Small Business Borrowing In Canada : Your Self Driving Solutions To Cash Flow & Capital Financing

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Against the Odds: Small Business Financing and Cash Flow Solutions in Canada

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        Financing & Cash flow are the biggest issues facing businesses today 

                              ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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SMALL BUSINESS LOAN SOLUTIONS IN CANADA

 

Small business borrowing in Canada forces business owners and financial managers to recognize the need for cash flow and capital, but these two key areas are challenging in many cases.

What solutions are, in fact, available via business lending, and do they need to be temporary, current, or permanent? Is a ‘self-driving ‘  business loan solution available for your business goals.?! Let’s dig in.

 

INTRODUCTION

 

In today's business environment, acquiring funds is vital for businesses that aim to profit and expand. Yet, the complexity of understanding the borrowing options and their prerequisites can be overwhelming.

 

Small and medium-sized enterprises (SMEs), which form the backbone of the Canadian economy, often encounter difficulties in accessing capital and are often unable to raise equity financing.

 

Although conventional bank lending has bounced back since the major downturn in 2008 as well as the Covid pandemic,  smaller businesses frequently find the path to securing funds challenging. However, aside from conventional bank loans, Canadian SMEs have a variety of alternative lending solutions at their disposal.

 

 

WHAT TYPES OF FUNDING OPTIONS ARE AVAILABLE FOR SMALL AND MEDIUM-SIZED BUSINESSES IN CANADA

 

Securing funding for your small business involves considering various alternatives.

 

The traditional bank loan, via banks and business-oriented credit unions, requires an extensive application process. Government of Canada  Small Business Loans, which come with a federal guarantee to the bank,  are another option. These are government-backed loans specially crafted for small businesses, frequently offering more attractive terms and lower interest rates.

 

Other options include alternative lenders like online platforms known for their flexibility in requirements and quicker approval times. Factoring solutions such as  Invoice financing and short-term working capital loans are also worth considering, enabling you to leverage your unpaid invoices or projected future sales.

Business owners must weigh the advantages and disadvantages of each funding option to identify the one that best aligns with their business's requirements and financial standing.

 

 

  

GEARING UP FOR GROWTH  

 

We can't count the number of clients we meet who want to gear up for growth but can't due to business financing constraints -

 

Recent studies indicate 87% of small to medium-sized businesses want to invest more in their company - and the 7 Park Avenue Financial team can demonstrate several ways in which that can be achieved.

 

  

TRADITIONAL LENDERS VERSUS ALTERNATIVE LENDERS   

 

Traditional financial institutions like banks and credit unions have historically been the preferred choice for small business loans due to their competitive interest rates and solid reputations.

 

However, their loan application process can be quite extensive and requires thorough documentation. They often have strict credit criteria, making it hard for small businesses with limited credit history to obtain financing.

 

Alternative lending has gained popularity for thousands of businesses in Canada.  Alternative lenders offer a simplified application process with faster approvals and show more leniency towards credit requirements, making them accessible to a broader spectrum of businesses.  While financing costs and interest rates tend to be higher, they are reflective of greater risk to the lender.

 

Securing a bank loan can be a tough task due to stringent requirements like good personal credit scores, collateral, and a proven business track record.

 

Term loans, often provided by banks, have a definite duration or term and are ideal for long-term business investments and expansion. They're repaid through regular monthly installments, with interest rates dependent on the current index rate, creditworthiness, and loan term.

 

The Business Development Bank of Canada (BDC), a federal development bank and a government crown corporation also plays a role in aiding Canadian SMEs. It provides specific financing, growth and transition capital, venture capital, and advisory services. Talk to the 7 Park Avenue Financial team about BDC programs and qualifications.

 

 

HAVE YOU CONSIDERED ALTERNATIVE FINANCING? 

 

Currently, alternative financing is so popular due to its access to credit and flexibility as opposed to a business loan from the bank. Bank loans for businesses are often typical to qualify for when it comes to new or growing companies needing assets and cash flow solutions.

 

Business owners don't want to run their company on business credit cards !! - They want access to business capital.

 

ACQUIRING NEW ASSETS OR TECHNOLOGY/COMPUTERS/SOFTWARE?

 

Even hiring new people needs cash!  We always remind clients that Equipment leasing is the most solid method of investing in new equipment/technology, software, etc. In many cases, it's a permanent solution required when it comes to business loans, which necessitates a good understanding of your growth and capital needs.

 

The best way to grow sales and profits is to ensure you have the right working capital solution for your needs. A typical need we encounter with many of our clients is their ability to have enough working capital to buy inventory and fulfill new contracts and orders.

 

 

 

FINANCING CURRENT ASSETS - ACCOUNTS RECEIVABLE AND INVENTORY FINANCING 

 

You have a working capital challenge if you carry the additional inventory and receivables that come with that growth. Therein lies the challenge - what type of solution do you need, and how do you find it.  Naturally, you want a facility that meets your needs, can grow with your firm and is structured under the right terms and rates from small business lenders that want to support your business.

