Business Purchase Financing: Fueling Canadian Business Success | 7 Park Avenue Financial

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YOU ARE  LOOKING FOR  FINANCING FOR THE PURCHASE OF AN EXISTING BUSINESS IN CANADA!  

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        Financing & Cash flow are the biggest issues facing businesses today 

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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EMAIL - sprokop@7parkavenuefinancial.com

"Opportunity is missed by most people because it is dressed in overalls and looks like work." - Thomas Edison

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business Purchase Financing and working capital solutions  – Save time and focus on profits and business opportunities

7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”

Business Purchase Financing: A Guide to Acquisitions in Canada

It’s true - there are both reliable and several ways to finance the purchase of an existing business -

Traditional financing and alternative financing solutions are available to business buyers and government loans that lend money under federal programs.

While entrepreneurs might be familiar with some traditional ways to buy a business, we’ll show you some key benefits that provide faster access to secure financing that works.

Ways to finance buying an existing business are readily accessible if you are armed with the right information on the company’s assets/business’s assets and other information.

Best of all, risk is minimized, and you will see the immediate benefits of buying a business with the right financing and advice.

So if you want to buy and fund a business purchase successfully, you will want to pay close attention to this information from 7 Park Avenue Financial.

Buying an existing business is an option if your company doesn’t have the right trajectory to grow at the rate you’d like. There are, of course, two ways to go about acquiring a business: buying one or starting one - financing options available to those business people wishing to finance a business purchase.

DID YOU KNOW?  

1. According to the BDC, 40% of Canadian SMEs will change ownership in 5 years.

2. The average business acquisition loan in Canada ranges from $250,000 to $5 million.

3. Government SBL loans account for approximately 20% of all business purchase financing in North America.

4. The success rate for business acquisitions financed through traditional banks is around 70%.

5. Seller financing is used in 60-90% of small business sales transactions.

Of course, you will need to find a way to fund your business successfully after you acquire it with the proper level of working capital and an appropriate financing option for a line of credit if required.

SECURING THE FINANCING YOU NEED

There are several different types of business loans available to help secure the funds needed to purchase an existing business.

Canadian chartered banks, commercial financing companies that are nonbank in nature, and asset-based lenders play key roles in funding business purchases.

If the business isn’t doing well, it might be challenging to get a loan from a bank but other financing solutions are still available. The appropriate amount of owner down payment or ‘equity investment’ component is key to the final acquisition cost and funding.

WHAT IS A BUSINESS ACQUISITION LOAN

A business acquisition loan is a loan to help you acquire another business. This type of loan is used by business owners who want to buy an additional business or in some cases a franchise.

In some cases, you may be trying to buy out a partnership via a leveraged buyout or the equity of an existing owner. Leveraged buyouts can be accomplished via asset-based loans combined with the buyers' money.

GOVERNMENT LOANS

Government loans via the Canada Small Business Financing Program can be a good option for small business owners who often can't secure traditional funding via Canada's chartered banks.

The government works with banks and some credit unions to sponsor the government-guaranteed loan program. Banks can, therefore, fund acquisitions under certain conditions they otherwise might not be able to finance.

Thousands of businesses access the program annually. Some personal funds must be employed as a part of your loan, but no personal assets are taken in the program.

These loans are term loan debt financing in structure and amortizations/ repayment terms are typically 3-5 years via regular monthly payments at fixed or variable rates.

Certain guarantees and safety measures are built into the program, which is typically used for a small business or franchise purchase. This is not a working capital loan or an accounts receivable loan—financing is limited to equipment, leasehold improvements, and real estate. The total amount/maximum loan amount is 1 million dollars.

TERM LOANS

If you have a good credit score and the financials of the business you are acquiring you are a strong candidate for a traditional acquisition term loan.

These are usually through traditional lenders with more attractive payment terms and fixed rates.

EQUIPMENT & ASSET FINANCING OF SPECIFIC ASSETS

Equipment financing and asset financing  can be a way to secure a loan faster than via traditional bank sources.

WHY IS THE BUSINESS FOR SALE?

It is important to know why a business is being put up for sale before deciding to buy it.

Many entrepreneurs sell their businesses due to losses, legal issues, a high debt load, and other significant challenges.

At 7 Park Avenue Financial, we recommend purchasers try to speak to existing customers or partners of the business you’re interested in buying - this can give you valuable insights into potential problems that might need addressing.

Ensuring a smooth ownership transition is crucial for maintaining business continuity and achieving long-term success.

