Financing a waste hauling company acquisition

A buyer funding a waste hauling company has a tangible fleet to pledge and an intangible base of contracts and permissions to explain. Ask a lender what it can take as security, and how it views the security of the earnings behind the loan. Environmental history and municipal contract terms are worth raising with it early. This guide covers what lenders look at, what makes this kind of business hard to finance, the public programs a buyer can ask about, and the questions to put to a seller offering a vendor take-back. It does not recommend a lender or a structure.

What can stand as security

The most concrete assets are the trucks, containers and other equipment, so ask whether a lender wants a list with ages, serial numbers and any existing registered interests. Ask each lender how it values older collection vehicles, whether it will take security over containers placed at customer sites, and whether it requires the yard or depot property. Real property and leased premises raise separate questions, including who owns the land. Ask early, and ask how the answers affect how much of the price a security-backed loan can fund. Ask too whether the lender will take security over the permission or the contracts, or only over physical assets, and what it requires on insurance. Check any existing registrations against the vehicle list before you borrow, since a registered interest held by another lender affects what is left to offer.

What to raise with a lender

Three things to raise with a lender. Check whether the revenue rests on contracts that can be assigned only with consent or lost at a rebid. Ask whether the environmental permission, and the record behind it, could bring liability that does not appear in the financial statements; Ontario’s Environmental Protection Act lets the Director order a person who owns or owned, or has or had management or control of, an undertaking or property to act in the circumstances set out in section 18. And a fleet that needs replacement soon may call for a second round of financing that belongs in the plan. Ask what reports the lender wants, such as contract summaries and compliance letters, and how long it will take. Ask whether it wants an independent environmental review of any yard or depot property, and who pays for it. Bringing the due diligence findings to the first meeting lets the lender see the risks you already understand.

Public programs to ask about

The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders, and Innovation, Science and Economic Development Canada publishes its guidelines. Its guidelines say the purchase and sale agreement of a going concern is for the purchase of specified assets of the vendor (for example real property, equipment, intangible assets, leasehold improvements, inventory and goodwill). Ask a participating lender whether your business and the assets in your deal are eligible. BDC lists a Business Purchase or Transfer Loan and a separate Equipment Loan on its website, and a buyer can ask what each requires. Eligibility and terms are set by the program or the lender, so confirm them directly.

Fleet replacement alongside the purchase

Ask the seller for a replacement schedule showing which trucks will need to be replaced and when. If several are near the end of their working life, decide whether to fund replacement inside the acquisition, negotiate a price adjustment or plan for staged purchases. Show the lender that the cash flow can carry both the acquisition debt and the replacement spend, so build a forecast that shows each. Ask a lender whether equipment financing for replacement trucks can be arranged separately, which keeps the acquisition loan focused on the purchase. Include the cost of any increase in insurance, financial assurance or permit fees that a change of ownership brings.

• Ask the seller whether any part of the price can be a vendor take-back, and what security it would carry
• Ask how the take-back ranks against the bank’s security, and whether the bank requires it to be subordinated
• Ask whether payments can be reduced or paused if a major municipal contract is lost or re-tendered
• Ask whether the seller will carry environmental indemnities, and for how long
• Ask a lawyer how an indemnity or offset right would work if a ministry order arrives after closing

These answers shape the whole structure. Compare them with what the due diligence guide turns up, since the findings drive both price and protections.