Buying a business in Canada through proper acquisition financing often involves looking beyond the numbers when it comes to ensuring that business purchase financing options are in place. Business loans to buy an existing business is not just about negotiating the sale price, but also about the necessary financing solutions that must be put in place to ensure the survival and profitability of the business. Let’s delve into.

Professionals, of course, call it ‘due diligence’, when it comes to considering a business investment loan and how to buy a business, as well as financing a business for sale it has to do with a fairly basic common sense premise: guarantee the Sales, inventory, accounts receivable, and accounts payable are reasonable and that projected sales volumes make long-term sense.

Bottom line: the right business purchase loan financing solutions tie together your management, mfg or servicing plans and marketing.

The essence of any business, large or small, is cash management. Working capital solutions and trade finance rates should also be considered for effective ongoing operations.

Accounts Receivable Financing / Factoring

Renewable bank lines of credit

Asset-based non-bank lines of credit

Inventory financing

Tax credit financing

Government Guaranteed Small Business Loans ($ 1 Million Maximum) Small business loans to buy a business can often come from the Government of Canada Small Business Loan Program

Companies that are not profitable or have “challenged” balance sheets will not qualify for what we call “traditional” finance. These types of companies cannot meet the financial ratios and guarantees required by our Canadian authorized banks. Almost all businesses that sell on credit, large or small, need some type of business line of credit.

Indeed, numerous alternative financing solutions are available, but at the same time new owners / managers must be able to address and speak to elements such as gross margins, operating inefficiencies, etc.

At 7 Park Avenue Financial we speak with many clients who want to purchase a franchise business. That can be accomplished through various financing programs and can often include some “seller financing” when it comes to an overall financial strategy. That financial assistance from the seller, in essence, is another alternative capital that can allow the buyer to successfully complete the transaction. We also note that both new and used franchises can be purchased and financed.

Financing commercial acquisitions in Canada

Buying an “all cash” business is almost never the option available to buyers. The best experts tell us that not even a third of the companies bought is done through 100% financing. Unfortunately, sellers like / want cash. Most of the time, the final structure of your transaction will be:

Owner cash

External financing

Vendor take-back / Vendor financing (not always, but often)

‘ABL’ (Asset Based Loans) is often a solid solution for a business financing strategy. These types of facilities allow you to borrow heavily against inventory, accounts receivable, and equipment / fixed assets.

A legal / technical issue often becomes a critical point in acquisition financing. That’s the problem of ‘asset sales’ vs. ‘stock sales’. From a buyer’s perspective, asset sales tend to make the most sense: Sellers focus on tax and stock strategies to sell their businesses. This can often complicate financing.

We have seen that there are some critical issues that can make or break the success of financing a business purchase. Those problems include:

Appropriate valuation prices

Debt burden

Challenges of financing working capital and cash flow

If you are focused on landing a winning deal and financing a business purchase, find and speak with a trusted, credible and experienced Canadian business finance advisor who can help you with your financing needs.