 

If you have a proper working capital facility or line of credit, that should generally require no permanent additional working capital funds.

 

Many business owners don't know or understand where that cash flow comes from. It comes from two areas, your ability to maximize your current assets, i.e. receivables, inventory, and purchase orders, or new debt that you are willing to take on in the form of a cash flow working capital loan.

 

Regarding the former solution, Canadian chartered banks offer the best rates, terms, and structure to maximize working capital when applying for a business loan. The challenge is that you cannot always get the money and capital you need to grow in the Canadian chartered banking environment without taking on personal risk. Also, when it comes to bank loans for small businesses, the bank places significant emphasis on the personal guarantee aspect of financing approval.

 

The key to understanding your needs is your ability as a Canadian business owner or financial manager to understand your working capital cycle - i.e. how fast do you collect your receivables, how does your inventory turn, and what are your payment terms or pressures from suppliers?

 

GOVERNMENT LOANS FOR SMALL BUSINESSES - THE SBL LOAN!

 

The Canada Small Business Financing Program is a solid business credit alternative that finances purchasing and financing of equipment, property / real estate, and leasehold improvements and is used by thousands of firms each year. In a way, it's a type of bank loan for business but sponsored by the government.

A company is eligible if it has less than 10 Million dollars in gross annual revenues. Canadian-based business solutions from the federal government should always be explored as an alternative. Interest rates under the program are very competitive and attractive from a  business bank or participating credit union. The interest rate is pegged to Canada's prime rate, and a typical maximum credit amount is in the 350k range, and business banking is maintained at your chosen branch.

 

The maximum loan amount under federal government loans is 1 Million, but that loan cap relates to real estate only - access to funds for equipment and leaseholds is typically the 350k amount.

 

You can facilitate a government loan in a financial institution such as a bank or credit. Let 7 Park Avenue Financial teamwork you quickly through the application process. No personal assets are taken as security for the Government Small Business Loan.

 

The program is a term loan structure, not a line of credit. The loan typically has monthly payments over a 2 to 5-year term. A good credit score and the owner's personal credit history are required to get flexible financing tailored to your needs. Any company or proprietorship may apply.

 

Small businesses and start-up firms will always require special expertise and assistance accessing capital and understanding costs. Here, it's important to differentiate between what type of investment you need (assets? overdrafts? cash flow?) to demonstrate the right level of owner commitment and expertise.

 

Sometimes, a detailed business plan is either required or helpful - 7 Park Avenue Financial prepares business plans that meet and exceed the requirements of banks and commercial lenders.

 

 KEY TAKEAWAYS 

 

1. Small and medium-sized enterprises (SMEs) in Canada have a range of funding options beyond traditional bank loans, despite the challenges they often face with conventional lending.

2. Traditional bank loans offer competitive interest rates but come with a complex application process and stringent credit criteria which may exclude some businesses.

3. Alternative lenders have emerged as a viable solution for businesses unable to qualify for traditional bank loans. They offer simpler application processes, quicker approvals, and are less strict with credit criteria. However, they usually charge higher interest rates to compensate for the greater lending risk.

4. The Canada Small Business Financing Program provides government-backed loans for businesses with gross annual revenues of less than $10 million, making them a practical option for SMEs.

5. Factoring solutions, such as invoice financing, offer another alternative, allowing businesses to leverage unpaid invoices or projected future sales for financing.

6. SMEs need to thoroughly understand their fiscal conditions and long-term goals to select the most suitable funding option.

7. There are tailored options like Business Development Bank of Canada (BDC) financing, traditional bank loans, and asset-based lending solutions that can be explored based on specific business needs and circumstances.

 

  

CONCLUSION

 

Navigating the complexities of securing funding for your small business can be challenging for the business owner. However, with proper knowledge and planning, business owners and financial managers can successfully overcome the hurdles of the borrowing process and secure the necessary funds for your business to prosper.

 

It's crucial to thoroughly examine different funding options, taking into account elements like interest rates, repayment plans, and associated fees. Opt for a solution that most closely matches your business's fiscal conditions, business needs,  and long-term goals.

Investigate non-traditional funding sources such as government loans. These can serve as supplementary channels of support and finance for your business.

 

Despite the obstacles Canadian small businesses may encounter in capital acquisition, there are numerous borrowing options beyond traditional banks. SMEs can look into bank loans, BDC financing, or asset based lending solutions, depending on their particular needs and circumstances.

 

If you're looking for that 'self-driving solution to business funding, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your small/medium business borrowing business needs and real-world business advice for small business financing solutions for your next step to business growth. Whether it's bank small business loans or alternative funding solutions, we've got your back on the challenges you're facing!

