Buying an existing business can be an attractive alternative to starting from scratch. Instead of building a customer base, developing systems and waiting for revenue to grow, an acquisition can provide access to an established operation, existing customers, employees and proven revenue.

But one of the biggest questions for Canadian entrepreneurs is:

How do you finance the purchase of an existing business?

The answer depends on the purchase price, business cash flow, assets being acquired, your own financial position and the structure of the transaction.

Canadian buyers can potentially use a combination of business acquisition loans, BDC financing, CSBFP financing, seller financing, personal equity, commercial financing and other forms of business funding.

This guide explains the major options and what lenders typically look at before approving acquisition financing.

Can You Get a Loan to Buy an Existing Business in Canada?

Yes.

Financing is available for eligible business acquisitions, although lenders generally want to see a strong case that the business can generate enough cash flow to support the proposed debt.

For example, BDC currently offers Business Purchase or Transfer Financing for transactions involving an existing Canadian business that is generating revenue. Its financing can be used for acquisitions, competitor or supplier purchases, management or employee buyouts, family-business transfers and certain related acquisition costs. 

The structure of the transaction matters considerably.

A lender may distinguish between:

• Asset purchase
• Share purchase
• Management buyout
• Family-business succession
• Franchise acquisition
• Purchase of a competitor
• Purchase of a supplier

Why Buy an Existing Business Instead of Starting One?

An established business can provide several advantages.

Existing Revenue

You may acquire a business that already has paying customers and historical revenue.

Established Customer Base

You don’t necessarily have to build your customer base from zero.

Existing Operations

The business may already have:

• Employees
• Suppliers
• Equipment
• Systems
• Contracts
• Marketing channels

Proven Business Model

Historical financial statements can provide evidence of how the business has performed.

However, an existing business isn’t automatically a good investment. The buyer still needs to conduct thorough financial, legal and operational due diligence.

How Much Down Payment Do You Need to Buy a Business?

There is no universal down-payment percentage that applies to every Canadian business acquisition.

The required equity contribution can depend on:

• Purchase price
• Business profitability
• Cash flow
• Assets
• Buyer experience
• Transaction structure
• Lender
• Financing amount
• Risk profile

Your financing structure could potentially combine several sources of capital.

For example:

Purchase Price: $1,000,000

Possible structure:

• Buyer equity: $200,000
• Senior business financing: $600,000
• Seller financing: $200,000

This is only an illustrative structure—not a standard lending formula.

The actual financing package needs to be determined based on the transaction and lender requirements.

1. Business Acquisition Loan

A dedicated business acquisition loan can be one of the most appropriate financing options when purchasing an established company.

The lender evaluates both:

The buyer

and

The business being purchased.

The business’s historical financial performance becomes particularly important because lenders need confidence that the acquired company can generate sufficient cash flow to service the debt.

2. BDC Business Purchase Financing

BDC specifically offers financing for buying or transferring an existing business.

Its current Business Purchase or Transfer Financing can potentially help finance:

• Existing business acquisitions
• Competitor acquisitions
• Supplier acquisitions
• Management buyouts
• Employee buyouts
• Family-business transfers
• Vendor-financing refinancing
• Certain goodwill, intellectual-property and client-list costs

BDC also indicates that legal fees, moving expenses and other one-time acquisition costs can potentially be included in its financing. 

For a BDC application, you should be prepared to provide information such as:

• Agreed purchase price
• How the price was determined
• Asset or share purchase structure
• Letter of intent
• Expected closing date
• Required down payment
• Your Notices of Assessment for the previous two years
• Target company’s financial statements or income tax returns

BDC currently states that the business being purchased must be located in Canada and generating revenue. 

3. CSBFP Financing

The Canada Small Business Financing Program (CSBFP) can also be relevant to certain business acquisitions.

However, there is an important distinction.

CSBFP financing does not simply finance the purchase price of an entire company.

Under the current program rules, the purchase of eligible assets of an existing business may qualify. The amount that can be financed is generally limited to the lesser of the purchase cost and the appraised value of the eligible assets. 

This distinction is critical when structuring an acquisition.

Example

Suppose you’re buying a company for:

$750,000

The transaction includes:

• Equipment: $250,000
• Commercial property: $300,000
• Inventory: $50,000
• Goodwill: $150,000

Not every component necessarily receives the same treatment under CSBFP rules.

The lender needs to determine which assets are eligible and how the acquisition is structured.

Can CSBFP Finance a Share Purchase?

Generally, no.

CSBFP rules distinguish between acquiring eligible business assets and acquiring shares.

The official program guidance states that the acquisition of shares is not eligible for CSBFP financing. (Innovation Canada)

This is one reason why the difference between an asset purchase and a share purchase should be discussed with your lawyer, accountant and financing provider before signing the transaction documents.

