YOU ARE LOOKING AT BUYING A BUSINESS
FINANCING FOR BUSINESS ACQUISITIONS 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?
CONTACT US :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email Address = sprokop@7parkavenuefinancial.com
Securing a loan to buy a business can transform entrepreneurial dreams into tangible successes.
"Unlock the door to business ownership with the right financing strategy!"
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer LOANS TO BUY A BUSINESS solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
INTRODUCTION
Buying a business in Canada via the right acquisition financing will often involve looking beyond the numbers to ensure business purchase financing options are in place.
It's both an art and science to evaluate the value of a company in any industry and assess other terms key to buying the company.
Securing a loan to buy a business is a major step for entrepreneurs eager to buy a company. This financial strategy not only empowers you to leverage existing business foundations around sales and profits but can also accelerate growth. Let the 7 Park Avenue Financial team help you navigate the complexities of business acquisition financing.
WHY BUY A COMPANY?
Why buy a business? Buying an existing company in Canada is a proven way to quickly grow your established customer base, increase your capacity or gain access to new markets and higher revenues. In an independent business, it's no secret that as a buyer, you're the new boss! The challenge is, of course, to determine the value of the company you are buying and what type of business loan makes sense.
When you buy a business, you generally pay a set amount for the whole business as part of a share sale or asset sale-purchase agreement.
In some cases, the business assets might include goodwill or intangibles, which must be addressed as part of your financing process with more information around the assets in question.
Business loans to buy an existing business is not just all about negotiating the sale price - it's also about the necessary funding solutions that must be put in place to ensure business survival and profitability - validating that you are, in fact, the right buyer for the business.
HOW DO YOU FINANCE A BUSINESS PURCHASE? ESTABLISHING TRUE VALUE!
But how do you finance the business you wish to buy? Of course, you can use your cash, but that is generally not recommended, as you want a good balance of debt and your equity investment. What are the financing options in acquiring a business from a financial institution such as a bank or a commercial financing company? Let's dig in!
The pros, of course, call it ' due diligence, when it comes to considering a business investment loan and how to buy a business, as well financing a business for sale is all about a pretty basic common sense premise: ensuring sales, inventory, accounts receivable and accounts payable are all reasonable, and that projected sales volumes make sense in the long term.
HOW DO YOU DECIDE ON FINANCING?
Bottom line- the proper business purchase loan finance solutions tie together your plans for mgmt, mfg or delivering services, and marketing, as well as working with existing employees and managers.
The essence of any business, large or small, is cash management. Working capital solutions and business financing rates must also be considered for effective ongoing operations.
A/R Financing/factoring - financing outstanding invoices from existing customers
Bank revolving credit lines
Non-bank asset-based lines of credit - Asset-based lending comes with a higher interest rate and cost of capital but can often double the amount of financing you can achieve because the lending focus is on sales and assets of the business - Business assets that can be identified are highly financeable via the right asset-based lender - Under this type of credit facility you only pay interest on money borrowed as the facility fluctuates based on assets and sales
Inventory Financing
Tax Credit Financing -
Small business govt guaranteed loans (maximum 1 Million $) Small Business Loans To Purchase A Business Can Often Come From The Government Of Canada Small Business Loan Program - Government business loans come with an attractive interest rate and flexible repayment terms, including no prepayment penalty!
For a business purchase price under 350k for many small businesses in Canada, which is, of course, at the smaller end of business acquisition and ownership, it certainly is worth consideration. You do not need to be a corporation to borrow under the program - a sole proprietorship or partnership is possible under the program's benefits.
Government SBL loans are under a term loan structure, and they are not available as a line of credit or a working capital type loan. Government loans don't require that you put up external assets in the new business - and the other assets financed are equipment, leasehold improvements, and real estate/ property categories. Other assets included in the ' equipment category ' are technology and software.
While some may consider any loan application cumbersome to buy your own business, let the 7 Park Avenue Financial team walk you through the application process.
A good credit score is required for government loans and a bank loan of any type. Alternative finance lenders place much less reliance on credit scores and personal credit history as they focus on sales, assets, and cash flow predictability.
Part of your loan application in purchasing a business should involve a strong business plan - 7 Park Avenue Financial business plans meet and exceed lender requirements. A solid plan will focus on what the lenders want to see - management experience, industry potential, growth initiatives, etc. Narrowing your business search to an industry you are familiar with certainly helps your journey to buy a company and help in identifying the ways to finance the deal.
Working with a suitable partner might be how potential profits in buying a company might be increased in your need to get a loan.
Firms that are not profitable or that have ' challenged' balance sheets will not qualify for what we call ' traditional' finance. These companies can't comply with our Canadian chartered banks' financial ratios and collateral. Business owners know that almost all businesses that sell on credit, large or small, need some business credit line.
Numerous alternative financing solutions are, in fact, available - but at the same time, new owners/mgt must be able to address and talk to items such as gross margins, operating inefficiencies, etc.
The challenge of financing intangible assets such as goodwill which can sometimes be a significant portion of the purchase price, must also be overcome - typically via a properly structured cash flow loan. Most transactions are usually cobbled together via a combination of term loans and operating credit lines, as well as potential mezzanine financing ( cash flow loan ) solutions.
At 7 Park Avenue Financial, we speak to many clients who wish to purchase a franchise business. Many entrepreneurs consider the process easier by buying a franchise business in the booming franchise industry in Canada. Many Canadian entrepreneurs perceive less risk when buying a proven business model under the franchising concept - that concept having a lot of appeal to the potential business owner.
