Financing a school bus contractor acquisition

A buyer working out how to fund a school bus contractor is dealing with two different kinds of value. The buses are physical assets that a lender can take as security. The route agreements are what produces the cash to repay, but they end on a date and may need consent to pass to a new owner, so ask each lender what it needs to see on both points. That split shapes the conversation: which assets support a loan, what makes this business hard to finance, and what to ask lenders and the seller. This guide covers those questions without quoting rates or amounts, which depend on the lender and the deal.

What a lender can take as security

The buses are goods a lender can register security against. Ontario’s Personal Property Security Act allows a lender to perfect a security interest in goods by registration, and a registry search shows what is already registered against a unit. The federal Canada Small Business Financing Program guidelines list motor vehicles and major repairs among equipment and improvements to equipment, and list goodwill, if part of a going concern purchase, among intangible assets. Ask the lender whether it will treat the school-bus fleet as eligible, and whether it will take other security, such as a personal guarantee.

Why this business is hard to finance

The revenue depends on agreements held by public bodies. Ask each lender how it treats an agreement that ends soon, or that needs consent before it passes to you, even when the buses are good security. BDC’s acquisition loan page lists, among the documents needed to apply, the transaction structure (asset purchase or share purchase) and the business’s financial statements or income tax returns. Have the consent position and the agreement terms documented before you apply, so the lender is not left to assume the worst. A short summary table of agreements, bodies, end dates and consent status, prepared with your accountant, puts those facts in one place for the lender.

Questions for the lender

Ask whether the lender will lend against agreements with a stated remaining term, and what happens if one is not renewed. Ask whether the loan can cover the purchase of buses, goodwill or both, and whether a vendor loan can be refinanced. BDC lists refinancing of seller financing (vendor take-back) among its offerings. Ask whether the lender wants an appraisal of the fleet (see equipment appraisal), and what it requires on insurance and on registration of its security.

Vendor take-back and the seller’s position

A vendor take-back is a loan from the seller to the buyer for part of the price. Ask the seller whether it is possible, and how it would rank against a bank’s security on the buses. If the seller finances part of the price, ask whether the loan can be tied to the agreements’ consent and renewal, for example by being payable only if the routes transfer. See vendor take-back. Settle ranking, terms and default rights in writing with a lawyer, because the order in which security is registered can decide who is paid first.

Fleet replacement and the capital you will need

A buyer should work out what the fleet will cost to keep compliant, not only what it costs to buy. If many buses are close to replacement, ask whether the loan can cover the purchase of newer units later, or whether you will need a separate facility. Ask the lender whether it will lend against the buses you intend to buy as well as those you are taking over. See equipment financing for how that kind of facility works. Build the replacement spending into your forecast, so that the lender and you are looking at the same cash needs.

How the lender sees you

Ask each lender what it wants to know about you as well as the business, such as your experience running a transport operation, your personal financial statements and the equity you are putting in. If you do not have experience, ask whether keeping the seller or a manager on for a period would help, and put the arrangement in writing. Ask what it needs to see about who will run the routes, such as your own licences or those of a manager. Bring the lender the agreement terms and the consent position before the application, not afterwards.

• Have each agreement’s term and the contracting body’s consent position in writing before applying.
• Run a registry search on each bus and list every lien for payout or ranking.
• Ask the lender how it treats goodwill, bus age and a remaining agreement term.
• Ask whether the lender will accept a vendor take-back behind its own security.
• Prepare financial statements or tax returns for the business, which BDC lists among the documents it needs.