Financing a flatbed carrier acquisition

A buyer working out funding for a flatbed carrier is paying for a mix of things that differ in what they can secure. Trailers and tractors can be identified, appraised and registered against. Securement gear can be listed and inspected too. Customer relationships and driver skill are not equipment with a serial number, so ask each lender whether and how it would lend against them. The sections below set out which parts a lender may take as security, where the people risk sits, and what to ask both lenders and the seller before committing.

What a lender can take as security

A lender’s security is a claim registered against assets. Ontario’s Personal Property Security Act provides for registering a financing statement to perfect a security interest, and your lawyer can say how other provinces’ laws apply. In a flatbed deal, the candidates are the trailers and tractors, and perhaps securement equipment. Ask each lender which assets it will take, whether it wants a general security agreement over the whole company, and how it will value used trailers. Get a current equipment appraisal so you are not negotiating from the seller’s figures alone. See equipment financing.

Public programs worth asking about

BDC offers a Business Purchase or Transfer Loan, so it is one lender to approach. The federal Canada Small Business Financing Program works through participating lenders and its guidelines list equipment, leasehold improvements, intangible assets (which include goodwill if part of a going concern purchase) and working capital costs (which include inventory), and limit intangible assets and working capital within the combined limit for equipment and leasehold improvements. The guidelines also say the acquisition of shares is not eligible for financing, so ask the lender how an asset purchase and a share purchase would each be treated. Check the guidelines for the exact item you want to finance, since eligibility depends on the asset and the borrower, and ask the lender to confirm in writing.

Where the people risk sits

If part of the price pays for drivers and shippers rather than equipment, that part depends on them staying. If the securement-skilled drivers leave, or one large shipper moves its freight, the cash flow that repays the loan changes while the trailers stay on the yard. Ask each lender how it treats driver tenure, customer concentration and exposure to the construction and housing cycle, and whether a securement-related claim in the insurance history matters to its review. Prepare your own answers before you apply, with documents rather than assurances.

Questions for the seller about a vendor take-back

A vendor take-back is seller financing; BDC describes a financing structure that may combine your own investment, a business loan and seller financing. Ask whether the seller will take one, what security the seller expects, and how it would rank against the bank’s. Ask whether the seller would accept payments tied to keeping key shippers, and what happens if a driver or customer leaves. Ask your lender whether it permits one at all. The seller’s lawyer and yours should settle the terms. See how to secure a vendor take-back loan.

• Which assets will each lender take as security, and how will it value used trailers?
• Will the lender fund goodwill and working capital, or only equipment?
• Does the lender allow a vendor take-back, and in what priority?
• How does the lender treat customer concentration and driver retirements?
• Which program, such as the Canada Small Business Financing Program, could apply, and has the lender confirmed it?

Sequence the funding with the deal

Raise financing early and keep it linked to diligence. Ask each lender whether it wants the same safety record, lien searches and customer data you are already collecting. Make the offer conditional on financing if your advisers recommend it, and ask whether lender approval is also needed for any change in who holds the carrier registration. For a wider view, see financing a trucking acquisition. Your accountant should model repayment against a bad year, not an average one. Ask the accountant which assumptions drive the result, such as the loss of a key driver or a large shipper, and ask each lender how it would respond if those assumptions came true.

Questions to put to each lender

Come to each lender with a short list. Which of the carrier’s assets will you lend against, and how will you value them? Will you fund the purchase of the business itself, including goodwill, or only the equipment? What happens to the loan if the registration holder changes? Will you accept a vendor take-back, and where does it rank? Does your lender work with a federal program, and will it confirm in writing which items qualify? Keep the answers in one place and compare lenders on terms that matter to your plan, not the headline alone.