Understanding Secured Transactions in M&A
A secured transaction in a Private M&A deal occurs when a buyer finances the purchase of a business using borrowed funds backed by collateral. This collateral — often assets of the acquired company — ensures lenders have a legal claim in case of default. Vendor financing, also called seller financing, is an alternative funding method where the seller provides credit to the buyer, helping facilitate smoother ownership transitions.
What Are Secured Transactions in Private M&A?
When buying or selling a business, financing is often key to making the deal possible. In a Private M&A transaction, buyers may obtain loans or credit to fund the acquisition. These loans are typically secured by assets, meaning the lender has a security interest or lien registered against certain property of the business.
At Kalfa Law our Private M&A lawyers in Toronto help structure, draft, and register secured lending arrangements in compliance with the Personal Property Security Act (PPSA), ensuring your transaction is legally sound and financially secure.
Key Components of a Secured Lending Transaction
1. Loan Agreement
A loan agreement outlines the core terms between borrower and lender, including:
- The total loan amount and repayment schedule
- Interest rate and security conditions
- Financial covenants and representations
Our legal team ensures your loan documentation supports your acquisition goals and protects your interests from the outset.
2. Security Agreement
A general security agreement (GSA) defines which assets will serve as collateral. This may include:
- Equipment, real estate, or inventory (tangible assets)
- Intellectual property or accounts receivable (intangible assets)
Kalfa Law Firm drafts and reviews security agreements to ensure enforceability and compliance with Ontario’s PPSA requirements.
3. PPSA Registration
After finalizing the loan and security agreements, a financing statement is registered publicly under the Personal Property Security Act (PPSA).
This process:
- Establishes the lender’s legal claim over the collateral
- Determines priority among creditors
- Protects both borrower and lender interests
Learn more about PPSA registration in Ontario →
Types of Collateral Used in M&A Financing
Tangible and Intangible Assets
Collateral can include:
- Tangible: machinery, vehicles, inventory, or real property
- Intangible: trademarks, patents, goodwill, or receivables
The choice depends on the nature of the target company and the loan structure agreed upon.
After-Acquired Property
In some cases, the security interest may extend to after-acquired property — assets the company acquires in the future. This allows the security to “float” and automatically attach to new property as it’s obtained.
Vendor Financing: A Flexible Alternative
When traditional financing is limited, vendor financing (also called seller financing) becomes a valuable alternative.
Here, the seller extends credit to the buyer and receives payment over time, often with interest.
This type of funding is:
- Common in small business acquisitions
- Typically secured by a second-ranking lien (after the bank or primary lender)
- Useful for ensuring a smooth ownership transition
Alternative Payment Structures in Private M&A
Earn-Out Agreements
An earn-out ties part of the purchase price to the future performance of the acquired business.
It benefits both sides:
- Buyers mitigate risk by paying based on results.
- Sellers share in post-sale success.
Kalfa Law Firm assists in crafting clear, enforceable earn-out provisions that minimize disputes.
Deferred Payments
Buyers and sellers may agree to defer part of the purchase price — either through a balloon payment or installments over time.
This helps buyers manage post-acquisition cash flow effectively while ensuring sellers receive full value.
Why Choose Kalfa Law Firm
At Kalfa Law our M&A and corporate finance lawyers offer:
- Expertise in secured lending and vendor financing
- Deep understanding of Ontario’s PPSA registration process
- Tailored legal strategies for buyers, sellers, and lenders
We guide you through complex financing structures to ensure your business acquisition is both secure and successful.
Related Services
- Purchase of a Business →
- Sale of a Business →
- Corporate Reorganization →
- Private M&A Legal Services →
