Written by Parker Easter
JD Candidate 2023 | UCalgary Law
Co-Founder | ReNu Hygienics
Most are familiar, many are excited, and a few are disgruntled; the great generational wealth asset transition (somewhere between $30-70 trillion!) is among us and is well discussed. However, the conversations surrounding the $2 trillion worth of Canadian baby boomer business soon to enter the robust small and medium business mergers and acquisitions (“SBA”) are far and few between.
Considering some studies report that as much as 62% of Canadian business owners plan to use the proceeds of their business exits to fund their retirement, ensuring the demand-side of the market is equipped and able is critical to the macro-economic health of the country. Unfortunately, this requirement is met by overleveraged, unsecured, and unaccredited prospective buyers – Canadian youth. How overleveraged, unsecured, and unaccredited are our youth? Well, it is difficult to say but one Industry Canada report summed the problem up well:
“Very few studies containing empirical data are available in the literature describing youth SME financing, although significant anecdotal evidence of barriers to attaining financing can be found. Youth owned SMEs must overcome all of the same obstacles that any venture must overcome in their quest for capital. However, some of the obstacles are even more pronounced in this group as they do not have extensive career track records or significant personal assets to use as collateral. Compounding this is a strong likelihood of no personal credit history and often a large student loan debt.”
Sufficient to say that while our youth will make up an uncertain, but surely sizeable, amount of the acquisitions needed to match the nearing supply, their barrier to bank loans generates concern. As such, this article sets out to provide insight to prospective buyers by vetting the main sources of SBA financing available to Canadians – even our youth.
Debt, equity, and seller financing are the three key forms of SBA financing. The best capital structure varies widely and will be unique to each buyer.
Debt Financing for SBA
Debt Financing occurs when a person or entity borrows money for the purposes of an SBA in exchange for the promise that it will pay back the entire value borrowed (the “principle”) plus an additional interest fee. In addition to repayment terms, Debt Financing is invariably accompanied by a “down payment” and often with financial performance rules (covenants). Within Debt Financing, there are several vehicles to consider, however, for simplicity, discussed below includes just (1) Bank Financing, and (2) Government Financing.
But where will one come up with the 20-30% down payment often required to obtain the debt finance capital for a SBA? If one doesn’t have the capital themselves, they can look to (1) Equity Financing, or (2) Seller Financing to obtain the necessary finance.
In conclusion, SBA financing can be a complex and challenging process, particularly for Canadian youth who face unique barriers to accessing financing. However, by understanding the landscape of available financing options, small business owners can increase their chances of securing financing and completing successful SBA transactions. Whether through government financing, bank financing, equity financing, seller financing, or a combination of each, there are many ways for small business owners to access the capital they need to grow and thrive.
 Joseph Coughlin, Millennials Are Banking On The Great Wealth Transfer, 4 Words Why You Shouldn’t Cash That Check Yet, Forbes (November 16, 2021), online: https://www.forbes.com/sites/josephcoughlin/2021/11/16/millennials-are-banking-on-the-great-wealth-transfer-4-words-why-you-shouldnt-cash-that-check-yet/?sh=47f9318b2dde. Note: it is unclear how much wealth is expected to be transferred throughout Canada specifically – articles on this topic often site both American and Canadian pundits but fail to clarify the scope.
 Succession Tsunami: Preparing for a decade of small business transitions in Canada, Canadian Federation of Independent Business (January 2023), online: https://www.cfib-fcei.ca/en/research-economic-analysis/succession-tsunami-preparing-for-a-decade-of-small-business-transitions.
 Are Your Clients Prepared To Sell Their Business? The Canadian Press (November 28, 2018), online: https://www.advisor.ca/tax/estate-planning/are-your-clients-prepared-to-sell-their-businesses/.
 Dr. Ted Heidrick, Financing SMEs in Canada, Government of Canada, online: https://www.ic.gc.ca/eic/site/061.nsf/vwapj/financingsmesincanadaphase1_e.pdf/$file/financingsmesincanadaphase1_e.pdf.
 Tom Venner, Introduction to Capital Structuring, Taureau Group, online: https://www.taureaugroup.com/resource-center/news-articles/capital-structuring-for-the-sale-of-your-business.
 James Chen, How Debt Financing Works, Examples, Costs, Pros & Cons (May 28, 2022), Investopedia.
 Canada Small Business Financing Program, Government of Canada, online: < https://ised-isde.canada.ca/site/canada-small-business-financing-program/en>.
 What is the minimum down payment to buy a business? , BDC, online: < https://www.bdc.ca/en/articles-tools/start-buy-business/buy-business/what-minimum-down-payment-to-buy-business>.
 Michael David, How to finance a business acquisition, Swoop Funding (December 21, 2022), online: https://swoopfunding.com/ca/blog/how-to-finance-a-business-acquisition/
 By exiting the company on a payment schedule instead of in a lump sum, the seller may assume a lower, or at least a spread-out, tax liability.
Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.