How to pay for a business you buy in Canada

By Succession Market. Last updated 4 November 2026.

How do people pay for a business in Canada?

BDC, Canada's bank for entrepreneurs, says most transactions include three sources of financing: equity, including cash you already hold, bank debt, and vendor financing.

Gaps get filled in a few ways. Mezzanine financing is often used to cover any gap between the price and the other sources. It carries a higher rate than senior debt but has flexible repayment terms. A seller may also take an earnout, which is part of the price paid after closing and tied to performance targets.

How much of my own money do I need?

BDC's rule of thumb, in a 2021 article, was a down payment of 20 to 30 percent of the price. Its current loan page is looser. It says the required down payment depends on the transaction, the business's financial health and your situation, and that a package may combine your own investment, a business loan and seller financing. Treat 20 to 30 percent as a starting point, not a rule.

BDC's buyout article says buyers are expected to invest as much as they can to show their commitment, and often invest a significant amount of their own wealth, including by refinancing personal assets.

Where can I get a loan to buy a business?

From your own bank or credit union, or from BDC. A business acquisition loan, the loan that pays for a business you buy, is each lender's own decision, made on its own criteria.

• A bank or credit union can lend on its own terms, or under the Canada Small Business Financing Program described below. Under the program you take your proposal to the lender you choose, and the lender alone approves the loan. If it says no, the program's advice is to try another lender, because lenders have different criteria.
• BDC has a loan made for buying a business, set out in the next section. BDC says it complements the role of other banks and takes on more risk.

The seller may also let you pay part of the price over time, as a debt you owe the seller. That is seller financing, explained further down.

Can BDC lend me money to buy a business?

Yes, BDC has a business purchase loan. To apply, the business you want to buy has to be in Canada and earning revenue. BDC reviews each request. The loan lists these uses: buy an existing business, buy a competitor or a supplier, complete a management or employee buyout, take over a family business, refinance seller financing, and add financing for intellectual property, goodwill and a client list.

• BDC does not prequalify buyers. It reviews a request once you have identified a business and negotiated the main terms.
• You and the seller must agree on a price before you apply.
• You bring the agreed price and how it was set, whether it is an asset or a share purchase, a letter of intent and a closing date, your required down payment, your Notices of Assessment from the past two years, and the business's financial statements or tax returns.
• You can include legal fees, moving expenses and other one time costs in the loan, and BDC offers interest only payments at the start.

What is the Canada Small Business Financing Program?

It is a federal program. A lender makes the loan, and the government shares the lender's loss if the loan goes bad, up to 85 percent of the lender's eligible loss. The business must have gross annual revenue of $10 million or less. The rules below come from the Act and its Regulations, current to 30 September 2026.

• What it pays for: land and buildings you will own, leasehold improvements, equipment, intangible assets and working capital, and a working capital line of credit. Buying shares is not on the list.
• How much: up to $1,000,000 in term loans. Of that, no more than $500,000 can go to anything other than land and buildings you will own, and within that no more than $150,000 to intangible assets and working capital. A line of credit for working capital can add up to $150,000.
• Land and buildings: at least half the area must be used for the business, or be meant to be within 90 days after the last payout, and that part cannot be meant for resale or renting out within three years, with exceptions for health care, hospitality and mini storage businesses.
• Buying a going concern: if you use the loan to buy all or substantially all of the assets of a business that has operated within the last 60 days, you need an appraisal made within 365 days before the loan is paid out. The loan is then based on the lesser of the cost and the appraised value.
• What it costs: the lender may charge you a registration fee of 2 percent of the loan. A floating rate cannot exceed the lender's prime rate plus 3 percent. The longest term is 15 years.
• What the lender can ask for: security on the business's assets, which must be first ranking for the land, buildings and equipment the loan buys, and personal guarantees of up to the original amount of the loan, plus interest and legal costs if it goes to court.

What is seller financing, or vendor take back?

It is a form of acquisition debt that lets you hold back part of the price as a debt to the seller. You pay it back with interest, usually over three to five years, and payments are often deferred for the first year. BDC describes it as almost always junior debt, ranking below bank loans and other financing.

• The seller is usually secured by a lien on the company's property and assets, and BDC says the seller may be able to step back in and take over the business if you default.
• An earnout makes part of the price depend on results, paid after closing against performance targets.
• Banks usually want their own loan paid first.

How do I pay for goodwill?

Goodwill is the value a business has beyond its equipment: its name, its customers and its reputation. BDC says banks usually prefer loans secured by assets such as inventory, real estate and equipment, and that a business valued for its reputation or intellectual property can make it harder for a buyer to borrow the full price from a bank. Bankers ask whether the price is mostly hard assets or mostly goodwill, because the financing on offer depends on what you can give as security. Three routes help:

• Seller financing, which BDC says can help close a deal when you cannot raise the whole price any other way.
• BDC's loan, which lists extra financing for intellectual property, goodwill and a client list.
• The federal program, which allows up to $150,000 for intangible assets and working capital.

Can I bring in a partner or an investor?

Yes. BDC says another source of equity can be an outside investor who becomes an owner of the combined company. Its buyout article says passive investors should contribute more than money, through advice, networks and experience, and that interests and vision should be aligned. Put who owns what, and who decides what, in writing before you sign anything with the seller. Your lawyer papers it.

Does buying shares or assets change what I can finance?

Yes for the federal program, because its rules list assets, not shares. BDC asks which one it is when you apply. BDC also says buyers may want assets because of the tax benefits. Ask your accountant and your lender before you settle the structure.

What do lenders ask a buyer?

Expect your banker to ask for a business plan and financial projections for the next 12 to 18 months, BDC says. Bankers also ask why the owner is selling, whether it is a share or an asset purchase, how the price was set, what the price includes, what experience you have in the industry, and what the business's financial health is. BDC warns that an overly optimistic forecast can leave you in trouble if payments are tied to targets you miss.

What should I do first?

1. Meet lenders and investors before you approach a business, so you do not negotiate a deal you cannot finance.
2. Agree how the price will be paid, including any seller financing, when you sign the letter of intent.
3. Agree a price and a closing date. BDC reviews a loan request only after the main terms are set.
4. Start early. BDC says to begin the financing process as early as possible, to avoid delays and issues with the sale.

Your lawyer papers the deal and your accountant advises on tax. Both are yours to choose.

Questions buyers ask

Sources

1. Business Purchase or Transfer Financing, BDC, read 4 November 2026.
2. What is the minimum down payment to buy a business?, BDC, published 11 March 2021, read 21 October 2026.
3. How to finance a business acquisition, BDC, read 21 October 2026.
4. Vendor financing (VTB) for mergers and acquisitions, BDC, updated 7 November 2022, read 21 October 2026.
5. What are the steps to buying a business?, BDC, updated 28 July 2025, read 21 October 2026.
6. How to conduct due diligence when buying a business, BDC, updated 24 November 2025, read 21 October 2026.
7. How to execute a successful management buyout (MBO), BDC, read 21 October 2026.
8. How to minimize taxes when transferring shares in your corporation, BDC, updated 4 October 2022, read 21 October 2026.
9. Canada Small Business Financing Regulations (SOR/99-141), Justice Laws, Government of Canada, current to 30 September 2026, read 21 October 2026.
10. Canada Small Business Financing Act (S.C. 1998, c. 36), Justice Laws, Government of Canada, current to 30 September 2026, read 21 October 2026.
11. Frequently asked questions for small businesses, Canada Small Business Financing Program, Innovation, Science and Economic Development Canada, read 4 November 2026.
12. How the Buyers Market Club works, Succession Market, buy page, read 21 October 2026.

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