Business Acquisition Loans in Canada: How to Finance Buying a Business

Buying a business that already runs can feel safer than starting from nothing. The shop is open, the customers are coming in, and the team knows what to do. But how do people actually pay for it? If you are wondering how to get a loan to buy a business in Canada, this guide explains the usual ways in plain words, shows a made-up example of how a purchase can be split, and lists the steps to take before you sign anything.

What is a business acquisition loan, in plain words?

A business acquisition loan is money borrowed to help pay for buying an existing business. "Acquisition" is just a fancy word for buying. The money can go toward the purchase price, and sometimes toward things like equipment or stock that come with the business.

Most buyers do not use one source only. They usually put together a few, and the loan is one piece of the plan.

How do people finance the purchase of an existing business?

Here are the most common pieces. A buyer might use one, two or several.

• A loan from a lender. A lender looks at the business you are buying and at you, and decides what may be possible. See our guide to term loans.
• Your own cash. Most lenders and sellers like to see that you are putting in some of your own money. It shows you believe in the plan.
• A seller note. This is when the seller agrees to let you pay part of the price over time. It means the seller is also lending you some of the money. Many sellers are open to this because it can help the sale go through.
• Financing for the things the business owns. Equipment, vehicles or stock that come with the business may be financed on their own. See equipment financing and asset-based financing.
• Partners or investors. Someone else puts in money in return for a share of the business.

Example: how a purchase price can be split

Numbers help make this real, so here is a made-up one. It is not an offer, and it does not show what any lender would do.

Example only (made-up numbers, not an offer): Imagine a small business is for sale and you split its purchase price into 10 equal parts. You might pay for it like this:

• 2 parts from your own cash
• 2 parts from a seller note, which you pay back to the seller over time
• 6 parts from a loan from a lender

Together that makes all 10 parts. Another buyer might use 3 parts of their own cash, no seller note and 7 parts from a lender. A third might split it five different ways. Your own numbers will be different, and they change over time.

The point of the example is simple: buying a business is usually a mix, not one big loan.

Step by step: how to finance a business purchase

1. Be clear about what you are buying. Is it the whole business, or only parts of it? Does it include equipment, stock or a lease?
2. Look closely at the business. Ask to see recent financial records, such as sales, costs and bank statements.
3. Work out what it is worth. An accountant or business adviser can help you check the asking price.
4. Plan your funding mix. Decide how much you can put in, whether a seller note is possible, and how much you may need to borrow.
5. Talk to a lender early. You will learn what they look at before you commit to a price. Book a short call with our team to see what could fit.
6. Get professional help. A lawyer and an accountant are very worth having on a purchase like this.
7. Read everything before you sign, including the total you will repay and what happens if the business does not do as well as planned.

What do lenders usually look at?

Every lender is different, but these things come up often:

• The business you are buying. How long it has been running, and whether its sales are steady
• Whether it can afford the payments. Our guide to how lenders check you can afford a loan explains the idea
• You. Your experience in this kind of business, and your own money going in
• What the business owns. Equipment, stock and other things that may help secure the money
• Your paperwork. See our business loan documents checklist

Nobody can promise approval before looking at your details, and anyone who does should make you cautious.

Questions to ask the seller

• Why are you selling?
• Can I see the financial records for the last few years?
• What is included: equipment, stock, the lease, the name and the customer list?
• Will you stay for a while to help me learn the business?
• Would you consider a seller note?

Common mistakes to avoid

• Falling in love with the business before checking the numbers.
• Using up all your own cash. You will still need money to run the business after you buy it.
• Skipping the lawyer and the accountant. They can spot problems you might not.
• Forgetting about the lease. If the business rents its space, check what happens to the lease when it is sold.
• Choosing a loan by one number only. Look at the total you will repay. Our scorecard for comparing business loan offers shows how.
• Not reading personal promises. Some loans ask you to personally back the debt. See what a personal guarantee means.

Buying a franchise or growing through a purchase

If you are thinking about a franchise, read our guide on how to finance a franchise purchase. If you already own a business and want to grow by buying another, our guide on financing your business expansion may help.

Ready for the next step?

If you are planning to buy a business and want to know what could fit, you can book a short call with our team. Tell us about the business and how you plan to pay for it, and we will talk through your options in plain words. You can also see how lendflo works.

This post is general information to help you understand your options. It is not personal financial, legal or tax advice. Details, rates and rules can change, so check the latest information before you decide.