Canadian Businss Banking - By Stan Prokop - 7 Park Avenue Financial
Banking and business borrowing in Canada is significantly different than in the United States. That is primarily driven by the fact that our banking system is uniquely different. In the U.S., borrowing finance is driven through various entities - which include major ' money center banks ', Commercial banks, community banks, and what are know as S&L's, ( savings and loans ). In addition the American landscape is populated by community banks.
The Canadian banking system is different, in that the country has chosen to adopt a more smaller ( by competitor ) banking system that is extremely concentrated and dominated by a handful of major players. Primarily these are:
* RBC ROYAL BANK, * TD CANADA TRUST, * CIBC * BANK OF NOVA SCOTIA, * BMO BANK OF MONTREAL, * LAURENTIAN * NATIONAL BANK OF CANADA
All of these banks support the Canadian Small Business Financing program sponsored by the federal government.
There is a decent sized credit union movement in Canada, and many of these credit unions are making forays into Commercial banking and financing. Many people tend to feel these credit unions have not yet accumulated either the talent or the capital pool to properly play in business banking and commercial lending.
We would point out that some time ago now the government introduced legislation to allow foreign banks to lend in Canada. These banks are known technically as ' SCHEDULE B ' banks, and are referred to a briefcase bankers in that they do not have the large branch networks that are the domain of our BIG 7 banks as listed above.
Capital for Canadian firms is traditionally much harder to secure in the Canadian banking system. Outside of the aforementioned CSBFL program that is federally underwritten the banks tend to secure small business loans with usually up to 100% of personal collateral. That of course has the customers pledging personal assets, savings, etc. There certainly are no ' templates ' for fast quick borrowing in the Canadian small business banking. Loan criteria is judiciously adjudicated by underwriters on a case by case basis, and as has been noted, relies heavily on the traditional three C's of credit -
- character - capacity - capital
As the Canadian banks have emerged from the current world economic crisis they do however seem to be placing more focus on smaller firms. For example new divisions for small business banking are being created within some players, seminars and trade shows are being offered, and they often sponsor local events.
Larger firms who in many cases do not meet the requirements of the Canadian banks when it comes to significant borrowing requirements are often forced to consider asset based lending arrangements with Canadian and U.S. commercial finance companies who have stepped in to play a role in this vital area.Even though the larger firms may in fact have been in business a number of years their balance sheets and income statements do not meet the borrowing requirements of the Canadian loan committees. During the 2009 world economic crisis and financial meltdown the Canadian banks were consistently lauded for being some of the best run in the world. However, the downside of this is that ' best run ' in many cases means risk averse and commercial borrowing in Canada is significantly more difficult than in other countries such as the U.S.
The Canadian banks have distinguished themselves by developing software and technologies that have put them at the forefront of commercial borrowing/lending.
In summary, the Canadian banking system is uniquely structured and Canadian business, both larger and small,should focus on the unique strengths of the system borrowing and banking needs. Not all companies will be successful and business owners should ensure their financial executives or advisors know who can best meet their borrowing needs.
Considering a business loan to help push your business to the forefront of the industry?
In today’s challenging marketplace, it can be difficult to make your business truly stand out. Even a great idea needs capital to make it work, but the process can be overwhelming. At 7 Park Avenue Financial, we have the experience and expertise to acquire business loans for Kitchener Ontario businesses, without the stress and confusion so you can focus on what you do best: managing your business.
Between March and April 2008, we arranged over a million dollars in financing for our clients. This is only one small example of our proven track record, so you can be certain that we’re willing to go to bat for the loan you need! We’ve built strong relationships with senior level management at many well known financial institutions, so that your voice gets heard at the top from the very start.
What does that mean for you? Unlike many other volume based companies, 7 Park Avenue Financial puts the customer first. We’ll listen to the goals and aspirations you have for your business, and then work to put together a timely solution that is developed with the unique needs of your business in mind. This specialized solution will work for your business, instead of your business trying to mould around it. That’s what we call quality service, and that level of attention and detail is our promise to you!
Our experts know what needs to be done and how to do it, and we’ll match you with the right lender for your business loan needs. We believe that this approach sets us apart from the competition, and we want to do whatever it takes to ensure that your financing helps set you apart from your competition as well.
At 7 Park Avenue Financial, we approach finding business loans with integrity and determination. We want to foster a relationship that will last well into the future, becoming one of your trusted advisors in business financing.
Want to obtain a business loan for your Kitchener Ontario business that will truly make a difference? Why not give us a call today! Allow us to use our years of financial expertise to help your business grow.
Does My Firms Cash Flow support additional Borrowing - By Stan Prokop - 7 Park Avenue Financial
When business owners and financial managers contemplate additional borrowing for their firm they must think it terms of whether the business does, or will have, enough cash flow to make the debt repayments. We can further assure business owners that the bank or lending institution is thinking the same way!
When businesses enter into bank loans or other institutional loans the payments are, 99% of the time fixed and specified. The business owner and financial manager must ensure those payments can be made. If the company has over relied on debt it is viewed as highly leverage by the lender.
So how can a business owner determine if the company has the cash flow to support the debt? More importantly how does the lender do that calculation?
The calculation that banks and other term lenders focus on is called 'Times Interest Earned '. The business owner (and the banker) can calculate that formula very simply.
The Times Interest formula is calculated as follows:
Net profit before taxes, plus interest expense / divided by interest expense
The calculation becomes an absolute number. If the number is in fact '1 'that means that the company has in act made just enough to pay the exact interest expense for the year. We would point out that this calculation is always usually done on an annual basis.
So is '1' the magic number? The answer is no, and the answer should be intuitive to the business owner. That is because a times interest of 1 means there is absolutely no cushion for anything going wrong, and all business owners no about Murphy's Law!
So if earning decline or if the company takes on additional debt our ' times interest earned ' number become unsatisfactory - that is to say that we have determined there is not sufficient cash flow to service the debt.
We have determined '1' is not a great number then, well what is? The answer, as in many facets of business, is of course 'that depends '. Many industries differ and there is not really any specific number that is viewed as the Holy Grail by lenders. What we have found though that higher is better than lower. When the number is hovering around 1 both the business owner and the lender, should and will, respectively, have some concern.
We point out also that income, as a key component in our calculation varies between companies in final calculation re tax rate and other accounting adjustments. Some lenders and business owners also add deprecation to the profit because it is not a real cash expense.
Another quick calculation business people can perform is to calculate the cash flow number as a per cent age of debt. This calculation is often done by lenders to ensure long term debt is not being miss-used. If a company has a high percentage of total debt to cash flow it should be a strong indicator to the company owners that growth will be constrained, as all cash is going to debt, not growth. Therefore new equipment, inventory, receivables, etc will suffer in terms of growth.
In summary, business owners, by doing actual current calculations, as well as projections, can easily calculate their 'times interest earned' and cash flow as % of debt. This will allow the business to position loan repayments positively with their lenders, at the same time providing them with insights into how the bank or other lender will view payment capability.
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