUNDING BUSINESS ACQUISITIONS & BUYING A BUSINESS LOAN SOLUTIONS  

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on how to properly structure and complete buying a business in Canada via the best business acquisition financing matched to your specific business needs for business term loans and alternative financing solutions.

We'll prepare your business plan that is focused and meets the requirements of banks and other lenders.

Financing a business acquisition is not as challenging when you know the best ways of obtaining funding.

Talk to the 7 Park Avenue Financial team to discuss down payments, what financing is required, and how the entrepreneur will protect himself or herself.

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

How do you finance a business purchase?

1. Personal finances/owner equity capital/down payment contribution

2. Canadian Government loans such as the Canada Small Business Financing Program for small businesses for buyers with a good personal credit score—a personal guarantee is required but limited under the program. Franchise finance is one solid utilization of the program.  Municipal business programs might also have business advice and be available for new and existing businesses

3. Seller financing/vendor take back notes

4. Conventional financing via traditional bank loan financing / Business Development Bank solutions

5. Assuming existing debt of the target company as part of the business acquisition loan strategy

6. Asset-based lenders using leveraged buyout strategies—leveraged buyouts usually involve the combination of seller financing and a bank or alternative financing loan. The use of the business's assets as collateral can be crucial in helping fund the acquisition when there are substantial assets.

7. Private funding

What are the three main types of financing for businesses?

Business funding solutions are achieved via debt financing, owner equity financing, or a combination of both debt and equity. Existing assets can be monetized for cash flow financing.

Citations

1. U.S. Small Business Administration. "SBA Loans for Business Acquisitions." SBA.gov. https://www.sba.gov
2. International Business Brokers Association. "Market Pulse Survey 2024." IBBA.org. https://www.ibba.org
3. Federal Reserve Bank. "Small Business Credit Survey: Business Acquisitions." FederalReserve.gov. https://www.federalreserve.gov
4. Business Valuation Resources. "Acquisition Financing Trends Report." BVResources.com. https://www.bvresources.com
5. National Association of Corporate Directors. "M&A Financing Best Practices." NACDonline.org. https://www.nacdonline.org
6. 7 Park Avenue Financial ." The Secret Weapon of Successful Entrepreneurs: Acquisition Financing Explained."   https://www.7parkavenuefinancial.com/acquisition-loan-to-buy-a-business-in-Canada.html  
7. BDC."How to Finance A Business Acquisition". https://www.bdc.ca/en/articles-tools/money-finance/get-financing/business-acquisitions-types-financing