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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
Financing a business purchase in Canada arises out of the strong appeal of buying an existing company that is either a turnaround prospect or simply a great investment from a profit, cash flow and growth perspective. It's important to consider some key issues in the finance of your purchase. Let's dig in.
Unlike the challenge of start-up financing, Canadian chartered banks are generally amenable to financing a business acquisition. By the way this includes the high growth and desirable franchise industry also. Even more desirable from a bank perspective is when a current management team wishes to execute a business purchase from the owner - given they know the daily operations and are most familiar with product, pricing, financial management etc.
The type and amount of financing you require to finance a business purchase depends on how the business is being sold, as well as the ultimate purchase price. Businesses are sold on either an ' asset ' or a ' share ' basis. It is extremely difficult to finance a share purchase in the SME Commercial environment as there is no liquidity for such a transaction for companies that are not public.
The Govt guaranteed business loan is a great vehicle to finance smaller business acquisitions up to the 350k range. A larger amount could be financed with the help of a seller take-back or some new owner equity. Govt small business loans are very attractive from a rate and term perspective, but it's critical to note that only finance assets and leaseholds, not working capital.
Some basic knowledge of business valuation will aid in helping you finance the purchase. The current values of the assets must be carefully reviewed to reflect the current value of the business. At the time of acquisition it's important to know how receivables and inventories will be financed on a going-forward basis.
Businesses that have a lot of goodwill attached to the purchase price will also be harder to finance. The only real way this can be achieved is through a cash flow loan, so you need to e able to demonstrate historical, present and future cash flow that is realistic to the financier of your purchase.
In many cases no single one type of financing will always complete a purchase. In those cases it will be a combination of working capital loans, term loans, cash flow loans, or real estate financing that works to complete a transaction. At the heart of any of these financing is the key point that you need to consider all the cash flow' considerations related to any combination of financing employed to complete a purchase.
The one type of financing that does work to often complete an entire business purchase is an Asset Based Loan. This financing, commonly known as ABL can finance working capital, equipment and real estate all at the same time.
Successful business purchases are completed every day in Canada. If you're looking for effective business financing to complete a business purchase, seek out and speak out to a trusted, credible and experienced Canadian business financing advisor who can assist you with the acquisition financing that makes sense for your needs.
Stan Prokop
