Can I refinance my acquisition debt two years after closing?

Two years is not a threshold in the sources checked for this page. Whether you can refinance acquisition debt at that point is set by each loan’s own terms. Make a list of every piece of acquisition debt you have: the bank or program loan, any vendor take-back note, equipment financing, and any guarantee. Each has its own prepayment terms, so ask a new lender whether it will require the old security to be discharged.

Start with prepayment terms

The Canada Small Business Financing Program guidelines say a lender may charge for prepayment of all or part of a loan, in an amount equal to or less than the charge on a conventional loan of the same amount. They also say prepaying a term loan is not a valid reason to apply for a full refund of the registration fee. For any loan, read the prepayment clause and ask the lender for a written payout figure.

Moving to another lender

Under the same guidelines, a loan can be transferred from one lender to another at the borrower’s request, provided the listed conditions are met. If you refinance with a new lender, ask whether the old lender’s security must be released, what the discharge steps are and how long each takes. See refinancing risk after an acquisition.

What the Interest Act does and does not cover

Section 10 of the Interest Act addresses mortgages on real property, and hypothecs on immovables, where principal or interest is not payable until more than five years after the date of the mortgage or hypothec. Subsection 10(2) says it does not apply to a mortgage or hypothec given by a corporation, among other exceptions. It does not mention two years and is not a general right to refinance a business loan.

Vendor take-back notes

BDC lists refinancing seller financing, a vendor take-back, among the uses of its purchase or transfer loan, so ask whether a lender will take out the note. Check whether the note allows early payment, whether the seller must consent, and who must release the seller’s security.