How do I finance a series of successive business purchases?

Buying several businesses in sequence is not one financing but a series. Ask how the lender for your second purchase will treat the debt, the security and the related companies left by the first. This page uses the Canada Small Business Financing Program (CSBFP), a federal program under which lenders make loans with risk shared with the government, as a worked example, because its guidelines are public. Other lenders set their own rules, so ask each one.

The program counts what is already outstanding

The CSBFP guidelines reduce the maximum available to a borrower by the outstanding CSBF term loans of related borrowers, unless the related borrowers pass the independent small business test. They describe related borrowers as including one borrower that controls the other, and borrowers controlled by the same person or group. If you buy through a new company that you also control, ask the lender whether it passes the independent small business test that the guidelines set out, or whether it counts with your earlier loans.

Each purchase must be eligible by itself

The guidelines list goodwill as an eligible intangible asset if it is part of a going concern purchase. They define a going concern as a business that has carried on operations at any time within 60 days before the purchase or, for a seasonal business, during the season before. They also say a holding corporation is not an eligible borrower. So the entity that borrows for each purchase matters, and you should ask the lender which one it will lend to before you sign an offer.

Security left behind by earlier lenders

Where an earlier charge flows from an after-acquired clause, such as a general security agreement held by the lender or another creditor, the guidelines require the lender to obtain postponements of rank for the assets being financed, so that it holds first rank on them. Ask the earlier creditor early whether it will agree. The guidelines also say the amount a vendor finances is not eligible for a CSBF loan, so a CSBF loan cannot cover the part of any purchase that a seller finances. See how to finance a business acquisition in Canada.

Line up each deal before you apply

BDC states that before applying for financing, you and the seller must agree on a purchase price. For a series, that means an agreed price on each deal before you apply to BDC for it. Ask your lender whether it will pre-clear a plan covering more than one purchase, or whether each deal restarts the review.