How do Canadian lenders treat VTB (seller note) as equity?

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June 11, 2024

by a searcher from University of Toronto - Joseph L. Rotman School of Management in Toronto, ON, Canada

Hi searchers,

I am a self-funded searcher in my early stages. In my initial discussions with some Canadian lenders, they seem to consider VTB as equity only if it's structured with a 5-year interest-only period and a balloon payment at the end. However, I am curious about i) the flexibility that exists regarding this criteria and ii) which lenders are more flexible.

Thanks in advance for sharing your experiences.
Luis

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Reply by a searcher
from Yale University in Calgary, AB, Canada
Lenders that i've spoken with have been biased toward structures with VTB term that is longer than term loan amortization, otherwise VTB payments will count against your cover ratios
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Reply by a searcher
from Harvard University in Cambridge, MA, USA
I literally just had a call with our broker in Canada about this. Confirming what Christopher said - the VTB interest-only period and desired loan term should match. A trick is to make the principal on the VTB due a bit after the term (say###-###-#### days). So if you're looking for say a 5-year loan, make the VTB 5 years, interest-only for 5 years, with principal due 90 days after the end of the 5 years. Basically lenders want to make sure they got out before the VTB principal is due.
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