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BUSINESS LENDERS ( CANADA )
Unleashing Business Potential: Overcoming Financing Hurdles for SMEs in Canada
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Financing & Cash flow are the biggest issues facing businesses today
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YOUR GUIDE TO BUSINESS LOANS IN CANADA
Working capital financing and the right business loan/loans for their company have many Canadian business owners looking to either leave or search for new business lenders that meet their financial needs. The hunt is on for small business lending. Let's dig in.
INTRODUCTION
Capital access is key to growth and success in our rapidly competitive business world. Business owners and entrepreneurs frequently encounter the hurdle of securing the necessary funding to elevate their ventures.
Business lenders, experts in creating lending solutions, play a crucial role in this process. These entities can provide financial assistance for expansion, equipment purchase, or staffing. However, selecting a lender who comprehends your unique aims and challenges is crucial.
For Canadian businesses to flourish and reach growth goals, business lending access is essential. Still, small and medium-sized enterprises (SMEs) often face obstacles in securing traditional capital.
Fortunately, alternative finance options serve as a beacon for those struggling with bank financing. This article examines business lending's significance, SMEs' challenges in securing capital, and the abundance of alternative finance choices available.
WHAT IS THE ROLE OF BUSINESS LENDERS IN PROVIDING GROWTH CAPITAL
Business lenders are key in driving your business growth, recognizing that capital is essential for entrepreneurs to expand, innovate, and hire. They supply the necessary funds enabling businesses to seize growth prospects and achieve objectives. Besides, lenders often possess sector-specific knowledge, offering valuable advice to help firms tackle difficulties and make wise choices.
Lenders offer various financing options, such as term loans, lines of credit, and equipment financing, tailored to businesses' unique needs.
These avenues allow firms to acquire funds for various conditions, including expansion, inventory management, working capital, or tech investment. Furthermore, recognizing the unique situations of businesses, lenders may provide flexible repayment options, offering solutions that align with your cash flow and ensuring loans serve as growth catalysts rather than burdens.
Collaborating with a business lender also offers non-monetary benefits. Unlike traditional banks, these lenders usually have a profound understanding of entrepreneurs and small business owners' challenges.
They are more inclined to take calculated risks and back businesses with potential, nurturing a trust-based, mutually beneficial relationship. Acting as valuable advisors, lenders can provide financial management, cash flow optimization, and growth strategy insights. This expertise helps businesses make more informed decisions, maximizing their success probability.
THE SME CHALLENGE IN CANADA
Difficulties Faced by SMEs in Securing Traditional Capital: Regrettably, SMEs face multiple hurdles when attempting to obtain traditional bank financing.
Strict qualifying requirements often demand that businesses possess significant collateral and a solid credit history, which can be tough for emerging or small companies.
Besides, the bank approval process can be protracted and full of red tape, impeding firms from capitalizing on time-sensitive opportunities. Traditional lenders are also risk-averse, favouring loans to bigger, more established companies. These difficulties present a formidable obstacle for SMEs, limiting their access to necessary funds for growth and expansion.
FINANCING A BUSINESS IN CANADA
A report in Canada's Globe & Mail indicated massive dissatisfaction with financial institutions regarding lending for small businesses - referencing a 40% amount as the number of borrowing companies that are ' likely ' to leave their current business lender. Of great interest is that the main perspective of business owners/financial managers is that their bank or credit union does not understand their business when it comes to a small business loan, indicating a lack of confidence in the expertise of their lender.
The other harsh reality is that firms looking for SME COMMERCIAL FINANCE and loans don't have the option that major corporations do - that's for both short-term operating needs and long-term growth financing. Of course, those 'big boys' can tap into public and private equity as an example.
CHOOSE THE RIGHT FINANCING & FUNDING FOR YOUR BUSINESS
What are realistic options for small and medium-sized businesses in Canada for generating working capital and cash flow? The lack of proper business financing prevents your firm from accepting larger orders or new contracts. That also entails waiting for 30, 60 or sometimes even 90 days for A/R to be collected.
