Financing a courier company acquisition

A buyer working out how to fund a courier company should separate what a lender can take as security from where the value sits. Vehicles and equipment are physical assets; the account book, the reputation and the driver group are not, so ask each lender how it would treat them. This guide is for a buyer assembling funding. It covers which assets lenders can take, what the Canada Small Business Financing Program says it will finance, what makes a courier company hard to finance, and what to ask both a lender and the seller about carrying part of the price.

What a lender can take as security

The Canada Small Business Financing Program guidelines say its lenders register their security interest over the property financed in the appropriate provincial registry. In a courier purchase, the property financed could include vehicles, dispatch hardware and any leasehold improvements. Ask each lender which assets it would take as security, how it treats vehicles near the end of their useful life, and whether it would also want a general claim over the business. Know the answer before you set the price you are willing to pay. If the security does not cover the loan you need, the gap has to come from your own cash, a seller’s note or a different structure. Work out that gap early, on paper, so you are not negotiating the price without knowing how it will be funded.

What the federal program says it covers

The program’s own description says it shares the risk with lenders so small businesses can get loans from financial institutions. Its guidelines say a term loan can finance equipment, leasehold improvements, intangible assets and working capital costs, and list goodwill, if part of a going concern purchase, among the intangible assets. The guidelines also say the assets financed must be used for the operation of the small business. Whether your purchase qualifies is a question for a participating lender, who will apply the guidelines to the deal, including their limits on how much each class can total.

What to bring a lender

If revenue depends on informal business accounts, ask lenders how they view an account book without long contracts, and how a driver-classification question would affect their view. Bring the lender the same records you would give a diligence team: dispatch history, the account list, driver contracts and the fleet list, so the application rests on documents rather than description. Ask too which safety rules apply to the fleet: Transport Canada says the regulations governing commercial vehicles, drivers and motor carriers in Canada are based on the National Safety Code standards. BDC says its business purchase or transfer loan review begins once you have identified a business and negotiated the main terms, and asks for a clear transaction structure and an agreed purchase price, including how it was determined.

Guarantees and what you put at risk

The program guidelines say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, and that, subject to the conditions in its non-compliance rules, a loan may be ineligible if the lender has taken a personal guarantee secured by collateral assets. That is the program’s rule for its own loans. A conventional lender sets its own terms, so ask every lender whether it requires a guarantee, from whom, and what it would be secured against. Read the guarantee with a lawyer before signing, because it is a personal obligation that continues if the business struggles. Ask also whether the lender will take any security over personal assets, and how it treats a guarantor who later sells or leaves the business.

Ask about a vendor take-back

Where part of the price is carried by the seller, the loan and the seller’s note interact. Ask the lender whether it will allow a vendor take-back, whether the seller’s note must rank behind the loan, and whether payments to the seller are limited while the loan is outstanding. Ask the seller what the note is secured against and what happens on default. Agree in writing how the note is paid if a major account leaves, since the lender and the seller may each want to be paid first. The glossary entry on vendor take-back sets out the basics.

• Which of the vehicles, equipment and improvements each lender will accept as security
• Whether the lender’s product treats goodwill in a going concern purchase as financeable, and to what extent
• Whether a personal guarantee is required, from whom and secured against what
• Whether the lender will allow a vendor take-back and where the seller’s note would rank
• What proof of the purchase price and of payment the lender needs at closing, and how long approval takes against your closing date