How to Secure Financing to Buy a Business

Entrepreneurship is one of the best ways to realise professional dreams. It offers the flexibilit

... y to choose a path that aligns your passion with p...
How to Secure Financing to Buy a Business
Antoine Fraser Image
Antoine Fraser
Tuesday 7th of January 2025
Buying

Entrepreneurship is one of the best ways to realise professional dreams. It offers the flexibility to choose a path that aligns your passion with progress. It gives an individual the freedom to make their decisions and control the movement of the entity. It makes them feel empowered and encouraged to showcase their talents without interference or management from others. However, building an entity from the ground up is a taxing and time-consuming task that can overwhelm an individual. This is why most people take the easy way out of buying an existing business for sale.

It gives them an opportunity to acquire a venture that has been well-established and running successfully for years. These entities have a solid and loyal customer base and trained employees managing the workflows and processes. Thus, the buyer has to take on the leadership role and steer the entity toward growth. They do not have to put any effort into establishing the entity. They only need sufficient funding to purchase the right size and type of entity. Here is how to secure financing to buy a business in Canada. It can help budding entrepreneurs walk on their chosen path with the required financial support.

1. Self Funding or Family Support

Many wealthy individuals with a strong financial background can purchase a business for sale Canada without getting into debt. They can use their funds to acquire and run the business, which is known as bootstrapping. However, they must keep track of the business expenses and open a separate bank account for official transactions. It is necessary for tax compliance and maintaining accurate financial records.

In addition, they can borrow from family and friends. It can help secure a lower interest rate or no interest at all. However, they must sign a contract with the family member to ensure there are no disputes later related to the ownership of the business or the stake of the financier. The terms of financing must be clearly defined and put down in the agreement for transparency and clarity.

2. Crowdfunding

Crowdfunding is one of the less preferred ways of financing a business acquisition. However, it is catching up in popularity among new tech-savvy entrepreneurs. It can help them increase brand awareness among a wide population across the globe and even gauge the level of demand for the products and services. Crowdfunding involves raising funds online through contributions made by different individuals.

These fundraising campaigns can be hosted on dedicated sites like Kickstarter and Indiegogo. The individual investors are repaid by offering an ownership stake or long-term benefits like a free supply of products or services. It does not require a good credit score or collateral. Entrepreneurs do not have to worry about debt repayment. However, it takes time to gather the required amount and equity-based rewards can dilute ownership control.

3. Small Business Loans from Banks

Most entrepreneurs choose bank loans to fund their acquisition because these institutions can be trusted. The approval process requires providing all the financial documents and details of the business for sale in Canada. However, it is easier to get this funding because the business is already established and has a financial history that can be validated through records and tax payments.

Entrepreneurs can choose any of the banks to get the funding, but they must look for low interest rates to maintain a positive cash flow. Also, they must check the repayment term for the loan and other conditions to be fulfilled in case of missed payments. The Business Development Bank of Canada is a government-owned bank that offers funding only to entrepreneurs in a very short period. The interest rates of this bank are also reasonably priced.

4. Seller Financing

Seller financing is an option offered by outgoing business owners to buyers. It involves offering a loan to the buyer to purchase the business and charge interest to make a return on the investment. Sellers offer financing when they find a qualified buyer with shared values and passion. Buyers can benefit from this offering as they do not have to look for loan approvals and make pitches to investors. It is also known as vendor note or financing. In some cases, the vendor financing is repaid only when certain financial conditions are met after the handover. The terms of this type of funding must be clearly discussed to ensure a smooth transition and repayment during the due diligence process.

5. Angel Investors and Venture Capitalists

Entrepreneurs who wish to purchase a Canadian business for sale can look for investors to fund their acquisition. These include angel investors and venture capitalists who invest in high-growth businesses in exchange for equity. It is easier to get this funding than a bank loan, and it does not involve monthly repayments. Venture capitalists invest in several start-ups through venture funds that pool the capital received from the members.

Angel investors are high-net-worth individuals who are operating in the same industry and want to help small businesses succeed. They also provide seed capital to start-ups and mentorship to new entrepreneurs to make their mark in the industry. However, they may become meddlesome and want to be part of all decisions in future. Thus, entrepreneurs looking for a free hand should opt for a loan.

6. Government Grants and Funds

The federal government offers funding to help individuals purchase businesses for sale in Canada if they meet the eligibility criteria. For example, support for technology innovation and business innovation. In addition, a government program - Canada Small Business Financing Program- provides funding of up to $1 million to entrepreneurs. The funds received through this program can be used by established businesses for growth.

Besides the government, some non-profit organisations also offer financing to new entrepreneurs, such as Futurpreneur Canada. In addition, some community-based organisations are focused on the progress of entities operating in a specific geographic location or businesses owned by a particular community.

Wrapping Up

Entrepreneurs have to secure funds when they want to buy a business that has been put for sale. They need acquisition capital and more funds to boost the cash flow and marketing efforts after the transition. The options mentioned above can help them choose the right financing source for their journey.

Author Info
Antoine Fraser

Antoine Fraser (born in 1981) is a writer and guest lecturer of Masters in Business Administration in different Universities of Ottawa. He was born and raised in Belleville, Ontario and moved to  Ottawa, Ontario, to attend the most prestigious Carleton University. He also holds a PhD degree from School of Management, Branford. The interest of his research has been in the field of small business programming, public policy and small firm growth. He has also published in trade publications with insight from globalisation and finance. His affiliation with Business2Sell is a matter of pride for us. 

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