The right working capital financing in place assists your firm in meeting its daily requirements and allows you to grow the business. It also allows your firm to extend credit on favourable terms to your customers.
Solution? There are several solutions to consider. If all firms had the same size and problems, we might have some easier decisions. However, when we meet with clients to outline working capital solutions, each company is in a different industry. They have other business models, and their funding needs vary by size and nature.
TYPES OF BUSINESS LENDERS
Business lenders come in various forms, each with unique characteristics and advantages.
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Traditional Banks: Offer various lending products like term loans, lines of credit, and commercial mortgages. They usually have rigid lending criteria, potentially requiring collateral or personal guarantees. Though they might provide competitive interest rates, their application process can be time-consuming and complex.
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Online Lenders: These lenders are a popular alternative to traditional banks, using technology to simplify the lending process and grant quick capital access. They often have more flexible lending criteria and may fund businesses with less established credit histories. However, their interest rates might be higher than traditional banks.
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Alternative Lenders: These include a broad spectrum of non-bank financial institutions, such as private equity firms, venture capital firms, and asset-based lenders. Specializing in specific industries or sectors, they can offer customized financing solutions that cater to businesses' unique needs.
CANADIAN BUSINESS FINANCING SOLUTIONS / FINANCING COMPANIES IN CANADA
Let's recap some of the solutions available in Canadian business lending:
A/R financing/factoring / Confidential Receivable Finance / ABL Non-bank line of credit
Non-bank asset-based lines of credit (these facilities combine your A/R, inventory and equipment assets into one borrowing facility that is margined much higher than bank facilities). These facilities are often the best solution to overall operating financing needs - This type of borrowing does not put debt on your balance sheet - it monetizes / cash flows your assets!
Tax Credit Loans (SR&ED, etc.)
Royalty Financing
Equipment Financing / Leasing
Short-term working capital loan / Merchant Cash advances ( Good credit scores for business owner's personal credit score are required ) - parts of these programs allow you to apply online ( a typical loan term is one year )
Business credit cards - supplementing business lines of credit
While some firms in the SME sector will always consider angel investors, going public options, etc., these solutions are often not practical or realistic for the business owner.
SMALL BUSINESS BANK LOAN QUALIFICATIONS
Canadian chartered banks offer several programs, but you should ensure you meet bank requirements. Some of those requirements are that you have been established and the business owners have a good reputation and reasonably solid credit history.
THE CANADA BUSINESS LOAN PROGRAM ( SBL LOANS CANADA )
The Government of Canada offers a Small Business Loan program which is one of the best programs in Canada for Canadian businesses. An attractive interest rate comes with the program and flexible repayment terms around monthly payments. Previously this program only covered::
Equipment
Leaseholds
Real estate
Important - In 2022, the program was significantly upgraded to include a higher loan amount available and provide access to working capital and a business line of credit.
To ensure these programs meet your exact needs, let the 7 Park Avenue Financial team help you with your loan applications, as many feel that when you apply for a loan from the government, there is some paperwork involved.
One other government entity on the federal side offers working capital term loans; these are cash term loans and are generally unsecured, with only the promise to pay your company and yourself as owner. Rates are excellent for what you are getting.
WHAT ARE THE BENEFITS OF WORKING WITH THE RIGHT BUSINESS LENDERS
Working with business lenders offers several benefits for entrepreneurs and business owners. Let's explore some of the key advantages:
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Capital Access: Business lenders supply crucial capital to boost growth, catering to needs like expansion, inventory management, or tech investment. They comprehend businesses' unique funding requirements and propose bespoke financing solutions accordingly.
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Flexible Financing: Business lenders typically offer more flexible lending criteria and repayment terms than traditional banks. They provide customized solutions in line with your business's cash flow and growth path, ensuring loans facilitate success rather than hinder it.
