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Sources Of Finance For Buying A Company In Canada
Buying a business in Canada is the goal of many entrepreneurs in Canada . The financing of that purchase requires some specialized skills when it comes to the strategies involved in acquiring an existing family business, or in some cases capitalizing on the unfortunate circumstances of firms that might be challenged in some manner. In some cases it's a solid way , versus organic growth, to grow revenues and profits via a merger/acquisition type scenario.
We at 7 Park Avenue Financial leave it up to our clients to identify the business opportunity they wish to explore from a purchase perspective. Our focus is on what comes next - ensuring you have access to solid a time worn financing strategies that will work for your success in a business acquisition.
Financing a Business Purchase In Canada
One part of the business finance puzzle that is often overlooked is known as the VTB .. AKA the ' vendor take back, if only for the reason that it minimizes the financing your are required to generate to close the transaction. That is not the only reason though! Another term for this strategy by the way is ' owner financing '. Anyway you look at it VTB's are a solid strategy that make it easier to access the other types of financing that you will need to complete the loan , which typically are term loans and business revolving credit lines.
We forgive business people for thinking that ' the bank ' is the only way to acquire financing to purchase a business. That's a logical thought, but of course there are a number of other options, some of them alternative in nature . However caution is required if you are unprepared to understand how a bank looks at financing - which can in some cases be an immediate road block.
Early on in the business acquisition cycle you must also agree with the seller as to whether the sale will be a purchase sale or an asset sale . This is a key accounting and legal type issue which is a separate subject in an of itself .
It should be noted that in the SME COMMERCIAL FINANCE area it is difficult to finance a ' share sale ' given that shares in small private companies are not liquid . So if financing is required in your purchase most owners are encouraged to choose the 'asset sale ' scenario. Naturally larger companies , public companies etc have a number of ways to finance purchases - they have much more access to capital . Those companies often consider share sales, and also are looking at numerous tax minimization strategies.
In looking at assets of the company you are focused on buying it's key to determine the value of those assets . In many cases in modern times some of those assets might even be ' intangible ', and might include patents, contracts, software, etc.
Tangible hard assets, typically the ' fixed assets ' on the balance sheet can easily be valued by appraisals from reliable and experienced third parties.
Goodwill is the excess dollar amount you're paying on top of the assets. Goodwill is typically difficult to finance, which is why our owner financing/vendor take back strategy is sometimes a good place to start. The sellers financing, often referred to as ' holding the note ‘can allow you to complete a purchase satisfactory to all parties.
Both banks and non bank commercial finance lenders view vendor take backs very positively. Since the seller of the business has a vested interest in making the purchase also successful you often can get very favorable, in fact below market financing rates from the owner or owners of the company being acquired.
Many smaller businesses in Canada, including franchises of new and existing locations can be financed with the assistance of the Canada Government Small Business Loan . The government guarantees a large part of the loan to your bank as long as you meet minimum requirements, which we at 7 Park Avenue Financial view as very reasonable .Owner financing can also be a part of the gov't loan . Many small and medium sized enterprises can utilize the Small Business Loan govt program to acquire a business. It works, as we have proved time and time again at 7 Park Avenue Financial.
A typical structure for financing a purchase when you’re buying a business in Canada is the down payment, debt financing, and the vendor take back/owner financing. This three piece solution to buying a company can also be complemented with a number of ' Alternative Finance ' strategies that might include:
A/R Financing
Non Bank Credit Lines
Equipment Finance Leases
Sale Leaseback strategies
Inventory Finance
Purchase Order Finance
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success when you're looking for assistance in structuring the best deal and financing for your business purchase.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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