YOUR COMPANY IS LOOKING FOR BUSINESS ACQUISITION LOAN SOLUTIONS!
HOW TO FINANCE A SMALL BUSINESS ACQUISITION
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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
Buying an existing company is an attractive option for many business people/entrepreneurs. The right business acquisition loan and financing play a key role in the ultimate success when that decision is chosen. Let's dig in.
WHAT IS A BUSINESS ACQUISITION LOAN?
Business acquisition loans allow business owners/entrepreneurs to acquire an existing business. In some cases, the business might be a franchise, or the transaction might be a partner or competitor's buyout. The types and amounts of loans will vary based on credit quality, current market rates, and size of the transaction and numerous other factors.
The reasons to choose the ' buy a business' strategy for business acquisitions are obvious to most people: Circumstances around the purchase might make the business's purchase value very attractive. Additionally, most would agree it's easier to grow a business than build a business from scratch, thereby eliminating a lot of risk. In some cases, you might be considering buying out a business partner.
The downside? Solid businesses that are growing and profitable are rarely ' cheap .' If any business came with 'no risk,’ that would be a rare thing. We've met many clients who have inherited numerous supplier/financial/employee issues that were not discovered in any due diligence process.
VALUATION AROUND THE ACQUISITION PRICE AND DUE DILIGENCE
The purchase price of the business you are looking to purchase will almost always return to the valuation, and what type of financing can help complete the transaction successfully. Careful review of the financial statements around asset quality is absolutely key. One example might be the accounts receivable quality, which can often unveil other sales/inventory/service issues. Any future assets you determine can be achieved with equipment financing.
Other issues to look for in the financials are profit margins, sales history, expenses, and owner takeout. Knowing these numbers gives you significant leverage in making a final offer you are comfortable with and one that is ' financeable.'
There are some interesting statistics on why businesses fail - Click here to read an article on business failures from Forbes Magazine.
SELLER FINANCING
Not always, but on occasion, it’s an advantage to have the seller of the business participate in the financing. How? Via the ' vtb ' (vendor take back) option. This eliminates the need for some of the financing you require and can be a key part of many financing solutions.
HOW TO DETERMINE THE RIGHT FINANCING STRUCTURE
Although it's technically possible to purchase a business without owner equity financing and investment, this generally is not how things work. A commercial lender/bank will certainly prefer your financial participation via a down payment in the deal. Many transactions completed also have the owner on occasion putting up some ' outside' collateral.
Canadian banks typically finance acquisitions via a combination of term loans and additional working capital facilities such as a business credit line. Note that you rarely can get a business acquisition loan without a personal guarantee or a reasonable personal credit history.
Non-bank acquisitions are most often successfully financed via Asset Based Lending solutions. ' ABL' loans from non-bank business acquisition loan lenders come at a higher interest rate. Still, they can provide considerably more financing based on a higher borrowing margin of all business assets.
In some cases, real estate might be a part of your transaction - that is typically handled separately within some holding company structure outside of the operating company, but that is not a hard and fast rule. Ultimately several different combinations of financing will be cobbled together to complete your transaction.
WHAT TYPE OF INFORMATION IS NEED TO FINANCE A BUSINESS ACQUISITION AND ACQUIRE AND FINANCE AN EXISTING BUSINESS PROPERLY
The basics include a business plan, a breakdown of how the loan proceeds will be used, financial statements for the business, and a cash flow statement. Remember also that the business acquisition loan is often a ' term loan,' and you will more likely need a business line of credit.
A business plan is required in all business acquisitions - 7 Park Avenue Financial business plans meet and exceed all banks and commercial lenders' requirements. Borrowers need a respectable net worth, and you cannot successfully achieve this financing with poor credit history.
GOVERNMENT LOANS - HOW TO FINANCING ACQUISITION OF A BUSINESS WITH THE SBL LOAN
Small transactions under 350k can often be completed under the Canadian Govt Small Business Loan program. It emphasizes the business's assets and leaseholds and is not a cash or working capital loan - This business loan is a term loan. It comes with flexible repayment terms and an attractive interest rate relative to traditional business acquisition loan rates.
At 7 Park Avenue Financial, we think the Canada Small Business Financing Program vis its sponsor, Industry Canada, is one of the best methods to achieve business credit needs for financing for equipment and leasehold improvements and real estate - Those latter 3 asset categories are what is financeable under the program.
CONCLUSION - BUSINESS ACQUISITION FINANCING
If you’re focused on how to get a small business loan and to achieve the benefits of buying a business with the right business loans, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with the knowledge and that special ‘edge’ of expertise required to value and finance a business properly.
Talk to our team about acquisition loans and your business acquisition loan financing options that will make sure to meet your business needs for your business purchase at business acquisition loan rates commensurate with the quality of your transaction.
Click here for the business finance track record of 7 Park Avenue Financial
