Buying A Business In Canada: Financing A Business Purchase

Buying a business in Canada via the right acquisition financing will often involve looking beyond the numbers when it comes to ensuring business purchase financing options are in place. Business loans to buy an existing business is not just all about negotiating the sale price – it’s also about the necessary funding solutions that must be put in place to ensure business survival and profitability. Let’s dig in.

The pros, of course, call it ‘ due diligence’, when it comes to considering a business investment loan and how to buy a business, as well financing a business for sale is all about a pretty basic common sense premise: ensuring sales, inventory, accounts receivable and accounts payable are all reasonable, and that projected sales volumes make sense in the long term.

Bottom line- the proper business purchase loan finance solutions tie together your plans for mgmt, mfg or delivering services, and marketing.

The essence of any business, large or small, is cash management. Working capital solutions and business financing rates must also be considered for effective ongoing operations.

A/R Financing/factoring

Bank revolving credit lines

Non bank asset based lines of credit

Inventory Financing

Tax Credit Financing

Small business govt guaranteed loans (maximum 1 Million $) Small Business Loans To Purchase A Business Can Often Come From The Government Of Canada Small Business Loan Program

Firms that are not profitable or that have ‘ challenged’ balance sheets will not qualify for what we call ‘ traditional’ finance. These types of companies can’t comply with the financial ratios and collateral demanded by our Canadian chartered banks. Almost all businesses that sell on credit, large or small, need some sort of business credit line.

Numerous alternative financing solutions are in fact available – but at the same time new owners/mgt must be able to address and talk to items such as gross margins, operating inefficiencies, etc.

At 7 Park Avenue Financial we speak to many clients who wish to purchase a franchise business. That can be achieved via various financing programs, and might often include some ‘ seller financing ‘ when it comes to an overall finance strategy. That seller finance assistance 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 ‘ all-cash ‘ is almost never the option available to purchasers. Top experts tell us than not even a 1/3 of businesses purchased are done via 100% financing. Unfortunately sellers like/want cash! More often than not the final structure of your transaction will be:

Owner Cash

External Financing

Vendor Take Back/Seller Financing (not always, but often)

‘ABL ‘ (Asset Based Lending) is often a solid solution for a business financing strategy. These types of facilities allow you to borrow heavily against inventory, accounts receivable and equipment/fixed assets.

One legal/technical issue often becomes a critical point in acquisition financing. That is the issue of ‘asset sales’ vs. ‘share sales’. From a buyer’s perspective asset sales tend to make more sense – sellers focus on share and tax strategies for selling their businesses. This can often complicate financing.

We’ve seen there are some critical issues that can make or break the success of financing a business purchase. Those issues include:

Proper valuation pricing

Debt load

Working capital and cash flow financing challenges

If you’re focused on a winning deal and financing a business purchase properly seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs.

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.

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