How to structure a financial arrangement

Whether your business is just starting out or expanding, understanding the eligibility criteria for different financing options is key to securing the right funding agreement with your financial institution. A well-structured arrangement connects your costs with the resources needed to move forward. This article details various steps to follow to turn your ambition into reality with a plan tailored to your business needs—whether that’s a joint venture, sole proprietorship or something in between.

Structuring your business finances lays the foundations for success. It’s smart to work with a trusted professional, like your accountant, who understands your industry so you can go into any financial meetings with a clear plan. 

Marie-Pierre Levesque, Market Manager at Desjardins, explains: 

“Creating a solid business plan helps you put your vision, goals and steps to reach them clearly down on paper. It’s a practical way to turn your ideas into action and stay focused on your path to success. Think about why your project matters and what you need to get it off the ground. It’s not just about the financial setup—it’s about the overall direction and what you want to achieve.”

Before choosing the structure you need with your financial institution, review the eligibility criteria for each financing opportunity to ensure your business qualifies.

“You need to carefully evaluate your financing options and think about how to fund your business ideas,” says Levesque. “A poor assessment of your funding needs can slow down your project’s progress, especially once the financing process is underway. As your business grows, this financial planning becomes even more important for long-term success.”

This type of funding agreement involves a loan from a bank or institutional investor and may include revolving funds like lines of credit options. Each lender has eligibility criteria to determine repayment capability—credit score, cash flow requirements, collateral—that must be met. These types of arrangements are often formalized with a debt instrument specifying terms, repayment and interest. 

Advantages  

• Keep your funds available for other needs.

• Buy a business without giving up ownership, since interest can be written off.

• Get fast access to capital.

• Easily set up financing, provided the proposal is clear.

• Adjust the financing terms based on the project’s progress.

Risks 

• Frequency of installments with fixed repayment terms can strain finances. 

• It may limit borrowing capacity or available cash flow to support future initiatives. 

Choose a financial institution you trust and feel comfortable working with—financing is a long-term commitment.

In the case of a business acquisition, the seller may agree to receive part of the sale price at a later date. This is a form of deferred payment.  

Advantages  

• Reduce cash needed upfront, which eases financial pressure on the buyer.

• Show seller confidence in the company’s future business performance. 

• Structure a staggered payment plan adapted to future cash flows.

Risks  

• Cause conflict between the seller and buyer if performance targets aren’t met.

• Make drafting contract clauses more complex as it must cover various scenarios.

• Buyers may depend on the seller post-sale, especially to ensure business continuity.

This structure can include cost recovery, compensating the seller as performance benchmarks are met.

A buyout is mostly funded with a loan, and that debt gets paid back through cash flow generated by the acquired company. 

Advantages  

• A company can be bought with a low initial investment.

• Suitable for financially stable businesses.

• Maintain profitability if the acquired company performs well.   

Risks  

• Create financial pressure due to debt repayment.

• Legal and financial setup is more complex.

A holding company acquires shares in another company. It doesn’t produce goods or services itself, but it controls or manages other entities through its majority stake in their capital.

An acquisition is made to consolidate shares of the purchased company and optimize management of financial operations. It helps organize growth projects or business transfers (succession). 

Advantages  

• Protect company assets in case of lawsuits by isolating them from the operating business.

• Get tax benefits on dividends and capital gains.

• Simplify cash flow management between related companies.

Risks  

• It requires strong tax and legal knowledge.

• Can slow down small businesses due to administrative complexity.

This approach can be used in joint ventures. Beyond bank loans and seller financing, some businesses turn to venture capital, private equity, angel investors, grants or strategic partners.

Mezzanine financing blends debt and equity. It typically starts as a loan that may convert into equity, favouring businesses with strong cash flow and growth potential.

Advantages 

• Benefit from more flexibility than traditional loans.

• Manage cash flow more easily.

• May include private equity backing.

Risks 

• May consist of higher interest rates and fees.

• Possible dilution of ownership if a loan is converted into shares.

• It’s a complex structure that sometimes requires negotiations.

This can support joint ventures or government-backed projects, where a program manager may oversee operations.

Understand your goals—whether you’re starting a business, growing a business or planning succession. Assess resources, legal and tax constraints, and your business risk tolerance. The financial arrangement will differ depending on whether a company is a startup or a well-established business. 

“Starting a new business is more than just buying assets,” says Levesque. “It also includes startup costs, marketing expenses and sufficient initial working capital.” 

An existing business typically already has an established structure. In this case, the focus is on optimizing current resources to support modernization, diversification or expansion efforts. The goal is to ensure a smooth transition from the company’s current state to its future growth and success. 

Once you identify your needs, you should compare the various financing options, based on your business size, industry, tax profile and buyer type, where applicable.  Understand how the funding agreement works and how market factors, like interest rates, could affect it.

Choose a legal structure that supports tax optimization and cost recovery. In partnerships, voting based on equity stakes may be used for key financial decision-making.

Negotiate with strategic partners, draft contracts and set up a financing plan. Don’t forget to plan for the working capital required to cover ongoing expenses, based on your business cycle and operations.

Track financial indicators and refine your strategy as needed. You may need to refinance or restructure your arrangement over time.

A simple mistake in a financing plan can make or break your venture. Here are some of the most common ones to watch out for: 

• Underestimating debt burden by relying on overly optimistic projections. Plan for various scenarios and account for unforeseen events. Variable revenues might not be recurring and therefore might not be available for future debt repayment.

• Using working capital for long-term assets. Avoid additional debt that can strain day-to-day operations. 

• Delaying investments, such as digital transformation and modernization/automatization of operations. This is actively promoted by government authorities and backed by a range of provincial support programs. Not keeping up could impact competitiveness and cause a company to miss out on economic development opportunities.

• Unbalanced funding mix. Ignoring the balance needed between personal investment, external financing and self-financing and relying too much on one source could harm long-term viability. 

• Relying on one lender. If you have a high level of debt, this approach increases your exposure to risk. Sound business risk management involves diversifying your sources of financing.

Building a strong financial arrangement helps structure your business’s needs, choose the right sources of funding—including private equity, venture capital or traditional loans like a line of credit option—and prepare for legal, tax and operational challenges. 

Understanding the eligibility criteria for funding sources improves your chances of success.

Personalized support from professionals—such as an accountant, legal advisor or financial officer— can protect your credit rating by keeping your financing plan and relationship with lenders on track with regular financial analysis.

This article is provided for informational purposes only and does not constitute legal, accounting, financial or tax advice. We encourage you to consult with a qualified professional who can address your specific needs.

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