VALUING THE BUSINESS - FOCUSING ON THE PURCHASE PRICE

The profit and loss statements give a rough idea of the liabilities and earnings, which can be used to quote a price or evaluate the price quoted by the seller.

You will want to read the market well to determine the running price and the price people are willing to pay for this kind of business.

Spend time measuring the pros and cons of taking over any debts that may be associated with the existing company. If possible, focus on asset sales versus a share sale when it comes to tax consequences, etc., and strive to arrive at an unbiased value and a fair price that is profitable for both the seller and the buyer.

Time should be spent on what you would do with the business's existing assets, including its infrastructure, resources, people, clients and vendors, and any technology financing needs. 

In some cases, you might want to keep current resources intact and gradually introduce changes. Proper due diligence must be done on an assumption of existing debt.

Business valuations are essential to lenders, and it's essential to have  a clear picture of the businesses’ valuation as it stands now and its projected growth over the next three to five years -

Seller financing / a vendor note can be a key component of any final optimal financing structure for the balance sheet.

3 KEY BENEFITS OF A BUSINESS ACQUISITION LOAN

Eliminating the risk of a start-up  -Established businesses offer a shortcut to ownership and most entrepreneurs know that the startup phase is among the most stressful periods for business owners
lot of hard work that goes into starting a  new business from scratch.

An established business provides a foundation to focus on growth.

The ability to expand more rapidly is key to growth needs. A business acquisition loan can help you move to the next phase of your business growth more quickly than if you were to try to raise the funds on your own via equity funding and, of course, equity dilution.

Let our team demonstrate to you that you can achieve funding in weeks, not many months. It's important to know that loans are available for businesses of all sizes, from early stages to well-established companies.

Funds from this type of loan can be used for a range of purposes, including expanding operations, buying another company, or refinancing debt.

Timing—Many acquisition term loans have long repayment terms, which can help relieve some pressure as you focus on growth. A  longer time horizon also gives you time to repay the loan without significant pressure.

LET THE  7 PARK AVENUE FINANCIAL TEAM ASSESS YOUR SITUATION TO HELP FUND A SUCCESSFUL ACQUISITION

Buyers should have a personal credit history and stability in personal finances, as well as  a solid profile of the business being acquired.

A high credit score is always desirable for traditional lenders such as banks, but alternative lenders, nonbank commercial finance firms, and asset-based lenders understand that businesses can have higher risk profiles.

Ultimately, you want to demonstrate your experience and knowledge to get a business loan.

Key required information includes profit and loss statements, valuation data, and bank statements. This information is necessary to generate an accurate summary of the company's current financial standing.

Having this data will give you a better understanding of how to move forward with your investment.

A solid business plan for your purchase highlights the business goals and maximizes the chances of getting funding.

7 Park Avenue Financial prepares business plans for our client's business purchases that include an executive summary, a company description, products or services offered, market analysis, management team bios, financial projections, etc. -

Our business plans meet and exceed the requirements of banks and finance firms.

IMPORTANT ELEMENTS OF A SOLID LOAN  FINANCING PACKAGE

Ensure you have all the necessary paperwork ready before beginning the loan application process.

This might include personal net worth and tax returns of the purchaser, bank statements of the business,  a signed purchase and sale agreement or letter of intent,  details of existing debt and secured lenders, repayment schedules, and business cash flow projections.

In some cases client lists and information on any existing contracts and licenses or intangible assets and intellectual property are critical.

KEY TAKEAWAYS

• Understand different financing options: Government SBL loans, conventional bank loans, and alternative lending sources cover most scenarios.

• Master financial analysis: Learn to interpret balance sheets, income statements, and cash flow projections

• Grasp valuation techniques: Familiarize yourself with methods like discounted cash flow and comparable company analysis

• Recognize the importance of due diligence: Thoroughly investigate target businesses to avoid costly surprises.

• Develop a solid business plan: Clearly articulate your acquisition strategy and post-purchase growth projections.

CONCLUSION

It is great to buy a business you are passionate about and have access to different financing options. Focus on purchasing a business you have experience or knowledge about.

It is often said that the first step is always the hardest, and this rings true when it comes to buying a business, such as whether you are passionate about it or have experience in it

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor and let us help you make a well-informed decision. What potential risks/challenges may be involved.

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION

DOES A BUSINESS ACQUISITION LOAN REQUIRE COLLATERAL

Whether you need collateral for a loan depends on the amount and type of financing you require and whether that funding comes from a bank loan or an alternative lender solution.

