Financing a pool installation and service company acquisition

A pool company is a service business with some hard assets. Trucks, equipment and tools are physical and can be inspected, while some of the price may sit in goodwill, the client list and the installation backlog, which are harder to secure. On top of that, cash may come in unevenly through the year. This guide is for a buyer working out how to fund the purchase. It covers what a lender can take as security, what makes this business difficult to finance, which public programs exist, and what to ask about a vendor take-back. It gives no amounts, since each lender decides for itself.

What a lender can take as security

The tangible part is the easiest to understand: service vehicles, trailers, excavation and pool equipment. Ask whether the lender requires proof that these belong to the company free of other claims; a lien search belongs early in the process either way. Ontario’s Access Now service can be used to find out whether a lien has been filed in the Personal Property Security Registration system. Ask each lender which assets it would take security over and how it would value used equipment. Ask whether it would also take a general security agreement over the business, and what happens to the vehicles if the company needs to replace one during the loan term.

What to raise with a lender

Three features are worth raising with a lender. A large share of the price may be intangible. Income may be concentrated in a short season, so ask how the lender will assess the months without installation revenue. And customer deposits on unfinished jobs are obligations, so ask how a lender would treat them. BDC says it can provide extra financing for intellectual property, goodwill and client list as part of a business purchase. Ask whether a lender will finance those pieces, how it will treat them, and what working capital the company will have between seasons.

Programs to ask about

The Canada Small Business Financing Program (CSBFP) lets lenders make term loans for purposes including equipment and leasehold improvements, and, since July 4, 2022, intangible assets and working capital costs. Its guidelines say a purchase and sale agreement of a going concern is for the purchase of specified assets of the vendor (for example real property, equipment, intangible assets, leasehold improvements, inventory and goodwill), and that where a loan finances intangible assets or working capital costs, the lender must take security on other business assets, even if these other assets are already subject to prior charges. The guidelines also define a going concern to include, for a small business that operates on a seasonal basis, one that carried on operations during the season prior to the purchase. The CSBFP glossary entry gives background. BDC says that before it reviews a request you should have an agreed purchase price, including how it was determined, and a clear transaction structure (asset purchase or share purchase).

Questions for the lender

Ask each lender whether it finances a seasonal business and how it wants the repayment schedule to match the cash cycle. Ask whether it will lend against the backlog or only against assets already owned. Ask whether it requires the electrical and gas qualifications to stay with the company. Ask what it needs from the seller, such as a lien release or an assignment of contracts, and whether the lender will want a personal guarantee. Ask how it treats customer deposits already collected by the seller, and how the cost of building those pools would be funded. Get the answers in writing before the offer is final.

Questions about a vendor take-back

BDC says a financing structure may combine your own investment, a business loan and seller financing, and lists refinancing of seller financing (a vendor take-back) among its offerings. If the seller will take back a note, ask what security the seller wants and whether a bank would rank ahead of it. Ask whether payments are tied to the performance of the service book, and what happens if a warranty claim arises after closing. The vendor take-back answer explains how a seller secures one. Bring the structure to your lawyer before agreeing. Also ask the seller whether the note could be reduced if specified service customers do not stay, and how an unresolved claim on a pool installed before the sale would be handled against the note.

• Which vehicles and equipment the lender will take as security, and how it values them
• Whether it will finance goodwill and the client list, and on what terms
• How the repayment schedule fits a seasonal cash cycle
• Whether the CSBFP or BDC business purchase financing suits the purchase
• What security a vendor take-back would carry and how it ranks against the bank