Small Business Bank Loans in Canada – Three Things You Need to Know

When looking for a small business bank loan in Canada many business owners and financial managers quickly realize they are treading on very specialized ground. Let’s examine three things you need to know that will allow you to feel that bank financing in Canada is not insurmountable. The general sentiment among small, medium, and in some cases large corporations is that bank financing is both difficult and challenging in the Canadian marketplace.

Let’s examine three key points that will assist most business owners with overcoming obstacles to Canadian bank financing .They are as follows –

1. Are you looking for operating financing or term financing with your bank – there is a difference!

2. Could a popular program subsidized and supported by the Canadian federal government be the solution to your working capital needs

3. What are the minimum requirements to obtain specialized bank financing

A line of credit or a bank term loan? Is there a difference. There definitely is! If you are looking to either purchase an asset or expand your business your focus should be on the preparation of sufficient data to support that financing request. We feel strong that to be considered for such financing you probably should have an established relationship with the bank already, either on a personal or a corporate basis. It would also help if you had already established some form of operating facility. A bank term loan to acquire an asset, or perhaps make an acquisition comes with a fixed repayment and term, typically five years. You should only consider a bank term loan if you feel you can demonstrate enough financial stability or growth potential. In many cases we recommend to clients that we also sit down with the banker and share some our long term plans and prospects – in many cases discussion can be started around the future acquisition of assets of even a competitors business.

In many cases your firm simply needs an operating facility. If you are an established business, have growth and profit potential, and a relatively clean balance sheet you are in a position to negotiate an operating facility for receivables. Typical facilities margin your receivables at 75% and inventory typically might come in at 40%. We encourage clients to carefully discuss what we will call ‘bulge needs ‘with your banker. This is in many cases where the client and bank relationship falls apart, because the business owner assumes that the bank will support increased temporary needs for the business. If you take your annual revenues and divide by 12 your monthly sales are XX $. However most business owners know sales growth comes in spurts based on incoming orders, contracts, and yes, even the seasonality of your business or industry. Preparing and supplying either a business plan or cash flow projections are invaluable tools to gain credibility wit your banker, and, by the way, you’ll understand your business better.

Let’s move on to point # 2. We tell clients the best bank loan in Canada is not really from the bank! What do we mean by that? The answer is a BIL. And of course our clients ask ‘What’s a BIL ‘! That is the technical name for a bank loan that is both financed and subsidized and guaranteed by the federal government. Many business owners simply refer to the program as the SMALL BUSINESS LOAN from the government.

The banks in Canada administer this program and we feel by far it’s the best solution for small and medium business in Canada when it comes to a bank loan. The key things you need to know are that the loan only covers two things – equipment and leasehold improvements. Well actually its three things, as real estate can be included also. The real estate limit was recently in the past year bumped up to 500,000.00$ dollars, which is a great way to acquire your facility.

Terms of this loan are as good as it gets a rate of 3% over prime, limited owner guarantees, and flexible terms and payback. We spend a lot of time with clients explain this program and ensuring they take advantage of if when they can. Most business owners are disappointed to hear that this facility does not cover cash loans, and that it is not an operating line of credit, but a term loan.

Bank term loans have been the means of assisting many companies to grow, as well as allow continued operations during a temporary but anticipated slump. As one of the most common types of loans on the market, banks often offer competitive rates for a bank term loan. Any business that is thinking about the possibility of taking out a bank term loan would do well to shop around for the best rate and conditions possible.

Let’s move on to our final point. By understanding the key requirements of bank financing you can significantly improve your chances of approval success. Work with a trusted, credible and experienced advisor in commercial bank financing origination. Being properly prepared with historical financials, a business plan, a cash flow forecast, and a bio of owner experience improves your chances ten fold of arranging bank financing in Canada. As a footnote, we have always strongly believed it’s the banker, not the bank, so seek out with assistance a bank who has a strong interest in getting your business and growing with you on a long term basis.

Bank financing in Canada – possible? Yes . Probable? No guarantees of course, but your chances of financing success improve considerable as soon as you adopt that old boy scout motto – be prepared !

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