Financing a snow removal company acquisition

A buyer working out funding has three questions: what a lender can take as security, what makes this business hard to lend to, and how to structure the seller’s part. In a snow removal company the equipment is personal property a lender can register against, while a contract book is an intangible asset, and a contract is not a plow. This guide uses the federal program and BDC’s published material to frame questions for lenders. It does not predict what any lender will offer.

What a lender can take as security

Plows, spreaders, brine equipment, loaders and trucks are personal property, and Ontario’s Access Now page says creditors who take a security interest in a debtor’s personal property should register a financing statement under the Personal Property Security Act. For loans under the Canada Small Business Financing Program, the guidelines say that when a term loan finances the purchase of equipment, the security must be a valid and enforceable first charge on the assets financed, registered so that ranking is not compromised. For intangible assets and working capital, they say the lender must take security on assets of the business. Ask each lender which units it will register against, whether it wants lien searches first, and how it treats units already financed by someone else.

What the federal program says about a purchase

The guidelines say a term loan can finance equipment, leasehold improvements, intangible assets and working capital costs, and they discuss goodwill as part of a going-concern purchase. The guidelines define a going concern as a business that has carried on operations at any time within 60 days before purchase or, for a seasonal small business, during the season before the purchase. For a buyer closing in summer, that seasonal wording is worth raising with the lender. The same guidelines say an acquisition of shares is not eligible, so the structure of the deal matters. Our entry on the CSBF Program gives a short overview.

What to ask about winter revenue

Ask each lender how it views revenue concentrated in winter, whether it will look at several winters side by side, and whether it wants service logs and the insurer’s claims summary. Ask how it treats per-push billing against flat seasonal fees. BDC’s business purchase page says the financing structure may combine your own investment, a business loan and seller financing, and that you and the seller must agree on a price before applying.

Questions about a vendor take-back

The guidelines say that when a vendor finances part of the purchase price, that financed amount is not eligible for a CSBF loan, so that part of the price cannot be funded by a CSBF loan. BDC lists refinancing seller financing among its purchase services. Ask your lawyer how the seller’s note will rank against the lender’s security and what happens if the lender requires the note to be subordinated. Read the guide on vendor take-back financing before you negotiate terms.

Allocating the purchase price

The program guidelines say the purchase and sale agreement for a going concern should set out the allocation of the purchase price for each of the assets listed. For a snow removal company that means deciding with your lawyer and accountant how much goes to equipment, how much to intangibles such as the client list and goodwill, and how any inventory of salt or parts is treated. Ask your accountant whether the allocation has tax consequences, and settle it before you send a draft to the lender.

Working capital for the first winter

The program also lists working capital costs among what a term loan can finance. Map when fuel, salt, repairs and crew pay go out against when clients pay. Build a month-by-month cash plan through the first winter with your accountant, including a light-snow case, and show it to the lender. The program guidelines say payments may be adapted to a borrower’s needs, for example blended, seasonal or escalating. Ask whether payments on the note and the loan can follow the seasons, or whether a flat monthly schedule would leave a mild winter short. Ask the lender to explain in writing what happens to repayments if revenue falls below the plan, and compare that with the seller’s note.

What to bring to the lender

Assemble a package before the first meeting: the contract schedule with billing basis and renewal dates, several winters of statements with the snowfall noted, service logs, the insurer’s claims summary, and an equipment list with serial numbers and any liens. A lender can then test your story against documents. Ask what else it requires, and ask in what order it wants the searches and the vendor’s agreement.

• Which equipment the lender will take as first-charge security, and what searches it requires
• Whether goodwill and the client list can be financed, and on what evidence
• How the lender reads winter-weighted revenue and whether it will accept several years of statements
• How the seller’s note will rank, and whether repayments can follow the seasons
• Whether the deal structure, asset or share, changes which programs apply