Financing an equipment hauling company acquisition

A buyer working out funding for a heavy-haul company can think of the price in two parts. One is hardware: specialized trailers and tractors with serial numbers that a claim can be registered against. The other is capability: permit know-how, dealer and contractor relationships, and a safety record, which would sit in the purchase price as goodwill. Ask each lender how it treats each part, and how the split affects what the seller may be asked to carry. This guide covers what lenders can take as security, what makes this business awkward to finance, and what to ask both the lender and the seller.

What the lender can take as security

Trailers and tractors are identifiable equipment with serial numbers, so a security interest can be registered against each. Under the Canada Small Business Financing Program guidelines, when a term loan finances the purchase of equipment, the security must consist of a valid and enforceable first charge on the assets financed, except that where other sources of financing (other than the borrower’s funds) also finance the asset, the security must be equal in rank. The guidelines also list a signed security agreement containing a description capable of identifying the collateral, and call for registration of the security interest in the appropriate provincial registry. The guidelines also cover personal and corporate guarantees as a separate topic. Ask each lender what it requires for your file.

Points to raise with a lender

Ask each lender how it values a lowbed or an extendable compared with a standard trailer, and whether how easily a unit would resell affects that. Ask whether the lender gives any security value to permit and routing capability, which is not equipment with a serial number. Revenue concentrated in a few accounts, or in one cyclical equipment sector such as construction, energy or agriculture, are points to raise with the lender yourself. If the registrations and relationships depend on the seller, prepare for questions about the handover, and raise these points yourself, with documents. Ask what the lender would want in place to be comfortable, for example a named second person for permits or a written handover plan, and make that part of the closing conditions you negotiate with the seller.

Program loans and the goodwill question

The Canada Small Business Financing Program shares risk with lenders on loans to small businesses. Its guidelines list motor vehicles among equipment, and list “goodwill if part of a going concern purchase” among intangible assets that a term loan can finance. They also say the acquisition of shares is not eligible for financing, so the structure matters here too. The same guidelines say lenders are expected to apply the same due diligence as for a conventional loan, plus further tasks the regulations set, and they list vehicles for personal use as ineligible. Check the current guidelines and your own eligibility with a participating lender, since the program, not this guide, sets the terms.

What BDC asks for in a purchase

BDC’s business purchase or transfer loan is described as financing the acquisition of an existing business with revenue and an established client base. BDC says it can review a request once you have identified a business and negotiated the main terms, and that it wants a clear transaction structure, either an asset purchase or a share purchase, and an agreed purchase price, including how it was determined. That means the structure decision has to be made before the application. Ask BDC and your bank how each would treat the trailers separately from the goodwill.

Vendor take-back questions

A seller who carries part of the price can narrow the gap between the trailer value and the purchase price. BDC lists refinancing of seller financing (vendor take-back) among the uses of its purchase loan, so ask whether a take-back could later be refinanced. Under the Canada Small Business Financing Program guidelines, the part of the price a vendor finances is not eligible for a program loan. Questions to ask: whether the lender will allow a take-back at all and where it ranks against the lender’s security; whether payments can be linked to the retention of key customers; and what happens if a specialized unit is sold or replaced. Read how a vendor take-back works before proposing terms.

Sequence the conversations

BDC says it can review a request once you have identified a business and negotiated the main terms, and its list of things to have before applying includes a letter of intent and an expected closing date. Ask each lender at what point it wants to see your file. Bring the trailer schedule, the PPSA search results, the carrier record and customer revenue so a lender is looking at documents, not a story. Ask each lender for its list of required documents in writing, including which carrier and insurance records it wants to see, and ask the seller early whether it will provide a take-back and on what ranking. See financing a trucking acquisition for the general carrier version.

• Which trailers and tractors the lender will accept as security and how it values specialized units
• Whether the program loan is available and what portion can finance goodwill
• Whether the lender allows a vendor take-back and how it ranks
• What the lender needs to see on the carrier record, insurance and customer base
• Whether the lender expects personal or corporate guarantees from you