Business Loan for Buying a Business: Essential Financing Options | 7 Park Avenue Financial

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YOU ARE LOOKING FOR  FINANCING TO PURCHASE OR MERGE WITH A COMPANY!

MERGERS AND ACQUISITIONS IN CANADA - ACQUISITION FINANCING

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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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

 

 

"Acquiring a business is not merely purchasing assets and revenues; it's investing in potential. The right financing structure doesn't just make acquisition possible – it makes success probable." – Warren Buffett

 

Essential Financing Guide for Canadian Entrepreneurs

 

A Loan to buy a business in Canada, completed successfully, allows you to ' cross the border', so to speak, in business success.

 

That can also include a merger and acquisition scenario, such as acquiring another competitor, which have major similarities.

 

And by the way, wouldn’t it be great to have the skills of someone like ' GANDALF ' that Tolkien character who seems to have quintessential skills in a wizard-like way!

 

 

Talk to the  7 Park Avenue Financial team about how we can help you purchase a business and secure the financing you need to successfully acquire an existing business.

 

 

Our focus is on ensuring you have the optimal financing structure, with financing in place that allows for repayment and facilities for ongoing working capital needs. Let's dig in.

 

 

When a business owner or financial manager is looking to acquire or merge with another company, the expertise of owners and managers must, of course, complement the solution needed.

 

 

In a perfect world, a merger scenario would involve perfectly complementary sizes, assets, profit potential, and capital structures.

 

Here at 7 Park Avenue Financial, we figured out long ago in business that it's not a perfect world!

 

 

Acquisition Financing: Breaking Through Barriers

 

Many Canadian entrepreneurs identify perfect business acquisition opportunities but lack the substantial capital required to purchase. This financial gap creates frustration as promising ventures slip through their fingers while competitors with deeper pockets secure these valuable assets.

 

Let the 7 Park Avenue Financial team show you how Business loans designed for buying existing businesses provide the strategic financing solution needed to bridge this gap, enabling entrepreneurs to acquire established operations without depleting personal resources.

 

 

2 Uncommon Takes on Business Loans for Buying a Business

 

 

1. Seller financing combined with traditional business acquisition loans often results in more favourable terms than either option alone, as lenders view seller investment as validation of the business's continued viability.
2. Asset-based lending can be more advantageous than conventional business acquisition loans for purchasing inventory-heavy businesses, as it allows buyers to leverage the very assets they're acquiring.

 

 

 

PROFIT FROM THE BENEFITS OF A BUSINESS FINANCING EXPERT WHEN BUYING A COMPANY

 

That's when you need the expertise and external advice of a good accountant, lawyer, or Canadian business financing advisor, helping to make those acquisition loans a lot less painful -

 

At  7 Park Avenue Financial, we'll help guide you on the due diligence process, identifying key documentation you need to evaluate the valuation.

 

That data will typically include financial statements, tax filings, lists of physical assets, and schedules about accounts receivable and payables. It is also prudent to request data on existing leases and contracts the target company has entered into.

 

Numerous pre-closing negotiations, including final legal closing documents, often occur about valuation and other terms related to business transfer ownership.

 

 

 

WHY ARE BUSINESSES SOLD?

 

Sellers' reasons for selling their businesses are varied, and understanding how a business acquisition can be financed and executed properly is key.

 

They might include crisis-type scenarios, the need for current owners and management to ' CASH IN ', and, in some cases, the fact that a growth opportunity simply could not be achieved under the current status quo.

 

 

 

 

SOME KEY REASONS FOR BUYING A COMPANY 

 

 

Buyers buy a company for typically other reasons - they might be the perception that the company being purchased or acquired is too good a deal (sometimes things aren't as they appear!).

 

Or it might be another way to deploy cash and financing resources. Related to the current owner’s inability to exploit growth in their own business, the new owner and management team find themselves in a position to enhance growth and long-term return on investment.

 

Most business people/entrepreneurs recognize the opportunity to buy a business, allowing the buyer to almost instantly grow new clients, increase production capacities,  or consider new markets.

