Financing A Business Purchase In Canada - Acquisition Loans

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How To Purchase a Business With The Right Financing

Buying A Business ? Ways To Finance A Business Acquisition

Buying a business in Canada often provides a large opportunity for success. While many owners and financial managers may prefer the strategy of organic growth for sales/revenue and profit potential the attractiveness of not having to start a business cannot be discounted.


But financing the business purchase capital, i.e. putting your transaction together is another story. There are numerous options available to the entrepreneur/business person when seeking a business acquisition loan, In some cases your transaction may be a management buyout or the focus on financing a takeover.

Acquisition Finance Solutions

Ways You Can Finance The Purchase Of A Business

Bank loans (Secured and unsecured) - In some cases the actual cash flows of the business can be used to finance the entire business purchase. This can be augmented with either a fixed asset/equipment loan as well as a revolving business credit line.

The importance of financing ongoing operations post the acquisition can't be overemphasized. If new owners are unable to finance through their reserves then options such as a business operating line, a non bank business credit line, or simply a/r invoice financing should be considered. We recommend Confidential Receivable Financing as the optimum method of financing sales when traditional bank credit can't do the job.


Franchise loans - The booming franchise industry, which supports a huge part of the economy has niche finance programs available to acquire both 'new' and 'existing' franchises. Corporate stores owned by the franchisor can be financed, as well as existing franchisees that have chosen to sell.

Tip: Find out why they are selling. Financing the purchase of an existing business is very common in the world of franchise financing.


Asset based Loans - These ' ABL ' loans cover the financing of assets as well as cash flow needs, including the often required credit line. These loans are ' non bank ' in nature and often provide higher ' loan to value ' financing when typically required loan and debt ratios don't work. The asset based lender in effect becomes the equivalent of your senior lender, in the same manner as would Canadian chartered banks.

Asset based lenders certainly help when the transaction makes sense to have a higher leverage based on the quality and size of the asset base. Main asset categories are receivables, inventory, equipment and real estate.

Most business owners wish to maximize the leverage and therefore enhance their return on investment but many times don't consider the dangers of over leveraging when it comes to debt.

While traditional Canadian bank financing might be the obvious or ' go to ' choice for many buyers it should be no surprise that they place significant emphasis on personal guarantees, potential outside collateral, and are usually focus on firms with very strong cash flows, balance sheets, etc. Naturally the Canadian banks can offer the lowest interest rates but financing an acquisition might often be a challenge. Also it should be known that banks aren't proponents of 100% financing - they demand, and desire the proverbial ' skin in the game '!

Government Small Business Loans - aka the ' Canada Small Business Loan '. This is the quintessential small business loan in Canada, One great way to acquire a business if your business fits some basic criteria - i.e. financing required for equipment and leaseholds. Acquisition loan rates, as well as other terms and conditions, are very favourable under the Canadian ' SBL ' program, not to be confused with the U.S. equivalent, the ' SBA ' program from which the Canadian program was modelled.  Crown corporations also can potentially assist in your purchase .

While not necessarily a 'creative' strategy, Government guaranteed business loans have solid 'traditional' type rates, no penalty for prepayment options, terms and structures, as well as.. wait for it ... a very limited personal guarantee! Finally, some help from Ottawa, but we digress....

It comes as a surprise to many people that the government does not lend money directly under our Canadian small business financing program - instead it charters the banks to fund the deals under the bank's guidelines. The government provides a guarantee to the banks. Many clients of 7 Park Avenue Financial advise us they have seen the banks interpret those guidelines as they saw fitting.


We can’t over-emphasize the importance of ensuring you understand the financial position of the business you are looking to purchase/acquire. If the seller's motivation is not 100% clear in initial negotiations it may well become clearer when the financial position of the company is understood.

In some cases owners may be willing to provide a ' VTB ' - aka the vendor take back. They may often make or break the financing as long as the seller is willing to take a 2nd position to your financing, and, more importantly, that your lenders don't view the VTB as more ' debt '. Negotiations around the actual amount of the vendor take-back will often dramatically change the nature of the selling price - upward or downward. Seller financing, that vendor participation we are talking about is powerful because it gives you the leverage to minimize owner equity if there are challenges in that area, and sellers are often willing to participate in some creative structuring of the ' take back '.


It removes some of the challenges of conventional financing, and sellers are many times 'motivated' to get the transaction done. There is no real stated percentage of what a typical seller finance percentage might look like, it varies with respect to the circumstances around your transaction so don't forget also that 'seller financing' can be a key part of any successful transaction.


