Anonymised, illustrative composite. The seller's materials described “our 22-vehicle fleet.” Diligence found the corporation owned five of them.
At a glance
A logistics-focused platform agreed to acquire a regional courier business whose seller's information memorandum described “a 22-vehicle fleet serving same-day and next-day accounts across the region.” The buyer's initial financing model treated that fleet as roughly $1,650,000 of equipment value — 22 vehicles at an average appraised value of $75,000 — comfortably supporting the $500,000 term-loan sub-limit under the Canada Small Business Financing Program the buyer intended to use for part of the purchase price. (That $500,000 is not an equipment allowance: s.6.1(a) of the Regulations caps at $500,000 everything in a term loan that is not the purchase or improvement of real property, with no more than $150,000 of it for intangibles and working capital.)
A title and registration review during diligence found something the marketing materials had blurred: five vans, used for dispatch support and as spares, were titled to the corporation. The other seventeen trucks on the route sheets belonged to the individual drivers who operated them, working under written owner-operator agreements.
Before pricing the gap, the buyer's HR and diligence team tested whether those seventeen drivers were genuinely contractors or employees mislabelled to save on payroll — the same test the Supreme Court set out in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. — the fourfold inquiry into control, ownership of the tools, chance of profit and risk of loss, with the separate “organization” or “integration” test alongside it, all in service of one central question: whether the worker is performing the services “as a person in business on his own account” — that a separate diligence file on a different target, “Contractors who were employees in all but name,” used to find the opposite result.
Here the factors pointed the other way. Each owner-operator owned and maintained their own truck, covered their own fuel, insurance and repairs, invoiced per load with no source deductions taken, and could decline a load or haul for another client on days they were not working this route. On the same test, that is a genuinely independent contractor relationship — low reclassification risk, and correctly documented as such.
Original assumption: 22 vehicles × $75,000 average appraised value = $1,650,000 of equipment, comfortably above the $500,000 CSBFP non-real-property sub-limit. Actual target-owned equipment: 5 vans × $75,000 = $375,000 appraised. Financing gap against the sub-limit: $500,000 − $375,000 = $125,000.
The reclassification question turned out not to be the real issue — the financing question was. ISED's own CSBFP guidance is explicit that eligible equipment financing is capped at “the lesser of the cost of purchase and the appraised value” of the assets actually being acquired, and separately confirms that “the purchase of eligible assets of an existing business may qualify” — assets the recipient is acquiring, not assets it merely operates alongside. Trucks the seventeen owner-operators own and will keep driving for whoever they contract with next are not assets of the business being sold; they leave with the drivers, the same way an employee's own car would. Only the five company-titled vans counted as CSBFP-eligible equipment.
That capped the achievable term-loan financing on equipment at $375,000 — the lesser-of-cost-or-appraised-value test applied to what the target actually owned — well short of the $500,000 sub-limit the buyer's original model had assumed it would fully use. The remaining $125,000 of headroom was not lost to a rule; it simply had no company-owned equipment behind it. It could in principle have been drawn against other eligible purposes inside the same $500,000 — leasehold improvements, or intangibles and working capital up to the $150,000 inner cap — but this target had none to offer, so on these facts the headroom was unusable.
Had the buyer's financing team carried the “22-vehicle fleet” figure through to the lender's final underwriting without an ownership check, the $125,000 shortfall would have surfaced at the worst point in the process — during final loan documentation, days before the scheduled closing, with little room to renegotiate price or terms. As it was, catching the gap during diligence let the buyer simply increase the equity portion of the purchase price by $125,000 to hold the closing date, a planned adjustment rather than a last-minute scramble.
The same gap would have reappeared on every future add-on the platform priced the same way. A logistics roll-up that assumes a target's advertised fleet size translates directly into eligible collateral will underprice its own equity requirement on any target that leans on owner-operators — a pattern common enough in the sector that it is worth checking on the first pass, not discovering deal by deal.
The tell was in the language of the seller's own materials: “our fleet,” with no distinction between owned and contracted equipment. Any deal description of “our” vehicles, equipment or tools should be tested against title and registration before it is underwritten as collateral — the label in a marketing deck is not evidence of ownership, in either direction.
A 30-minute call is enough to tell you whether a structuring or diligence gap like this one is sitting in your pipeline.
