Financing a taxi fleet acquisition

A buyer working out how to fund a taxi fleet faces a timing problem. The cars are vehicles, a kind of personal property. The licences, plates or authorizations that make them taxis are worth something to a buyer only if the regulator lets them move to the buyer, and the approval may come after the other deal terms are agreed. This guide covers what a lender can take as security, what to raise with a lender, how the federal small business program and BDC treat this kind of purchase, and what to ask a lender and a seller about a vendor take-back.

What a lender can take as security

The British Columbia government explains that lenders register interests in a debtor’s personal property, and that this includes vehicles and licences. Vehicles are among the property that can carry a registered interest. Ask whether the lender will also want a general security agreement over the business’s other assets. Ask each lender which assets it would register against, and whether it will treat a taxi licence as security at all, since the licence may only be transferable with the regulator’s approval. Ask for the answer before you commit to a price. Ask also whether the lender wants your personal guarantee. The Canada Small Business Financing Program guidelines say a loan may be ineligible if the lender has taken a personal guarantee secured by collateral assets, subject to conditions set out in the guidelines.

What to raise with a lender

Ask a lender about three features. A licence’s value depends on a transfer approval that the lender does not control. Cars age, and a regulator can change the equipment they must carry; the British Columbia Board has posted that analogue taxi meters are no longer permitted. And the fleet’s earnings may rest on fares that a regulator approves, which the Board states in British Columbia. Ask a lender how it weighs each of these, and prepare answers: a car-by-car schedule, the licence terms, and the history of approved rates.

The federal small business program

The Canada Small Business Financing Program guidelines list motor vehicles among equipment that can be financed, and list goodwill that is part of a going-concern purchase, and permits and licences used in the operation of eligible assets, among intangible assets. They also say that if intangible assets are financed, the lender must take security over other business assets, and that a vehicle bought for personal use is ineligible. The same guidelines list the acquisition of shares as not eligible, and say that the part of the price a vendor finances is not eligible for a program loan. Ask whether a particular licence or plate fits those categories, and ask the lender to confirm in writing which classes of asset your purchase falls into. Do not assume a plate counts as a licence used in the operation of eligible assets without that confirmation.

Timing against the regulator

BDC says it can review a business purchase request once you have identified a business and negotiated the main terms, and it lists an agreed purchase price, a letter of intent and an expected closing date among what to have ready. Where a licence must be transferred, the regulator’s approval is an extra step between agreeing the deal and closing it. Ask the lender whether it will advance funds before the approval, what conditions it attaches, and what happens to the commitment if the regulator refuses or delays. Ask the seller to make the sale conditional on that approval.

Vendor take-back

BDC notes that a financing structure may combine your own investment, a business loan and seller financing, and that its purchase loan can refinance a vendor take-back. Ask the seller whether it will accept a take-back, whether that loan would be secured, and where it would rank behind the lender. Ask what happens if the regulator refuses the transfer after money has changed hands. Ask the lender whether it accepts a take-back, and on what terms. Put the answers in the agreement rather than relying on a conversation.

What goes in the lender package

BDC lists, among what to have ready, the business’s financial statements or income tax returns, a letter of intent and an expected closing date, and says to know the required down payment. For a fleet, add the licence terms, a car-by-car schedule and the regulator’s written description of its transfer process. Ask each lender for its list of conditions in writing, and compare them before you choose.

• Which assets will the lender register security over, and does it count the licence?
• Will it advance funds before the regulator approves the transfer, and on what conditions?
• Does it accept a vendor take-back, and where would the take-back rank?
• Which equipment or age rules could force the fleet to replace cars soon after closing?
• What happens to the financing if the regulator refuses or delays?