'Goodwill' is difficult to finance part of any transaction, and the easiest financings in business acquisition tend to be ' asset ' oriented, not ' share sale ' focused when you are looking for a loan to buy a business in Canada. That concept of ' goodwill ' is a key part of understanding business loan requirements and what is required to often cobble a transaction together with different types of finance. Buyers should understand that in many cases a ' cobbling together ' of sorts, i.e using multiple sources of financing will often make a transaction work successfully. That is where external expertise can be of great assistance.



Buying and financing that business purchase via a well thought out and executed finance strategy is a solid way to become a Canadian entrepreneur. Speak to a trusted, credible, and experienced Canadian business financing advisor to kick start your business purchase.





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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

10 Considerations For Equipment Leasing and Lease Financing In Canada – From Start to Buyout !

Use This Savvy Expertise To Master Equipment Lease Success For Your Company


Contrary to what Canadian business owners and financial managers might think it’s not always about the approval and the rate in lease financing in Canada. Let’s look at ten (yes ten!) other things you need to consider, from the start of an equipment leasing transaction to the end or buyout!

There a number of terms and issues that play a key role in the overalls structure and proper documentation of an equipt. lease in Canada. In some cases they should be viewed as your rights, in some it’s critical you understand your obligations.

Let’s dig in. In Canada the customary point of a starting to an equipment lease is essentially when you the lessee have signed off on an acceptance certificate. Your signature on that document should mean that you are prepared to start payments on the lease, which in Canada typically range from 36- 60 months, with some exceptions based on asset type and your overall firms credit quality. By signing the acceptance it’s critical you understand that you have deemed the asset in good working order, as often times the lease company is not the vendor you have worked with, they are just the financier.

Lease terms as we said are typically 3-5 years in Canada. Many clients fail to recognize they sometimes have flexibility in adjusting payments to a quarterly or semi annual basis - dont always think in terms of monthly payments when you are adjusting your cash flow budgets.


In many instances, certainly for larger transactions you may be asked to provide a certificate of incumbency on the transaction - simply speaking that’s just your firms statement that the signing officer on the lease can obligate the company for this particular transaction.

Warranties on an equipment leasing transaction in Canada. As we stated in the majority of cases, unless you are dealing with a captive finance co owned by your vendor the lease company is just financing the transaction - so they are concerned solely with payment, not functionality of your asset. So ensure you have a solid understanding with the vendor on maintenance, warranties, etc., because; ask we said, these often should not involve the lease financing firm.

Although your asset is leased you should consider that it be properly maintained. In certain asset categories you might be asked to adhere to a specific level of maintenance, also relating to the fact that on return of the asset the lessor might in fact re lease or sell the equipment.

We aren’t big fans of leasing companies in Canada placing ' stickers' or other asset ownership references on the assets you lease. In some cases lessors might insist, but in general we feel clients can negotiate strongly on this point, especially if your firms overall credit quality is strong.

A certificate of insurance is generally required for any equipment leasing transaction, or even a term loan, in Canada. Your insurance broker will typically be very familiar with a standard form that lists the lease financing firm as ' loss payee' in the even of any unfortunate incident, i.e. fire, theft, etc.

End of term. Only a three word phrase but boy is it important in Canadian equipment leasing financing. These three words can make or break you when it comes to ensuring the lease transaction you entered into brought benefits to your firm. The basics around this issue are as follows - ensure you know how to terminate the lease from a legal obligation point of view. If you have entered into an operating lease understand clearly your ability to terminate, return, extend, or upgrade. In technology financing this is all important, but equally important to other asset categories also.

In Canada some lease companies will want a right of first refusal on all your business. We'll be very clear on our feeling on this issue - simply they should have to earn this right, not demand it! Enough said!

In certain instances you might want to be in a position to assign your lease, prior to the end of the term. Typically this is negotiated up front, and requires simply that a credit worthy other entity be prepared to pick up your rights and obligations. Because of how lease financing companies are funded in Canada you might often find your own firm as the recipient of a notice of assignment by your lessor - the bottom line - nothing should really change as your rights still remain under and assignment unless you have agreed otherwise .

Well, that’s it. A lot of issues, some important to your firm, others less so. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with rates, approvals, plus the number of other issues we have detailed than can make or break equipment leasing success in Canada.


Stan Prokop is founder 7 Park Avenue Financial ; see

http://www.7parkavenuefinancial.com

Originating financing for Canadian companies,specializing: working capital, cash flow, and asset based financing , the 7 year old firm has completed in excess of 80 Million $ of financing for companies . For info / free consultation on Canadian business financing / contact details see:

http://www.7parkavenuefinancial.com/lease_financing_canada_buyout_equipment_leasing.html