4. Seller Financing

Seller financing—sometimes called vendor take-back financing—can be another component of an acquisition financing package.

Under this arrangement, the seller finances part of the purchase price.

For example:

Business purchase price: $1,000,000

• Buyer equity: $200,000
• Bank/BDC financing: $600,000
• Seller financing: $200,000

Seller financing can help bridge a funding gap between the buyer’s available equity and the total purchase price.

However, its structure, ranking and terms need to be carefully negotiated.

Also note that seller financing has specific treatment under CSBFP rules; vendor take-back financing itself is not eligible expenditure for a CSBFP loan.

5. Personal Savings or Equity

Most acquisition financing structures require the buyer to demonstrate some level of financial commitment.

This can come from:

• Personal savings
• Investment capital
• Existing business profits
• Investment partners
• Family investment
• Other legitimate sources of equity

Putting your own capital into the transaction demonstrates financial commitment and can reduce the amount of debt required.

6. Business Line of Credit

A business line of credit may be useful for post-acquisition working capital, even if it isn’t the primary acquisition financing.

For example, after buying a company, you may need funds for:

• Payroll
• Inventory
• Supplier payments
• Marketing
• Repairs
• Working capital
• Unexpected expenses

This is especially important because a buyer shouldn’t assume that all available cash should be used toward the purchase price.

Maintaining adequate working capital after closing can be just as important as completing the acquisition itself.

7. Commercial Real Estate Financing

If the acquisition includes a commercial property, separate real-estate financing may be appropriate.

For example, you may be purchasing:

• Restaurant + building
• Manufacturing facility
• Medical practice + commercial property
• Warehouse
• Retail property
• Professional office

Separating the real-estate component from the operating business can sometimes create a more appropriate financing structure.

What Do Lenders Look At When Financing a Business Acquisition?

This is where many buyers make mistakes.

Lenders don’t simply ask:

“How much does the business cost?”

They want to understand:

“Can this business generate enough cash flow to repay the proposed financing after the acquisition?”

1. Historical Revenue

Lenders will typically want to see the company’s historical sales.

They may examine:

• Revenue trends
• Monthly revenue
• Customer concentration
• Recurring revenue
• Seasonality

Stable revenue can provide greater confidence than highly unpredictable sales.

2. Profitability

Revenue alone doesn’t tell the whole story.

A company generating $2 million in annual sales but very little profit may be less financeable than a company generating $1 million with strong margins.

Lenders may examine:

• EBITDA
• Net income
• Gross margin
• Operating expenses
• Adjusted earnings

3. Cash Flow

Cash flow is particularly important in acquisition financing.

The lender needs to understand whether the business can service:

Existing operating expenses + new debt payments + required working capital.

This is why a profitable-looking business can still have financing challenges if its cash flow is weak.

4. Quality of Earnings

Buyers and lenders need to determine whether reported earnings are sustainable.

For example, a seller might report unusually high profit because certain expenses were temporarily reduced.

A proper analysis should identify:

• One-time expenses
• Owner compensation adjustments
• Non-recurring revenue
• Related-party transactions
• Unusual expenses
• Customer concentration
• Deferred maintenance

5. Your Experience

The lender isn’t only financing the business.

It is also financing you as the new owner.

Your:

• Industry experience
• Management experience
• Financial knowledge
• Operating experience
• Track record

can influence how the lender evaluates the transaction.

6. Purchase Price

The lender will want to understand why the business is worth the proposed purchase price.

You should be able to explain:

• How the valuation was determined
• Revenue multiple
• EBITDA multiple
• Asset values
• Comparable transactions
• Customer base
• Growth potential

BDC recommends understanding valuation and how price relates to the business before completing an acquisition. 

7. The Transaction Structure

One of the most important questions is:

Are you buying the assets or the shares?

An asset purchase means you acquire specified assets and potentially assume specified liabilities according to the transaction agreement.

A share purchase means you acquire ownership of the corporation itself.

The tax, legal, financing and liability implications can be significantly different.

Always involve qualified legal and accounting professionals before choosing the structure.

Documents You Should Prepare

A professional acquisition financing application should be well organized.

Buyer Documents

Prepare:

• Personal identification
• Personal financial statement
• Notices of Assessment
• Resume/business experience
• Personal credit information where required

BDC currently asks acquisition-financing applicants for Notices of Assessment for the previous two years. 

Target Business Documents

Depending on the lender and transaction:

• Financial statements
• Corporate tax returns
• Bank statements
• Accounts receivable
• Accounts payable
• Existing debt
• Asset list
• Customer information
• Lease agreements
• Major contracts

Transaction Documents

You may need:

• Letter of intent
• Purchase agreement
• Valuation
• Asset purchase agreement or share purchase agreement
• Closing timeline
• Purchase-price allocation
• Financing proposal

BDC specifically lists the agreed purchase price, transaction structure, letter of intent, expected closing date and required down payment among information applicants should be prepared to provide. 