That can be achieved via various financing programs and might often include some ' seller financing ' when it comes to an overall finance strategy.
UTILIZING SELLER FINANCE AND VENDOR TAKE BACK STRATEGIES TO ACQUIRE A BUSINESS
That seller finance assistance, in essence, is another alternative capital that can allow the buyer to complete the transaction. We also note that both new and used franchises can be purchased and financed. Creativity abounds in seller notes - an example, sellers agree to be paid a portion of the business's selling price over a certain period with interest.
Business Acquisition Financing Canada
Let's look at how to finance your business acquisition - Buying a business for ' all-cash ' is rarely the option available to purchasers. Top experts tell us that not even 1/3 of businesses purchased are done via 100% financing.
YOUR BUSINESS FINANCE STRUCTURE
Unfortunately, sellers like/want cash! More often than not, the final structure of your transaction will be:
Owner Cash
Click here for the business finance track record of 7 Park Avenue Financial
External Financing
Vendor Take Back/Seller Financing (not always, but often)
‘ABL ' (Asset Based Lending) is often a solid solution for a business financing strategy. These types of facilities allow you to borrow heavily against inventory, accounts receivable and equipment/fixed assets.
One legal/technical issue often becomes a critical point in acquisition financing. That is the issue of ‘asset sales' vs. 'share sales.' From a buyer's perspective, asset sales tend to make more sense - sellers focus on share and tax strategies for selling their businesses. This can often complicate financing.
We've seen some critical issues that can make or break the success of financing a business purchase. Those issues include :
Proper valuation pricing
Debt load
Working capital and cash flow financing challenges
KEY TAKEAWAYS
Types of Business Acquisition Loans: Familiarize yourself with various loan types, including SBA loans, traditional bank loans, and seller financing, as they offer different benefits and conditions.
Qualifying for a Business Loan: Understand the criteria, such as credit history, business experience, and financial performance of the business you wish to acquire.
Business Valuation for Loan Approval: Recognize how lenders assess the value of the business to determine the loan amount to borrow money. Commercial mortgages are available for real estate holdings within the business.
Loan Application Process: Navigate through the steps of applying, from preparing financial statements to submitting the necessary documentation to purchase an established business.
Interest Rates and Loan Terms: Learn about how these factors affect your repayment schedule and the overall cost of the loan based on the amortization schedule.
CONCLUSION - BUYING AN EXISTING BUSINESS IN CANADA
Careful preparation is a critical success factor in buying a business and becoming your own boss - overlooking the details can have you paying a high price in the future.
When it comes to how to finance a business, and If you're focused on a winning deal and financing a business purchase properly, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with business advice for your funding needs and a financing structure tailored to your business needs for the type of business you are looking at acquiring when it comes to the product or service sold.
We'll be with you all the way, up to and including legal documents, closing, etc., focusing on the relevant information you need to access capital properly structure the deal and negotiate the right price. Consider our team as your third party in your deal to get your optimal financing structure.
FAQ: FREQUENTLY ASKED QUESTIONS
Is it a good idea to buy an existing business
Buying a business requires an owner's investment and can be considered more costly than founding a start-up. Still, financing is more easily accessible for a proven existing business based on assets that might be considered valuable.
How much money do I need to buy a business?
If you are using the Canadian Small Business Financing Program owner investments can range from 10-40% if a business is financeable in Canada via participating financial institutions.
Business acquisition strategies such as seller financing can be negotiated by qualified buyers depending on individual transaction details. Asset-based lending strategies can reduce the amount of funds needed to purchase a business as it focuses on assets and sales.
What are the benefits of using a loan to buy a business?
Using a loan allows you to leverage existing business assets and operational setups, enhancing your ability to generate profit quickly without the need to build from scratch.
How does one qualify for a business acquisition loan?
Qualification depends on your credit score, business experience, and the financial health of the business you intend to buy.
What are typical interest rates for business acquisition loans?
Interest rates vary widely based on the loan type and your creditworthiness, typically ranging from low single digits to high double digits.
How long does the loan approval process take?
The process can take anywhere from a few weeks to several months, depending on the lender and the complexity of the business being purchased.
What is the role of collateral in securing a business loan?
Collateral secures the loan and can significantly impact the terms offered, as it reduces the risk for lenders in case of loan default.
What is seller financing and how does it work?
Seller financing occurs when the seller of the business provides a loan to the buyer, which is paid back over time, often making the transaction smoother. This type of financing allows the buyer equity financing component to have more flexibility vis a vis the required down payment.
Can a new entrepreneur get a business loan?
While challenging, new entrepreneurs can secure loans by demonstrating solid business plans and potentially offering personal assets as collateral.
What documents are needed to apply for a business loan?
Typically, lenders require financial statements, business bank statements, business plans, personal financial records, and details about the business being purchased such as contracts, intellectual property, etc
How can one negotiate better terms on a business loan?
Better terms can often be negotiated with a strong credit score, a solid business plan, and shopping around to compare offers from multiple banks or commercial lenders for a successful profitable business venture via secured or unsecured loans.
What factors influence the approval of a business loan?
Key factors include the buyer's credit history, the profitability of the business, and the overall economic environment.
How do I assess the right amount to borrow when buying existing businesses?
Calculate based on the business’s cash flow, your financial input, and the potential growth from the acquisition.
What risks are associated with taking a loan to buy a business?
Risks include over-leveraging, misjudging business viability, or economic downturns affecting your ability to repay the loan to a financial institution or other financial institutions such as a non-bank commercial lender
