Can I use a share purchase agreement to secure financing?

Can you use a share purchase agreement to secure financing? The agreement is paperwork a lender may ask to see. It does not, on its own, give the lender security. Ask each lender what it takes as security and what it needs to see before it commits.

What a lender may ask you to show

BDC’s acquisition financing page lists what it looks for: a clear transaction structure, naming asset purchase or share purchase, an agreed purchase price including how it was determined, and a letter of intent with an expected closing date. It also says you and the seller must agree on a price before you apply. A draft or signed share purchase agreement can support those items, so ask your lender which stage of the document it will accept.

The CSBFP does not finance shares

The Canada Small Business Financing Program guidelines say that in an acquisition of shares the loan is advanced to a shareholder to acquire shares in the corporation, not to a small business to finance eligible assets, so the acquisition of shares is not eligible for financing. The guidelines list goodwill, if part of a going concern purchase, among the intangible assets a CSBF term loan can finance, and say a going-concern purchase agreement should set out the allocation of the purchase price for each asset. If the program matters to your plan, ask a participating lender whether an asset purchase is workable.

Proof of purchase is in the borrower’s name

For CSBF term loans, the guidelines say eligible expenditures must be supported by proof of purchase, such as invoices or purchase agreements, in the name of the borrower. That is another reason to settle the structure with your lawyer and lender before you sign. The agreement’s parties and the borrower’s name need to line up with what the lender is financing.