Financing a customs brokerage acquisition

Check how much of what a buyer pays for in a customs brokerage is intangible: client relationships, know-how and the right to keep working. If most of it is, ask how a lender looking for hard collateral would treat that, and whether goodwill, the buyer’s personal commitment and the seller’s willingness to carry part of the price would come into the discussion. The practical approach is to understand how the main programs treat that kind of asset, structure the deal to fit, and ask both the lender and the seller specific questions before the offer is signed.

What a lender can take as security

The Canada Small Business Financing Program page says the program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders. Ask a prospective lender exactly which assets it will take security over. Ask what the brokerage actually owns, such as computers, furniture or leasehold improvements, and what any of it would fetch on resale. The Canada Small Business Financing Program guidelines describe primary security, additional security and guarantees, and say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed. Ask whether you would be asked for one, and whether a spouse or other person would also be asked to sign. See the answer on whether a lender can require a spouse to guarantee.

Goodwill and the structure of the purchase

The program guidelines list goodwill as an eligible cost when it is part of a going concern purchase, and define a going concern as a business that has carried on operations at any time within 60 days prior to purchase or, for a seasonal small business, during the season prior to the purchase. They also say that a loan to buy shares is not eligible, because the loan would go to a shareholder rather than to the business. If you want that program’s support, ask your lawyer and lender whether an asset purchase is workable. That interacts with the licensing question: if the firm’s authority to operate is not easily moved in an asset sale, the structure the lender prefers may not be the one the licensing allows. Settle both together.

How a lender may view an asset-light firm

If a brokerage’s value sits mainly in people and relationships, ask the lender how it treats that and what it would look at instead of equipment. Possible topics are the buyer’s experience, the seller’s transition commitment, the spread of the client book and how much the buyer is putting in personally. Bring a short, clear case on each rather than waiting for the lender to ask, and ask the lender which questions it weighs most.

What BDC asks for

BDC’s business purchase or transfer loan page says it can review a request once you have identified a business and negotiated the main terms, and that you and the seller must agree on a price first. It also says you should have a clear transaction structure, whether asset or share, and be ready to explain how the price was determined. It describes financing that can combine your own investment, a business loan and seller financing, and mentions extra financing for intellectual property, goodwill and a client list. Prepare the price reasoning in advance, with the client and fee records that support it.

• Which assets will the lender take as security, and will it also require a personal guarantee?
• Will the lender fund goodwill and the client list, and under what structure, asset or share?
• Does the lender want a condition tied to a named individual staying with the firm?
• Is the seller willing to carry part of the price, and what security will the seller expect?

Working capital and the vendor take-back

Ask the seller how the firm funds its day-to-day cash needs. If it pays amounts on behalf of clients and is reimbursed later, find out how much cash is tied up, how quickly clients pay and whether the purchase price assumes a particular level of working capital. A vendor take-back note is one option to raise here. Read can I buy a business with seller financing first, then ask what security the seller will want and whether the lender will allow a seller note to rank behind its loan.

Make the licensing condition a financing condition

Ask the lender how it will treat the firm’s ability to keep operating after closing. If the firm’s ability to work depends on a person or on the border agency’s confirmation, ask whether the lender will make closing conditional on both, and make the purchase agreement conditional on the loan. Otherwise you can end up committed to a purchase you cannot fund, or funded for one you cannot lawfully run. Sequence the approvals so that none leaves you exposed.