Paying closing costs and transaction costs with business proceeds

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by a searcher from University of Victoria
in Vancouver, BC, Canada

1yr ago

Paying closing costs and transaction costs with business proceeds

I'm looking for some confirmation that what I'm thinking is possible and not entirely uncommon, and/or would welcome any alternative approaches. Given the large property transfer tax, the decision as to how I might best handle this has more considerable implications than previous deals I've worked to structure. This is in Canada, but I imagine the mechanics would be similar in America.

My transaction accountant has explained that the business can pay for the transaction costs, so I'm trying to figure out the actual logistics of this.
- Accounting & Legal ~ $30,000
- Bank Fee ~ $25,000
- Environmental Survey - $4,000
- Property transfer tax ~$100,000
Total = ~$160,000 - $180,000

It's my current thinking that these are fine to just be additional capital contributed prior to closing and treated as as shareholder loan, but then repaid by the business as it's able to. If needed, this could be convertible debt for more security. The bank has restrictions against repaying our initial shareholder equity, but I'm not yet sure if these will be caught in those restrictions. I don't want the fees to be treated as equity and to dilute ownership further.

Other options would be expanding the vendor note, mezz debt, or flexing the business LOC a bit. All less ideal in my opinion.

Does anyone have any other ideas about creative ways to handle this?

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reply by an intermediary 1yr ago
from Babson College in Boston, MA, USA

Thanks for the tag. Unfortunately I have no experience with Canadian tax laws to comment, I assume that’s what OP is interested in. In the US it would be deductible by the business however in general.
regarding equity question. If the lender won’t allow you to repay equity, they likely would t allow you to repay a stockholder note either. From my experience, they treat them as one and the same or tie the repayments to strict covenants based on excess cash flow.

reply by a lender 1yr ago
from California State University, Sacramento in Seattle, WA, USA

I’ll answer from a US based SBA loan perspective. All those costs you’d add to the total project and include in the overall loan structure.