Traditional financial institutions will often require collateral as part of a loan- Government loans don't require collateral - The actual cash flows of the business back unsecured cash flow loans or mezzanine financing loans.

WHAT ARE KEY REQUIREMENTS FOR A BUSINESS PURCHASE LOAN

Qualifications for a business loan to purchase small businesses usually include a  great credit score above 600, strong business credit, collateral for the loan, and a certain number of years of business experience.

A business plan is also often required to demonstrate cash flow and the venture's viability. When a borrower lacks substantial assets, lenders focus on the cash flow and business plan to assess risk. Higher interest rates are usually associated with a cash flow loan.

How can business purchase financing accelerate my company's growth?

• Allows rapid expansion into new markets or product lines

• Provides access to established customer bases and revenue streams

• Enables acquisition of valuable intellectual property or technology

• Facilitates economies of scale through increased market share

• Offers potential for immediate return on investment

What advantages does business purchase financing offer over organic growth?

• Faster entry into new markets or industries

• Immediate access to skilled workforce and operational infrastructure

• Reduced risk compared to starting a new venture from scratch

• Opportunity to eliminate competition through strategic acquisitions

• Potential for synergies and cost savings through consolidation

How does business purchase financing impact my company's financial structure?

• Leverages existing assets to secure funding for growth

• Allows for optimal capital structure through debt and equity mix

• Provides tax benefits through interest deductions on acquisition loans

• Enhances return on equity for shareholders

• Enables preservation of cash for working capital needs

What types of businesses can benefit most from purchase financing?

• Companies seeking rapid expansion in competitive markets

• Enterprises looking to diversify their product or service offerings

• Businesses aiming to consolidate fragmented industries

• Startups wanting to scale operations through acquisitions quickly

• Established firms seeking to enter new geographic regions

How can business purchase financing help me stay competitive in my industry?

• Enables quick adaptation to market changes through strategic acquisitions

• Allows for vertical integration to improve supply chain efficiency

• Provides access to new technologies or patents to stay ahead of competitors

• Facilitates talent acquisition by purchasing innovative companies

• It helps achieve the critical mass necessary to compete with larger players

What is business purchase financing?

• A method of obtaining capital to acquire an existing business

• It can involve various funding sources such as banks, investors, or sellers

• Typically includes a combination of debt and equity financing

• Allows buyers to leverage assets of the target company

• Often requires a detailed business plan and financial projections

How do I determine if I qualify for business purchase financing?

• Assess your personal credit score and financial history

• Evaluate the financial health of your current business, if applicable

• Consider the profitability and assets of the target business

• Review your industry experience and management skills

• Prepare a strong business case demonstrating your ability to repay the loan

What documents are typically required for a business purchase loan application?

• Personal and business tax returns for the past 3 years

• Financial statements of both your current and target business

• Detailed business plan including post-acquisition strategy

• Personal financial statement outlining assets and liabilities

• Purchase agreement or letter of intent for the target business

How long does the business purchase financing process usually take?

• Initial application and documentation gathering: 2-4 weeks

• Lender review and underwriting: 4-6 weeks

• Due diligence and valuation: 4-8 weeks

• Loan approval and closing: 2-4 weeks

• Total time can range from 3-6 months, depending on complexity

What are some alternatives to traditional business purchase financing?

• Seller financing or vendor take-back mortgages

• Mezzanine financing or subordinated debt

• Private equity or venture capital investment

• Crowdfunding or peer-to-peer lending platforms

• Government-backed loan programs for specific industries or regions

What factors do lenders consider when evaluating a business purchase loan application?

• Buyer's credit history and financial strength

• Target company's historical and projected financial performance

• Industry trends and market conditions

• Collateral and assets available for securing the loan

• Management team's experience and track record

• Business plan and post-acquisition growth strategy

How does the valuation of the target business impact the financing terms?

• Determines the loan-to-value ratio lenders are willing to offer

• Influences the amount of equity contribution required from the buyer

• Affects the interest rate and repayment terms of the loan

• May impact the need for additional collateral or personal guarantees

• Can influence the structure of the deal (e.g., earn-outs or seller financing)

What are some common pitfalls to avoid when seeking business purchase financing?

• Underestimating the total costs involved in the acquisition

• Failing to conduct thorough due diligence on the target business

• Overleveraging the company with too much debt  from  existing  lender

• Neglecting to consider post-acquisition integration challenges on existing businesses

• Ignoring alternative financing options that may be more suitable