Financing The Purchase Of A Business In Canada
Information on buying a business in Canada . Financing your purchase is available through various techniques and strategies
Buying a business in Canada. It's done for a lot of reasons. Financing that purchase requires knowledge of strategies that allow you to acquire opportunities such as a sale of a family business, seizing the opportunity to acquire a troubled competitor for synergistic reasons, or... heaven forbid... simply growing your business from a size and profit viewpoint.
We'll leave it up to you to identify the business opportunity, however we think it’s our job to ensure you've got some solid access to financing strategies that will work for your success in a business acquisition.
One often overlooked strategy that you should focus on right from the beginning, if only because it minimizes your financing requirement is the vendor take back, often also termed ' owner financing '. Simply speaking, it’s a powerful strategy. And when financing a business purchase becomes a challenge the vendor take back/owner finance strategy makes access to the other types of financing you require... easier!
Typically the Canadian business owner and financial manager thinks of ' the bank ' when they look to acquire a business. That's just logical. However if you're not familiar with the way a bank looks at a business acquisition you're going to hit a roadblock pretty quickly.
Very early on in the process you absolutely have to identify whether you and the selling firm are going to focus on an asset sale versus a stock sale . For small and medium sized businesses in Canada the concept of financing a share sale is somewhat impossible, certainly if financing is required and is a key component of the deal.
If you're a large corporation or public company that’s another kettle of fish, but we're simply saying for a small to medium sized transaction asset sale financing is really the way to go. As an acquirer you'll find that sellers of a business in Canada that wish to focus on a stock sale are really more focused on tax minimization issues, and that isn't going to help you complete the deal.
Once you have focused on the asset sale it becomes a case of determining the value of those assets. This is typically done by appraisal and financial analysis techniques.
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 the VTB (vendor take back) 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.
Owner financing can also be a part of the BIL/CSBF strategy, which is the government loan program used by many SME owners to acquire a business.
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. When all three align properly you have the makings of a successful result in buying a business in Canada. Speak to a trusted, credible and experienced Canadian business financing advisor for assistance in structuring the best deal and financing for your business purchase.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/buying_business_canada_financing_purchase.html
