YOUR COMPANY IS LOOKING FOR ACQUISITION FINANCING FOR
A BUSINESS PURCHASE /MERGER/ACQUISITION!
LEVERAGED FINANCE SOLUTIONS FOR BUYING A BUSINESS IN CANADA
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Introduction: Business Acquisition Loans - Canada
Acquisition loan needs arise quickly when you or your firm has found the right business to purchase or merge within Canada.
Understanding business acquisition loan requirements, such as credit history, liquidity, collateral, business value, documentation, annual revenue, and business track record, is crucial.
Leverage finance loans, high-yield financing, and other financial solutions for acquisition finance can provide the necessary capital to conclude a business purchase successfully.
Typically, acquisitions in the SME/SMB sector in Canada will not qualify for investment-grade financing solutions in capital markets and private equity, so other options must be considered outside the rarified air of investment banking! Let’s dig in.
WHAT TYPE OF BUSINESS ARE YOU PURCHASING?
Naturally, the stage or condition of your ‘ target company ‘varies—it might be a smaller firm doing well or a larger firm experiencing severe business challenges, not the least of which might be cash flow or profit shortages.
Business valuation is crucial for potential lenders and investors to assess a company's worth.
4 KEY ISSUES TO ADDRESS WHEN BUYING A BUSINESS & FINANCING ACQUISITIONS
Buying an existing business in any condition, large or small, comes with complications. At the heart of what you need to address are vital issues such as:
Valuation / Purchase price
Negotiation
Employee/Culture issues/Management team
And finally… FINANCING!
When considering financing options, it's important to explore different types of business loans, such as long-term financing, Government loans, startup loans, and term loans. Each type has its eligibility requirements, funding processes, collateral, repayment terms, and benefits and drawbacks.
THE BENEFITS OF BUSINESS ACQUISITIONS
The risks around completing a transaction incorrectly are, of course, significant - including, of course, financial loss. However, the reasons to complete a business purchase successfully are compelling - they might include:
Enhancing personal income and net worth
Acquiring business assets at an attractive price
The ability to compete more effectively in your industry
Profits from the acquired business can be utilized to make loan payments, and the business's revenue stream can reassure lenders about its ability to handle them.
THE ISSUE OF DEBT AND LEVERAGE IS CRITICAL
The concept of leverage finance loans is a compelling one.
Although the term might mean different things to different people, we’re discussing using the correct financing and debt. In some cases, acquiring a business might be more than typical.
Sometimes, the debt you take with higher interest rates will be more costly than ‘ traditional’ bank debt, which is more commonly associated with buying a business.
Longer repayment terms can help manage monthly payments, providing the flexibility to make monthly payments over several years for certain types of loans.
A KEY BENEFIT OF LEVERAGE AND FINANCING ASSETS
The good news about alternative debt and higher-than-normal leverage is that they often allow you to complete a transaction. Then, after an interim period, you can ' rebalance ' the balance sheet with other forms of financing, perhaps lower-cost bank loans, etc.
In some cases, the debt you might take on is ' mezzanine ' - secured by ' assets ' or ' cash flow' with rates in the ' teens '; this appeals to smaller businesses that can't access the bank or stock market capital. You can anticipate higher basis points in your interest calculations in cash flow financing.
KEY REQUIREMENTS FOR PURCHASING A BUSINESS
Think of your proposed transaction as having ‘ layers ‘ of financing, but always ensure that your business plan and cash flow address the realistic ability to repay /service the debt if you letter of intent or purchase agreement is accepted.
To finance a business acquisition, consider various financing options such as business acquisition loans, seller financing, and non-government business acquisition loans, which offer the availability of funds to obtain financing , competitive rates, and flexible repayment terms through traditional banks, credit unions, and online lenders.
7 Park Avenue Financial's business plans meet and exceed bank and lender requirements in leveraged loans. A good part of any cash flow will always be going to repay debt in an acquisition, so clarity is key for long term business loans on which the borrower must pay interest.
WHAT TYPES OF LOANS CAN YOU UTILIZE TO FUND A BUSINESS PURCHASE
The exact nature of whom and what you purchase will dictate the financing needed.
It might involve monetizing assets through asset-based loan agreements, utilizing the government-guaranteed business loan, or cash-flowing assets such as receivables, inventories, tax credits, equipment refinancing /leasing, etc.
Equipment financing offers flexibility with collateral requirements and repayment terms, making it suitable for startups, low-credit borrowers, and businesses with limited revenue.
It’s important to note that the government loan program is also a working capital credit facility or a cash flow loan secured by assets, leasehold, etc.
It is essential to address future working capital needs and credit facilities in the context of your goals to run and grow the business in the new capital structure you have created at an interest rate and cash flow assumption acceptable to yourself and your lender/lenders.
