Buying a business in Canada: Financing the purchase of a business

Purchasing a business in Canada through proper acquisition financing will often involve looking beyond the numbers when it comes to ensuring that business purchase financing options are available. Business loans to buy an existing business is 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 delve into.

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

In a nutshell, the right business 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

Nonbank Asset-Based Lines of Credit

inventory financing

Tax Credit Financing

Government-guaranteed loans for small businesses (maximum $1 million) Small business loans to buy a business can often come from the Government of Canada’s small business loan program

Companies 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 Canadian authorized 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 discuss things like gross margins, operational inefficiencies, etc.

At 7 Park Avenue Financial we talk to 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 financing 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.

Business Acquisition Financing Canada

Buying a business for cash is almost never the option available to buyers. Top experts tell us that not even 1/3 of the companies bought are done through 100% financing. Unfortunately, vendors like/want cash. Most of the time, the final structure of your transaction will be:

Effective Owner

External financing

Vendor 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 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 stock 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

Working capital and cash flow financing challenges

If you’re focused on a winning deal and properly 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.