 

Another key benefit is having key employees trained and in place immediately, as well as knowing that vendors and supplies already have established relationships with the business.

 

 

 

  

THE SELF-FUNDING OPTION  

 

Self-funding a transaction without taking on loans or debt has obvious benefits and would not be the fastest way to complete a business purchase.

 

Very few buyers can complete a purchase in the full amount without taking on additional financing, debt financing, or post-closing working capital costs .

 

 

  

TAKE ADVANTAGE OF CANADA'S SR&ED PROGRAM  

 

In some cases, the new firm might be able to take advantage of significant research opportunities, such as participating in the Canadian government's SR&ED program. SR&ED Financing solutions accelerate cash flow.

 

 

 

SOURCES OF FINANCING FOR BUYING A BUSINESS IN CANADA / MERGERS AND ACQUISITIONS 

 

 

Financing a loan to buy a business, or a merger and acquisition type scenario, can come from numerous sources. Ultimately, you are looking for the right mix of debt financing and monetization of assets for cash flow.

 

They include:

 

 

GOVERNMENT SMALL BUSINESS LOAN -  AKA ' SBL '  ( Canadian Version Of U.S. SBA Loans)

 

 

Canada's government guaranteed loan program - the  Canada Small Business Financing Program is a government of Canada program that encourages banks and some other financial institutions, such as banks and credit unions, to help small businesses with business capital funding.

 

 

 

Up until 2022, the program was focused on guaranteed loan financing for 3 categories of assets  regarding how much financing you might need for eligible purchases of  :

 

Equipment

Leasehold improvements

Commercial real estate

 

The program has always been focused on business owners who cannot access all the traditional bank financing their businesses need. It provides competitive interest rates and flexible and longer repayment terms / amortization schedules, and structured flexible payments without needing full personal guarantees or outside collateral!

 

It is a government-sponsored program that helps small businesses in Canada access financing through loans from participating financial institutions. Industry Canada, a Crown corporation of the Government of Canada, administers the program.

 

In 2022, new improvements to the program were enacted. These changes dramatically enhanced the program's popularity and accessibility.

 

The program now provides

Term Loans for real estate, equipment, renovations and leasehold improvements.

New changes also come in the form of working capital facilities and lines of credit that  were previously not available, as well as the ability to finance intangible assets  such as goodwill, franchise fees, etc

The maximum loan amount was increased to 1.1M dollars.

Business buyers will also want to investigate financing solutions provided by the Business Development Bank, another crown corporation that provides long-term financing on business assets or shares.

 

 

CANADIAN CHARTERED BANK COMMERCIAL TERM LOAN AND LINES OF CREDIT

  

 

Canadian chartered banks are also key sources of providing loans for business acquisitions.

 

Companies that meet bank criteria for acceptable balance sheet ratios, cash flow generation, and profitable business potential can benefit from Canada's lowest business loan interest rates.

 

Unsecured loans from banks are a popular post-acquisition finance strategy.

 

 

VENDOR TAKE-BACK PARTICIPATION ( VENDOR TAKE-BACK FINANCING)

 

Many owners who wish to sell their businesses are willing to participate in financing the sale by adding a seller financing component to the final deal structure.

 

Seller finance often provides an incentive to the buyer to complete a transaction, as it also reduces the amount of debt financing required. In combination with buyers' down payment and owner equity, the challenge of debt financing becomes more attainable.

 

Sellers require different structures for their participation in the financing, many of which can be very creative regarding the interest rate and repayment.

 

 

ASSET-BASED LENDING

  

 

Asset-based lending structures are a solid way for business buyers to leverage the business's assets, typically receivables, inventories, fixed assets, and real estate.

 

Asset-based lenders are typically non-bank lenders that can deliver more business capital and financing to a transaction without many of the requirements of Canadian banks.

 

 

BRIDGE LOANS

 

A bridge loan is a short-term financing solution designed to provide immediate capital while a more permanent funding source is secured. Compared to traditional financing, these loans typically feature higher interest rates and shorter terms (usually 6-24 months) but offer crucial liquidity during transitional periods. Bridge loans are commonly used in real estate transactions, business acquisitions, and other situations where timing gaps between financial obligations create urgent capital needs.

