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Loans for accounting practices are for people who want to either expand their firm or go out on their own as an independent CPA. Our guide covers the most common types of loans for accounting practices and what you can expect when evaluating a practice for purchase.
Financing the acquisition of an accounting practice can allow partners of existing firms to expand their business by purchasing other firms, or it can be a way for individuals to branch out on their own as an independent tax agent.
However, getting that financing can be difficult. Many lenders will only consider borrowers who have 3 or more years of experience as a partner of a firm or high-level CPA of a similarly-sized accounting firm.
You don’t want a deal to slip through your fingers because you don’t have the right funding available at the time of sale. Many Canadian financial institutions such as banks, credit unions and online lenders offer sizable business loans. You may even qualify for a CSBFP loan, which is primarily backed by the government and comes with favourable terms designed to support small- and medium-sized businesses.
Besides the options below, you can also check out our table of online lenders that offer business loans of up to hundreds of thousands of dollars.
This is the traditional way many business owners acquire accounting firms. Rather than providing the seller with 100% of the money needed to buy the firm outright, the seller acts as the financier and allows the buyer to make monthly payments for years.
The BDC is the only bank in Canada devoted exclusively to supporting the needs of entrepreneurs. It offers a number of financing solutions with comptetitive interest rates and favourable repayment terms. The BDC can also work with you to produce a financing arrangement that’s customized to suit your needs. Visit bdc.ca for more information and to find out how to speak with a representative about your options.
Although all of Canada’s major banks can help you apply for a CSBFP loan, Scotiabank offers its own in-house business loans of up to $1 million and BMO offers commercial mortgages of up to $1 million to buy or refinance business real estate. You can also get financing from credit unions such as Coast Capital, which offers short-term loans of up to hundreds of thousands of dollars as well as term loans and lines of credits in varying amounts.
You might be able to find business loans from online lender, though most don’t offer loans above several hundred thousand dollars. Peer-to-peer lenders like Lending Loop may be able to connect you with financing in higher amounts. Among the benefits of working with an online lender is that applications are often processed speedily (as long as you submit all the required documentation) and, if approved, you may be able to receive funds within several days.
Lenders take the following points into account to determine if they’ll extend a loan:
This is a brief list, and you should note that lenders will look at every part of the loan before making a final decision. Your experience and financial situation plays a role, along with the state of the practice you’re looking to buy. You may need to provide liquid assets for a down payment, or to show the lender that you’re serious and capable of taking on a new business. Alternatively, unsecured business loans don’t require any collateral but may come with higher interest rates.
Just because you’ve found a good deal doesn’t mean you’ve found the perfect practice for you. There are a variety of points to consider when deciding if you should buy an existing accounting practice.
Generally, a down payment of 20%-50% of the cost of the accounting firm is considered acceptable, although you may be able to negotiate with the seller for less.
When deciding on the size of your down payment, remember that you’ll need to set aside money to put into other aspects of the business including supplies and equipment as well as savings to tap into until you can reasonably ensure that the practice will bring in a steady income.
The amount of your down payment reflects not only your commitment to the purchase but also the amount of risk you’re willing to take from the seller. The greater the amount, the more sellers will view you as personally vested in the deal and the closer you may get towards closing the sale.
Every lender is different, but these are a few points that may set one lender above another when you’re looking to finance the purchase of an existing practice.
Although it might be exciting to expand your business or finally have the opportunity to strike out on your own, it’s not a good idea to apply for a bigger loan amount than you can afford.
It can be easy to get ahead of yourself, especially when the possibilities seem endless, but keeping a handle on the fees and charges applied to your loans is vital. Overextending your finances will only lead to trouble in the future — for your business and your personal finances.
Buying out another CPA firm or expanding your accounting business may be a new process, but it doesn’t have to overwhelm you. Once you’ve secured your loan and found the right practice, seal the deal and expand your client list by learning how to further expand your business financing options.
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