How to Finance Buying a Business in Canada

Start with total project cost, not only asking price

The amount required to acquire a business can include the purchase price, inventory, deposits, professional fees, lender costs, improvements and working capital. Build a uses-of-funds schedule so the financing request and the buyer’s cash contribution reflect the complete transition.

Keep a reserve for timing differences and unexpected costs. A business that appears affordable at the asking price can still be undercapitalized if the buyer has no room for payroll, rent, inventory or repairs after completion.

• Purchase price and closing adjustments
• Inventory and deposits
• Legal, accounting and lender costs
• Repairs, upgrades and required franchise work
• Opening working capital and contingency

Prepare both the buyer file and the business file

A lender may assess the buyer’s credit, available equity, industry experience and management plan as well as the business’s historical and projected cash flow. Organize personal and business information before asking for a firm financing decision.

Seller-provided financials should be supported by tax returns and source records. Projections should explain assumptions rather than simply extending the strongest recent month.

• Personal net worth and source of buyer equity
• Resume and relevant operating experience
• Historical financial statements and tax returns
• Purchase agreement and asset list
• Lease, franchise and material contract information
• Cash-flow forecast with stated assumptions

Compare financing structures and conditions

Business acquisitions can involve conventional bank or credit-union financing, government-supported lending where eligible, seller financing or a combination of sources. Each option has its own eligible costs, security, guarantees, pricing and approval requirements.

The Canada Small Business Financing Program can support certain eligible small-business financing through participating lenders, but the lender makes the credit decision and current program rules should be confirmed directly. Do not assume a listing or buyer automatically qualifies.

Keep financing aligned with the transaction timeline

Financing review depends on receiving reliable seller records, a satisfactory lease or landlord process and a purchase agreement with workable condition dates. Build enough time for appraisal, document requests, lender questions and legal review.

Do not remove a financing condition based on a preliminary conversation. Confirm the approval, required security, buyer contribution and outstanding conditions with the lender and legal advisers.