BDC’s role alongside a bank in acquisition financing

The Business Development Bank of Canada gets mentioned constantly in conversations about acquisition financing, but buyers sometimes assume it works the same way a chartered bank does, just under a different name. It doesn’t. BDC is a federal Crown corporation focused specifically on financing small and medium-sized Canadian businesses, and in a typical acquisition it shows up less often as a buyer’s only lender and more often as one layer working alongside a chartered bank or credit union.

How its approach tends to differ from a chartered bank’s

A chartered bank financing an acquisition generally leans heavily on collateral it can register against, real property, equipment, and other hard assets, when deciding how much it is comfortable lending. BDC has more latitude to lend against a business’s own projected cash flow rather than requiring the same depth of hard collateral, which matters considerably for service businesses, professional practices, and other purchases where a large share of the value sits in goodwill rather than fixed assets. That same latitude sometimes extends to amortization and to a willingness to take a security position that ranks behind a chartered bank’s own loan on the same deal, which is part of why the two are often used together rather than as alternatives to each other.

Where BDC commonly sits in a deal

• Funding the working capital or intangible portion of a purchase that a CSBFP-backed bank loan is not structured to cover on its own
• Taking a subordinate security position behind a senior chartered-bank loan, filling a role in the capital stack that a vendor take-back sometimes fills instead
• Financing a specific segment of a larger deal, such as equipment or post-closing expansion capital, alongside a bank handling the core purchase price
• Acting as the primary lender in acquisitions where a chartered bank’s own risk appetite for the specific business is more limited than BDC’s

What this means for how a buyer approaches financing

Buyers sometimes treat the choice between a bank and BDC as an either-or decision, when in practice a combined structure, a chartered bank plus BDC, sometimes plus a vendor take-back layered underneath both, is common enough that brokers and lenders alike treat it as a normal way to fund a purchase rather than an unusual one. Approaching both in parallel, rather than exhausting a conversation with one before starting with the other, is often the faster path to a complete financing plan, particularly for a purchase where the asset mix doesn’t sit comfortably within what a single lender is prepared to finance alone.

Questions worth asking each institution directly

Because the two work differently, the questions worth raising with each are not identical. With a chartered bank, a buyer generally wants to understand how the collateral behind the target’s hard assets shapes what it’s willing to lend, and how a federal program guarantee changes that calculation. With BDC, the more useful question is usually how it weighs the target’s projected cash flow versus its available collateral, and how it prefers to be positioned relative to a chartered bank’s own security if both are financing the same purchase. A buyer who asks each institution how it would expect to rank against the other, rather than assuming the two will simply sort it out later, tends to move through the documentation stage with far fewer surprises.

Each institution runs its own underwriting, sets its own terms, and registers its own security separately, even where both are financing the same transaction, so a buyer should not assume terms discussed with one carry over automatically to the other. Coordinating the two, and making each aware of what the other is financing, is generally part of what a lawyer handles when documenting a multi-lender purchase, since the two loans need to be properly ranked and papered against each other before either lender is likely to advance funds.

Timing across two institutions instead of one

Running two underwriting processes at once naturally takes more coordination than running one, and a buyer should expect to be answering broadly similar documentation requests from each institution on its own timeline rather than a single combined request. That is a real cost in effort, but it is usually smaller than the cost of discovering, late in a deal, that a single lender simply isn’t willing to finance the full structure a purchase actually requires. Buyers who keep both conversations moving in parallel, updating each lender when the other reaches a milestone, tend to close faster than those who treat the two as fully separate processes that happen to be running at the same time.