Compare financing options for accounting practices

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.

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How does financing an accounting firm work?

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.

Where to get financing to buy an 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.

• Seller financing

  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.

• Canada Small Business Financing Program (CSBFP)

  You can apply for these loans through a chartered bank, credit union or a caisse populaire. They are at least 75% backed by the Government of Canada. Your business must make under $10 million in revenue annually to be eligible for this program. You can access up to $1,000,000 in funding, but you’ll need to be a for-profit business, use the loan funds for specific approved purposes, earn less than $10 million in revenue annually and operate a business in Canada.

• Business Development Bank of Canada (BDC)

  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.

• Banks and credit unions

  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.

• Online lenders

  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.

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Name	Product	Interest Rate	Loan Amount	Loan Term	Minimum Revenue	Minimum Time in Business	Loans Offered
OnDeck Business Loan		8.00% – 29.00%	$5,000 - $300,000	6 - 18 months	$100,000/year	6+ months	Secured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000. OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.	Go to site More Info	Compare	loading Fetching your data...
Merchant Growth Business Loan		12.99% - 39.99%	$5,000 - $500,000	3 - 12 months	$10,000 /month	6 months	Unsecured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales. Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.	Go to site More Info	Compare	loading Fetching your data...
Loans Canada Business Loan		6.60% - 29.00%	$4,000 - $500,000	3 - 60 months	over $10,000/month	100 days	Unsecured Term	To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year). Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.	Go to site More Info	Compare	loading Fetching your data...

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What do lenders look for in an accounting practice?

Lenders take the following points into account to determine if they’ll extend a loan:

• Profit margin. Without a solid net profit margin of 25% or more before partners’ salaries, lenders may not consider the practice a good purchase.
• Profit per partner. Lenders want to see that your practice is profitable with a sizable income for all its partners.
• Minimal work in progress days. Lenders prefer to see that your firm has good turnaround and doesn’t hold payments in limbo for months.
• A solid interest coverage ratio. The interest coverage ratio should be more than 1.75 times the earning rate before interest payments, tax, depreciation and amortization.
• Your down payment. If buying an existing practice, you should have between 10% to 15% of the purchase price in liquid assets.

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.

What should I consider when buying an accounting practice?

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.

• Can the firm withstand an economic downturn? Although most CPA practices do quite well when dealing with this issue, it’s something you should consider if the firm hasn’t been through a recession.
• Should you invest in a business broker? You may want to get the help of a business broker who specializes in accounting firms to guide you through the process. A bank could miss something that a good broker won’t, and using a broker may qualify you for a higher loan amount or a lower interest rate.
• What is the reputation of the partners? You don’t just buy a firm. You also buy its reputation, and if the partners or other accountants don’t work well with clients or don’t handle their business well. You should gather this information before the sale, including current business financials and client lists.
• How is the business run? Dedicating some time to seeing how the day-to-day business is run ensures that you’re getting all the information you need before agreeing to buy. If you run your firm differently or want to change things up, understanding the current business model will help you make necessary changes.
• How large is the business? It’s easier to manage a business that only has one owner and doesn’t generate a huge amount of income. If you’re looking to expand your current accounting firm, buying one of these makes it easier to incorporate it into your business.
• How are the clients charged? Clients chose this practice for a reason. Consider if they’re used to being charged biweekly rather than monthly or a percent of their transactions. It’s always best to be willing to work with the clients.

How much should my down payment be?

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.

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How should I compare loan offers?

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.

• High maximum amounts. Some lenders may offer you 3X the earnings of the practice before interest. This allows you to fully finance your purchase and make sure the seller is happy when the acquisition paperwork goes through.
• Flexible payment terms. The first few years of transition can be stressful for partners and clients alike. Some lenders offer flexible payment terms to ease some of the immediate pressure on your financial reports.
• Variable and fixed interest rates. CSBFP loans often have interest rates that change quarterly. Seller-financed loans tend to have fixed interest rates, but it may increase or decrease depending on how well (or poorly) the business does once the firm has changed hands.

Bottom line

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.

Frequently asked questions

• What is the typical loan term?

  The typical accounting practice loan term is 10 to 15 years.

• Should I use a business broker?

  While this is certainly an important business decision you should make with your partners, it may be a good idea to hire an outside broker to go over the financial details of the deal. Find someone who has years of experience in the field to point you in the right direction.

• How much can I borrow?

  Most lenders will expect a minimal down payment for a loan used to purchase an existing accounting practice. You may be able to borrow up to 80% of the firm’s value.