YOU’RE LOOKING FOR BUSINESS ACQUISITION FINANCING!
GUIDE TO BUY AN EXISTING BUSINESS IN CANADA
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?
CONTACT US
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 loans to buy a business and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Successful Business Acquisitions with Loans
Purchasing a business in Canada requires appropriate loan and asset financing.
How does the business acquirer navigate the numerous issues that can often become a minefield in business acquisitions when acquiring a company? Let's explore this question.
From Dream to Reality: Navigating Business Acquisition Financing
Dreaming of owning an established business but lack the capital? Many entrepreneurs watch perfect opportunities slip away due to financing hurdles. Traditional lenders often impose strict requirements, while private lenders charge premium rates.
Let the 7 Park Avenue Financial team show you how understanding your options and preparing properly can unlock multiple funding sources, making your business acquisition goals achievable through strategic financing approaches.
DID YOU KNOW
- 78% of business acquisitions involve some form of financing
- Government loans fund approximately 40% of small business purchases
- Average business acquisition loan amount: $350,000
- Success rate for business purchase loan approval: 65%
- Median down payment requirement: 15%
An Uncommon Take:
Seller financing and business acquisition loans often result in better purchase terms and reduced due diligence requirements.
FOCUSING ON THE RIGHT ISSUES IN BUSINESS ACQUISITION
As a business owner or entrepreneur contemplates buying an existing business, they must consider the motivations and considerations for selling, such as the need for sufficient capital and the desire to maintain control through equity financing.
They are often focused on numerous revenue, ‘ people ‘, and price issues, often placing the incorrect emphasis on the proper financing needed to make the acquisition. Negotiating the offer price is an art and requires solid valuation assistance.
WHAT INFORMATION DO YOU NEED TO GET TO MAKE A PROPER OFFER?
Also, any new business acquisition should ensure the appropriate amount of due diligence is conducted.
A well-researched business plan is crucial in the bank loan application process. The plan should focus on numbers that demonstrate scalability and longevity.
At 7 Park Avenue Financial, we examine bank statements, the true value of fixed assets on the balance sheet, business tax returns, existing bank loans and leases, and historical and current interim financial statements.
These will also help you determine the actual value of the business and a realistic purchase price.
What are some business valuation methods?
Understanding valuation methods is crucial when seeking a business loan to buy a business. Lenders scrutinize the valuation to assess loan risk and terms.
Core Valuation Methods:
- Asset-Based Valuation
- Book Value Method
- Calculates total assets minus total liabilities
- Provides baseline "liquidation" value
- Often used for asset-heavy businesses
- Generally produces conservative valuations
- Market Approach
- Comparable Company Analysis
- Uses industry-specific multiples
- Compares similar business sales
- Adjusts for size, location, and market conditions
- Particularly useful for small-medium businesses
- Income-Based Methods
- Discounted Cash Flow (DCF)
- Projects future cash flows
- Applies discount rate for present value
- Considers growth potential
- Most sophisticated method
- Earnings Multiple Method
- EBITDA Multiples
- Industry-standard multipliers
- Adjusts for owner compensation
- Accounts for discretionary expenses
- Popular with lenders
- Rule of Thumb Method
- Industry-Specific Metrics
- Revenue multipliers
- Customer base value
- Location factors
- Quick estimation tool
DO YOU NEED AN APPRAISAL?
Occasionally, you might want to acquire a third-party appraisal of certain business assets, an area or function many small businesses often disregard. Intangible assets, such as intellectual property and brand value, should also be considered during the appraisal process.
TRANSACTIONS ARE A COMBINATION OF DEBT, EQUITY, AND CASH FLOW
A key question you should be asking is the amount and type of financing required to make the transaction successful. Any business of some substance will often require external funding in addition to the equity you are putting up yourself.
If traditional banks do not meet the specific needs of the business acquisition, other financial institutions can provide alternative financing options.