So, long-term business needs must always be considered - mezzanine financing or asset monetization. Business owners’ credit rating and personal net worth are always considered factors in the SME COMMERCIAL FINANCE sector. It’s not always about those balance sheets!
Sometimes, mezzanine debt financing (aka ‘cash flow loans’) will complement a term loan and allow you to complete the transaction within a proper leveraged buyout structure.
Of course, loans based on anticipated cash flows come with maintenance covenants and balance sheet ratio requirements for your proposed business operations. Future capital expenditures for required assets or technology should also be considered.
Utilizing a private equity firm will always dilute your owner equity.
Those types of transactions tend to be outside the SME acquisition marketplace for funding deals. They are close to investment-grade companies—those types of financial sponsors are typically reserved for mega transactions via hedge funds, high-yield bonds, insurance companies, mezzanine funds, private equity firms, debt capital markets, etc.
Those are pretty outside small and medium-size business acquisitions. Second-lien financing is prevalent in the United States but rarely used in the Canadian business financing marketplace.
KEY TAKEAWAYS
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Types of Business Acquisition Loans: Different loan types cater to various acquisition needs, including term loans, Government BIL loans, and seller financing.
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Eligibility Criteria: To determine loan eligibility, lenders assess your credit history, business plan, and financial statements.
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Interest Rates and Terms: Understanding the loan’s cost and repayment period helps in financial planning.
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Benefits: Business acquisition loans enable growth by acquiring established businesses with existing customer bases and revenue streams.
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Government-Guaranteed Loans: These government-backed loans offer favourable terms and lower down payment requirements for qualifying borrowers. A federal government SBL loan for purchasing a business or franchise typically requires meeting specific eligibility requirements. It offers maximum loan amounts up to $1.1 million, competitive interest rates, and funding timelines ranging from a few weeks to a few months.
CONCLUSION
If you’re looking to ‘ SOLVE ‘ acquisition financing loan needs with the right types of leverage finance loans or other financing vehicles which are ‘ time tested ‘while minimizing risk and maximizing opportunity, consider seeking out and speaking to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor for your business acquisition loan options.
Let the 7 Park Avenue Financial team assist you in business acquisition funding, with different types of finance solutions and document issues within Canadian business credit markets.
FAQ
What is a business acquisition loan?
A business acquisition loan is a financial solution to help individuals or companies purchase an existing business.
How does a business acquisition loan work?
The lender provides the necessary funds to buy a business, which the borrower repays over time with interest.
What are the benefits of a business acquisition loan?
Benefits include acquiring an established business with an existing customer base, proven revenue streams, and operational infrastructure.
What are the typical eligibility criteria for a business acquisition loan?
Lenders for a business loan to buy a business generally look at the borrower’s credit history, business plan, financial statements, and the viability of the target business. Talk to the 7 Park Avenue Financial team about business acquisition loan requirements.
How do Government business acquisition loans differ from traditional loans?
SBL loans to finance a business acquisition are backed by the government, offering lower interest rates and down payments, but require more documentation and a longer approval process. Buyers of a business may wish to look at bdc options as well.
Industry Canada offers loan programs via the SBL federal government loan program, which provides benefits such as lower interest rates and down payments. The government guarantees these loans to reduce the risk for financial institutions, making them more accessible to small businesses for equipment financing, funding leasehold improvements, financing intellectual property, and buying commercial real estate. Startup loans are a common use of the government program by small business owners as they have flexible collateral requirements and limited personal guarantees.
How can I improve my chances of getting a business acquisition loan?
Prepare a strong business plan, maintain good credit, and ensure the target business has solid financials.
Are there alternative financing options for business acquisitions?
Yes, options include seller financing, private equity, and personal savings. Venture capital firms, crowdfunding campaigns, angel investors, and family and friends are also viable options, each with unique requirements and considerations.
What common challenges do borrowers face in business acquisitions?
Challenges include securing financing for conventional term loans at the required credit limit , valuing the target business accurately, and integrating new operations.
Can I use a business acquisition loan to buy a franchise?
Yes, many lenders offer business acquisition loans specifically for purchasing franchises, which is a common solution for small business loans to buy a franchise or other small businesses via a term loan structure typical for long term loans for a business purchase.
What types of businesses can be acquired using a business acquisition loan?
Business acquisition loans can be used to purchase many businesses, from small retail shops to large manufacturing companies with significant business resources and assets.
What role does collateral play in securing a business acquisition loan?
Collateral from the purchaser/business owner can help secure the loan by reducing the lender’s risk, often leading to more favourable loan terms.
How important is a business plan in the loan application process?
A well-prepared business plan and clear business strategy are crucial as they demonstrate the viability of the acquisition and the borrower’s ability to manage the business successfully.
