Financing a dump truck and aggregate hauling company acquisition

In a hauling company the trucks are specific, identifiable assets, but they wear out and the earnings depend on construction activity. A buyer working out funding has to answer two questions: what can be pledged, and what happens in a slow season. This guide covers the ways to fund the purchase and the questions to ask each lender.

Trucks as security

Ask whether the lender will want its own valuation of the used trucks rather than the number in the purchase agreement, and whether it will check that no other lender or lessor already holds a security interest in them. Have serial numbers, condition reports and proof of ownership ready. Ontario’s Personal Property Security Act defines a security interest as an interest in personal property that secures payment or performance of an obligation, and the definition also includes certain leases and transfers of accounts. Ask what it will lend against each class of truck, and whether it lends on units past a certain age. If a lender will not finance older units, you need to know before you sign the offer.

What makes this business hard to finance

The fleet is the collateral and the cost at once. A buyer whose trucks need replacement soon is asking a lender to fund assets that will need funding again. Revenue tied to a few contractors, or to tenders that can be lost on a rebid, can make cash flow harder to forecast. Ask lenders how they treat seasonal cash flow, and whether they will lend working capital alongside the purchase so that a slow winter does not threaten the loan. Bring the seller’s multi-season revenue history; it is your best evidence. Also bring a plan for the trucks themselves: which units you expect to replace in the first two years, what you expect them to cost and how the earnings will carry that cost. Ask each lender what it wants to see in that plan, and be ready to explain what you have personally invested and your own experience with dispatch, maintenance and customers.

Government-backed and development lenders

The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders. Its guidelines list motor vehicles and major repairs among examples of equipment a term loan can finance, and list vehicles for personal use as an ineligible expenditure, so confirm with your lender how it applies to your purchase rather than assuming a truck qualifies. The guidelines also say the acquisition of shares is not eligible for financing, and that when a vendor finances part of the purchase price, the amount of that financing is not eligible for a CSBF loan. BDC offers a business purchase loan intended to finance the acquisition of an existing business, and says a financing structure may combine your own investment, a business loan and seller financing. It adds that, depending on the size and structure of the transaction, financing may include a business purchase loan, cash flow financing or mezzanine financing. Neither is a promise. Ask each lender what it requires, what it takes as security, and whether the program can finance the specific assets in your purchase.

Vendor take-back

A vendor take-back is where the seller finances part of the price. See the glossary entry on vendor take-back. Ask the seller what security they would want, and ask your bank whether it will accept the seller’s note ranking behind its own. Ask whether payments can flex with the season, since a fixed monthly payment in a slow winter is a risk. Test the customer revenue history rather than relying on the seller’s assurance. Settle what happens to the note if the anchor customer leaves, and put that in the agreement rather than leaving it to goodwill.

Existing debt on the trucks

If the seller has loans or leases against the trucks, ask whether they will be paid out and discharged at closing or assumed by you. These paths can affect your own financing and the price differently, so ask your lender which it requires. Ask for payout statements, and ask your lender to confirm in writing which liens it requires to be cleared. A search of the Ontario Personal Property Security Act registry, or the equivalent in the province where the trucks sit, shows what is registered.

• Which trucks the lender will finance, and whether it sets limits by age
• Whether it will lend working capital alongside the purchase to cover a slow season
• Whether the Canada Small Business Financing Program can fund the specific assets, including vehicles
• Whether the lender will accept a vendor take-back ranking behind its own security
• Which existing liens and leases must be cleared at closing, and who pays the payout