Breaking Down Business Purchase Financing
Stan Prokop
Canadian Business Financing | Cash Flow Financing | Asset Based Lending | Equipment Finance | Lender Financing | Purchase Order Financing | Acquisition Financing | SAAS Financing | Acquisition Financing
The Ultimate Roadmap to Securing Business Purchase Financing
?
YOU ARE LOOKING FOR BUSINESS ACQUISITION? FINANCING!?
DIFFERENT FINANCING OPTIONS TO BUY A BUSINESS
You've arrived at the right address! Welcome to 7 Park Avenue Financial?
????????Financing & Cash flow are the biggest issues facing businesses today?
????????????????????????????? ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - [email protected]
?
?
?
Stop letting financing barriers block your path to business ownership—discover how modern funding solutions can help.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer B usiness 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: Funding Business Acquisitions in Canada
?
Many entrepreneurs and business owners wonder if buying a business in the current environment is the right move and time.
?
There sure seem like many advantages, but how do you know if this opportunity will is right for you?
?
Buying existing businesses /established businesses is the easiest of two options when you want to get into entrepreneurship.
?
With a company that’s already functioning, all it takes is financing for the optimal capital structure and your strategy for success—as opposed to launching something from scratch/startup, which also requires capital but typically involves more risk and planning.
?
?
Of course, the additional benefit is that you can get a clear understanding of what sort of revenues you might expect. By looking at the business’s financial statements/cash flow statements and profit loss reports, you can have a strong sense of how financially healthy the company is and what issues might require focus and attention.
?
Equity investment plays a crucial role in demonstrating financial commitment during business acquisitions. It represents ownership and helps reduce buyers' debt requirements, signalling lenders about business owners' financial stake and responsibility.
?
At? 7 Park Avenue Financial, many business purchasers wrestle with buying a business. Securing capital requires a good understanding of different funding options and helpful guidance on the process.
?
NAVIGATING? BUSINESS PURCHASE FINANCING!
?
Traditional bank financing solutions to buy a business can be frustrating for inexperienced business purchasers- Understanding approval processes and requirements needs experience behind you? -? Alternative and Traditional funding methods can turn the purchase into reality if you have the proper knowledge and expertise behind your transaction.
?
KEY CONSIDERATIONS PRIOR TO BUYING A COMPANY AND? FINANCE A BUSINESS
?
Look for the real story!? Consider why business owners sell their businesses.
?
If they're planning on retiring from running the company or don't want any more of the responsibility but still have a lot invested in its success, then that's one thing; however, if there are financial issues around the current debt load that might make funding difficult, then significant review and research should be done via the due diligence process.
?
In reviewing financial statements, they are not all created equal.?
?
Examining the balance sheet, cash inflows, and profit and loss will give you a good sense of where cash comes from and goes. Remember that there are crucial differences between profit and cash / gross margins and operating margins!
?
Understanding the quality of receivables and payables will give you a strong sense of working capital position and needs.
?
PURCHASE PRICE AND VALUATION
?
?
The sale price/ asking price may have been agreed upon, but now it’s time to do a thorough business valuation.
?
This will help determine how accurate original estimates are under current market conditions and values for other businesses in similar industries.
?
?
To get an accurate reading of a company’s value, you’ll need to examine its tangible assets, client lists, intellectual property, etc.
?
Buying an existing business involves plenty of other potential expenses and capital requirements.?
?
You’ll likely need new equipment if any assets are outdated, and consider what will happen when some key employees leave after you purchase the company.
?
As a buyer, you want to focus on your ultimate return on investment when considering future capital needs.
?
Mezzanine financing can be a flexible option that addresses funding gaps in business acquisitions. It offers adaptable repayment terms that can fit a company's unique cash flow needs during the acquisition process. However, it comes with higher risk and interest rates than senior debt.
?
Focus on key issues such as the size of the company and its earnings, location, client list, and industry reputation. If revenues have been declining, focus on your potential fix around growth opportunities.
?
EXISTING DEBT OBLIGATIONS AND CASH FLOW
?
