Financing a last-mile delivery contractor acquisition

A buyer working out funding for a delivery contractor has tangible assets, the vans, and an intangible one, the contract, that produces the revenue. Ask each lender how it treats each. This guide sets out which assets a lender can take as security, what makes this business hard to finance, and what to ask a lender and a seller about a vendor take-back. It is not a promise that any lender will finance a given deal, and it does not recommend a structure.

What a lender can hold as security

Ask each lender whether it will take the vans as security. Ontario’s Personal Property Security Registration system lets a lender register a notice of security interest on personal property, and other provinces run their own registries. Ask each lender to confirm that no one else has registered against the same vans, since financing already on them matters. Ask the seller for payout letters, and ask each lender whether it will take a general security agreement over the business’s other assets or only specific vehicles.

Why the contract is hard to finance

The delivery contract has no physical form, and it may not be assignable without the platform’s consent. If the platform can redirect the revenue, ask each lender what happens if the platform declines to approve you, and get that answer before applying. Ask the lender what documents it wants from the platform, whether it wants a consent in writing, and whether financing approval can be made conditional on it. Our guide to buying a last-mile delivery contractor covers how to approach the platform.

Government-backed lending and what it covers

The Canada Small Business Financing Program guidelines list equipment among the assets a program term loan can finance and exclude vehicles for personal use. They list goodwill, if part of a going concern purchase, among intangible assets, and say that since 4 July 2022 a lender must take security on assets of the small business when a term loan finances software, leasehold improvements, intangible assets or working capital costs. The guidelines also say the acquisition of shares is not eligible, and that when a vendor finances part of the purchase price, the amount of that financing is not eligible for a CSBF loan. The program has its own caps and conditions, so ask a participating lender how the guidelines apply to your purchase and read the guidelines yourself. Our glossary entry on the CSBFP gives the outline.

What BDC says about purchase financing

BDC describes its business purchase loan as intended to finance the acquisition of an existing business with revenue and an established client base. It says a financing structure may combine your own investment, a business loan and seller financing, and that you and the seller must agree on a purchase price before you apply. Ask the lender what it needs to see, and line up the seller’s records and your own business plan before the application, not after it.

Replacing the vans after you buy

Financing the purchase is one cheque. Keeping the fleet running is a series of them. Ask the seller for each van’s age and mileage, and work out with your accountant when replacements fall due and how they would be funded. Ask whether any vans are leased, and whether the lessor must approve a change of operator. If you plan to buy or lease new vans, ask your lender whether it will finance them separately from the acquisition loan, and how it wants the two loans to rank. Ask your accountant to test the repayment schedule against realistic van replacement dates.

Questions to put to the seller about a vendor take-back

A vendor take-back is seller financing, where part of the price is paid over time. It can be one way to cover part of the price; BDC says a financing structure may combine your own investment, a business loan and seller financing. Ask the seller what they would want as security, whether the note ranks behind the bank, what happens if the platform ends the contract, and whether payments can be tied to that outcome. Ask your lender whether it permits seller financing alongside its loan, and on what ranking. A lawyer should draft the note and the security. Our answer on the limits of a seller’s remedies if payments stop is a useful companion.

• Which vans are free of liens, and which need a payout letter
• Whether the lender wants the platform’s written consent before funding
• Whether the lender will take a general security agreement or only vehicle security
• How fleet replacement fits into the repayment schedule you are agreeing to
• Whether the seller will accept a take-back that is tied to the contract continuing