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Industry-specific Guidance: Lenders have sector-specific expertise, offering valuable advice on financial management, cash flow optimization, and growth strategies. They understand entrepreneurs' challenges and can provide insights for more informed decision-making.
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Partnership Approach: Lenders are more open to calculated risks and backing potential-rich businesses. They partner in your success, dedicated to helping you reach your objectives. This approach fosters a trust-based relationship promoting long-term success.
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Efficiency and Affordability: Compared to traditional banks, business lenders often have more streamlined application procedures and faster decision-making, saving time and enabling you to capitalize on growth opportunities promptly. Furthermore, these lenders can offer competitive rates and fees, making their services cost-effective.
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Networking Opportunities: Lenders often possess extensive networks, potentially connecting you with resources such as industry experts, potential clients, or strategic partners. These connections can unlock new opportunities and further propel your growth.
CONCLUSION
Business lending access is vital for Canadian SMEs to thrive and grow. Nonetheless, obstacles in securing traditional capital have triggered the emergence of alternative finance options.
These provide a crucial support system for businesses unable to secure bank financing. Peer-to-peer lending and government-supported loans offer accessible, versatile, customized funding for diverse business needs. By adopting these alternative financing strategies, SMEs can unleash their growth capabilities, stimulate economic growth, and flourish in the ever-evolving business environment.
If you're 'on the hunt' for business lenders that make sense for your operating and capital needs, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your small business loan options and other financing needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is Invoice Factoring?
Companies that need quick cash will benefit from invoice factoring. The company offers a percentage of the invoices to be paid now in exchange for funds upfront, and then they receive payments when their clients pay them back. One example is staffing companies that already have an employee's wages but are waiting until later during the month or year before getting paid by their client, so they can't survive without access to capital. Invoice Factoring allows companies to avoid negative working capital positions and stay financially afloat to meet business needs and debt payments.
How do you prepare for a business loan application?
You should be able to produce financial statements and demonstrate that your receivables and inventory are turning. It's great to have a forecast or a business plan, which also assists you as a good planning tool.
Smaller firms should try and avoid credit cards, merchant advances, or friend and family loans when business lines of credit from banks are not accessible - they all work and are readily accessible but often are not the best alternative for financing costs and interest rates.
Preparing for a business loan application is crucial to increase your chances of approval and secure favourable terms. Here are some steps to help you get ready:
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Assess Financials: Examine financial statements like balance sheets, income statements, and cash flow statements. Understand your income sources, costs, and financial ratios to comprehensively view your business's financial standing and identify the loan amount needed.
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Verify Credit Score: Your personal and business credit scores significantly influence the loan application. Request your credit reports for accuracy, and work on improving your credit score by settling outstanding debts or resolving disputes, if required.
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Formulate Business Plan: A well-drafted business plan showcasing your industry knowledge, market, and competition is vital. Include growth strategies, target market, and financial forecasts. Highlight how the loan will boost growth and your repayment strategy.
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Organize Supporting Documents: Lenders require various documents like tax returns, bank statements, financial statements, legal documents (such as articles of incorporation), and business licenses to evaluate your eligibility. Ensure these documents are organized and easily accessible and meet loan details required by business lenders.
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Foster Relationships: Cultivate relationships with potential lenders before applying. Engage in networking events, join industry groups, and interact with lenders on social media. Building a good rapport and understanding their lending criteria could enhance your chances of loan approval.
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Evaluate Collateral: Collateral might be required depending on the lender and loan amount. Assess your assets and decide what you can offer as collateral. This could include real estate, equipment, inventory, or accounts receivable. Understand the associated risks and ensure you can meet the repayment obligations.
What is revenue-based financing?
Revenue-based financing is a financing method that involves businesses obtaining capital in return for a share of their upcoming revenue. The repayment aligns with the business's performance, offering flexibility for companies with variable cash flows. Typically, startups or enterprises with consistent revenue models utilize this financing type.
