Financing a painting contractor acquisition

A buyer working out funding for a painting contractor should first ask where its value sits. Much of it may sit in people, contracts and goodwill rather than in assets a lender can take as security. This guide looks at what can be financed, what makes the business harder to finance, and what to ask a lender and the seller. It does not recommend a lender or a structure. Terms change, so confirm every program detail with the lender and read the current guidelines yourself.

What a lender can take as security

The hard assets in a painting contractor may include vans, ladders, sprayers, scaffolding and lift equipment. A lender can register a security interest against that equipment, and in Ontario the Personal Property Security Act sets out how registration works. Ask which assets the lender would accept as security and how it values used equipment. Ask whether it will take a general security agreement over the whole business, and whether it will also ask for personal guarantees. Those questions shape how much of the price can be covered by borrowing.

Programs aimed at going-concern purchases

The Canada Small Business Financing Program shares risk with lenders, and its guidelines list goodwill as an eligible cost if it is part of a going-concern purchase. They also say a CSBF term loan can finance intangible assets and working capital costs, that eligible expenditures need proof of purchase in the borrower’s name, and that a vehicle for personal use is ineligible. They also say the acquisition of shares is not eligible, and that the part of the price a vendor finances is not eligible for a CSBF loan. The CSBFP guidelines define a going concern as a business that has carried on operations at any time within 60 days before the purchase or, for a small business that operates seasonally, during the season before the purchase, which is worth checking if you buy in the off-season. Read the guidelines for the items you plan to finance, because eligibility turns on the item. Our answer on whether the CSBFP covers buying a business goes through the basics.

What BDC says about purchase financing

BDC says its business purchase loan is meant to finance an existing business with revenue and an established client base, that financing can extend to goodwill and client lists, and that a structure may combine your own investment, a business loan and seller financing. It also says you and the seller must agree on a purchase price before you apply. Use that as a checklist for your own conversation: what portion is secured, what portion is goodwill, and what you contribute yourself.

Questions a lender may raise

Ask the lender what collateral it sees in the file and how it treats income that depends on winning each season’s work. Ask how it treats an owner who personally estimates, how it views seasonal cash flow, and whether it wants to see contracted work. Bring the documents from due diligence: financial statements, job lists, assignable repaint contracts and a clear workers’ compensation account.

Working capital after closing

Work out how much paint, labour and insurance cost must be funded before customers pay, and plan for cash in the first weeks. The CSBFP guidelines say a CSBF term loan can finance working capital costs within its limits, and BDC lists working capital loans among its products. Ask the lender how much working capital it will include with the purchase, and whether it treats a line of credit separately. Build the first season’s cash needs into your plan with your accountant, including slow winter months, rather than assuming the business will fund itself from day one.

Questions about a vendor take-back

In a vendor take-back, the seller finances part of the price. BDC lists refinancing seller financing among the uses of its purchase loan, and the glossary entry on vendor take-back explains the basics. Ask the seller what repayment terms they expect, whether the note is secured against the assets and how it ranks behind the bank’s security. Ask the lender whether it allows a seller note at all and whether it needs the seller to postpone or subordinate it. Ask both whether the seller stays involved during a handover, since a crew that depends on the seller may affect repayment.

• Which assets will the lender accept as security, and how does it value used vehicles and equipment?
• Will the lender finance goodwill or a client list, and under which program?
• Does the lender allow a vendor take-back, and on what ranking?
• What personal guarantees or additional security does the lender expect?
• What documents does the lender need from the seller before it commits?