Getting Financing for the Purchase of a Business

In most of the transactions we do here at Alberta Business Sales, there’s a bank involved. Financial Institutions such as ATB, RBC, BMO, and BDC are oftentimes integral in the ability to fund the purchase of a business. But when in a transaction is the right time to approach the bank? What documents will you need to get funding? Are some banks better than others to work with? Let’s take a look at some of the best practices we’ve learned in our 16 years of business at Alberta Business Sales. 

When Should I Talk To The Bank? 
 
The best time for you to begin talking to lenders is as early as possible. It’s good to have an idea where you stand in terms of your ability to acquire lending on a business early in the process. However, before reaching out to a lender, it is likely worth talking to the broker who is taking care of your file. They can help you understand the structure of a deal that might be acceptable to a buyer, which will be important information for the bank. As well, brokers often have relationships with lenders that can help make sure you are approaching the right people, who are not only capable of funding the deal, but are also able to do so in a timely manner. 

What Documents Will I Need? 
 
Different banks will have different requirements for what documents are going to be needed, and when in the process they will be required, but in general you should make sure your able to show a bank: 

• Who you are: ID's, any corporate documents if you own or apply as a corporation
• Your available funds: bank statements, existing debts, investment agreements, etc.
• Your action plan: Offers to purchase, general purchase structure, possibly sales projections
• Who you are working with: Lawyers, Accountants, Business Partners, etc.

Different lenders will have different requirements, but here is an overview of some of the documents you may be asking to provide throughout the process:

• Application for credit
• Details as to the amount of borrowing requested along with corresponding use of the funds
• Statement of Personal Affairs
• Government issued ID
• Last 3 years financial statements for the company you wish to purchase
• Aged list of receivables, payables and inventory as at last fiscal year end
• Most recent in house year-to-date balance sheet and income statement along with aged list of receivables, payables and inventory for the same period
• List of all new loans since last fiscal year end - to include amount outstanding and monthly payment broken down by interest and principle
• Organization chart with ownership breakdown - to include any holding companies and their ownership breakdown
• Name of lead bank (your main financial institution), along with contact details
• Name of accounting firm and accountant along with contact details
• Name of legal firm and lawyer along with contact details
• Executed share purchase agreement
• Confirmation of the source of your investment - bank statement (must include/show both names and amount available whether cash or line of credit)

If you’re working with Alberta Business Sales and planning to buy one of the businesses we have listed, often times a number of the documents required are covered by our Overview and Confidential Business Profile, which provides comprehensive information on the business that is for sale, their financial status, and what structures may be appropriate for the transaction. 

Are Some Financial Institution’s Better Than Others? 

Different financial institutions are willing to lend on business purchases in different ways. Each bank will have rules on how they do cash flow and asset lending. Some banks are more willing to provide cash flow lending, and some will almost only provide capital for asset purchases. If one bank turns you down, it is still likely worth your time to try out multiple places, as their different criteria is part of what differentiates them in the marketplace. 

If you’re not quite sure who the best bank to start with would be, or if you don’t know who to talk to at those banks, reach out to us today. One of our brokers would be happy to help guide you through the process. 

Getting your deal funded is an essential part of any acquisition. If you’re looking at purchasing a business, but have questions about the process, or want to know who you should approach in order to get funding, talking with one of our brokers would be a great place to start. 

Rob Schaeffer Broker, Alberta Business Sales and Commercial Ventures