Financing a limousine and black car service acquisition

The main assets of a limousine business may be vehicles, a licence and a customer list. Ask each lender how it treats those three. A customer list is worth what the accounts are worth after the owner leaves, and a licence may be worth a great deal or nothing, depending on whether it can be moved to you. Knowing which of these your lender will count shapes the deal before you sign a letter of intent.

What a lender can take as security

Ask each lender which assets it will take security over and how it will value them. Ask whether the lender would lend against the vehicles, and whether it would want clear title or a payout of existing financing. Ontario’s Personal Property Security Act provides that registration perfects a security interest in any type of collateral, so ask the lender what registry searches it will run, and outside Ontario which statute it will rely on. Ask directly whether it treats a licence differently from a vehicle.

What could complicate the financing

Three things to raise with a lender. First, if the licence cannot be transferred to you, ask the lender whether it would rely on the revenue the licence supports. In British Columbia, the Passenger Transportation Board requires both the transferor and the transferee to apply for approval to transfer a licence. Second, an aging fleet means the purchase price may need to be followed by replacement spending. Third, accounts that sit with the seller’s personal relationships may not carry over. Raise each one with the lender early.

What BDC says about the structure

BDC 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 applying. Its page on business purchase loans also lists a clear transaction structure, either an asset purchase or a share purchase, among the things to have in place, along with the business’s financial statements or income tax returns. Its page also lists refinancing seller financing (vendor take-back) and extra financing for intellectual property, goodwill and client list among its offerings. Ask BDC or your own lender how those items apply to a vehicle-based business.

Questions about a vendor take-back

If the seller finances part of the price, ask what security the seller would take and whether it ranks behind or ahead of the lender’s. Ask whether payments stop if an account leaves, whether the note can be set off against a claim you discover later, and whether the licensing authority has any say over the seller keeping a security interest. Have a lawyer review all of it. For background, read can I buy a business using seller financing.

Match the loan to the asset

Ask each lender what it would fund against vehicles, a client list or a licence, and over what period. BDC’s page refers to extra financing for intellectual property, goodwill and client list, so ask whether and how that could apply here. Ask your accountant to show how the combined payments would look against the company’s recent earnings once the owner’s pay and any adjustments are shown properly.

Ask also about the timing of a loan against the timing of the licensing approval. If the lender does not advance funds until the authority approves you, and the authority wants to see financing in place, the two need to be sequenced. Raise that with both of them early.

What to prepare for the lender

BDC lists the business’s financial statements or income tax returns among the things to have ready, together with the purchase price agreed with the seller and the transaction structure. For this business, add a vehicle schedule, a summary of the licence position and a short account of how clients are retained after the owner leaves. BDC also lists a letter of intent with an expected closing date, the required down payment, and your recent Notices of Assessment.

Plan for what the lender cannot see

Some of the risk in this business may never reach a document: a client who moves to a competitor, a chauffeur who leaves, a vehicle that fails. Think about how you would cover a gap in the first months, such as working capital set aside for repairs and replacements. Ask the lender whether it will want a reserve, and ask your accountant to model a slow period without assuming the best case.

• Which vehicles the lender would lend against, and on what basis it values them.
• Whether the lender would lend before the licensing authority has approved the transfer, or only after.
• What the lender needs to see about the accounts and how long they have been with the company.
• Whether the lender expects a personal guarantee, and what it would cover.
• How a vendor take-back interacts with the lender’s security.