YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING SOLUTIONS AND ADVICE!
HOW TO GET A BUSINESS LOAN AND GROW YOUR BUSINESS
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
INTRODUCTION
Financing is a key goal for business owners looking to finance growth and success.
Business loans and new capital can fuel various ventures, from starting new projects and purchasing equipment to scaling operations. However, securing financing can seem intimidating, particularly for those unsure and inexperienced.
Let the 7 Park Avenue Financial team increase your approval odds for business financing. These steps span from drafting a robust business plan to establishing a credible credit profile. So, whether you're a budding early-stage company or a thriving established business, let our guide equip you with key insights to secure the necessary financing to propel your business forward.
HOW CAN YOU TELL YOUR BUSINESS IS DOING WELL
Business owners and managers that are ‘non-financial’ in their backgrounds often need to know how to ‘‘scorecard’ their business. They want to know how to make intelligent decisions about running and moving their business forward. The owner/manager wants to know they are managing their assets properly, allowing them to grow and profit.
Acquiring financing is critical for any business seeking to scale, branch out, or seize fresh opportunities. Proper financing can unlock avenues for hiring, marketing enhancement, equipment acquisition, financing and purchasing leasehold improvements, and more.
However, securing financing can be difficult, especially for small enterprises or startups.
Notwithstanding these obstacles, obtaining necessary funding remains a cornerstone for business prosperity. A lack of sufficient financing can inhibit growth or threaten your business's existence by dedicating time to comprehending your financing options and formulating a business financing strategy.
ASK YOURSELF THESE KEY QUESTIONS
It might seem improper to answer a question with questions but at the end of the day, the business person needs to have a solid handle on some key basics.
They might include:
Are we financing our current assets (A/R and inventory) properly? Can commercial property be acquired?
Can we take on more debt, or would bringing new ownership equity be necessary?
Do we have proper operating efficiencies when collecting our accounts or turning inventory over?
If the owner/manager understands the relevance of those questions and where to seek answers, they are on the right track to doing well in their business in the Canadian economy.
WHAT THOSE RELATIONSHIPS!
A key secret to doing well is in what we have termed ‘relationships ‘. Many call them ratios – but if you understand the relationships between just some key numbers in your financial statements that revolve around profit, efficiency and solvency, you are on the right track to doing well.
Here is a quick example. Let’s focus on ‘profit ‘. Take your total profit for the year and divide it by the assets in your business. It’s a simple arithmetic calculation—no financial degrees are required.
It measures how you use your business’s assets relative to the profit it generates. All industries have different results based on capital intensiveness, etc. So if you think you’re different, you are! But not when compared to others in your industry. Most lenders and investors will look at this simple comparison to justify loans or new equity.
One final point on doing well. The numbers in your financials don’t always provide answers – but they can offer some great questions you need to address!
WHAT ARE THE SIGNS OF A BUSINESS THAT IS DOING POORLY?
While many people use sales /revenue as a yardstick of success, we are too financially oriented to focus on that. Solvency is therefore important. When you can’t pay bills or suppliers, a lot of business distress starts.
That’s when it's time to focus on a ‘back to the basics ‘strategy, including improving liquidity by refinancing. Many companies are doing poorly because they simply have too much debt relative to their asset base.
Lenders such as banks have some basic ‘yardstick ‘measurements regarding cash flow and the amount you can borrow. If you don’t meet those yardsticks, lending is curtailed, and your company has the risk of entering into the ‘death spiral ‘that we read overtakes many firms.
If your client base is drifting away and owners and shareholders are dissatisfied, it’s time for the business owner to assess the problems.
WHAT STEPS CAN THE BUSINESS OWNER TAKE
Business owners need access to good data when the company is perceived internally or externally as not doing well.
Key focus on sales, financial controls and availability of financing become key. At this point, objectives must be realistic, allowing the business to handle the challenges of not doing well because of general economics or operations.
It’s all about understanding your financial position and using that data to address your challenges. We return to ‘relationships ‘ again; that could be focusing on cash flow strategies, analyzing cash outflows, looking at inventory controls, and rationalizing headcount.
PREVENTING BUSINESS FAILURE
There’s, of course, no guarantee regarding business failure. One factor that we see often is that many businesses equate sales and profits as ‘cash flow ‘.
That kind of thinking has led to some of the greatest financial debacles in business history – so we always encourage clients to have a solid handle on that difference – and it’s a large one.
We can jokingly say that to avoid all future cash flow problems, we encourage owners and executives to compensate sales staff on collections – but that has never done well!
