Canadian acquisition - Real Estate and Biz with two different lenders?

June 06, 2024

by a searcher from University of Victoria in Vancouver, BC, Canada

Has anyone had experience with financing the acquisition of the business and the real estate simultaneously with two different lenders? Say BDC for the business and then one of the big 5 or a CU for the Real Estate?

Prime commercial mortgage rates are surprisingly attractive right now but I'd like to work with BDC on the business financing for all of the benefits they offer.

Two separate corporate entities, an opco for the business and a holdco for the RE.

I did speak with a commercial mortgage broker who said the best bet would be to seek a package deal because then they can cross collateralize, which would probably create the most leverage. However, I'd be curious if anyone has experience doing this.

Reply by a searcher
from University of Pennsylvania in New York, NY, USA

Depending on the market and quality of the real estate, you could structure a favorable lease between your opco and propco which may help a traditional real estate lender get comfortable with a higher leverage point and/or lower rates. You would have to play around with those terms relative to the resulting cash flow/valuation of the business to determine best combination of real estate and business financing.

Reply by a searcher
from Queen's University in Calgary, AB, Canada

You definitely can work with two different lenders on this. They’re independent of each other. I would probably do these with different lenders just to avoid the pressure to cross collateralize them. The amount of additional leverage you’ll get will likely be limited, but the protection of not having them cross collateralized is meaningful. It’s just a personal risk assessment.

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