Financing a landscaping and grounds maintenance company acquisition

Funding a landscaping purchase raises a few questions specific to this business. The hard assets are trucks, mowers and trailers, which have a resale value. The value that makes the company worth buying, meaning the contracts and the customer relationships, is intangible, and the guidelines of the federal Canada Small Business Financing Program note that obtaining proper security on intangible assets can be problematic, so ask the lender how it would treat them. Cash may also arrive unevenly if revenue is concentrated in the growing season. This guide is for a buyer working out how the funding might fit together. It covers the assets a lender can take, what makes this business hard to finance, and what to ask both the lender and the seller. It describes how programs work, not whether you will qualify, and a lender decides that. It helps to read this guide alongside the buying and due diligence guides for this sub-sector.

What a lender can take as security

The Canada Small Business Financing Program is a federal program under which participating lenders make loans. Its guidelines list motor vehicles under equipment, and say that when a term loan finances equipment, the security must be a valid and enforceable first charge on the assets financed, registered so that ranking is not compromised, subject to the guidelines’ equal-ranking rules where other financing pays for the same assets. For other classes, such as intangible assets, the guidelines say the lender must take security on assets of the small business, for example a general security agreement. Ask the lender early which of the fleet’s units it would take as security and how it values older ones. Ask also whether it will register its security against the equipment you are buying and what it requires for insurance on those units. If the equipment you buy will be the lender’s security, ask what the loan terms say about maintenance, insurance and replacement.

What is harder to finance here

The same guidelines list goodwill as an intangible asset if it is part of a going concern purchase. They also say an acquisition of shares is not eligible for financing under the program, because the loan would go to a shareholder and not to a small business financing eligible assets. If you are weighing an asset purchase against a share purchase, raise it with your lawyer and lender before you sign a letter of intent. Seasonality is the other question. Ask how the lender will set repayments if revenue is concentrated in the growing season, and whether a working-capital line is part of the offer. The guidelines add that a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, so ask what personal guarantee, if any, the lender will require and how it is limited.

What BDC asks for

BDC says on its acquisition financing page that it does not offer prequalification and can review a request once you have identified a business and negotiated the main terms. It lists the agreed purchase price, how that price was determined, and the transaction structure, such as an asset or share purchase, among the documents to bring. That makes the earlier steps matter, because BDC asks how the price was determined. A valuator’s report is one way to document it, and a clear split of the assets being bought is worth preparing before you meet a lender. Ask your lawyer to prepare the asset list with the lender’s needs in mind, separating vehicles and equipment from goodwill, licences and the contract book. Tell the lender promptly if the price, structure or timing changes during negotiation, and ask what a change would mean for the application. Ask also about the fees, security documents and conditions that come with each option, and have your lawyer read them before you commit to a closing date.

Ask about the vendor take-back

A seller can be asked to carry part of the price. BDC mentions vendor financing and earn-outs as ways a seller can stay involved after the sale, and lists refinancing seller financing among the uses of its acquisition product. Questions to raise: how much would the seller carry, for how long, with what security, and how does the note rank against the bank’s? Ask the lender whether it will permit the note and whether payments on it can be made before the bank is repaid. See also how to blend bank, vendor and buyer financing.

• Ask which fleet units the lender would take as security, and how it treats units near the end of their useful life
• Ask whether the lender will finance goodwill and the contract book, and what extra security it wants for them
• Ask how repayments are set around the off-season, and whether a working-capital line is available
• Ask the seller what part of the price they would carry, for how long and with what security
• Ask your lawyer how an asset purchase or a share purchase affects which loans are available