In some cases, you may be able to negotiate existing debt as part of the sales agreement and a proper assumption of debt loads with existing lenders.
?
By assuming the acquired debt, the amount can be subtracted from the total cost of acquisitions.
?
?
?
DUE DILIGENCE IS JOB 1!
?
It is essential to do due diligence when investing in any business.
?
Financial institutions play a crucial role in evaluating credit requests and analyzing financial statements during this process.
?
This means that you should carefully analyze financial records, potentially with your accountant or a Canadian business financing advisor, carefully examining all assets, including intellectual property, as well as liabilities of the company.
?
Careful analysis of your investment decision could result in big problems being avoided at some point in the future.
?
Entrepreneurs should examine profit income and sales generated by products/services offered by the business, inventory levels, etc.
?
The sale price will be made up of tangible assets and intangible assets, as well as the amount of goodwill attributed to the transaction.
?
As a buyer, you’re in charge of pricing the business versus the sale price the owner asked for - get professional help if required! A valuation can vary significantly based on factors and who might assess appraisal and asset values.
?
?
The business analysis phase is an essential and critical purchase process.
?
It helps you ensure that your company matches up with your investment thesis and that no obvious red flags or black marks exist, potentially jeopardizing any chance of obtaining financing and, ultimately, business success in terms of finances and operations.
?
YOU NEED A BUSINESS PLAN!
?
Business plans are often valuable in determining a company’s financial viability. They allow you to expand and demonstrate your vision for where your investment will go!
?
Your business plan should have financial models that forecast the performance of the business in a best, okay and worst-case scenario to help you understand the different potential scenarios.?
?
7 Park Avenue Financial prepares business plans for client acquisitions that meet and exceed the requirements of banks, commercial lenders, and asset-based lenders .
?
YOUR AGREEMENT OF PURCHASE AND SALE
?
Your initial letter of intent is a formal way to indicate that you wish to purchase the business. The seller will usually require this before providing any financial or tax information, so make sure it's something clear in order for both parties involved!
?
As you can guess, this letter states your intent to purchase the business.
?
A pre-LOI letter is sometimes used. It is a document communicated before the formal letter of intent to help define and find potential sellers. A pre-LOI letter is valuable because it allows a buyer to find out the high-level terms of a deal before making an offer.
?
Many sellers will sometimes request a good-faith deposit. These deposits are meant to ensure that you’re sincere in your interest in acquiring the company, and sometimes, these funds can be refunded if requested by both parties beforehand (or when made available).
?
Good faith deposits show that you’re serious about buying a company. Sometimes, these funds can be refunded, but other times, they must not because a seller will often want assurance before offering any information on their business or assets.
A lot has changed in recent years regarding how businesses interact and negotiation tactics between buyers and sellers, especially in strong market economies.
?
?
FINANCING OPTIONS AND WAYS TO FINANCE & BUY A BUSINESS WITH AN OPTIMAL FINANCING STRUCTURE!
?
Generally, a business acquisition loan will fund a large part of a business's purchase price and value.
?
The buyer equity financing component is your down payment to purchase an existing business. It typically varies between 15% and 30%, for example.
?
A higher downpayment or owner equity will, of course, lower the amount of external financing you need and potentially improve interest rates on your loan or loans.
?
Term Loans: Term loans are an excellent way to finance your business acquisition and are often the key to buying a business. In some cases, when utilizing traditional lending, buyers will need good or better credit to get approved and achieve optimal lower interest rates that banks and other traditional financing institutions offer.
?
Other options from alternative lenders or asset-based lenders don't heavily focus on the purchaser's personal credit history.
?
Term Loans will provide longer terms and amortization than other forms of borrowing and shorter-term financing options, such as credit lines and working capital loans.
?
Government Loans:? Industry Canada, via the Canada Small Business Financing Program, offers low-interest rates to qualified entrepreneurs for even more financing options.
?
This federal government loan program has flexible repayment plans and easier access for those who need it and qualify to buy small businesses with less than 10 million dollars in revenue.
