Business Acquisition Finance Acquisition Loan | 7 Park Avenue Financial

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YOU ARE LOOKING FOR LENDING SOLUTIONS FOR  BUSINESS ACQUISITIONS

BUYING A BUSINESS?  BUYOUT FINANCE SOLUTIONS!

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        Financing & Cash flow are the biggest issues facing businesses today

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HOW TO FINANCE THE ACQUISITION OF A BUSINESS 

The process of acquiring other companies is common for businesses and entrepreneurs looking to expand their operations and capacity, and profit margins while growing sales revenues.

In order to acquire the necessary capital - i..e., engage in acquisition financing- you will need financing under the optimal financing structure via the right business acquisition loans.

Buying a business is a solid tactic for growth, and it comes with major benefits, which include the ability to access resources and assets in place when financing acquisitions are considered. Depending on the size of the acquisition and your personal goals, there are a number of ways to properly finance the business purchase via a business acquisition loan. The ability to be aware of what various business lenders can offer is key to meeting your needs.

There are a number of ways to be successful in acquisition financing. It's safe to say that there is no one size fits all approach and your ability to customize financing to your transaction is key to business success,

Acquisition financing is complicated so working with the right financing advisor is important.

TRADITIONAL FINANCING VERSUS  ALTERNATIVE FINANCING OF ACQUISITIONS 

Term Loan structures are the most common way to finance a company acquisition with financing provided by a bank via traditional senior debt bank loans  - The reality is, though, that many buyers and their transactions cant meet bank requirements around issues such as debt service and financial covenants. Banks also place a heavy reliance on personal guarantees and an acceptable debt service coverage issue. Without the right amount of profit or assets, financing in a traditional manner can be challenging.

In a number of situations, alternative lenders can provide financing to ensure adequate funding to complete the acquisition in line with your own ability to put some equity into the transaction.

There are a number of companies that fall into the category of services or technology. Although these firms are typically not asset rich they do have recurring revenue streams.

WHAT IS ACQUISITION FINANCE

Acquisition finance is the use of different sources of capital used to fund a merger or acquisition or a management buyout. In more and more cases these days buyers utilize alternative financing as well as the ability to supplement financing with cash flow loans, sometimes known as mezzanine finance.  The ability of the buyer to understand the target company's financials is key to making the right decisions.

The acquisition of a company is an important process that requires, in many cases, several different types of financing. The combination of debt, owner equity, asset monetization and seller financing becomes in many cases a winning combination for success.

The financing of a transaction is an important factor in determining the success of your transaction; Buyers should consider how their goals can be met with flexibility, as well as comfort and confidence from knowing the final financing structure will adjust according to changing circumstances.

 Financing options tend to vary accordingly based on various factors, including how much financing is needed, rates and terms, and special conditions attached to certain industries.

In some cases, particularly in smaller transactions, Government Of Canada loan programs can facilitate successful financing in combination with business lines of credit and working capital financing.

OWNER EQUITY / DOWN PAYMENT 

Equity is often seen as the most expensive form of capital because it entails sharing your profit, while debt financing on the other has finite time frames and interest rates - Your equity contribution will help in maintaining a steady cash flow.

DEBT FINANCING

The challenge of achieving the right mix of debt and equity and cash flow financing is a common challenge for the buyer of a business. In almost all cases, debt financing is easier to achieve than pursuing additional equity financing - allowing owners to maintain more effective control of the business.

Debt financing comes in a number of different ways, typically senior loans or asset-based finance strategies that are ultimately cheaper than equity dilution.w companies can pay to acquire another business with cash, and even when they are able, most refrain from doing so for the sake of long-term budget concerns.

That’s where debt financing comes into play. The cost and advantage of the right amount and type of debt financing can be significant, and shortages of financing can often be supplemented with cash flow loans or asset monetization strategies that can facilitate a successful transaction.

CASH FLOW FINANCING SOLUTIONS - UNSECURED BUSINESS ACQUISITION LOANS

Cash flow/mezzanine financing might be one of the few options left in many business purchase transactions - They are often a hybrid of both debt and equity and still provide owner control. If a company has steady profits and cash flow and a reasonable balance sheet cash flow loans provide lending options that can facilitate a successful transaction.

 THE ASSET-BASED FINANCING SOLUTION  IN ACQUISITION FINANCE

Asset-backed financing via non-bank asset based lenders is a  popular type of acquisition funding by securing the assets of a business as the main collateral - It's a very effective way to acquire and expand a business when steady cash flows a less predictable and a business has good sales revenues, accounts receivable, inventory and fixed assets.

ACQUISITION FINANCE VS LEVERAGED FINANCE  

Naturally, there are both risks and rewards to acquiring companies by using leverage and debt on the company's assets for their target company.  The danger of too much debt combined with over-expansion strategies can potentially pose a liquidity crisis- as well as the issues attached to interests on debt that might make it challenging to maintain normal operations.

 SELLER FINANCING  / VENDOR TAKEBACK / THE EARNOUT 

When the buyer and seller are unable to come up with a complete price for an acquisition, one way to assist in closing the deal is via an 'earnout' - Also known as seller financing - aka ' owner financing'.

This type of deal works best given  both parties have  the proverbial skin-in-the game because they need each other to complete the transaction and indicates a commitment from both the buyer and the seller,

Earnout is a popular choice for sellers who want to get more than their upfront payment.  A long-term agreement where both parties are granted benefits when there’s success after certain periods makes the transaction potentially more successful. 

Business owners who participate in vendor takebacks/ seller finance strategies are focused on a flexible exit while generating some additional income.

The capital resources and financial incentives provided to a buyer by the seller help eliminate some of the uncertainty in a business finance purchase, given that this financing is typically not viewed as debt and provides the additional ' capital - that otherwise might not have been able to be obtained. It's a win-win for the buyer a seller when structured properly. In many cases, the terms of these transactions also include projections around how successful the business might be.

KEY ADVANTAGES OF ACQUISITION FUNDING / ACQUISITION FINANCING LENDERS  

When you acquire a business, the resources and potential of the target company will often exceed the challenges of financing a start-up venture and the challenge of obtaining start up loans. In most cases, growth and returns are already in place, and the path is clear to additional expansion and profit.  A successful business's already in place ' competitive edge is ' time efficient and can add to further market presence against existing competitors.

CONCLUSION - BUSINESS ACQUISITION LOANS CANADA 

The process of acquiring a business requires key insights into what the acquisition finance lender is looking for. Speak to 7 Park Avenue Financial, a Canadian business financing firm with a solid reputation in business lending as well as a track record in business acquisitions as a business partner in creative financing.

Our team is focused on the flexibility required to make your transaction successful throughout the acquisition financing process - We'll ensure your options are clear and focused on efficiency and flexibility under business financing structures that make sense for your transaction.

 FAQ: FREQUENTLY ASKED QUESTIONS/ PEOPLE ALSO ASK/ MORE INFORMATION

What is a business acquisition loan?

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