What is the Canadian appetite for bank financing?

August 19, 2021

by a searcher from University of Guelph in Hamilton, ON, Canada

Wondering if there are any Canadians here recently or in the process of a main Street acquisitions that could speak to their experience in financing. (Bank financing and seller notes)

What is possible in terms of terms and % financed these ways?

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Reply by an intermediary
from Université du Québec à Montréal in Montreal, QC, Canada

In Canada, you mainly have The Business Development Bank of Canada (BDC) and the Canada Small Business Financing Loan (CSBFL). The BDC is the only financial institution in Canada dedicated solely to entrepreneurs. In fact, the BDC is the only bank in Canada to be certified as a Beneficial Corporation (B Corp), which means it focuses on methods to help society as a whole rather than making a profit. After a comprehensive study and approval of the loan, the entire loan amount will be confirmed. The interest rate is based on the BDC's Floating Base Rate###-###-#### percent as of October 25, 2018) plus a variance of 1% to 12%. Small businesses can use the Canada Small Business Financing Loan (CSBFL) to buy new equipment, improve existing equipment, or expand their operations. The CSBFP distributes risk with lenders by cooperating with financial institutions, making it easier for small businesses to secure loans. Individual financial institutions establish the interest rate, which can vary. The rate might be variable (with the maximum chargeable being the lender's prime rate plus 3%) or fixed (with the maximum chargeable being the lender's single-family residential mortgage rate for the loan term plus 3%). The annual administration charge of 1.25 percent is included in both cases. A registration fee of 2% of the total financed amount is included in the additional costs when choosing this financing option. That being said, for the field of M&A, there are several other financing options. Please feel free to DM me for more specific information on terms and options. I wish you good luck in your research. Ali

Reply by a lender
from University of Sydney in Toronto, ON, Canada

Depends on a lot of factors, but generally management profile, size, dependable revenues and collateral profiles drive the loan sizing. For your target size, Banks will probably advance up to 55%-65% Loan-to-Value, and private lenders like myself will try to offer a higher LTV and longer amortization., The delta is a cash equity and mix of seller note / earnout or rollover. There are a lot of deals out there where the vendor note is just too large and the buyer seemingly has little to lose. Lenders will shy away from these deals, or they will insert a Personal Guarantee.

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