How do I get a loan to buy a business?

Buyers usually focus on finding the best rate, when the real work is assembling a package a lender will actually approve. Acquisition lending in Canada runs on the strength of the target business’s cash flow and the buyer’s ability to run it — not primarily on the buyer’s existing net worth.

Find the right kind of lender

Not every lender approaches acquisition financing the same way. A conventional bank branch can be cautious about goodwill-heavy deals; a lender working within the Canada Small Business Financing Program can advance against identifiable business assets through a participating bank or credit union; BDC lends directly and will often take a longer view on cash flow and management, priced for the extra risk it is carrying. Talking to more than one type of lender early, before you are attached to a specific deal, tells you which door is actually open to you.

Assemble the package before you need it

• A signed letter of intent or purchase agreement setting out price and terms
• The target’s financial statements, ideally several years, with add-backs explained and supported
• A business or transition plan showing how you intend to run the business, especially if you lack direct industry experience
• Your own personal net worth statement, credit history and evidence of the equity you are contributing
• A resume or summary of relevant management or industry experience

How underwriting actually works

A lender’s credit team works from the business’s normalized earnings, not the asking price. It tests how much debt that cash flow can service once a market wage for you as owner-operator is deducted, and how much cushion is left if revenue softens. That debt service test, not a general impression of the buyer, sets how much the lender will actually advance — and it is usually why an approved loan turns out smaller than the buyer expected walking in.

What slows an application down

The most common delay is incomplete or unreconciled financial records on the seller’s side, which a lender’s underwriter cannot work around no matter how creditworthy the buyer is. The second is a purchase price set without reference to what the cash flow can actually support, which the lender’s own numbers will simply not confirm. Sorting both before you submit an application, rather than after a first decline, saves months.