Guide To Business Acquisition Loans In Canada

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BUYING A BUSINESS IN CANADA

Buying an existing business is hard enough without having to worry about financing. With so many loan options out there, it can be difficult to know which one will work best for you and your goals as well when it comes to purchase price and valuation. Wonder how financing acquisition works? Let's dig in!

Traditional financing from banks or other financial institutions might suit the bill, but numerous other forms of nonbank financing and asset-based lending can meet your acquisition finance goals with a minimum of personal loans exposure.

What is a business acquisition loan?

A business acquisition loan is a type of loan/lender financing that is used to buy out an existing company As well this method of business finance can be used as a management buyout to buy out a partner or purchase a franchise as well.

There are significant advantages to buying a business with the proper financing, including payment terms structured to meet the cash flow of the business. Many entrepreneurs view buying a business or a competitor as the best method to grow in a non-organic manner. In the current low interest rate environment financing to acquire a business is readily available for good transactions. Transactions are structured based on the appropriate mix of cash flow and debt financing of existing specific assets.

How does a business acquisition loan work?

Business acquisition loans are medium- or long-term loans. Interest rates can vary in a business financing package, typically in the range commensurate with credit quality. A down payment or buyer equity infusion is typically required and varies based on the nature and size of the transaction.

Buyers focused on buying a business with financing will want to make sure that the business is strong and will be successful. Lenders want to verify that buyers are responsible and experienced are financially sound, as well as focusing on the merits of the business being acquired.

When you apply for a business acquisition loan, banks and commercial lenders will look at both buyer finances and the profit and loss picture of the business being acquired, focusing on cash flow and working capital, asset values, and other documentation which might include contracts or client lists, etc - In certain cases a leveraged buyout may be the proper and available financing structure along with some equity financing by the purchaser.

Let the 7 Park Avenue Financial team help you with the process of obtaining the best financing !

When buying a business, it's important to be sure you have an accurate valuation of the company in question. This will include proper analysis of the company, including assets, cash inflows, financial history, and in certain cases a valuation of a specific asset or assets.

You will need to know how profitable the business is and ensure acquisition loan payments can be met. A proper offer / purchase and sale agreement is also required

You should also consider the interest rates and fees of any potential loans before making a decision. When considering a business acquisition loan, it is important to evaluate multiple options - many transactions we structure at 7 Park Avenue Financial involve a cobbling together of different types of financing such as term acquisition loans or revolving lines of credit .

Certain requirements must be met to qualify for a business acquisition. Loans come in many different forms and can have various benefits depending on your needs as well, and financing may be provided by traditional financial institutions or alternative finance lenders / asset-based lenders. In some cases, intangible assets may be also included in your financing package.

Bank Financing

Banks and certain commercially focused credit unions may offer loans designed for business acquisitions or term loans that can be used to purchase a business. Banks typically enforce strict requirements, so it is important not to just consider bank financing and examine other options for other types of financing.

As the potential owner of a business banks will want to review financial statements, certain tax documents, and personal credit history - Banks are focused on eliminating risk in the transaction! Bank term loans offer excellent interest rates and terms. Typically, the typical rate is from 1 to 7 years, with a 5-year term is typically offered. Banks will insist on certain financial covenants being kept in place to ensure it is a successful acquisition from the lender perspective.

Government Loans

Government guaranteed small business loans can be an excellent option for businesses that cannot qualify for other types of financing. These loans are for generally smaller transactions under the 350k threshold - The Canadian government guarantees a large portion of the loan which reduced the risk to the participating financial institution

SBL loans are well suited to smaller acquisitions, and they are flexible and affordable with attractively low interest rates - Terms are typically 5-year term loan structures and businesses with less than 10 Million dollars in projected or real revenues qualify. No personal assets are taken/collateralized under the program.

Be aware that if you're looking to secure a federal government loan that can be lengthy and strict without the proper assistance - You'll need strong credit scores as well as proven financial success in order for it be approved which means most applicants have stellar personal finances already established before pursuing this option.

Equipment Asset Financing

Equipment financing can be a great way to help pay for your business acquisition. In some cases, existing equipment assets could make up part of the price in sales and if this is true then you may want to consider using such an option as well!

Financing specific assets or real estate can be a helpful tool if you're purchasing an expensive piece of equipment for your business. and can be helpful if you are purchasing an asset-rich company.

Seller Financing

A buyer may be able to purchase a business with seller financing. While this option comes at an additional cost, it can allow buyers to reduce the amount of external financing required.

Some owners are willing to offer you a loan so that the business can continue on its current trajectory. This type of financing has repayment terms ranging from 1-7 years and this is what's called "seller finance " or ' vtb' / vendor take back,

Conclusion

Talk to 7 Park Avenue Financial, a trusted credible, and experienced Canadian business financing advisor with business acquisition financing expertise to ensure your optimal financing structure on your target company - Business loans can be difficult to qualify for - not everyone has access to a private equity firm !...and we're focused on getting you the financing you need with a proper balance of minimum owner equity and debt and cash flow financing.

Faq: Frequently Asked Questions

What are the advantages of a business acquisition loan financing?

The acquisition of an established company in the small business sector can help you expand your business more quickly when you obtain financing structured to your specific transaction - The monthly payments are likely to be very manageable when structured properly - The acquisition of an established business can give you the opportunity to immediately focus on running a company rather than growing from scratch or organically

Interest rates are currently very favorable for borrowers with good credit scores and established business history experience - in some cases no external collateral is required and transactions are structured as cash flow loans as they don't require collateral!

What is a business line of credit?

With a business line of credit, a company can borrow up to the limit and pay interest only on what was borrowed. This is practical for businesses as it gives them immediate access to funds and helps fund sales and accounts receivable and the company's assets such as inventory.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Business Acquisition Loans | 7 Park Avenue Financial