Buying a business in Canada through the right acquisition financing often means looking beyond the numbers when it comes to ensuring that business acquisition financing options are available. Business loans to buy an existing business are not just about negotiating the sale price, it is also about the necessary financing solutions that need to be put in place to ensure the survival and profitability of the business. Let’s dig in.
The 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’s all about a pretty basic common sense premise: securing the Sales, inventory, accounts receivable, and accounts payable are reasonable, and the projected sales volumes make sense in the long run.
Simply put, the right business purchase loan financing solutions bring together your management, manufacturing or servicing, and marketing plans.
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
Revolving bank lines of credit
Asset-Based Non-Bank Lines of Credit
Inventory financing
Financing of tax credits
Government-guaranteed small business loans (maximum $1 million) Small business loans to buy a business can often come from the Government of Canada’s small business loan program
Businesses that are not profitable or have ‘challenged’ balance sheets will not qualify for what we call ‘traditional’ financing. These types of companies cannot meet the financial ratios and guarantees required by our licensed Canadian banks. Almost every business that sells on credit, large or small, needs some type of business line of credit.
In fact, there are numerous alternative financing solutions available, but at the same time, new owners/managers need to be able to address and talk about things like gross margins, operational inefficiencies, etc.
At 7 Park Avenue Financial we talk to many clients who want to buy a franchise business. That can be accomplished through various financing programs, and can often include some “seller financing” when it comes to an overall financing strategy. That financial assistance from the seller, in essence, is another alternative capital that can enable the buyer to successfully complete the transaction. We also note that both new and used franchises can be purchased and financed.
Business acquisition financing Canada
Buying a business with cash is almost never the option available to buyers. The best experts tell us that not even 1/3 of the companies bought are done through 100% financing. Unfortunately, sellers like/want cash. Most of the time, the final structure of your transaction will be:
Beneficial Owner
external financing
Supplier Recovery/Seller Financing (not always, but often)
‘ABL’ (Asset Based Loan) is usually a solid solution for a business financing strategy. These types of facilities allow you to take out large loans against inventory, accounts receivable, and equipment/fixed assets.
A legal/technical issue often becomes a critical point in acquisition financing. That is the issue of ‘asset sales’ vs. ‘sale of shares’. From a buyer’s perspective, asset sales tend to make more sense: Sellers focus on equity and tax 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 Price
debt burden
Funding challenges of working capital and cash flow
If you’re focused on a winning deal and financing a business purchase properly, find and speak with a trusted, credible and experienced Canadian business finance advisor who can help you with your financing needs.