OVERVIEW – Information on business finance and commercial interest rates in Canada . How well do you know your corporate finance costs and how and why they change?
Business financing commercial interest rates in Canada… vary! No surprise there. But do owners and financial managers in the SME COMMERCIAL FINANCE environment really understand why finance costs can vary so much. We don’t necessarily think so; let’s dig in!
It seems simple… you have identified your financing solution and want to know what the rate is and in cases of term debt whether the costs are fixed or floating.
As we said there are numerous business finance solutions, some of which are cash flow and asset monetization /working capital solutions; others coming in the form of term debt.
In the previous scenario those cash flow solutions include:
Accounts Receivable Financing
Bank (or non bank) business credit lines
Tax Credit Financing (Predominantly via the SR&ED Program)
Unsecured cash flow loans
Govt Small Business Loans under the Federal loan guarantee program (CSBFL)
So what in fact drives those changes in rates and how can you both understand and minimize them? It’s your company ‘ risk profile ‘ combined with the policies and structure of your lender.
When it comes to fixed rates for term types of loans (think equipment leases or corporate mtges) borrowers with good commercial credit prefer to lock in rates when there is a long term interest rate rising period in the economy. Shorter terms might well command a variable / floating rate.
For those companies with good credit that are considered ‘ bankable ‘ rates revolve off of ‘ prime ‘. If you company is financially healthy loans are typically priced off of prime, and the Canadian banks do a great job of judging the overall financial performance of your firm. Suffice to say that size also counts and larger loans with good credit quality command great rates, especially in the current rate environment.
For businesses that are NOT bankable the cash flow challenge is much greater, and it’s here that higher rates can be anticipated in your borrowing needs. The SME COMMERCIAL FINANCE market is driven by thousands of firms seeking to expand, acquire competitors, or simply access working capital needs that are driven by higher inventory and receivables.
So what drives those higher rate costs for companies that can’t acquire any, or all the bank credit they need. It’s understanding your total debt and cash flow / profit picture. As those ratios deteriorate you are entering the world of higher loan costs.
In many cases your firm might have different lenders – typically a ‘ senior’ lender that holds most or all of the security / collateral, and other lenders charging higher rates tag along!
In cases such as unsecured loans you can almost always expect a higher rate. Remember also that many commercial lenders themselves are borrowing capital to lend, and when they are in the secondary loan market in Canada they have their own risk and profit considerations.
The bottom line? Knowing what rates apply to the type of financing your company needs and qualifies for is a critical part of business financing. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you in matching the right financing solution to your requirements.
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653