TALK TO THE 7 PARK AVENUE FINANCIAL TEAM ABOUT GETTING YOUR BUSINESS ON TRACK!
Small businesses are crucial to Canada's prosperity as a whole. Across all industries, small businesses represent roughly 98%. However, the importance of Small Businesses varies from bank to bank. Statistics Canada estimates that nearly half of small companies fail within ten years of operation. Because of these risks, it is tough to find funding!
While you can pay turnaround experts and consulting firms large amounts to get your company in turnaround mode, the reality is that in many cases, the business owner and manager have access to a lot of quality information in their networks of accountants, lawyers, peers, bankers, etc.
Getting credible advice from trusted, experienced parties never have to be expensive or time-consuming. While our firm, 7 Park Avenue Financial, focuses solely on business financing, we have spent countless hours helping clients achieve overall business success through referrals, advice, etc. Count on 7 Park Avenue Financial to be a trusted partner with business advice and financing solutions for Canadian small businesses, offering advice and solutions for the best small business loans.
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
When it comes to securing financing for your business, a variety of options are available. Each option has pros and cons, and the best choice for your business depends on your specific needs and circumstances. Here are some of the most common types of business financing options:
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Bank Loans
- Among the most common forms of business financing for assets financed
- Often have lower interest rates and longer repayment terms.
- Ideal for financing long-term projects or investments.
- Qualification may be challenging, especially for startups or businesses with less-than-stellar credit.
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Canada Small Business Financing Program Loans
- Government-backed loans tailored for small businesses.
- Offer advantageous terms and interest rates, providing affordable financing.
- The application process can be prolonged and intricate, making qualification potentially difficult.
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Equipment Financing
- Specific loan type for the purchase of equipment or machinery.
- The procured equipment usually serves as collateral, making it suitable for businesses needing expensive equipment or machinery.
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Invoice Financing
- Financing type permitting businesses to borrow against their outstanding invoices.
- Beneficial for businesses with elongated payment cycles or cash flow issues, as it enables access to capital without immediate payment requirements.
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Merchant Cash Advances
- A financing option that allows businesses to borrow against future sales.
- Generally quick and straightforward to secure, but it can be costly due to high-interest rates and fees.
When evaluating business financing applications, lenders will consider a variety of factors. These factors will vary depending on the type of financing you're applying for, but some common factors include:
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Credit Score
- A significant factor that lenders evaluate during loan application reviews.
- A higher credit score enhances approval odds and can lead to more favourable loan terms and interest rates.
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Business Plan
- An essential component for securing financing.
- The plan should encompass business goals, strategies, and financial forecasts, demonstrating a comprehensive understanding of your business and its potential success.
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Collateral
- Required for many financing types, typically equipment or property, to secure the loan.
- The collateral's value and type may differ based on the lender and the specific financing sought.
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Cash Flow
- Lenders assess a business's cash flow to gauge its loan repayment capacity.
- Cash flow should exhibit a consistent and positive income stream, with adequate revenue to manage expenses and debt payments.
Now that you understand the importance of securing financing and the different types of funding available, let's look at some essential tips for increasing your chances of getting approved.
1. Develop a Solid Business Plan
A solid business plan is essential for securing financing. Your plan should outline your goals, strategies, and financial projections and demonstrate that you have a clear understanding of your business and its potential for success. Your plan should also include a detailed budget and cash flow projections, explaining your plan for repaying the loan.
2. Maintain Good Credit
Your credit score is one of the most important factors lenders consider when evaluating your application. To increase your chances of approval, it's important to maintain good credit. This means paying your bills on time, keeping your credit utilization low, and monitoring your credit report for errors or fraudulent activity.
3. Explore Alternative Funding Sources
Traditional financing options, such as bank loans and Government SBL loans, may not best fit every business. It's important to explore alternative funding sources, such as crowdfunding, angel investors, or grants, to find the best fit for your business.
4. Build Relationships with Lenders
Building relationships with lenders can help increase your chances of approval. Take the time to research potential lenders and develop a relationship with them before applying for financing. This can help you better understand their requirements and preferences and demonstrate your commitment to your business.
5. Be Prepared to Negotiate
When applying for financing, it's important to be prepared to negotiate. This means understanding the terms and conditions of the loan and being willing to negotiate for more favourable terms. It's also important to be prepared to walk away if the terms are unfavourable or the lender is not a good fit for your business.
What are common mistakes to avoid when seeking business financing?
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Failing to Research Your Options
- Important to research and understand financing options' terms and requirements.
