Financing businesses in Canada for the majority of business owners and financial managers conjures up more often than not only one thought – a commercial bank business loan. While other alternatives exist, more so today than ever our banks are usually top of mind when it comes to finance solutions. Let’s dig in.
Whether it’s operating capital to run and grow their business or term debt of some sort it’s that external capital challenge realization that becomes your focus. For businesses in the SME Commercial (small to medium enterprise) sector that funding might come from personal resources or the proverbial ‘ friends and family ‘ but typically the owners focus is either a bank or commercial finance firm.
Does the typical owner / manager understand what drives bank approvals for financing requests? When we talk to clients it’s usually listening to their negative experiences in accessing bank funding. We’ve always found that interesting as there is probably not a more straightforward system that banks use to scorecard and approve financing. Let’s take a look at some of those key ingredients in properly funding a business.
Let’s take a look at that system a bit, if anything it will provide the borrower with the ability to self evaluate , saving time and energy on getting the right financing. Oh, and by the way, in our opinion it’s the banker not the bank, so focus on a relationship, not a logo.
While banks offer a number of solutions – typically revolving credit facilities, term loans, asset financing, etc. the focus for approval always comes down to looking at current and forecasted financials to determine the best method of structuring financing.
That is not to say that past performance is not also looked at, as well as the overall asset quality of your business in relation to the amount borrowed.
The actual ‘net worth ‘ of a business is key in bank financing. The amount of debt you have, in combination with the amount you are requesting must make sense to the bank. One key rule of thumb for the majority of industries in Canada is that your total debt should not be more than 2 times the equity in the business. As we said though, that formula varies within industries.
Many businesses in the SME sector, particularly start ups and smaller firms can take advantage of bank financing via the Government Small Business Loan. Recent changes to the program make this financing even more attractive, but it already offered good rates, Borrowing limits recently increased also, with the previous limit being 350k.
When bank financing is not available for the firm that can’t meet the ownership equity issues and cash flow coverage that a bank desires non bank solutions usually can. They include:
Asset based non bank revolving credit facilities
SR&ED Tax Credit Financing
Equipment Financing/Sale Leasebacks
Working Captial term loans
If you’re looking to hit the ‘ bulls eye ‘ in a commercial bank business loan seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can help ensure success.
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 :
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Canadian Business Financing