Any bank or commercial lender will also want you to demonstrate the necessary management skills required for managing a business- acquisition going forward.
CONSIDER A GOVERNMENT LOAN FOR A BUSINESS ACQUISITION - THE SBL LOAN PROGRAM WORKS!
Even the Government business loan in Canada, an excellent vehicle for acquiring businesses with revenues less than 10 M, will require you to demonstrate some experience and management depth.
Small business loans can also be used to acquire businesses, cover operational expenses, and enhance growth opportunities. The key benefit of that program is the government’s ability to guarantee a substantial portion of your loan to the bank.
Existing franchises in the Canadian franchise industry can also be acquired through the SBL program.
Borrowers should know they need to provide and have a good personal credit score for the Government Guaranteed Loan Program In Canada.
The application process is very straightforward. It involves a basic loan application and should include a strong business plan and cash flow projection for the future.
7 Park Avenue Financial business plans meet and exceed bank commercial and alternative lender requirements. These loans typically are 3-5 years as far as loan amortization terms go.
UNDERSTANDING BUSINESS LOANS
What is a business loan?
A business loan is financing financial institutions provide to businesses to help them achieve their goals, such as expanding operations, purchasing equipment, or managing cash flow.
A business loan can be crucial whether you’re looking to start a new venture, scale up an existing business, or refinance existing debt.
Based on the business's creditworthiness, these loans can be secured, require collateral, or be unsecured. The loan terms and conditions, including interest rates and repayment schedules, vary depending on the financial institution and the specific type of loan.
Types of business loans
There are several types of business loans available, each designed to meet different financial needs:
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Term loans: These loans come with a fixed interest rate and a set repayment term, making them ideal for long-term financing needs such as purchasing major equipment or expanding facilities.
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Lines of credit: Offering a revolving credit facility, lines of credit allow businesses to borrow and repay funds as needed, providing flexibility for managing cash flow and covering short-term expenses.
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Invoice financing: This type of loan helps businesses improve their cash flow by financing outstanding invoices, allowing them to access funds tied up in receivables.
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Asset-based loans: Secured by assets like equipment, property, or inventory, these loans provide funding based on the value of the business’s tangible assets.
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Unsecured loans: These loans do not require collateral and are granted based on the business’s creditworthiness, making them a viable option for companies with strong credit histories. In some cases business credit cards might also help
PREPARING FOR A BUSINESS LOAN APPLICATION
Documents needed for a business loan application
When applying for a business loan, having the right documentation is crucial. Here are the key documents you will typically need:
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Business plan: A comprehensive business plan that outlines your business goals, financial projections, and marketing strategy is essential. This document demonstrates to lenders that you have a clear vision and a roadmap for achieving your objectives.
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Financial statements: Providing financial statements such as balance sheets, income statements, and cash flow statements gives lenders a detailed view of your business’s economic health.
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Tax returns: Business tax returns for the past few years are required to verify your business’s income and tax compliance.
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Credit history: A good credit history is vital for securing a business loan. Lenders will review your credit report to assess your creditworthiness.
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Collateral: Depending on the type of loan, you may need to provide collateral such as equipment, property, or inventory to secure the loan.
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Personal guarantee: In some cases, you may need a personal guarantee, meaning you will be personally responsible for repaying the loan if the business cannot do so.
Understanding your business’s financial situation, including cash flow, revenue, and expenses, is also essential.
This knowledge will help you determine how much you can afford to borrow and what type of loan is best for your business.
Maintaining a good relationship with your financial institution's account manager can provide valuable guidance and support throughout the loan application process.