Due Diligence Before Applying for Financing

Don’t rush to the lender before understanding the business.

A proper acquisition due-diligence process should examine at least:

Financial

• Revenue
• Profitability
• Cash flow
• Debt
• Taxes
• Working capital

Legal

• Litigation
• Contracts
• Corporate structure
• Licences
• Employment obligations

Commercial

• Customers
• Competitors
• Market conditions
• Supplier relationships

Operational

• Employees
• Equipment
• Technology
• Processes
• Premises

Tax

• Corporate taxes
• GST/HST
• Payroll obligations
• Potential tax liabilities

A financing approval doesn’t automatically mean the acquisition is a good investment.

Common Mistakes Buyers Make

Mistake 1: Focusing Only on the Purchase Price

A $500,000 acquisition doesn’t necessarily require only $500,000.

You may also need funds for:

• Legal fees
• Accounting
• Working capital
• Repairs
• Inventory
• Technology
• Marketing
• Transition expenses

Mistake 2: Using All Your Cash for the Down Payment

Leaving yourself with no liquidity after closing can create serious cash-flow problems.

Mistake 3: Ignoring Seller Financing

Seller financing can sometimes help bridge a funding gap and align the seller with a successful transition.

Mistake 4: Assuming the Business’s Historical Profit Will Continue Automatically

The business may perform differently after ownership changes.

Customer relationships, employees and suppliers may react differently to the transition.

Mistake 5: Applying Before Understanding the Transaction

Before approaching lenders, know:

• What you’re buying
• How much you’re paying
• Why it’s worth that price
• How much equity you have
• How much financing you need
• How the debt will be repaid

Example: Financing a $1 Million Business Acquisition

Consider a hypothetical Canadian company generating stable revenue and producing strong cash flow.

Purchase price: $1,000,000

Potential financing structure:

The buyer would then need to ensure adequate working capital remains available after closing.

This is only an illustration. Actual financing structures vary significantly based on the business, lender, transaction and buyer.

Can You Buy a Business With No Money Down?

Buying a business with zero personal equity can be challenging.

A lender generally wants to see that the buyer has some financial commitment to the transaction.

However, acquisition structures can sometimes combine:

• Seller financing
• Senior debt
• Mezzanine financing
• Equity partners
• Investor capital
• Other financing sources

BDC notes that acquisition financing can involve a combination of equity investment, senior debt, vendor debt and mezzanine financing depending on the transaction.

The objective is to create a capital structure that allows the business to remain financially healthy after closing.

How to Improve Your Chances of Getting Acquisition Financing

1. Buy a Profitable Business

Stable historical cash flow generally makes financing easier to justify.

2. Choose a Business You Understand

Industry experience can strengthen your credibility.

3. Prepare a Detailed Financial Model

Show:

• Revenue
• Expenses
• EBITDA
• Debt payments
• Working capital
• Projected cash flow

4. Don’t Overpay

A strong business can become a poor investment if you pay too much.

5. Maintain Post-Closing Liquidity

Don’t put every available dollar into the purchase.

6. Build a Professional Financing Package

Give lenders a clear picture of:

• The business
• The transaction
• Your experience
• The financing requirement
• The repayment plan

BDC vs Bank vs CSBFP for Business Acquisition

There isn’t one lender that is best for every acquisition.

Traditional Bank

Potentially suitable for:

• Strong businesses
• Established borrowers
• Conventional transactions
• Buyers with strong financial profiles

BDC

Potentially useful for:

• Business acquisitions
• Succession
• Management buyouts
• Competitor acquisitions
• Growth-oriented transactions

BDC currently offers dedicated Business Purchase or Transfer Financing for qualifying acquisitions. 

CSBFP

Potentially useful when the transaction involves eligible assets and meets the program’s requirements.

However, the participating financial institution makes the lending decision, and share purchases are not eligible under the program. 

Final Thoughts

Buying an existing business can provide a faster route to entrepreneurship than building a company from the ground up—but financing the acquisition requires careful planning.

The strongest acquisition proposals typically demonstrate:

• A reasonable purchase price
• Strong historical financial performance
• Sustainable cash flow
• Experienced management
• Adequate buyer equity
• A realistic repayment plan
• Sufficient post-closing working capital

There are several potential financing sources, including business acquisition loans, BDC financing, CSBFP financing, seller financing, commercial real estate financing and equity investment.

The most important step is to structure the financing around the business’s ability to generate cash flow—not simply around the purchase price.

If you’re considering buying a Canadian business, start preparing your financial information and transaction structure before making a binding commitment.