How do I get bank financing to buy a business in receivership?

Ask your lender whether a receivership purchase fits its ordinary acquisition-loan conditions, and expect the sale process to add a few wrinkles. Under the Bankruptcy and Insolvency Act, a court may appoint a receiver, on a secured creditor’s application, to take possession of the debtor’s inventory, accounts receivable or other property used in its business and to exercise control over that property and the business. The Act also covers receivers appointed under a security agreement. Either way, you negotiate with the receiver, not the former owner.

What a lender wants to see

BDC says its acquisition loan is for a Canadian business that is generating revenue, and asks for an agreed purchase price, the transaction structure, a letter of intent with an expected closing date, and the business’s financial statements or tax returns. It reviews a request only after you have found a business and negotiated the main terms. A business that has stopped trading may not fit those tests, so raise that with the lender early.

What the receiver owes, and timing

A receiver must act honestly and in good faith and deal with the property in a commercially reasonable manner. Ask the receiver’s advisers how offers are compared, whether a financing condition will be accepted and what timetable the sale follows, then tell your lender. BDC advises starting the financing process as early as possible because an acquisition needs detailed analysis.

Security and what is being sold

A lender will want valid, registered security over what you buy. The Canada Small Business Financing Program guidelines require lenders to make sure security is valid and enforceable, including registration in the provincial registry, and they define a going concern by whether it has carried on operations recently, so ask whether a business that has stopped trading still qualifies. Search the registry for existing registrations, as set out in what a PPSA search is, and have your lawyer confirm what the sale terms and any court order do to them before the loan funds.