SOURCES OF CANADIAN BUSINESS FINANCING FOR ACQUIRING A BUSINESS IN CANADA
So, what are those sources of financing in Canada that will make your acquisition work? In addition to our already mentioned SBL loan, other forms of funding can come from:
Canadian chartered bank term loans /operating lines
Non-bank Commercial Asset Based lenders
Specialized A/R finance / Inventory lenders
Equipment lessors
Term loan business credit financing from the BDC - A crown corporation non-bricks and mortar bank
Government business loans / Canada Small Business Financing Program - this is one of Canada's most popular loan programs and is modelled on the U.S. ' SBA loan '
WHAT IS THE INTEREST RATE ON A BUSINESS LOAN FROM FINANCIAL INSTITUTIONS TO ACQUIRE A COMPANY
Interest rates will vary depending on the type and size of the funding you require and the transaction's overall ‘ credit quality ‘.
Borrowers repay loans through equal monthly payments, simplifying cash flow planning and helps them understand the overall financial commitment.
WHAT IS SELLER FINANCING?
Don't forget that a 'VTB' strategy via seller financing can be key to minimizing financing needs and achieving business acquisition success.
Real estate might be part of your business acquisition in certain transactions, but that is often handled separately via bridge loan or commercial mortgage.
MORE SOPHISTICATED TRANSACTIONS
Those sources noted above are all ' debt ' or asset monetization strategies used to finance a business successfully. The other way to buy a company is to seek ' equity' financing through angel investors, private equity firms, or more significant deals with Venture Capital finance partners. Those sources require no debt being taken on but do require you to give up valuable partial ownership.
KEY ISSUES IN ACQUISITION FINANCE
Can you fast-track loan financing to acquire a business? The way to accelerate financing success revolves around the following:
Focus on getting some level of pre-qualification for your financing needs.
Consider multiple sources—in many cases, a transaction works best when a combination of loan financing from different parties is utilized. This lowers the lender's risk and allows for the right type of financing—for example, a term loan and an operating line of credit that fulfills the business needs.
Don't underestimate the need for ongoing working capital via financing inventory, receivables, and fixed asset replacement needs for cash flow.
Personal guarantees will always come up in this type of transaction in Canada. Also, a solid component of acquisition financing can get the seller to offer a vendor takeback.
This might sometimes mean offering higher prices, but the ' VTB' can often make or break a deal regarding any ' gap' in your financing plan.
Recent changes in Canada's taxation laws and the current owner's exit implications also require solid advice from your accountant or lawyer.
Remember also that ' share ' sales, instead of ' asset' sales in the Canadian SME marketplace, are impossible to finance via external debt financing as the lender lacks 'liquidity'.
KEY TAKEAWAYS
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Understanding loan-to-value ratios determines the maximum borrowing capacity.
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Cash flow analysis drives lender decisions more than asset values
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Industry experience requirements significantly impact approval odds
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Down payment sources affect interest rates and terms
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Credit score thresholds vary by lender type and program
CONCLUSION
Looking to maximize successful small business financing of an existing business with the right loan financing?
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you get a loan and avoid the minefields associated with buying a business in Canada.
Existing businesses have established operations, financial structures, and customer bases, making the transition to ownership smoother than building a business from scratch.
FAQ
How does a business acquisition loan improve my chances of success?
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Provides immediate access to established customer base
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Ensures continuous cash flow from day one
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Leverages existing business relationships
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Maintains trained staff and operations
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Reduces startup risks significantly
What advantages do business purchase loans offer over starting from scratch?
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Immediate revenue generation potential
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Established market presence
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Verified financial history
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Existing supplier relationships
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Proven business model
Are there tax benefits to financing a business purchase?
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Interest payments are tax-deductible
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Depreciation benefits on acquired assets
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Potential capital cost allowance claims
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Strategic debt structuring opportunities
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Tax-efficient purchase allocation options
What’s the typical approval timeline for business acquisition financing?
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Initial review: 1-2 weeks
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Due diligence: 2-4 weeks
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Final approval: 1-2 weeks
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Closing process: 1-3 weeks
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Total timeline: 5-11 weeks average
How do lenders evaluate business purchase loan applications?
What role does seller financing play in business acquisition loans?
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Demonstrates seller confidence
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Reduces lender risk
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Improves approval odds
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May lower down payment requirements
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Often offers better terms