- Not doing so may lead to unfavourable terms or unsuitable loans.
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Applying for Too Much or Too Little Financing
- Both can be problematic. Too much can lead to unfavourable terms or inability to repay, while too little might not provide the necessary funding.
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Failing to Prepare a Solid Business Plan
- A well-prepared business plan demonstrating eligibility criteria is crucial for securing financing and a proper loan term.
- Lack of a plan could result in an unsuitable loan or inability to repay.
The Canada Small Business Financing Program (CSBFP) eases the process for small businesses to secure loans from financial institutions by distributing the risk with the lenders. The program has recently been updated to offer a participating bank or credit union to offer small businesses more financing products, a new class of loans, higher loan limits and terms, improved loan conditions, and reduced administrative effort.
Eligibility
Small businesses or start-ups operating in Canada with gross annual revenues of $10 million or less of gross revenue are eligible. The personal credit score of the owner must be satisfactory. Farming businesses are excluded from this program but can check out the Canadian Agricultural Loans Act Program for similar benefits and a competitive interest rate offered by banks and some credit unions.
Financing Available
The program caps the maximum loan amount for a borrower at $1.15 million for guaranteed small business loans.
- Term loans: Up to $1,000,000 per borrower, of which a maximum of $500,000 can be used for buying leasehold improvements or improving leased property and buying or enhancing new or used equipment. Of this amount, a maximum of $150,000 can be allocated for intangible assets and working capital costs.
- Lines of credit: Up to a maximum of $150,000 at a fixed rate or variable rate
Application Process
Financial institutions handle the program and are responsible for approving the loan for both new and established businesses.
You can discuss your business needs with a financial officer at any Canadian bank to secure funds, caisse populaire, or credit union sources. They will review your business proposal and decide on your loan application. After approving the financing, the financial institution will distribute the funds and register the loan with Innovation, Science and Economic Development Canada (ISED). Charitable and religious organizations are also now eligible for SBL loans.
What can be financed?
Term loans can be used to finance costs related to the following:
- Purchasing or improving commercial land or buildings
- Buying or upgrading new or used equipment via an equipment loan structure
- Acquiring new or existing leasehold improvements
- Intangible assets and working capital costs
Examples of term loan usage include financing commercial vehicles, hotel or restaurant equipment, computer or telecommunication equipment and software, production equipment, or the costs to purchase a franchise.
Lines of credit can be used to cover the business's day-to-day operating expenses under a revolving repayment schedule.
Interest Rates
Your financial institution sets interest rates for term loans which may be floating or fixed.
- Floating: The maximum chargeable is the lender's prime lending rate plus 3%.
- Fixed: The maximum chargeable is the lender's single-family residential mortgage rate for the term of the loan plus 3%.
For lines of credit, the maximum chargeable is the lender's prime lending rate plus 5%.
Registration Fee
A 2% registration fee applies to term loans and lines of credit based on the total amount loaned or authorized. The borrower must pay these fees to the lender, and they can be financed.
Financing Terms
Lenders can request an unsecured personal guarantee - Also, personal credit history is important to most, if not all lenders and must be satisfactory - typically, a credit bureau score in the 600+ range is required. For real property and equipment, the lender must secure the financed assets. For leasehold improvements, intangible assets, working capital costs, and when financing a line of credit, the lender must secure other business assets. How much financing can be achieved under the program is up to each participating lender.
What is the most common form of financing for a small business?
The most common form of financing for small businesses varies depending on the specific needs and circumstances of the company. However, typically, the most common forms include bank loans, small business loans, and lines of credit. Many small businesses also rely on personal savings or funds from friends and family. Venture capital or angel investment is common for startups and high-growth companies. Acquisition loans for a purchase and sale agreement of a business are also popular via bank and non-bank lenders.
Do business loans affect personal credit in Canada?
Business loans can potentially impact personal credit in Canada, especially if the loan requires a personal guarantee from the business owner. The owner is responsible for the debt if the business defaults on the loan. In such cases, any missed or late payments could be reported to the credit bureaus and impact the individual's personal credit score. Business owners must ensure they are viewed as financially responsible. However, if the business loan is solely in the business's name and does not require a personal guarantee, it should not impact the owner's personal credit.
What is the interest rate for small businesses in Canada?
The interest rate for small businesses in Canada can vary widely depending on the lender, the loan type, the borrower's creditworthiness, and other factors. For instance, small business loans offered by banks could have interest rates anywhere from around 3% to 6% or more. Loans from alternative lenders may have higher rates, potentially up to 1-2% / month or more.
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