Can You Use a Small Business Financing Loan to Buy Shares in Alberta?

You have found an Alberta business you want to buy, and the seller has offered either the shares of the company or its assets. You are also looking at the federal Canada Small Business Financing Program (CSBFP) to help pay for it. The structure you pick can decide whether that loan is available at all.

This article explains how the program treats share purchases and asset purchases, what an asset purchase can be financed with, and the main limits and costs. It is general information, not advice on your deal.

This article covers the law of Alberta.

The short answer: not for a share purchase

CSBFP does not finance share purchases, and it does not finance assets acquired by a holding company. That means a share purchase of an Alberta company cannot be funded this way.

If you need this loan, the deal generally has to be structured as an asset purchase, where you buy the business's assets rather than the company itself. CSBFP can finance the eligible assets of an existing business. Because the holding company point is part of the same exclusion, buying through one is also a problem.

What an asset purchase loan can pay for

The program separates term loans from lines of credit, and each covers different things.

Financing is capped at the lower of the purchase price or the appraised value of the eligible assets you are buying. If the price is higher than the appraised value, the loan is limited to the appraised value, so you would need another way to cover the gap. What counts as an eligible asset in your deal is worth confirming with your lender.

How much you can borrow

The maximum financing is $1.15 million in total. That is made up of up to $1 million in term loans and up to $150,000 in lines of credit. The borrower and the lender negotiate the actual amount, so the maximum is a ceiling and not an entitlement.

Fees, interest caps and who qualifies

The registration fee is 2% of the total loan amount, and it can be financed as part of the loan. Lender fees, such as set-up and renewal fees, are charged separately and cannot be financed under the program.

Interest rates are capped as follows.

• Variable-rate term loans: at most prime plus 3%.
• Fixed-rate term loans: at most the lender's single-family residential mortgage rate plus 3%.
• Lines of credit: at most prime plus 5%.

Eligibility is generally limited to businesses with gross revenues of $10 million or less, and farming businesses are excluded.

Sales tax and registry checks in an asset purchase

Without an election, each property and service in a business sale is treated as a separate supply, so GST (5% in Alberta) can apply to the taxable parts. A joint election by the seller and the buyer on CRA form GST44 can mean no tax is payable on the supplies under the agreement. That election is not available where the seller is a registrant and the buyer is not, and tax is still payable on some items even with a valid election. How this applies to your deal depends on the facts, so it is worth confirming with an accountant or lawyer.

Alberta Corporate Registry searches are requested through a registry agent, and the options include a certified current search, a certified historical search and a certificate of status. These searches can show the registration date, owners, directors and legal addresses. A registry agent charges a government fee plus a service fee, and a certificate of status confirms status as of a given date only. Certificates of status are not available for trade names and partnerships.

Personal Property Registry searches can be made by individual debtor name, business debtor name, serial number, registration number and other types, using a Search Request form submitted at any registry agent office in Alberta. A search returns an exact match, an inexact match, no match, or both exact and inexact matches. For inexact matches, you may need to search the inexact name again or search the specific registration number.

If you switch to an asset purchase: next steps

Changing from a share purchase to an asset purchase is not just a financing choice. It changes other parts of the deal, such as sales tax treatment, what you investigate before closing and how contracts and permits move to you. Those topics are covered in our separate articles on GST in a business sale, due diligence, and transferring contracts, so they are not repeated here.

• Confirm with your lender that the deal is structured as an asset purchase and not a share purchase.
• Check that you are not buying through a holding company.
• Confirm that the business being financed has gross revenues of $10 million or less and is not a farming business.
• Ask for an appraisal so you know the lower of price and appraised value.
• Budget for lender fees, which cannot be financed.
• Check the current ISED program page, because limits, rates and fees can change.
• Speak with a lawyer or accountant before you settle the structure.

Frequently asked questions