Financing a roofing contractor acquisition

A roofing company carries a particular mix: trucks, trailers and safety equipment that a lender can see and register against, and value in backlog, installer relationships and reputation that has no registry entry to secure it. A buyer working out funding should ask a lender how it treats each. BDC says a financing structure may combine your own investment, a business loan and seller financing. Government-backed lending adds rules of its own, and the structure of the deal can decide whether a program applies at all. This guide covers questions to take to a lender and to the seller. It does not recommend any financing, and no figures are given.

What a lender can take as security

Under the Canada Small Business Financing Program, the guidelines describe primary security as security on the assets financed by the loan, require security on other business assets where the loan finances leasehold improvements, computer software, intangible assets or working capital, and refer to registering the security interest in the appropriate provincial registry. Equipment, leasehold improvements, intangible assets and working capital appear among the cost categories in the guidelines, which also address motor vehicles and exclude vehicles for personal use. Ask the lender which of the trucks, trailers, lifts and fall-protection gear it would count, and whether older equipment is treated differently. A search of the provincial registry first shows whether those assets are already pledged.

Why structure matters for a program loan

The program guidelines say the acquisition of shares is not eligible for financing, because the loan would go to a shareholder rather than to a small business financing eligible assets. A buyer planning a share purchase should ask a lender how the program could apply, if at all, and a buyer planning an asset purchase should ask which of the assets would count. The answer on CSBFP funding for a business purchase walks through the application.

What BDC asks for

BDC lists what it wants before an acquisition application: a clear transaction structure, whether asset purchase or share purchase; an agreed purchase price and how it was determined; a letter of intent and an expected closing date; and the business’s financial statements or income tax returns. It also lists extra financing for intellectual property, goodwill and client list, and refinancing of seller financing. Whether any of that fits a roofing company depends on its structure, so ask. The answer on whether BDC can finance a business purchase gives the background.

Guarantees and what a lender will want to see

Ask what guarantees you will be asked to give. The program guidelines say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, and that a loan may be ineligible if the lender takes a personal guarantee secured by collateral assets, subject to conditions in the guidelines. BDC lists the agreed price, how it was determined and the business’s financial statements or income tax returns among what it asks for, so ask the seller early for records a lender can rely on. If the books have gaps, such as unclear deposits or unexplained jobs, ask the seller to explain them before you approach a lender.

Keep the registry in mind throughout. Before any money moves, search the provincial personal property registry for the vehicles and equipment, so you know whether those assets are already pledged. Each province runs its own registry, so the search must be made where the assets are registered.

The vendor take-back and the season

Where the seller finances part of the price, ask how the note is ranked against the bank’s security, whether payments can be set around the weather-permitting season, and what happens if open roofs generate claims after closing. Ask the lender whether it would accept a vendor take-back behind its own security, and whether the seller will agree to a right to set off a verified claim against the note. The Canada Small Business Financing Program guidelines say the amount a vendor finances is not eligible for a program loan. The vendor take-back guide explains the structure. Ask also how much working capital the first season needs, since materials and crews are paid for before roofs are invoiced.

A final point is timing. BDC says you and the seller must agree on a purchase price before applying, and the closing date set in the letter of intent may not leave much room if a registry search or a clearance turns up something to fix. Build that margin into the schedule, and ask the lender early how long its process takes, so the seller is not asked to extend a closing at the last moment.

• Which vehicles, trailers and equipment the lender will take as security, and how it treats each
• Whether the lender will finance an asset purchase, a share purchase, or only one of them
• How goodwill, backlog and installer relationships are treated, if at all
• Whether vendor take-back payments can follow the season, and where the note ranks
• How the first season’s working capital will be funded before roofs are invoiced