How U.S. Buyers Can Finance a Canadian Business Acquisition
Looking to finance a business in Canada? Whether it’s a growing start-up, a farming business, or a mid-sized company, cross-border acquisitions offer major opportunities, but also unique challenges.
With SBA loans off the table, U.S. buyers often turn to private lenders, Canadian federal government programs, and creative deal structures. A solid loan application and the right new business setup in Canada can help close the deal smoothly.
What Is Cross-Border Business Acquisition Financing?
Cross-border business acquisition financing is funding that helps a buyer in one country, such as the U.S., purchase a company in another, such as Canada. These deals are more complex because lenders have to navigate two financial systems, currencies, and sets of regulations.
Small Business Administration (SBA) loans are a common source of small business financing and working capital, but they can’t be used to buy a Canadian company. The SBA only supports businesses that mainly operate in the United States, so Canadian acquisitions aren’t eligible.
How to Prepare for Financing a Canadian Acquisition
U.S. buyers should start by putting together a cross-border deal team. It should include both U.S. and Canadian brokers, attorneys, and tax experts, who understand how each country’s laws, financial institutions, and tax structures affect the deal.
Next, line up financing early. Getting pre-qualified shows sellers and lenders that you’re a serious buyer. It also helps you understand your borrowing capacity and the loan amount you can realistically secure. Lenders will review your business plan, cash flow projections, and credit score to assess eligibility.
Depending on your needs, funding may come from term loans, a line of credit, or programs supported by the Government of Canada, such as the Canada Small Business Financing Program (CSBFP). This small business financing program helps with acquiring assets or expanding established, medium-sized businesses.
Financing Options for U.S. Buyers
U.S. buyers exploring a Canadian business acquisition have several financing options to consider.
Canadian bank loans
Some Canadian banks and credit unions work with foreign buyers, but they often require a Canadian entity or business account to process financing. You’ll typically need to show strong annual revenue, solid cash flow, and sometimes a personal guarantee. Expect higher interest rates and shorter amortization periods compared to domestic loans, especially if your assets are based in the U.S.
Private lenders, earnouts, and seller financing
Private lenders can be more flexible in structuring cross-border deals. Seller financing and earnouts are common alternatives that reduce upfront borrowing needs and connect payment to future performance.
Role of EDC, BDC, and other government programs
Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) offer loan programs and guarantees that support cross-border investments. Their focus is often on economic development and helping existing businesses grow, including funding for real estate and other real property, renovations, and intangible assets. These programs may have competitive interest rates and longer repayment terms compared to private lenders.
Using U.S. assets or credit lines
Some buyers use U.S.-based assets as collateral for term loans or a line of credit. Others may rely on existing credit cards or U.S. business credit to cover early, short-term costs like buyer due diligence or leasehold improvements. This approach can help bridge financing gaps while the Canadian side of the deal is finalized.
Negotiation and Deal Structure Considerations
When negotiating a cross-border acquisition, the deal structure is one of the most important considerations. The main options are:
- Purchase specific business assets such as equipment, real estate, and intangible assets
- Limits liabilities for the buyer
- Transfers ownership of the entire Canadian company
- Includes existing contracts and obligations
- Can simplify certain legal and tax processes, but carries more risk
Structuring and closing the deal requires careful coordination between U.S. and Canadian advisors. Legal, tax, and financial experts help assure the transaction complies with local laws, set up proper repayment and financing arrangements, and manage cross-border tax implications. Pre-closing due diligence on cash flow, annual revenue, and business needs is key to avoid surprises.
Setting up a Canadian acquisition corporation can provide additional benefits:
- Facilitates financing and lending approvals
- Creates a clear legal structure for operations
- Helps manage taxes efficiently
- Allows holding acquired assets or shares in a Canadian entity
- Simplifies future growth and potential exit strategies
Unique Challenges and Tips for Cross-Border Buyers
Buying a Canadian business from the U.S. is more complex than a domestic deal and calls for extra attention to structure, timing, and risk.
Tax, withholding, and regulatory considerations
- Withholding taxes. U.S. buyers may be required to withhold a portion of payments to Canadian sellers and report them under both tax systems.
- Investment Canada Act. Certain acquisitions require notification or approval, especially large deals or those involving sensitive sectors.
- Provincial rules. Each province may have its own ownership and reporting requirements that affect how you structure the deal.
- Expert support. Work with cross-border tax and legal advisors to optimize structure and ensure compliance.
Currency exchange and conversion
- Exchange rate fluctuations.Shifts in the U.S./Canadian dollar rate can affect the purchase price and loan repayment costs.
- Hedging options. Tools like forward contracts or multi-currency business accounts help manage conversion risk.
- Financing impact. Keep in mind that interest rates, loan amounts, and repayment terms may differ in Canadian dollars.
For more on cross-border deals, visit BizBuySell’s Learning center. Ready to finance your acquisition? Head over to our Finance Center.