The Business Development Bank of Canada (BDC) is a federal Crown corporation that provides financing to Canadian small and medium-sized businesses. BDC's Business Acquisition Loan is specifically designed for buyers purchasing an existing business and is one of the most common financing tools used in Canadian SMB acquisitions. BDC typically lends up to $500,000 (and sometimes more) at competitive rates, with repayment terms of 5 to 7 years, and requires 20 to 35 percent buyer equity as a down payment. Unlike chartered banks, BDC is mandated to take on deals that conventional banks may decline, making it particularly useful for first-time buyers without a strong track record in the industry. BDC reviews the target's financial statements, the buyer's personal financial position, and the acquisition rationale. A quality of earnings-style financial assessment is often required. BDC financing can be combined with a vendor take-back (VTB) and buyer equity to structure the complete financing package. BDC financing approval typically takes 4 to 8 weeks and is used as a condition in the LOI. BDC also has programs for businesses with a mix of real property and operating assets.
A first-time buyer in Victoria purchases a property management company for $680,000. The financing stack is: $180,000 buyer equity (26.5%), $380,000 BDC term loan, and $120,000 vendor take-back from the seller at 6.5% over 5 years. BDC's due diligence takes 6 weeks. The deal closes 90 days after the LOI was signed.
Ali has direct relationships with BDC, BMO, and TD acquisition desks. Understanding this concept is the foundation of building the right financing stack for your deal.