Ask what percentage a bank will lend and you get a band, not an answer — the real ceiling is set by how much debt the target's own cash flow can service, with a federal loan programme's dollar caps sitting underneath that as a separate constraint.
Key takeaways
A capital-stack breakdown published by Canadian business marketplace deavo.ai, covering deals from $200,000 to $30,000,000, puts typical senior debt at roughly 60% of price on a micro or main-street deal ($200,000–$1,000,000), around 55% on a small deal ($1,000,000–$5,000,000), rising to a leverage-multiple framing on mid-market deals of roughly 3.0× EBITDA in senior debt, plus about 1.0× EBITDA in mezzanine, for around 4× total leverage (5–6× on more aggressive structures). Deavo frames these explicitly as an illustrative estimate, never a financing offer or pre-approval — treat the percentages as a planning range, not a commitment any specific lender will match.
The band exists because “how much will a bank lend” is really two different questions dressed as one: what percentage of price is a lender institutionally comfortable financing, and what will the target's own cash flow actually support servicing. On a healthy, well-documented business the two numbers can line up close to the top of the band. On a business with thin margins or lumpy revenue, the debt-service test binds first and the loan comes in well under the percentage band, regardless of what the deal size alone would suggest.
The same deavo breakdown states the underwriting basis a lender tests against: a minimum debt-service coverage ratio (DSCR) of roughly 1.25× on seller's discretionary earnings (SDE) for smaller deals, moving to about 1.30× on EBITDA once a deal is large enough that lenders underwrite on EBITDA rather than SDE, and 1.2–1.5× on EBITDA at the mid-market band. See the DSCR glossary entry for how the ratio itself is calculated. In practice this means the lender is not asking “what percentage of price can I lend against this collateral” so much as “after debt service, does this business still clear a comfortable cash-flow cushion” — and a business priced aggressively relative to its earnings will hit that ceiling before it hits any loan-to-value limit.
Deavo's own framing of the tool notes the underwriting basis switches from SDE to EBITDA at around $1,000,000 of deal size, which it describes as a switch in underwriting basis, distinct from any pricing-multiple convention — the two should not be merged.
Where the loan runs through the Canada Small Business Financing Programme (CSBFP), the percentage band is capped by a set of fixed dollar limits that apply regardless of deal size. The maximum loan per borrower is $1,150,000. Term loans are capped at $1,000,000, of which no more than $500,000 can go toward purchasing or improving leasehold improvements and equipment, and of that amount a maximum of $150,000 toward intangible assets and working-capital costs. A separate line of credit is capped at $150,000, over and above the working-capital allowance inside the term loan. The registration fee is 2% of the loan and can itself be financed as part of the loan.
The government's own guarantee under this programme is a loss-share, not a direct loan: under the Canada Small Business Financing Act, s. 8, the Minister's liability is capped at the lesser of 85% of the lender's eligible loss and a prescribed maximum amount, and s. 9(2) further caps each lender's aggregate recovery on the tranche above $500,000 at 12%. The lender makes its own credit decision and carries the loss on the portion the guarantee does not cover — which is exactly why the DSCR test above still applies in full even where the CSBFP is involved.
ISED’s own FAQ states this without qualification: “you cannot use a loan to finance items such as share purchases or assets that a holding company acquires.” The programme can only finance the purchase of eligible assets of an existing business, at the lesser of the purchase cost and the appraised value of those assets — term loans can go toward commercial real property, new or used equipment, leasehold improvements, intangible assets, working capital and the registration fee itself.
This collides directly with a seller's tax preference. A seller looking to use the lifetime capital gains exemption generally wants a share sale, not an asset sale. A buyer counting on CSBFP financing needs the opposite structure. Neither side is wrong about what serves their own position — the two preferences are simply incompatible inside this one financing programme, and it has to be resolved in the letter of intent, not discovered during underwriting.
The deavo breakdown puts typical buyer equity at roughly 25% on a sub-$1,000,000 deal (personal savings, often with family or a partner), around 30% on a $1,000,000–$5,000,000 deal (personal capital plus a partner or investor), and 35–45% once a deal reaches the $5,000,000–$30,000,000 mid-market band, where the equity is more often a sponsor, search-fund or private-equity contribution and a small rollover from the seller — roughly 5% at that band — sits alongside it. As equity requirements rise with deal size, the residual space for a vendor take-back narrows too: deavo puts a VTB at roughly 15% (a 10–20% range is common) across the smaller two bands, dropping out of the picture at the mid-market band in favour of mezzanine debt.
A buyer is acquiring the eligible assets of an HVAC service business for $900,000. Applying the micro/main-street band — roughly 25% buyer equity, 15% vendor take-back, 60% senior debt — gives a starting split of $225,000 in buyer equity, $135,000 in vendor financing, and $540,000 in senior debt.
The $540,000 senior tranche has to clear the CSBFP's own sub-caps before it clears the DSCR test. Of that amount, the equipment and leasehold-improvement portion of the deal is capped at $500,000 inside the programme's $1,000,000 term-loan ceiling, so as long as the equipment/leasehold component of the purchase is itself under $500,000 — plausible for a service business without heavy owned real property — the structure fits inside the programme's limits, and the $1,150,000 per-borrower ceiling is not close to binding at this deal size.
The DSCR test is the one that actually decides the loan. If the business's trailing SDE is $215,000 and the $540,000 loan amortizes over ten years at an all-in rate the lender estimates around 8.5% under the CSBFP's cap of prime plus 3% on fixed-rate term loans, annual debt service on that tranche runs to roughly $80,340. Against $215,000 of SDE, that is a coverage ratio of about 2.68× — comfortably above the roughly 1.25× floor the lender is testing for, which is what allows the loan to be approved at the full $540,000 the percentage band suggested. Had the trailing SDE instead been $95,000, the same $540,000 loan would clear a coverage ratio of only about 1.18× — below the floor — and the lender would cut the loan back, not lend at the same percentage against a weaker cash-flow base. The purchase price sets the starting split; the earnings set what the bank will actually fund.
Treat it as a starting planning range, not a commitment. Deavo’s own capital-stack breakdown states it is an illustrative estimate, never a financing offer or pre-approval, and the actual number a specific lender approves depends on the debt-service coverage test against the target's real earnings.
Nothing in the sourced material here confirms that mechanism. What is confirmed is the $1.15 million per-borrower ceiling on the CSBFP loan itself; a buyer needing more should raise it directly with the lender rather than assume a stacking structure is available.
Because the constraint that usually binds first is not collateral, it is cash flow: a loan the business's own earnings cannot service at a lender's minimum debt-service coverage ratio is a loan most commercial lenders will not approve regardless of what collateral secures it.
A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email as each measure is published.
