Buying an existing business is one of the most reliable paths into ownership in Canada, but only if you understand how acquisition financing actually works. Unlike startup financing, where capital is based on projections and potential, acquisition financing is grounded in historical cash flow. That difference determines which lenders will talk to you, how much leverage is available, and how much capital you realistically need upfront.
For first-time buyers, including immigrants and newcomers, this matters because acquisition financing opens doors that startup financing often keeps closed.
Why lenders prefer business acquisitions over startups
When you buy a business, lenders are underwriting evidence, not ideas. A typical acquisition package includes two to three years of financial statements and tax returns, details on customers and contracts, and an operating history that shows how the business performs through different conditions.
This allows lenders to evaluate debt service coverage ratio (DSCR), which measures whether the business generates enough cash flow to comfortably service loan payments. While thresholds vary by lender and deal structure, lenders generally want to see clear capacity for debt repayment with a buffer.
Another key metric is SDE (Seller’s Discretionary Earnings). SDE is the cash flow available to a single full-time owner-operator before debt service, after adjusting for owner-specific expenses. In small business acquisitions, SDE is the primary lens used to assess affordability for both buyers and lenders.
This framework is why acquisition financing is accessible at lower risk levels than startup loans. You are not asking lenders to believe in future execution. You are asking them to lend against documented performance.
The main financing options for buying a business in Canada
Business Development Bank of Canada (BDC)
BDC is one of the most active lenders in Canadian business acquisitions, particularly in the small to lower-middle market. BDC finances business purchases and transfers and is often willing to work with buyers who may not fit traditional bank profiles, including newcomers and first-time owners.
BDC evaluates three things above all else: the sustainability of the business’s cash flow, the buyer’s financial discipline and credit profile, and the buyer’s ability to operate the business. Personal guarantees are standard, and buyers are expected to contribute meaningful equity, but BDC is explicitly designed to fill gaps where commercial banks are more conservative.
For women buyers, BDC’s commitment to women-owned and women-led businesses means greater access to advisory support and dedicated relationship management during the acquisition and transition process. The underwriting fundamentals remain the same, but the process is often more navigable.
Traditional bank acquisition loans
Chartered banks do finance business purchases, especially when the business has stable earnings, clean financials, and predictable operations. The main constraint for first-time buyers is the required equity contribution. Banks commonly expect buyers to contribute a significant portion of the purchase price from their own capital.
This “down payment” is not optional. It signals risk sharing. The lender wants to see that you can absorb some downside without immediately defaulting. The stronger the business cash flow and the cleaner the deal, the more flexible banks can be, but acquisition financing is never zero-equity.
As BDC puts it, a common rule of thumb is that buyers should be prepared to cover roughly 20% to 30% of the purchase price as a down payment, though it can vary by deal and lender.
Canada Small Business Financing Program (CSBFP)
The Canada Small Business Financing Program is a federal risk-sharing program delivered through participating lenders. It allows eligible small businesses to access term loans up to program limits, with the government guaranteeing a portion of lender losses.
In acquisition scenarios, CSBFP can make lenders more comfortable extending credit, particularly for smaller transactions or buyers with thinner credit histories. It is important to understand that CSBFP is a framework, not a separate pool of money. The lender still underwrites the deal, and not all parts of a purchase are eligible.
CSBFP works best when the acquisition includes eligible components that fit the program’s structure and when it is layered alongside other financing rather than relied on exclusively.
Seller financing (vendor take-back)
Seller financing is one of the most powerful and misunderstood acquisition tools. A vendor take-back occurs when the seller agrees to receive part of the purchase price over time, rather than all at closing.
For buyers, seller financing reduces the amount of cash required upfront and can bridge the gap between what lenders will finance and what you can contribute personally. For sellers, it can offer tax deferral and ongoing income, particularly when there is no urgent need for full liquidity.
Seller financing is still debt. It must be documented carefully and structured so that total debt service remains manageable. Importantly, seller financing often signals seller confidence. A seller unwilling to carry any portion of the sale price is often telling you something about perceived risk.
How acquisition financing stacks in practice
Most acquisitions are financed through a combination of sources rather than a single loan. A common structure includes buyer equity, institutional debt from a bank or BDC, and a seller note.
The goal is not maximum leverage. The goal is resilient leverage. After debt payments, the business must still generate enough cash flow to pay the owner, fund working capital, and absorb normal operational volatility.
If the numbers only work in a perfect scenario, the deal is not financeable, regardless of lender appetite.
How much cash you realistically need
Every acquisition requires buyer equity. The exact amount varies by lender, deal quality, and business stability, but buyers should expect to contribute meaningful, unencumbered capital. This equity can come from savings, retained earnings, partner contributions, or structured family loans, but it must not undermine the business’s ability to service debt.
The practical question is not “Can I finance this business?” It is “What purchase price does my available equity unlock when combined with safe leverage?”
A financing readiness checklist for buyers
Before pursuing a business acquisition, you should be able to answer yes to the following:
• I understand the business’s true SDE and how it was calculated
• I can explain how debt will be serviced after owner compensation
• I have accessible capital for a down payment and closing costs
• I know which lender or program best fits this deal
• I have a plan for transition and operational continuity
• I have margin in the numbers, not just break-even math
