- In a share purchase, the buyer (often through a holding company) acquires the shares of the corporation that owns the business — including all of its existing assets, contracts, and…
- Because the corporation being acquired keeps all its pre-existing obligations, a lender financing a share purchase generally wants: - A share pledge — security over the shares of the…
- Because the buyer is only taking specific assets and expressly assumed liabilities, a lender financing an asset purchase generally focuses on: - PPSA registration directly against the…
Whether a business purchase is structured as a share purchase or an asset purchase doesn't just change the tax and liability picture — it changes how a lender actually secures the loan. The entity borrowing the money, the assets available as collateral, and even what closing conditions the lender imposes can all shift depending on which structure the deal uses.
Buyers sometimes assume financing works the same way regardless of structure and are surprised when their lender's requirements look different from what a friend or colleague experienced in a different kind of deal. This article breaks down where those differences actually show up.
The Core Difference: What the Lender Is Actually Securing
In a share purchase, the buyer (often through a holding company) acquires the shares of the corporation that owns the business — including all of its existing assets, contracts, and liabilities, known and unknown. In an asset purchase, the buyer acquires specific, identified assets, and only the liabilities the parties expressly agree the buyer will assume.
That distinction carries straight through to financing:
| Consideration | Share Purchase | Asset Purchase |
|---|---|---|
| Who is borrowing | Usually the buyer's holdco, which then owns the target's shares | Usually the buyer entity (newco or existing corporation) that is directly acquiring the assets |
| What the lender secures | A pledge of the target's shares, plus a guarantee and security from the target company itself | Security registered under the PPSA directly against the specific assets being purchased |
| Exposure to the seller's existing liabilities | The target corporation (and its assets) come with all pre-existing liabilities, which a lender's due diligence has to account for | The buyer entity generally only inherits liabilities expressly assumed, giving the lender a cleaner collateral pool |
| Due diligence lenders typically emphasize | Broader — corporate history, existing contracts, litigation, and undisclosed liabilities of the target | Narrower — condition and title to the specific assets being purchased and financed |
| GST/HST treatment | A share sale is generally treated as an exempt supply (no GST/HST on the shares themselves) | GST/HST generally applies to most taxable business assets, though the parties can often jointly elect under the Excise Tax Act to have it not apply on a qualifying sale |
Share Purchase Financing: What a Lender Typically Wants
Because the corporation being acquired keeps all its pre-existing obligations, a lender financing a share purchase generally wants:
- A share pledge — security over the shares of the target itself, held by whichever entity ends up owning them
- A guarantee from the target corporation, backed by its own assets, even though the target didn't directly receive the loan proceeds (the money typically goes to the seller for the shares)
- Deeper due diligence on the target's financial statements, material contracts, litigation history, and tax compliance, since all of that comes along with the shares
- Representations, warranties, and indemnities in the purchase agreement that the lender may review closely, since they affect the risk profile of what the buyer (and, indirectly, the lender) is inheriting
Asset Purchase Financing: What a Lender Typically Wants
Because the buyer is only taking specific assets and expressly assumed liabilities, a lender financing an asset purchase generally focuses on:
- PPSA registration directly against the purchased assets — equipment, inventory, receivables — as identifiable collateral
- Confirmation of clear title, often through a pre-closing PPSA search to check for existing liens or security interests registered against the seller's assets
- Allocation of the purchase price among the assets, since different asset categories may be treated differently for both lending and tax purposes
- Third-party consents for any assumed contracts or leases being assigned to the buyer, since the lender's collateral may depend on those agreements actually transferring
Where the Two Structures Converge
Regardless of structure, most Ontario lenders will still expect:
- A meaningful buyer equity contribution
- Personal guarantees from the buyer (or principals of the buyer entity)
- Coordination between the lender's financing conditions and the purchase agreement's own closing conditions
- Subordination arrangements if a vendor take-back (VTB) is also part of the financing stack
The underlying commercial expectations are similar; it's the collateral and the due diligence emphasis that shift with the structure.
Frequently asked questions
Is it harder to get financing for a share purchase than an asset purchase?
Not necessarily harder, but the process usually looks different — a share purchase typically involves broader due diligence on the target's history, while an asset purchase focuses more narrowly on the specific assets being financed. Which is easier depends on the deal, the lender, and how clean the target's records are.
Why does a lender want a guarantee from the target company if the target didn't receive the loan?
In a share purchase, the loan proceeds usually go to the seller, not to the target itself — but the lender still wants the target's ongoing assets and cash flow standing behind the debt, since that's where the value ultimately sits. The target's board formally authorizes that guarantee as part of closing.
Does the choice of structure affect how much a lender will finance?
It can. A lender's comfort with the collateral pool and its assessment of inherited-liability risk both factor into how much debt it's willing to provide, and on what terms — there's no fixed rule for how the structure alone changes the available amount, since it depends heavily on the specific deal.
Can the financing structure change after we've already agreed on asset vs. share purchase with the seller?
It's possible, but changing the deal structure partway through can affect the purchase agreement, tax analysis, and any financing commitments already obtained — this needs to be revisited with your lawyer, accountant, and lender together rather than assumed to be a simple substitution.
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