Financing a tanker and bulk carrier acquisition

A buyer funding a tanker or bulk carrier may be combining sources. BDC describes a financing structure that may combine the buyer’s own investment, a business loan and seller financing. Ask each lender what it can take as security and how it reads the business. This guide covers the assets involved, what complicates lending on this kind of carrier and the questions to put to the lender and to the seller. It does not recommend a structure or a lender.

What a lender can take as security

The tractors and trailers are the obvious assets, and a lender who finances them may register a security interest against them. Provincial personal property security legislation, such as Ontario’s Personal Property Security Act, sets the rules for attaching, perfecting and ranking that interest. Under the federal Canada Small Business Financing Program, the guidelines make primary security mandatory (for equipment, a first charge on the assets financed) and allow additional security on other business assets, but not on personal assets. Ask each lender what it wants over the trailers, the receivables and the owner personally.

What makes this business hard to finance

Ask the lender how it treats compliance risk. A release or enforcement finding can affect the carrier’s safety record, and in Ontario an “Unsatisfactory” rating suspends or cancels operating privileges throughout Canada, which would hit the revenue the loan depends on. Ask the lender how it values equipment tied to a product, customer or testing schedule, how it treats a specialized trailer in a default, and whether it wants the seller to remain involved for a period.

Funding the inspection and testing bill

Part of what you borrow for may not be the purchase price. If several trailers are close to a test date, the new owner pays for that work after closing, so ask the lender what it needs to see on how that will be paid. Ask whether the lender will fund working capital or equipment work in the same facility, whether a separate equipment loan is needed, and how each choice affects the security the lender takes. The CSBFP guidelines limit how much of a term loan can finance intangible assets and working capital, so check them if you plan to rely on that program.

Build a forecast of the first year that includes testing, repairs and any registration or insurance changes the sale triggers. Ask each lender whether it wants it; it also tells you whether the structure works.

Insurance, registration and the lender

Ask each lender what proof it needs that the business can keep operating after closing. Ontario’s CVOR page lists among an operator’s responsibilities making sure each vehicle is insured under a commercial vehicle auto liability policy with the appropriate minimum coverages, for example for dangerous goods loads. Ask your insurer what it needs to see before it will cover the business under new ownership. Ask the regulator whether the registration continues, transfers or must be applied for again. Share the answers with the lender, because a gap between closing and registration can interrupt the revenue the loan depends on.

Which program fits

BDC describes its Business Purchase or Transfer Loan as intended to finance the acquisition of an existing business with revenue and an established client base, and it lists equipment financing as a separate product. The CSBFP guidelines set eligibility and security rules and limit how much of a term loan can finance intangible assets and working capital. Read the guidelines for the specific items, such as used trailers and goodwill, before assuming they are financeable. A bank may have different rules again. Compare, and ask each lender in writing.

Vendor take-back: what to ask

A vendor take-back is seller financing: the seller is paid over time. BDC lists refinancing seller financing (vendor take-back) among the uses of its business purchase loan. Ask the lender whether it will allow a take-back, and whether it requires the seller’s claim to rank behind its own. Ask the seller what happens to payments if a contract is lost, a trailer fails a test or a compliance finding appears after closing. See vendor take-back for how the structure works.

• Which trailers, tractors and other assets the lender will take, and what it will not lend against
• Whether the lender wants a personal guarantee or additional security
• How the lender treats goodwill, customer contracts and the safety registration
• Whether a vendor take-back is permitted, and how it must rank
• What the lender needs from the seller’s compliance file before approval

Keep a record of each lender’s answers in writing. Terms differ between lenders and change over time, and a verbal answer in week one may not match the commitment letter in week six. Compare the full structure, including security, guarantees, fees and what each lender needs from the seller, and do it before you sign an offer that fixes the deal’s shape.

The wider trucking questions are in financing a trucking acquisition.