Financing a tree care and arborist company acquisition

Funding a tree care company starts with an odd mix of assets. Part of the value may sit in machines a lender can register a claim against, and part in a reputation, a crew and contracts, so ask each lender how it treats each part. The Business Development Bank of Canada (BDC) says a financing structure may combine your own investment, a business loan and seller financing, and that you and the seller must agree on a purchase price before you apply. Use the sections below to prepare for those conversations, and treat each answer as something to confirm with the lender in writing, because a lender’s policy is its own.

What a lender can take as security

Ask which of the business’s equipment can be identified by serial number. The federal Canada Small Business Financing Program guidelines say a term loan may finance equipment, list motor vehicles among the equipment items, and require that the assets financed be used for the operation of the small business. Ask any lender which of the trucks, chippers and grinders it would accept, whether it wants an independent appraisal, how it values older machines, and whether it will register its claim against each serial number.

Where lender programs reach and where they stop

The Canada Small Business Financing Program shares risk with lenders, and its guidelines list goodwill as an intangible asset when it is part of a going concern purchase. The guidelines also say a lender must do a risk assessment of the borrower’s ability to repay. They set a limit on the intangible assets and working capital costs that a term loan can finance, so ask the lender how much of your price falls outside the equipment. Read the current guidelines or ask a participating lender for the figures that apply to you.

What can make this business harder to lend to

Ask each lender whether it will want proof that earnings can survive a change of owner. Ask too how it would treat key credentials that sit with the seller, storm work that inflated the recent years, or equipment close to replacement. Be ready to show contract dates, the equipment schedule and several years of statements. BDC says it asks for the agreed purchase price and how it was determined, along with the business’s financial statements or income tax returns. Prepare a written explanation of any unusual year. Ask the lender whether it wants the seller to stay on for a handover period, since that may shape both the loan and any note.

Get the paperwork ready before you apply

BDC says that to apply for its purchase loan you should have an agreed purchase price, including how it was determined, a letter of intent and an expected closing date, and it asks for the business’s financial statements or income tax returns. Add what is specific to this trade: a schedule of every truck and machine with age and serial number, a list of contracts with their end dates, and a note on which credentials sit with whom. A lender reading those pages can see where the value is and where it depends on a person. Explain any gap in writing before the lender asks.

Searching for existing liens before you borrow

Ask a lender that takes the equipment as security what it needs to know about other claims registered against it. Ontario’s registry lets you search for liens filed against personal property, and Alberta runs its own. Run the search yourself on the seller’s name and equipment serial numbers, and ask the seller to release any existing claim at closing, or have the lender pay it out of the loan proceeds. The order of these steps belongs in the purchase agreement. Ask your lawyer to confirm that the lender’s security and any seller’s note are registered in the order you agreed.

Questions about a vendor take-back

BDC lists refinancing seller financing, also called a vendor take-back, as a use of its purchase loan. If the seller holds a note, ask the lender whether it will allow one and what claim on the equipment it expects to rank first. Ask the seller what happens to the note if you miss a payment, whether the seller will accept a lower claim than the bank, and whether the note is tied to the seller staying on during the handover. Ask what happens to the note if a key credential holder leaves after closing, and whether the lender will want a say in its terms.

• Ask each lender which equipment it will take as security, and how it values older machines.
• Ask how much of the price falls outside equipment, and what covers it.
• Prepare contract dates, an equipment schedule and several years of statements.
• Search the personal property registry for existing liens.
• Ask the seller about a note and the lender about its priority.