Closing an acquisition loan does not close the cash question. The business still has to make payroll, carry inventory and cover a slow month while the new ownership settles in, and the financing that pays for the purchase is not automatically the financing that pays for that.
Key takeaways
An acquisition loan pays for the purchase. It does not, on its own, pay for the weeks after closing when payroll still runs, inventory still has to be carried, and a slow month can still happen before new ownership has had time to settle the business down. That gap is what a working capital facility is for, and under the Canada Small Business Financing Program it can be funded from two different places at once.
Inside the CSBFP term loan itself, up to $150,000 of the $1,000,000 ceiling can be used for intangible assets and working capital costs combined — a single sub-cap shared between two different uses, so a deal that allocates most of it to intangibles leaves less room for actual cash working capital inside the term loan. Separately, a CSBFP line of credit of up to $150,000 is available, and per the programme's own 2022 changes bulletin this amount sits “over and above” the working capital allowance inside the term loan — the two are stackable pools, not the same money counted twice. Combined, that is up to $300,000 of CSBFP-eligible working capital capacity on a single acquisition, before accounting for whatever portion of the $150,000 term-loan sub-cap actually goes to cash rather than intangibles.
The two facilities are not identical products. Term-loan interest is capped at the lender's prime rate plus 3% on a variable-rate loan (or the lender's single-family residential mortgage rate plus 3% fixed); the line of credit is capped higher, at prime plus 5%. Lenders may also charge the same fees on either facility that they would on a conventional loan of the same size — those fees are paid directly to the lender and cannot be financed into the loan, unlike the programme's own 2% registration fee.
A lender sizing a working capital facility alongside an acquisition term loan is reading the same debt-service coverage ratio it used to size the acquisition loan in the first place — Canadian lending practice generally targets roughly 1.25 times SDE on smaller deals and 1.30 times EBITDA on larger ones. A target with thin post-close cash flow does not just risk a resized or declined term loan — the same shortfall shrinks how much working capital the lender is willing to extend at the same time, because both facilities are drawing on the same coverage capacity.
$150,000 is a ceiling, not a target, and a business with genuinely larger working capital needs — a longer inventory cycle, seasonal swings, or a receivables book that grows with revenue — will outgrow the CSBFP line quickly. Deavo's own capital-stack breakdown places conventional working capital support outside the smallest deal band with different lenders entirely: a commercial bank, BDC, or credit union term loan sized on EBITDA once a deal moves past the smallest band, and mezzanine financing, typically priced in the 8 to 12% range and often paid in kind, once a deal moves past roughly five million dollars. None of that capacity is government-guaranteed the way the CSBFP line is, and none of it carries the CSBFP's 2% registration fee — but none of it is capped at $150,000 either, which is exactly why a platform financing a programme of successive acquisitions rather than one deal tends to graduate off CSBFP working capital altogether once its individual deals cross into that territory.
Deavo's own published worked example on a $750,000 acquisition shows what the arithmetic looks like once a facility is actually sized: 25% buyer equity ($187,500), a 15% vendor take-back ($112,500), and 60% bank-plus-CSBFP debt ($450,000), producing an estimated monthly debt service of $5,579, or $66,900 a year, against a deal the tool models at a 3.88 times debt-service coverage ratio — comfortably above the roughly 1.25 times floor a lender is actually looking for. Deavo frames the figure as “an illustrative estimate only — never a financing offer, pre-approval, or financial advice,” and it is worth reading that way here too: it shows the shape of the calculation, not a number to expect on a different deal.
A working capital facility negotiated as an afterthought, once the acquisition loan is already locked in, is negotiated from a weaker position — the lender has already seen the full debt load the business is carrying, and there is no leverage left to trade one facility's terms against the other. Requesting the term loan, the line of credit and the registration fee financing together, as a single package sized against one coverage calculation, is what keeps a buyer from discovering a working-capital shortfall in month two rather than at the closing table, when there is still room to adjust the purchase price, the vendor take-back or the buyer's own equity contribution to close the gap.
A buyer closing a $780,000 CSBFP-financed acquisition — $630,000 term loan, of which $150,000 is allocated entirely to intangible assets, leaving none of that sub-cap for cash working capital inside the term loan itself — adds a separate $150,000 CSBFP line of credit to cover the first several months of payroll and inventory after closing. Because the line of credit sits over and above the term loan's own working-capital allowance, the buyer has access to the full $150,000 in new working capital, priced at prime plus 5%, without reducing what was available inside the $630,000 term loan. Had the buyer instead allocated only $50,000 of the term loan's shared sub-cap to intangibles, the remaining $100,000 of that sub-cap would have been available for cash working capital as well — on top of, not instead of, the separate $150,000 line of credit.
No. They are two separate, stackable pools. The term loan can allocate up to $150,000 of its own $1,000,000 ceiling to intangible assets and working capital combined, and a separate line of credit of up to $150,000 is available over and above that amount, per the programme's own 2022 changes bulletin.
No. The term loan's interest rate is capped at the lender's prime rate plus 3% (variable) or the lender's residential mortgage rate plus 3% (fixed); the line of credit is capped higher, at prime plus 5%.
Yes. A lender sizes both facilities against the same debt-service coverage ratio it used for the acquisition loan, so a target with thin post-close cash flow can see its available working capital reduced at the same time its term loan is being resized or declined, not independently of it.
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