Can a buyer’s lender impose conditions outside the purchase agreement?

A purchase agreement binds the buyer and the seller. A lender’s commitment letter and loan agreement bind the buyer and the lender. Check whether the lender is named in the purchase agreement at all. If it is not, its conditions live in its own documents, and a purchase agreement that is silent on them does not make them go away. The risk for a buyer is signing one set of documents and discovering the other set asks for more.

What a government-backed loan shows

The Canada Small Business Financing Program guidelines give one published example. They list the types of security for a program loan as primary security and additional security, and they have a section on guarantees, personal and corporate. They say lenders must ensure the security is valid and enforceable from first disbursement through realization. They also say the lender may require the borrower to pay any other cost the lender charges for a conventional loan of the same amount. Ask any other lender for its terms in writing.

Terms to ask about early

• Which assets the lender will take as security, and in what order they rank.
• Whether it requires personal or corporate guarantees, and from whom.
• Which fees and costs the borrower pays, and when.
• Whether it needs consents from a landlord, franchisor or licensing body before it funds.
• Whether it limits payments to the seller, including on a vendor note.

Lining up the two sets of documents

If the purchase agreement has a financing condition, confirm what it says counts as financing being obtained, and who decides. BDC says on its acquisition financing page that its terms and conditions are designed to give flexibility and financial control, and that it will not change them or demand early repayment without a valid reason. Treat any lender’s statement like that as something to hold it to in the signed documents. Raise the lender’s extra conditions with the seller before the condition date, not after.

Our answer on what to check before buying a business covers the wider checklist.