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COMMERCIAL LENDING SOLUTIONS & FINANCING OPTIONS YOU CAN ACCESS TODAY
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Financing & Cash flow are the biggest issues facing business today
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HOW FINANCING & FUNDING CHOICES PROPEL BUSINESS FORWARD FOR GROWTH AND SUCCESS
Business Loans & Finance Options: Funding & Financing Businesses In Canada
Business loans and financing for their company must surely make some owners/financial managers feel like there is some 'conspiracy theory' out there relative to their ability to successfully access finance options and small business loans & funding solutions.
Our point of view? That doesn't have to be the case for small businesses in Canada, so when it comes to ' how to get a business loan ' and raising capital.. let's dig in!
INTRODUCTION
Business owners know that financial resources can be the driving force propelling your company's expansion and prosperity. External funding can't be overstated in the pursuit of your objectives. This article delves into distinctive financing alternatives that cater specifically to Canadian businesses, each presenting its unique benefits and pathways to acquiring the capital you need to run and grow a business and meet business expenses with relative confidence.
By the way, small businesses aren't as small as you think - for infomatiion on what Canada's government considers ' small ' click here for that info.
Understanding your business's overall cash and capital needs is often the root issue in small business financing - how to finance outstanding accounts receivable and inventory via suitable commercial loans.
Those are the key drivers of any working capital loan need.
A HOLY GRAIL OF SUCCESSFUL BUSINESS FINANCING?
The 'holy grail' of financing and funding your business? Growing your business, reducing inventories and turning them faster, and increasing receivable collections.
Cash flowing your accounts receivable either via more efficient methods of collection or selling your receivables as you generate them (invoice discounting or factoring) is the most optimal way to generate working capital financing.
Naturally, the challenge in doing all that is to ensure you can still maintain your projected sales and profit growth!
If your company always has a significant inventory investment, you can obtain direct loans in Canada against that inventory. Traditionally, bank financing via bank loans is the route much larger and established businesses take when they require working capital for inventory purchases.
However, when your firm can't qualify for the full extent of financing that you need from a bank loan, then a direct inventory working capital loan is best. It's as essential to understand that you have options as alternatives to bank loans for small businesses.
TRADITIONAL FINANCING / BANK FINANCING
Bank loans have traditionally been a primary funding source for small and medium-sized businesses (SMEs) in Canada.
These loans offer several advantages, such as allowing ownership via financing that is non-dilutive, attractive interest rates, and tax-deductible interest payments. However, getting approved for a bank loan can be difficult for some business owners, particularly those lacking a solid business plan or credit history. Enhancing your prospects of getting a desirable bank loan involves careful preparation, including maintaining current financial statements.
THE TREMENDOUS RISE OF ASSET-BASED LENDING SOLUTIONS IN CANADA
When conventional bank financing loan solutions are hard to secure, alternative financing methods can offer a solution. A/R Financing and short-term workings capital loans are notable among these options, delivering rapid approval.
While alternative finance solutions may involve higher charges and interest rates, they can provide a crucial financial boost for companies wrestling with cash flow troubles or navigating slow business phases, seasonality and business cyclicality challenges.
Because asset-based loans focus on your assets versus cash flow or profit-based lending rules, the rise of ' ABL ' has been tremendous in Canada when businesses need to retrench and sometimes restructure.
Using your sales ( via accounts receivable )and assets as loan collateral appeals to many business owners when they are challenged regarding access to business capital. The form of financing is the ultimate in maximizing liquidity, allowing them to recover, even during pandemic/covid times !.. and focus on the re-growth of their company via the benefits of alternative lending compared to potentially inaccessible solutions from traditional financial institutions.
Our recommended working capital loan does not add debt to your balance sheet. The business owner's ability to manage the balance of debt and equity is key to long-term success. While business loan rates are higher in alternative finance, they provide all the capital you need to succeed if you have the following:
Assets
Sales Revenues
It's a facility which margins your receivables and inventory to proper market valuations. This generates the additional cash flow and working capital you are looking for and, as significantly, doesn't add debt to the balance sheet. Companies that can't access any or all of the operating cash need these 'Asset-based Non-Bank Lines Of Credit' - the golden solution for finance for entrepreneurs.
The best way to generate your working capital loan for your firm is to improve collections and delay supplier payments. The latter must be done carefully to avoid mismanaging vital supplier relationships.
However, it's every man and woman for themselves when it comes to business financing, so you should focus on negotiating the best payment terms with valued suppliers who usually extend solid payment terms when they see you as a viable and long-term customer.
GOVERNMENT FUNDING
The Canadian government provides numerous financial support mechanisms to aid businesses in diverse sectors. Specific grant programs and tax relief initiatives are designed for different purposes.
A benefit of government grants is the absence of repayment or equity relinquishment requirements, which strengthens your business reputation and improves possibilities for subsequent funding.
Moreover, the Canada Small Business Financing Program assists businesses in procuring loans from financial establishments through government risk-sharing loans with banks. Canada's largest
Business owners should also investigate Canada's SR&ED Program - which provides business capital for research and development.
GOVERNMENT SMALL BUSINESS LOANS
Some business folks, particularly start-up and earlier-stage companies (including franchises), should check out the Canadian Government Small Business Loan Program, which has the federal government guaranteeing the central part of your loan.
It's a great solution when a business borrows money for the business needs of early-stage companies in Canada. If you need a startup business loan, this option is a solid solution versus a traditional bank loan.
THE SHORT RECAP ON GOVERNMENT LOANS :
Attractive rates
Nominal personal guarantees
The loan can be paid back at any time without penalty
Fluid structures and repayments re terms, etc.
It's no secret that thousands of new and emerging private companies successfully access this program every year - it's also solid financing to buy a business in Canada for smaller acquisitions or franchises.
Financing a business is one of the most important things a company needs to succeed, but not all startups or early-stage firms have the option to work with traditional banks. That's why small business financing options that replace traditional bank solutions work!
The downside to the Government loan program is that many businesses are not seeking the asset or leasehold financing the Government ' SBL ' loan program provides. They're looking for cash flow and working capital sources as a commercial loan solution at a reasonable interest rate.
Startup business loans extensively use the ' SBL LOAN' in Canada. New business loans in traditional banking heavily emphasize the owner's personal net worth and credit score.
The credit history of small business owners is always key when applying for traditional financing. Unsecured business loans don't collateralize specific assets but are guaranteed to lenders through personal guarantees and blanket security agreements.
Believe it or not, working capital loans are available from what people consider traditional sources. One of the Crown Corporations within the Canadian government focuses very significantly on cash working capital loans. These loans are structured as term loans, not as a business line of credit, and have fairly competitive rates and repayment terms of 5 to 6 years. They are also unsecured, which means they rank behind any senior lender or security you might have in place.
A business plan is both recommended and almost always required for the govt ' SBL business loan ' - Business plans prepared by 7 Park Avenue Financial are focused on conservative financial projections and are laser-focused on loan approval.
Businesses often consider ' government loans' cumbersome and challenging to apply for - At 7 Park Avenue Financial; we're here to guide you through those programs and ensure you are working with the right financial institution.
The only commitment to repay is the company's guarantee as a promise to pay and a full or partial guarantee by the owners personally. We point out that the majority of business loans and financing in Canada does in effect, require some level of guarantees from the owner and a generally positive personal financial history of the owner(s).
To apply for a business loan is often daunting and time-consuming for business owners - let the 7 Park Avenue Financial team walk you through the loan process - we also prepare, when required, business plans that are focused on funding approval based on conservative and realistic financial projections and strong business and industry overviews.
UPDATE!
Significant changes came to the program in 2022 - Types of financing available under the program were enhanced, and loan limits increased!
Here is an updated recap of the program
The Canada Small Business Financing Regulations and Act were updated on July 4, 2022. These changes provide businesses and lenders with enhanced financing options, lower administrative burdens, and improved loan conditions. The program is now much closer to the U.S. equivalent under the U.S. Small Business Administration -
Here are the key amendments:
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Increased loan amounts: Borrowing limit increased from $1 million to $1.15 million, including:
- $1 million for term loans, a max of $500,000 for equipment and leasehold improvements (up from $350,000), and $150,000 for intangible assets and working capital.
- Additional $150,000 for lines of credit for working capital.
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New financing classes: Term loans can now finance intangible assets and working capital costs.
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Extended loan terms: Loans for property, leasehold improvements, equipment, intangible assets, and working capital payments can be made for up to a term of 15 years.
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Expanded eligible expenditures: The time frame to finance expenditures or commitments increased from 180 days to 365 days.
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Adjusted appraisal timing: Appraisal timing has changed from 180 days before loan approval to 365 days before loan disbursement.
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More extended registration period: Term loans can be registered within six months from the date of the first loan disbursement.
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Updated security requirements: Lenders must take security in any assets of the small business for leasehold improvement, software, website, intangible assets, and working capital costs.
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Simplified default process: Upon default, lenders only need to demand repayment, not provide a notice of default.
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Adjusted claim documentation requirements: Documentation supporting cost and proof of payment reduced from 100% to 75% of the principal amount outstanding on the loan.
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Line of credit introduction: Lines of credit for working capital costs can be made, with maximum term of 5 years.
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Line of credit renewal options: Renew the line of credit for a new 5-year period, convert to a term loan, or repay with a conventional loan.
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Updated line of credit security: Lenders must take security in any small business assets for the authorized amount of the line of credit.
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Line of credit default process: Similar to term loans, lenders only need to demand repayment upon default.
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Line of credit claim process: Lenders are not required to substantiate the cost and proof of payment for expenditures on the line of credit.
The program can also be used to purchase an existing business/franchise.
These changes are designed to improve the financing landscape for Canadian businesses, providing them with greater access to capital and increased flexibility in managing their financial needs.
EQUIPMENT FINANCING
If your business is looking to procure crucial machinery or equipment, or technology, equipment financing can be an excellent strategy. By distributing expenses over the lifespan of the assets, this form of financing helps to minimize the impact of substantial initial investments, thereby allowing entrepreneurs to reserve capital for other business-related necessities.
Whether the requirement is for updating assets or upgrading technology, or obtaining rolling stock, equipment financing allows businesses to maintain competitiveness and stimulate expansion.
For more information from 7 Park Avenue Financial equipment financing solutions, please click HERE
CONCLUSION :
In Canada, entrepreneurs have various financing options, including traditional bank loans, alternative financing, equipment financing, government loans and grants.
Each option addresses different business needs. To obtain the necessary capital for growth and prosperity, Canadian businesses must carefully assess the advantages and drawbacks of each method and plan accordingly.
Talk to the 7 Park Avenue Financial team about choosing the right financing option to realize your business ambitions and secure prosperous growth financing.
Bottom Line? Whether you are starting a business or already established and focused on high growth and those options from angel investors/family and friends have dried up, and venture capital funding that was never in reach is gone, the type of financing you need is available if you understand different choices in traditional and alternative lending. Choose the right financing for your business via finance tailored to your needs.
Whether you are looking for short-term financing or long-term viable business finance strategies, business owners should understand that ' Real-world ' accessible financing is no conspiracy theory.
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor in financing for small businesses who can assist you with your funding and financing success needs in term loans, asset-based loans, and cash flow/working capital business needs - Let's achieve the growth potential you're capable of with business advice you can trust.
FAQ: FREQUENTLY ASKED QUESTIONS
Who is eligible for the Government Small Business Loan?
Businesses applying for the govt small business loan should have under 10 million dollars in revenue. Owners should be able to demonstrate a positive credit history and be legally allowed to borrow in Canada via either citizenship or landed immigrant status as a key business loan requirement.
What is asset-based lending?
Asset-based lending is secured lending when loans are focused on your first assets. Asset-based business lenders' loans are based on the current value of your sales and assets - the most common asset categories are accounts receivable, inventory, equipment, and even real estate. The focus on collateral versus cash flow liquidity provides much more borrowing power for business borrowing.
Do banks give loans to startups?
Banks will lend to startups unsecured because business owners can provide an acceptable personal guarantee and demonstrate sufficient net worth and good personal credit history. Banks will secure these loans via a personal guarantee and a blanket security agreement over the entire business. Interest rates will be determined by the type of financing the bank provides.
How do I qualify for a business loan?
Businesses should have good overall credit quality, and owners must have good personal credit scores and credit history. Knowing the types of financing available through traditional and alternative sources is essential, as is understanding requirements. A good loan package application should include a strong business plan.
How do I get financing options for my business?
Steps to Secure Financing for Your Business:
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Assess Your Financing Needs: Determine the amount of capital required and the purpose of the funds.
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Review Your Credit and Financial Health: Check your credit score and gather financial documents for evaluation by lenders.
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Explore Traditional Financing Options: Approach banks and credit unions with a comprehensive business plan and loan proposal.
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Research Alternative Financing: Consider online lenders, peer-to-peer platforms, or venture capital firms if traditional loans don't meet your requirements.
