Financing a garage door and locksmith company acquisition

Financing this kind of purchase may be awkward if much of the price is for things a lender cannot repossess. Vans, tools and parts have a resale value. A phone number with years of call history, a set of reviews and a regional reputation may not, even though they produce the revenue. Work out before meeting a lender how much of the price is tangible, and ask how any gap could be covered, whether by equity, a vendor take-back or both. This guide covers what can be secured, what makes the business hard to finance, and what to ask.

What a lender can take as security

Tangible assets such as service vehicles, tools and equipment, and parts stock are one place to start. The federal Canada Small Business Financing Program guidelines list motor vehicles under equipment, goodwill (if part of a going concern purchase) under intangible assets, and inventory under working capital costs, and they set out how a purchase of the assets of a going concern is treated. Ask the lender whether a particular item can be financed under the program and how it is treated. Check separately whether any of the vehicles are leased.

Why intangibles make this hard

The program guidelines state that obtaining proper security on leasehold improvements, computer software, intangible assets and working capital can be problematic, and that for loans made on or after July 4, 2022, a lender financing these must take security on other assets of the small business. That passage describes the central problem here: the number, listings and goodwill are intangible. BDC’s business purchase or transfer loan page mentions extra financing for intellectual property, goodwill and client list, so ask a lender directly how it treats them. Ask whether a lender would require additional security or a personal guarantee, and which assets, yours or the company’s, would be pledged.

What to prepare for a lender

BDC’s page lists the transaction structure, such as an asset or share purchase, and the business’s financial statements or income tax returns among the things to have ready. Add a recast earnings schedule, a vehicle and equipment list with serial numbers, a parts count, and evidence of licensing where the province requires it. If the business sits under a franchise banner, ask the lender whether it requires the franchisor’s consent to the transfer, and find out what that process involves before relying on the timeline.

What makes this business hard to finance

Three questions are worth raising with a lender and your accountant. If revenue comes from individual service calls rather than contracts, what will the lender look at in place of a schedule of recurring income? If the value of the number and listings depends on a smooth handover, will the lender want the transition plan written down? And the stock that supports first-visit completion could be security or a working-capital need, so ask whether the lender treats it as either.

Security registration and priority

The program guidelines say lenders must ensure the security for a program loan is valid and enforceable, assessed against the applicable provincial personal property and real property security legislation in provinces other than Québec and the Civil Code of Québec in Québec, and that lenders consider, among other factors, registration of the security interest in the appropriate provincial registry system. For you, ask whether the lender will search the registry and register its own interest. If the seller’s existing lender has a registration, ask whether it will be discharged or whether the new lender will want it subordinated. Ask your lawyer how that sequence works in your province.

The vendor take-back conversation

When intangibles make up much of the price, a seller who accepts part of it over time can bridge what a lender does not fund. Ask the seller whether a vendor take-back is possible and on what terms: the repayment schedule, whether it ranks behind the lender, and what happens if the phone number or listings perform worse after closing. Ask the lender whether it permits a vendor note and whether it requires the seller to sign a postponement or subordination agreement. Have your lawyer draft the security.

• List the vehicles, tools and parts with serial numbers, and confirm which are owned and which are leased
• Ask each lender how it treats goodwill, the phone number, listings and customer records
• Ask what additional security or personal guarantee the lender would require
• Check whether existing registrations against the seller’s assets will be discharged or subordinated
• Ask the seller about a vendor take-back, its ranking against the lender, and what happens if performance drops