?
SBL loans for small business purchases help entrepreneurs overcome the obstacles of finding capital. The government doesn't issue loans itself but works with lenders like banks and some credit unions to ensure buyers have access to capital opportunities. The program has guarantees and safety measures for lenders that participate.
?
To qualify for an ' SBL loan', you must be the business owner and invest your money in it yourself. You need acceptable personal finances and a good credit score of? 600+? or more to get this type of financing. The borrowers pay one-time registration fees of 2% of the loan total, and that fee can be financed within the loan.
?
Talk to 7 Park Avenue Financial about what financial institution might be best for your government loan
?
?
ASSET BASED LENDING / LEVERAGED BUYOUTS: If you're looking for a more flexible way to finance your business, purchase alternative lending options via a leveraged buyout might be your best option.
?
The acquisition of a new business often requires the combination of seller financing, term loans, and business lines of credit.
?
If you leverage the business's substantial assets (equipment or inventory or receivables, or commercial real estate ) to get access to capital that will help finance your purchase, ABL loans make sense.
?
Asset-based lending structures are one way to buy a business . You leverage the assets of the company you're trying to purchase in order to maximize funding and use those assets as collateral on your financing.
?
An additional line of credit allows a business easy access to funds and the ability to pay only on what funds are used at any given time to run and grow the business. Many purchases utilize factoring and invoice financing structures post-acquisition to fund sales via the business's invoice accounts receivables.
?
Seller Financing: Sellers who are motivated enough and want the sale completed quickly may finance a part of the transaction themselves through seller financing programs. Talk to the 7 Park Avenue Financial team about the pros and cons of seller notes.
?
KEY TAKEAWAYS
?
?
:
?
CONCLUSION
?
When buying a company, do the proper research to find the right business loan solution.
?
Proper research and planning are crucial for achieving a successful business acquisition .
?
Many business owners and entrepreneurs gamble when they purchase another company, but this should never be done. It’s a major investment, allowing you to focus on issues worth considering before proceeding with the acquisition.
?
It is essential to find the proper financing structure for your company. If you’re considering acquiring a company, it’s necessary to understand how each type of financing works and find the best structure for your needs.
?
The best way to fund the purchase is by negotiating a finance mix that will allow for future growth.
?
?
Let the 7 Park Avenue Financial team help analyze your options for financing an acquisition under the optimal financing structure and decide which one is best for your purposes. We’re a trusted, credible, and experienced Canadian business financing originator.
?
FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK /MORE INFORMATION
?
?
What is an off-market business purchase?
Off-market transactions can be more time-consuming and often more difficult, but they have benefits. Buyers can find businesses themselves rather than through brokers or other third parties, which means there is also no commission involved in this purchase!
Deals that are off-market can be found by connecting with business owners themselves.
?
What loans can you use to buy a business?
Business loans/debt financing used? in serveral ways to buy a business include:
Traditional bank loans/bank term loans
Government guarantee loans under the Canada Small Business Financing Program
Alternative lenders/asset-based lenders
Seller finance solutions
Equipment finance firms/factoring firms
?
?
How does business purchase financing increase my chances of acquisition success?
?
?
?
What advantages does modern business purchase financing offer over traditional methods?
?
?
How can a business purchase financing help maintain cash flow during the transition?
?
?
What makes business purchase financing more attractive than starting a new business
?
?
What sets successful business purchase financing applications apart
?
?
What types of businesses qualify for purchase financing
?
?
How long does the business purchase financing process typically take?
?
?
What documents are required for business purchase financing?
?
?
What percentage down payment is typically required?
?
?
What happens if the business underperforms after financing?
?
?
How does business purchase financing differ from traditional business loans?
?
?
What role does industry experience play in financing approval?
?
?
?
What security arrangements are typically required
?
?
?
?
?
?
' Canadian Business Financing With The Intelligent Use Of Experience '
?STAN PROKOP 7 Park Avenue Financial/Copyright/2024
?
?
?
?
?
Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil