OVERVIEW – Information on acquiring business loans in Canada . Debt financing done right requires this info
Business loans in Canada come with certain rules around the debt financing when done. properly. Let’s dig in.
For the most part debt is ‘ secured ‘ – either by assets or cash flow, or both. For companies with very strong predictable cash flow a company’s promise to pay might be all that is required. That is a rarer occasion.
By the way ‘ unsecured’ cash flow loans, also called ‘ Mezzanine ‘ almost always cost more being the lender is ultimately unsecured, relying solely on the delivery of the cash flow promise.
Business owners will often consider our Canadian chartered banks as the optimal solution – certainly it’s more often than not the ‘ go to ‘. However not all business owners and financial managers understand the bank requirements around secured term lending. On the other hand they also don’t know there are alternatives.
From the banks perspective POSITIVE CASH FLOW is a must for debt financing of any time. Formula’s that have been in use forever for CASH FLOW COVERAGE and DEBT TO EQUITY are the key drivers in commercial debt financing. Bank debt is typically ‘ senior debt ‘ and is often has the bank in ‘ first position’ over all other lenders. Banks typically document this transaction under a loan agreement called a ‘ GSA ‘ – A general security agreement.
When we talk to clients about new debt financing options one of the issues that always must be dealt with is relationships with other creditors. On occasion this requires an unwinding of agreements between lenders, requiring additional time to complete the financing required.
Business loans can finance a variety of needs – these include working capital, fixed and capital assets, and even acquisitions.
The $64,000 question in debt financing is almost always ‘ how much ‘. Too much debt creates a highly leveraged company – Done right its great for ROI, done wrong… a recipe for business failure.
When accounting for debt on your balance sheet term loans will always be
broken down into current and long term. Current is the total of the loan that will become due in the next year. On the other hand revolving credit facilities simply… revolve… and and based on levels of inventory or acounts receivable, or both.
Debt is of course the alternative to equity – in the current low rate environment capital cost is low and payback can more easily be justified. The negatives relate to what we have already talked about:
Taking on two much debt
Potential business failure
Implications around personal guarantees
Payments are fixed – i.e. they must be made!
For the SME sector in Canada the Government of Canada Small Business Loan is a solid debt alternative that can be very attractive. Why? It has attractive rates, repayment without penalty, and a lesser Personal Guarantee implication.
For proper explanation around the right type of business loans for your business seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your debt financing needs.
Author: Stan Prokop – 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS LOANS AND DEBT FINANCING EXPERTISE
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