How are searchers in Ontario handling "personal guarantees" for senior debt financing?

January 07, 2021

by a searcher from University of Toronto - Joseph L. Rotman School of Management in Toronto, ON, Canada

Hello! I am early in my journey right now and looking to connect with someone who has completed a deal through the search fund model who is based in Ontario, Canada. One of the main questions I have is landing debt financing in Ontario. I understand the equity side a little bit better, but would love to learn from someone who has gone through the process. Specifically, I am curious about how people are handling the "personal guarantees" when it comes to senior debt financing in Canada. Does BDC offer senior debt? Any of the major Canadian banks? I am motivated to launch a Search Fund once I have a clearer picture of the debt side of the process..

Reply by an intermediary
from McMaster University in Toronto, ON, Canada

One of the key advantages of the ISED Federal Government's CDAP program is the absence of personal guarantees. This program offers up to $100K at 0% interest which can be quite beneficial, especially in Ontario's competitive market. More details about this unique program are available here: https://www.searchfunder.com/post/cdaps-100k-0-interest-loan-the-financial-windfall-for-your-business

Reply by an investor
from Ivey Business School at Western University in Toronto, ON, Canada

Hi Shobhit, I've done an Ontario search deal. My suggestion would be to approach the commercial bank groups of the big five banks for senior debt, as your starting point. Provided you've raised a search fund and have reputable investors behind you, I would not entertain any form of personal guarantee. The structure and logic of a search deal is the same as a traditional private equity fund - who the banks would never consider asking for a PG. Ultimately, you should be able to avoid this with proper planning and investor backing. Good luck! Bruce

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