 

PRIVATE EQUITY FIRMS

 

Private equity firms are investment management companies that acquire ownership stakes in private businesses using capital from institutional investors and high-net-worth individuals. 

 

REAL ESTATE MORTGAGES / REFINANCING

 

Real estate inclusion in business acquisitions impacts financing through:

• Creation of separate mortgage instruments with longer amortization periods
• Reduction in overall blended interest rates when real estate serves as primary collateral
• Access to additional lender pools specializing in commercial real property
• Potential for sale-leaseback arrangements that unlock immediate capital
• Higher loan-to-value ratios (often 75-80%) compared to business-only acquisitions
• More favorable covenant requirements due to tangible asset security

 

 

 

  

DIGGING DEEP INTO ASSETS AND CASH FLOWS  

 

Careful appraisal of assets, people, and cash flow is key to buying a business in Canada.

 

Past profits, future profits, and cash flow must be heavily considered. Your lenders aren't equity partners; they simply want to see how they will be repaid.  In some cases intellectual property /patents,etc may be part of the acquisition.

 

KEY TAKEAWAYS IN POST-ACQUISITION FINANCING OF THE BUSINESS PURCHASE

  

 

In certain circumstances, buyers may wish to consider assuming the existing debt of the business -

 

Buyers must also consider whether they want to complete the business purchase via an asset share or share sale.

 

Financing the business post-acquisition should be a key priority -

 

Funding day-to-day operations and ensuring financing is available for growth is highly desirable, allowing the business to maintain proper cash reserves that won't require additional debt loans or equity financing.

 

Business credit lines should be in place to cover day-to-day business needs and allow for any seasonality or ' lumpiness' in the business.

 

Business credit lines allow a company to borrow only what it needs and pay interest only on the drawn-down portion of the revolving facility. Some companies may consider accounts receivable financing and factoring solutions to generate cash flow and meet working capital needs.

 

CONCLUSION- BUSINESS ACQUISITION IN CANADA

 

  

Our advisors have a stockpile of small business valuation and assessment tools that will allow you to successfully find, price, and finance a business acquisition in Canada.

 

Call  7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with financing options specifically designed for your acquisition loan financing needs...

 

It's just like advice from our pal Gandalf! Our team will focus on ensuring you have financing tailored to your purchase and obtaining the maximum amount of funding that reflects the business's cash flow repayment via business loan interest rates that make sense.

 

 

Case Study: Benefits of Business Loans for Buying a Business

 

 

When a  buyer identified a profitable manufacturing business for sale in Ontario, she faced a $1.2 million purchase price, far exceeding her available capital. Rather than abandoning the opportunity, she leveraged a specialized business acquisition loan structured as 65% traditional bank financing, 20% seller financing, and 15% personal investment.

 

The strategic loan structure enabled the buyer to preserve $180,000 in working capital for operational needs during the ownership transition. The acquisition financing included an initial six-month interest-only period, allowing her to implement efficiency improvements before full payment obligations began.

 

 

 

KEY  TAKEAWAYS

 

   

• Financial institutions evaluate acquisition loans primarily based on the target business's cash flow adequacy to service debt while maintaining operations.

• Lenders typically require 10-30% down payment from the buyer's personal funds, with higher down payments resulting in more favourable terms and increased approval likelihood.

• Comprehensive business valuation reports substantially strengthen loan applications by validating the purchase price through multiple methodologies,s including asset-based, income, and market comparables.

• Due diligence documentation demonstrates your thoroughness to lenders while uncovering potential issues that could affect financing approval or terms.

• Seller financing often complements traditional acquisition loans, providing gap funding while signaling the seller's confidence in future business performance.

• Industry experience significantly impacts loan approval rates, with Canadian lenders favoring buyers who have demonstrated operational knowledge in the target business sector.

• Asset-based lending secured by inventory, equipment, or accounts receivable creates alternative financing pathways when traditional acquisition loans are difficult to obtain.

• Business acquisition structure (asset purchase vs. share purchase) determines available loan options and tax implications that affect overall financing costs.