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Does it all have to be that mysterious and frustrating? We're talking about achieving success in completing bank lines of credit for your business banking needs in Canada. And with the proper info and mindset, and some tips to follow we think you will have an excellent chance of securing the business financing you need.
We'll also reveal who is the best banker in Canada, so stay tuned.
Canadian chartered banks are all about debt type financing... we're talking about term loans, equipment leasing, and revolving loans that are secured by current assets such as receivables and inventory.
We think where some business owners and financial managers in Canada miss the boat is the issue of knowing where the bank is coming from when it comes to 'secured lending'. For a starter, banks don’t really do 'unsecured' lending so that might be considered as our first tip. And by the way, approaching your bank for equity-type arrangements won't work either, so eliminate that strategy from your 'to do' list!
So, where is the bank coming from? It’s coming from cash flow, with your collateral being the assets that back up that ability to repay. Banks have sophisticated formulas in place that you and I might never really see when it comes to commercial business credit financing, but we can safely assure you that positive cash flow 1.25 times the debt you have to service is pretty well the rule of thumb with Canadian chartered banks.
Canadian banks are often criticized for not taking enough risk. Don’t get us started on that one, but recognize first that banks are regulated by various agencies, and loan and risk quality is constantly being evaluated. If you are looking for a banking type facility that comes with a much higher risk appetite, move into the non-regulated area of financial services in Canada... that includes asset based lenders, non-bank commercial financing firms, independent leasing companies, receivable financing firms, etc. It’s these firms that take up the 'risk slack' when it comes to transactions the bank won't do - but of course, the financing costs are higher. Surprised? You shouldn’t be.
A really simple way of looking at bank lines of credit is simply that the bank will look more favourable on your firm if it throws off cash, as opposed to consuming it! Naturally, our clients then ask 'if I was throwing off cash then I wouldn’t need to be borrowing!'
Think of Canadian business banking as relatively low-risk lending - if your firm has a higher risk profile then you should consider asset based lenders, and specialty lenders of all types - receivables, Purchase Order financiers, etc. They will understand your needs a lot better than the bank.
One of the most key points we share with clients around business banking in Canada is that they should pay more attention to the terms, covenants, and rations in their actual credit agreements. It seems to us, silly in fact, to be rate-focused when all the Canadian chartered banks are within basis points of each other in their offering to business clients. Focus on meaningful covenants that allow you to work and grow on a daily basis.
You never want to be behaving in a manner as to jeopardize your business because of covenant issues. And another key area you should engage in frank discussion in is the whole issue of personal and spousal guarantees. In our experience, there is some flexibility in this area when your case is properly presented. Consider a limited guarantee strategy also.
And finally, what's the best commercial bank in Canada? We actually do have a favourite, but it doesn’t seem right to say. But we can share with you that the best banker and bank in Canada is one who is professional, credible, has respect within their institution, and who is prepared to carry your business case forward in both good and challenging times. Your relationship with that type of banker is worth... well... a lot.
Want some tips, strategies and assistance in securing business bank lines of credit in Canada that achieve your operating and growth goals? Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in business banking 101.
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