Financing a B2B SaaS platform acquisition

A subscription software company can present a lender with a problem: there may be little to repossess. The platform may have no inventory, little equipment and no premises, and much of its value may sit in code, contracts and customer relationships that are harder to sell if a loan goes wrong. That shapes everything about financing the purchase of a B2B SaaS platform in Canada: who will lend, what they count as security, what they want to see before they commit, and how the seller’s own financing fits underneath. This guide explains how those pieces work. It describes structure, not rates or amounts, which vary by lender and change over time.

Why lending against assets fits poorly

A software business may have little equipment, inventory or real estate to offer as security, and the CSBFP guidelines themselves note that obtaining proper security on computer software and intangible assets can be problematic. The Canada Small Business Financing Program shares risk with lenders to make small-business loans easier to obtain, and its guidelines count the purchase or development of computer software as an equipment-class cost when conditions are met, such as development by a specialized contractor or vendor under a contract that specifies the cost and the deliverables, while allowing only a limited portion of a term loan to finance intangible assets and working capital costs. The guidelines, not this page, set those limits, and a buyer can ask the lender how much of a purchase price a program-backed loan could actually reach. The glossary entry on the CSBFP and the answer on whether it covers buying a business go further.

Lenders that look at cash flow instead

BDC describes its business purchase or transfer loan as repayable according to cash flow, with interest-only payments at the start, and says the loan can include extra financing for intellectual property, goodwill and client lists. It adds that the loan can refinance seller financing, and its site lists a separate loan for technology companies, described as financing adapted to a company’s revenue model. For a platform with predictable contracts, a loan repayable from cash flow can fit better than one secured on equipment, because repayment comes from the recurring revenue and the buyer’s ability to keep it. The answer on whether BDC can finance buying a business covers the basics.

What the lender wants in the file

BDC lists what an applicant should have ready before applying, and the list shows what BDC looks for in an acquisition.

• A Canadian business that is generating revenue, with the structure of the deal settled as an asset purchase or a share purchase.
• An agreed purchase price with an explanation of how it was determined, together with a letter of intent and an expected closing date.
• A clear figure for the required down payment, and the buyer’s recent notices of assessment.
• The target’s financial statements or income tax returns.
• Not on BDC’s list, but worth having ready for a SaaS company: customer-level retention, contract terms and renewal dates, and the treatment of fees customers have prepaid.

Security over things that cannot be touched

Where a lender takes security over a software business, that can mean intangible property; the CSBFP guidelines, for one, require the lender to take security on other business assets when a program loan finances computer software, intangible assets or working capital costs. Ontario’s Personal Property Security Act defines an intangible as all personal property, including choses in action, that is not goods, chattel paper, documents of title, instruments, money or investment property, and Ontario’s registration system lets a notice of a security interest be registered and lets users search for liens. The Canadian Intellectual Property Office records security agreements relating to copyright. Other provinces run their own registration systems and rules, so the mechanics depend on where the business and its assets sit. A lender is only as secure as the borrower’s title: the gaps in code ownership that worry a buyer in diligence can worry a lender in the same way, and the glossary entry on IP assignment explains the paper involved.

Where seller financing sits

A vendor take-back, in which the seller is paid part of the price over time, can keep the seller engaged through a handover. BDC lists vendor financing, an earn-out and a phased transfer of ownership among the ways a seller stays involved, and notes that buyers may insist on a reduced price if the seller cuts all ties. Deferred payments can be tied to what happens after closing, such as the revenue that is retained, which links the seller’s payout to the very thing the buyer is paying for. A buyer can ask a senior lender how it would rank the seller’s note and when that note could be paid. The guide to earn-outs explained covers that structure.

What makes a platform harder to finance

Before approaching a lender, a buyer can check for features that bear on whether the loan can be repaid: revenue concentrated in a few accounts, a founder who plans to leave, short contract terms that let revenue lapse, gaps in code ownership, and profit that depends on government credits that may not repeat. Key-person risk belongs on the same list, and the answer on whether lenders require key person insurance explains how that question arises. Each is worth raising with the lender before the amount, terms and conditions are settled.