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Look into Government Funding and Grants: Check for available government programs or grants specific to your industry or business type.
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Explore Angel Investors and Venture Capital: Present a compelling business plan and pitch to potential investors for equity funding.
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Network and Seek Recommendations: Seek advice and referrals from your professional network and experienced entrepreneurs.
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Prepare a Strong Loan Application: Organize all required documents and clearly explain fund usage and repayment plans.
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Be Open to Negotiation: Be flexible during negotiations with lenders or investors for mutually beneficial terms.
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Exercise Caution: Research potential lenders to avoid scams or predatory practices.
Remember to be patient and persistent during the process, as securing financing may take time. Careful planning and preparation will increase your chances of finding the right financing option for your business needs and goals.
What is the most common type of business loan?
Summary of Key Features of Traditional Term Loans:
- Offered by banks and financial institutions.
- Repaid over a fixed term with regular monthly installments.
- Comes with a predetermined interest rate for predictable payments.
- Involves a fixed loan amount given to the borrower.
- Collateral may be required to secure the loan.
- Credit history and financial health are considered during the approval process.
- Borrowers need to provide a detailed business plan and financial statements.
Other Financing Options to Explore:
- Lines of credit
- SBL loans under a defined credit limit under the CSBF program
- Equipment Financing
- Invoice financing
Business owners should consider various financing options to find the best fit for their needs and circumstances.
What are the 3 main types of financing for businesses?
Summary of Main Types of Financing for Businesses:
- Debt Financing:
- Borrowing money from external sources with an agreement to repay with interest over a specific period.
- Examples: term loans, business lines of credit, equipment financing, merchant cash advances via a term loan monthly installment credit limit solution - The application process is very quick for most lenders in fintech
- Equity Financing:
- Raising capital by selling ownership shares to investors or a venture capitalist
- Investors share in profits and losses; no repayment is required.
- Commonly used by startups and high-growth companies.
- Self-Financing / Personal funds (Bootstrapping):
- Using personal savings, assets, or business profits to fund operations versus taking on debt under startup loans
- Retains full control and avoids debt or equity obligations.
- May limit growth for capital-intensive ventures.
Businesses often use a combination of these financing methods based on their stage of development, financial health, growth objectives, and risk tolerance of the business owner.
How can an entrepreneur obtain startup financing?
Common Ways Entrepreneurs Can Secure Financing:
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Self-Financing (Bootstrapping): Using personal savings, assets, or business profits to fund the venture.
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Traditional Bank Loans: Borrowing a lump sum from banks with fixed repayment periods and interest rates.
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Online Lenders: Utilizing online platforms for faster approval and flexible criteria.
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SBL Loans Via the Canada Small Business Financing Program: Government-guaranteed loans with favourable terms and flexible
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Angel Investors: Getting funding from affluent individuals in exchange for equity.
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Venture Capitalists: Securing funding from investment firms for high-growth startups.
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Crowdfunding: Raising funds from many individuals contributing small amounts.
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Family and Friends: Seeking financial support from close contacts for the business's success
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Government Grants and Subsidies: Exploring non-repayable funding from governmental programs versus personal loan financing solutions
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Accelerators and Incubators: Joining programs that offer funding, mentorship, and resources.
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Business Competitions: Participating in competitions for cash prizes or investments.
To succeed in obtaining financing, entrepreneurs should have a well-prepared business plan, understand their funding needs, and demonstrate growth potential and profitability. Building relationships with investors and actively seeking funding opportunities can increase their chances of success.
What is the least costly source of financing?
Advantages of Self-Financing - Also known as "bootstrapping."
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No Interest Payments: No borrowing means no interest expenses, reducing overall financing costs.
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No Equity Dilution: Entrepreneurs retain full ownership and control without sharing profits or decision-making.
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No Debt Obligations: No regular loan payments, beneficial for businesses with limited cash flow who cannot pay interest on the debt - Interest rates and other business lender requirements tend to be higher for startups.
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Flexibility and Autonomy: Entrepreneurs can make decisions without external pressures.
Limitations of Self-Financing:
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Limited Capital: The amount available to borrow money may restrict business scale and speed of growth.
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Not Suitable for Capital-Intensive Ventures: This may not suffice for businesses with high financial needs.
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Growth Constraints: Rapidly expanding businesses may require additional external financing.
Entrepreneurs often explore a mix of financing sources as their business evolves and funding needs increase to align with their goals and financial capabilities.
