Financing a LTL (less-than-truckload) carrier acquisition

A buyer funding an LTL carrier is funding several things at once. There is the linehaul fleet, the city pickup-and-delivery fleet, terminal property that may be owned or leased, dock equipment and the working capital to run the network through the first months. Each may raise a separate lending question. BDC describes its business purchase loan as intended to finance the acquisition of an existing business with revenue and an established client base, and notes that a financing structure may combine your own investment, a business loan and seller financing.

What a lender can take as security

Ask each lender whether it will finance tractors, trailers, city trucks and dock equipment directly, which assets it will take as security and how it values them. Terminals raise a separate question, depending on whether the buyer will own the real estate or only lease it. Ontario’s Personal Property Security Act, for example, has provisions on perfection and priorities of security interests. Ask your lawyer which province’s registry to search for existing claims on the equipment.

The part of the price that is not equipment

Part of what a buyer pays for may not be collateral: the network, the interline relationships, the shipper agreements and the safety record. BDC says its business purchase loan can help you access extra financing for intellectual property, goodwill and client list, so ask whether a lender will fund that portion and on what terms. Prepare to explain the network clearly, with the lease positions and partner consents confirmed.

Two fleets, one bill

If both the linehaul tractors and the city trucks are near the end of their useful lives, the acquisition budget needs to include replacing them. Ask the seller for age and maintenance records, ask a lender how it would finance replacement, and treat the cost as part of the price you are weighing. Find it in diligence rather than after closing.

Questions for the seller about a vendor take-back

• Will the seller finance part of the price, and how would that sit alongside the bank’s security?
• What happens to the seller’s note if a terminal lease or interline partner is lost after closing?
• Can the note be adjusted if claims or safety findings emerge that the seller did not disclose?
• Will the seller stay involved for a transition period, and how is that tied to repayment?

BDC notes that a seller who stays involved, for example through vendor financing or an earn-out, has an especially strong interest in a seamless transition. BDC also lists refinancing seller financing (vendor take-back) among the uses of its business purchase loan, so ask whether a lender would refinance a seller’s note later. The terms are negotiated, so have a lawyer draft them.

Registrations and timing

Ask each lender whether it will require proof that you can lawfully operate the carrier. Under s.7(1) of the Motor Vehicle Transport Act, subject to the regulations, no person or body may operate an extra-provincial motor carrier undertaking except under a safety fitness certificate issued by a provincial authority or an analogous document prescribed by the regulations, so confirm before closing which approvals you need and when. See our trucking acquisition financing guide for the general picture.

Working capital in the first months

The purchase price is not the only cash requirement. Ask what payroll, fuel, insurance, lease payments and partner settlements fall due after closing, and how shipper payments still outstanding at closing are handled. Ask the seller what the working capital position looks like at closing and how it will be adjusted in the agreement. BDC lists working capital loans alongside its equipment and commercial real estate loans, so ask about each as a separate piece of the plan.

What a lender will ask you

Ask each lender what it wants to see. BDC, for example, asks applicants to have a clear transaction structure (asset or share purchase), an agreed purchase price and how it was determined, a letter of intent and an expected closing date, the required down payment, their Notices of Assessment and the business’s financial statements or income tax returns. BDC also says it does not offer prequalification and can review a financing request once you have identified a business and negotiated the main terms. Be ready to cover the business plan, your experience running a carrier or an equivalent network, the lease and partner consents you have in hand, the safety and claims records, and how you will handle the first months, and bring the diligence findings with you.

Line up financing and conditions together

Make the purchase agreement’s conditions match your lender’s: financing approval, landlord consents, partner consents and registration approvals should have dates that fit together. If one is delayed, ask your lawyer how the agreement lets you extend or withdraw. Ask your lawyer to check that a gap between what the lender requires and what the seller has promised cannot leave you bound to close without funding.