What does BDC need before it will finance a small business purchase?

Figures verified on BDC's own pages on 2026-10-26.

A deal that already exists. BDC says it does not prequalify buyers and does not keep a list of businesses for sale; it reviews a request after the buyer has found a business and negotiated the main terms, so the work that decides the answer happens before the application, in the letter of intent and in the numbers behind the price.

What BDC asks for

BDC's business purchase or transfer loan page lists what a buyer should have in hand before applying (verified 2026-10-26):

• A Canadian business that is generating revenue, with an established client base. Start-ups and franchises are pointed to a different product.
• A clear transaction structure: asset purchase or share purchase.
• An agreed purchase price, including how it was determined.
• A letter of intent and an expected closing date.
• Knowledge of the required down payment.
• Notices of Assessment from the past two years.
• The business's financial statements or income tax returns.

The same page says the loan can cover goodwill, client lists and intellectual property, can refinance seller financing, and can roll closing costs such as legal fees into the loan. Repayment can start interest-only, and BDC states it will not change terms or demand early repayment without a valid reason. The page gives no loan amounts, rates or terms; those are set deal by deal. Credit unions and banks ask for the same file, and most add the Canada Small Business Financing Program on the hard assets where it fits.

How the price usually gets paid

BDC's own guidance shows a purchase is rarely one loan. Its article on financing an acquisition walks through a share purchase at five times EBITDA where the senior lender advances three times EBITDA, the vendor carries 20% of the price as a vendor note, mezzanine financing fills the remaining gap, and the buyer's equity is the smallest piece. In a separate article BDC's senior account manager gives the rule of thumb that the buyer's down payment should cover 20% to 30% of the purchase price, and that an insider who has worked in the company for years may need less because they carry less risk. BDC's vendor financing article says a vendor note typically amounts to 10% to 15% of the transaction, is usually repaid over three to five years, often with payments deferred for the first year, and is almost always subordinate to the bank.

Worked example

Take a trades business listed at $900,000 with adjusted earnings of $300,000 on the listing sheet. If the senior lender will go to three times the earnings it accepts, the buyer's plan might be a $540,000 term loan (60%), a $135,000 vendor note (15%) and $225,000 of buyer cash (25%). Now suppose the lender's review removes $60,000 of add-backs that cannot be documented, so the earnings it lends against are $240,000. Three times that is $720,000, which still covers the term loan, but debt service on $675,000 of borrowing (about $132,000 a year with the term loan at 8% over seven years and the vendor note at 6% over five) now takes 55% of the earnings instead of 44%, and coverage drops from about 2.3x to 1.8x. If the review removes $120,000 instead, coverage falls to about 1.4x, the senior lender is likely to cut the loan or ask for more equity, and the structure starts to lean on the vendor. The add-backs decide the financing, not the asking price.

Two things follow for a small trades or service business, where the price is mostly goodwill:

1. The senior lender sizes its loan off normalized earnings, not off the listing's cash flow. BDC's article is explicit that value rests on EBITDA with non-recurring items removed, and that the multiple reflects how dependable the profits are.
2. The buyer's cash plus the vendor note has to cover whatever the senior loan does not. If the add-backs do not survive, the senior loan shrinks and that gap lands on the buyer or the seller.

What lenders ask about the price

BDC lists the questions a lender will put to the buyer: why the owner is selling; whether it is a share or asset deal; how the price was set, such as a multiple of EBITDA or an outside appraisal; what is included in the price and whether it is hard assets or all goodwill; the buyer's industry experience; and the target's financial statements compared with its industry. It also wants a business plan with projections for the next 12 to 18 months, and warns against overly optimistic forecasts.

Those are not paperwork questions. Each one is a place where a deal can quietly lose its financing. A price set at a multiple of earnings that include a family member on payroll at no real cost, or a one-time contract, will not hold once the lender normalizes it. An all-goodwill purchase with a thin down payment gives the lender no security to lend against. A buyer with no trade experience raises the risk the lender prices into the terms, or declines.

Three things to do before the LOI

1. Normalize the earnings yourself, line by line, and keep only the add-backs you can prove with documents. Size the senior loan off that number, not the seller's.
2. Work out the financing stack on paper: buyer cash, senior loan, vendor note, and any gap. If the gap is real, put the vendor note in the first offer; BDC says raising it early is what makes it work.
3. Match the LOI to what the lender will need: purchase price allocation, structure, closing date, and the statements the seller will hand over. A lender that gets a complete file moves faster than one that has to ask.

FAQ

Does BDC finance 100% of a business purchase? Its pages do not say so, and its guidance describes a stack of buyer equity, senior debt, vendor financing and sometimes mezzanine. Plan on a down payment in the 20% to 30% range unless you are an insider with a track record in the business.

Will BDC lend on goodwill? Yes. BDC's purchase loan page names goodwill, client lists and intellectual property as things the loan can cover. The amount depends on the earnings, not on a formula published on the site.

Can I get a BDC pre-approval before I find a business? No. BDC says it does not offer prequalification and reviews a request once a business has been identified and the main terms negotiated.

Does a vendor note help or hurt with the bank? It helps. BDC's vendor financing article says a vendor who finances part of the price signals confidence in the business, and lenders take it as evidence the buyer can repay. The note sits behind the bank and is usually paid after the bank is serviced.

Sources

• BDC, Business purchase or transfer loan (what to have before applying; goodwill, client list and IP; interest-only start; no prequalification)
• BDC, What is the minimum down payment to buy a business? (20% to 30% rule of thumb; lender questions; 12 to 18 month projections)
• BDC, How to finance a business acquisition (worked example at 5x EBITDA: senior 3x, vendor 20%, mezzanine, equity; normalized EBITDA)
• BDC, Everything you need to know about vendor financing (10% to 15% of the transaction; three to five years; first-year deferral; subordinate to the bank)

General information, verified 2026-10-26. Program and lender rules change; confirm with your lender before relying on them.