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is small business borrowing?

Loans are a great way for businesses to grow, but not all loans have the same terms. A term loan is one of those varieties of funding that gives business owners access to funds with a monthly payment and interest rates as lenders offer.

Small business owners often need a monetary boost for their projects and growth. Term loans can be given to them by banks, including real estate or equipment purchases as well as restaurant expansions.

 

What is the Canada Small Business Financing Program?

 

The Canada Small Business Financing Program can help small businesses in need of funding by providing loans for various purposes. 

The program can help small businesses get funding from financial institutions. Loans are available for up to $1,000,000 with a shared risk between the borrower and lender. The CSBFP offers loans that may be used to purchase equipment or lease improvements on fixtures such as new machinery, tools, etc.

 

• The Canada Small Business Financing Program (CSBFP) facilitates loans for small businesses by sharing the risk with financial institutions.
• In the past decade, over 53,000 CSBFP loans amounting to $10 billion have been granted to small businesses.
• Eligibility includes small businesses or start-ups in Canada with gross annual revenues under $10 million. Farming businesses are not eligible.
• The maximum loan amount per borrower is $1.15 million, subdivided into $1 million for term loans (with specific limitations) and $150,000 for lines of credit.
• To apply, a business must approach a financial institution (bank, caisse populaire, or credit union) in Canada. These institutions have the sole responsibility for loan approval. A good personal credit score and a business bank account is required.
• Term loans can finance costs related to commercial property, equipment, leasehold improvements, intangible assets, and working capital. Examples include financing commercial vehicles, hospitality equipment, software, production equipment, and franchise costs.
• Lines of credit can be used to cover day-to-day operational expenses.
• Interest rates vary. For term loans, the maximum is the lender's prime lending rate plus 3% for floating rates or the lender's residential mortgage rate plus 3% for fixed rates. For lines of credit, the maximum chargeable is the prime lending rate plus 5%. Interest payments can be tailored to business needs
• A 2% registration fee is applied to the total loan amount under the program, which can be financed.
• Lenders have the option of requiring an unsecured personal guarantee. Security must be taken on the assets financed or other business assets, depending on the type of financing.
• Buying existing businesses such as franchises can be funded  under the program

ChatGPT

 

 What are the factors to consider when choosing a lending option?

 

1. Interest Rate: This is a crucial factor in determining your overall borrowing costs. A lower rate can significantly reduce these costs and make loan repayment easier. However, rates can vary based on the lender, loan type, and creditworthiness.

2. Repayment Term: Shorter repayment terms generally mean higher monthly payments but lower total interest costs, while longer terms can result in lower monthly payments but increased total interest costs. Consider your business's cash flow and financial projections to select the most appropriate term.

3. Associated Fees: Be aware of any fees tied to the loan, such as origination fees, prepayment penalties, or late payment fees. Over time, these can contribute significantly to the total cost of borrowing.

4. Lender's Reputation and Customer Service: Assess the lender's reputation and quality of customer service. Look for reviews and testimonials from other small business owners to evaluate their experiences with the lender. Choosing a reputable lender with exceptional customer service can offer valuable assistance throughout the borrowing process.

 

 

How Can a business improve its chances of securing funding?

 

1. Maintain Strong Creditworthiness: One key factor lenders evaluate is your credit history. Ensure timely bill payments, maintain low credit card balances, and avoid excessive debt to boost your creditworthiness and increase your chances of securing funds.

2. Prepare a Solid Business Plan: A comprehensive business plan demonstrates your understanding of your market, industry, and financial management capabilities. It should encompass detailed financial projections, market analysis, and a clear growth strategy.

3. Build Relationships with Lenders: Consider connecting with potential lenders through networking events or industry associations. Establishing trust and rapport can improve your chances of loan approval when you need financing.

4. Provide Necessary Documentation Promptly: Be prepared to furnish all required documents like financial statements, tax returns, bank statements, and other pertinent documents. Displaying organization and responsiveness throughout the application process can reflect positively on lenders.

 

What are government grants for a business?

 

Federal and provincial grants and programs bolster small businesses, with funds allocated for diverse purposes like research and development, expansion, or job creation. Moreover, they frequently provide low-interest loans or loan guarantee schemes to stimulate small business lending. Canada's SR&ED program and the Government SBL Loan program are the 2 most widely used programs.

To capitalize on these government grants and programs, you need to research the options in your locality and scrutinize the eligibility criteria. Since these grants usually come with specific prerequisites and deadlines, forward planning and comprehensive applications are key. Many grant programs have ' matching ' criteria.

Exploring unconventional funding avenues and government loans and grants can uncover new funding opportunities for your small business. These sources can offer access to funds that might be unreachable via traditional lenders. It's beneficial to evaluate these alongside traditional loans to discover the ideal solution for your business's requirements.

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