Financing Equipment When Buying or Acquiring a Manufacturing Business

Start by separating the equipment from the acquisition price

A manufacturing company may be sold for one headline price even though the buyer is acquiring several different things: machinery, inventory, customer relationships, working capital, real estate and possibly shares of the corporation.

An equipment lender needs to know which identifiable assets it is being asked to finance. A schedule listing the major machines, serial numbers where available, estimated values and ownership is much more useful than a purchase agreement that contains one total number.

Asset purchase and share purchase are different financing questions

If the buyer acquires specific assets, the equipment can often be identified directly inside the transaction. In a share purchase, the corporation continues to own the machinery while ownership of the corporation changes.

That distinction can affect security, documentation, taxes and lender structure. Raymond Leigh can coordinate the equipment-finance side, but acquisition counsel and tax advisers should handle the legal and tax consequences.

Valuation matters because the seller's allocation is not automatically the lender's value

A purchase agreement may allocate a large amount of value to machinery for commercial or tax reasons. A lender may still want independent support for what the equipment is worth in the market.

Older, specialized or related-party assets are more likely to create valuation questions. Our guide on equipment appraisals explains when independent value support may enter the file.

Existing liens do not disappear because the business is being sold

The target company may already have equipment leases, secured loans or general security registrations. The buyer needs to understand which obligations will be paid out, assumed, refinanced or discharged at closing.

That is a legal closing issue as well as a financing issue. The equipment schedule should match the lien and payout work so the new lender is not funding assets that remain subject to an unresolved prior claim.

The lender also cares about the business after closing

The acquisition may change management, debt load, customer mix and available working capital. A profitable seller does not automatically mean the buyer will have the same cash-flow profile after adding acquisition debt and new equipment obligations.

Provide the post-closing structure, buyer experience and financial assumptions. If the buyer is new to the industry, that will be evaluated differently from an experienced operator acquiring a competitor or supplier.

Do not use equipment financing as a label for the whole acquisition

Equipment financing is most useful when there is a clearly defined machinery component that can stand on its own. Goodwill, share consideration, inventory and working capital may require other sources or a broader acquisition structure.

ISED's Canada Small Business Financing Program illustrates this distinction: eligible assets of an existing business may qualify under the program, while share purchases are not an eligible use under those rules.

What to prepare before asking for equipment financing

Bring the purchase agreement or letter of intent, equipment schedule, seller financial information, lien or payout details where known, buyer background and the proposed closing structure. If an appraisal is already available, include it, but do not order one solely for financing until the lender confirms what it needs.

Raymond Leigh can then determine whether the machinery portion fits an equipment-financing route and where another source may be needed for the rest of the acquisition.