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Beyond the Banks: Exploring Alternative Sources of Financing for Canadian SMEs
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Financing & Cash flow are the biggest issues facing businesses today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Financing Your Canadian Operations & Expansion: Commercial Loans / Business Loan Solutions
Commercial loans availability for Canadian business owners/financial managers often comes with terminology that confuses a business loan benefit with its actual availability.
We’ll demystify some of that jargon in accessing funds. Let’s dig in.
INTRODUCTION
No secret that small and medium-sized businesses in Canada are the backbone of the Canadian economy - Even less of a secret is the fact that accessing business financing and capital for those business owners continues to be a huge challenge as traditional financial institutions such as our banks tighten credit availability in an already tough economic environment.
The good news? There are new sources of alternative funding in Canada that have stepped in to fill the financing gap -Business owners need to understand those business and commercial loan options to successfully navigate the Canadian business financing landscape.
UNDERSTANDING THE REQUIREMENTS FOR BUSINESS FINANCING
Hopefully, every business manager has some basics under their belt around rate, collateral, personal guarantees, secured vs. unsecured, etc. These are the essence of the majority of Canadian business financing. Not knowing how to finance your firm often has the business viewed as ‘ unstable. ‘
WHAT ARE THE 5 KEY TYPES OF BUSINESS LOANS?
We can say that 5 types of common business loans dominate the commercial lending landscape in Canada. They are:
Business Term Loans
Lines of Credit - Business credit lines are available from banks - As well asset-based lenders offer a higher loan-to-value ratio borrowing margin on key business assets incorporated into a line of credit - These ' ABL ' lines combine inventories, accounts receivables, and fixed assets into one borrowing facility - with a focus on assets of the business themselves. Banks on the other hand place a major emphasis on personal guarantees, outside collateral, ratios, and covenants when it comes to loan office loan amount approval.
A/R Financing- accounts receivable solutions including Confidential Receivable Financing - businesses use these facilities to borrow money against outstanding invoices
Inventory Finance
Equipment Leasing/Commercial Property Mortgage - purchase new or used equipment to enhance the value of your company for larger asset purchases for your operation's needs, allowing you to maintain a competitive edge in technology/assets at competitive lease and loan terms.
Naturally, depending on your overall flexible financing needs, one or all of these might be applicable.
Term Loans
Business Term Loans - these are suited for longer-term financing needs, an example being commercial real estate finance, and while interest rates might be variable more often than not, they are fixed rates and 3-7 year terms while optimal for long-term financing. This method of financing your business is more difficult to access. Online lenders offer short term working capital loans and merchant advance funding solutions.
BANK FINANCING IN CANADA / BUSINESS LOAN REQUIREMENTS
Banks probably provide the majority of term loans in Canada and insist, rightfully so, on clean balance sheets, profits, and cash flows. A healthy dose of outside additional collateral on other parts of the business or the owner’s assets might also be required under loan agreement terms.
A line of credit and any accompanying interest rate from Canadian banks will always be the low-cost solution for funding your business if you qualify. Whether it's a mortgage for commercial real estate loans for company-owned premises or a commercial loan, companies should strive to achieve traditional bank financing based on various business solutions and access to unlimited capital.
Whether it's short-term business loans, a ' LOC,' or funding a business acquisition, all business needs can be satisfied by the bank under the best rates and loan terms.
THE GOVERNMENT OF CANADA SMALL BUSINESS FINANCING PROGRAM
The term loan that is a lot more accessible to entrepreneurs is the Government Canada Small Business loan - These are government-guaranteed small business loans that finance up to 1.1 Million dollars of equipment, property, and funding to renovate property for leasehold improvements. It is a corporate loan with attractive rates, terms, and flexibility for the business owner/entrepreneur.
Similar to a traditional banking loan for small businesses it is accessed by thousands of new and existing businesses every year for money not otherwise traditionally available, with the program funding billions of dollars annually for every industry in Canada - A commercial real estate loan is also available under the program.
A good personal credit score is required under program requirements from the participating financial institution that is underwriting the loan for the federal government. A one-time fee for closing costs is 2% and can be bundled into the financing.
The program is similar to the U.S. SBA program under the Small Business Administration.
ESSENTIAL BUSINESS CREDIT LINES
Operating Lines of Credit - Corporate credit lines revolve daily around your business's current assets, typically receivables and inventory. The strong alternative to bank credit revolving facilities is the ABL Asset-based credit line - it is easier to obtain, provides more liquidity almost 99% of the time, and allows you to include all your business assets as borrowing power.
FINANCING SALES VIA ACCOUNTS RECEIVABLE FINANCE SOLUTIONS
A/R Financing / Inventory Finance - These two ' current assets’ are often the most critical parts of your capital structure.
Outside the bank environment, these assets are financed under working capital credit facilities. Your ability to turn in receivables as they become due and manage inventory turns is key to the financeability of these two assets.
When it comes to receivables financing, our recommended solution is CONFIDENTIAL RECEIVABLE FINANCING, allowing you to bill and collect your receivables and borrow up to 90% of outstanding A/R at any given time. It's a solid alternative when bank financing via a traditional bank loan isn't available... or isn't enough.
EQUIPMENT LEASING FOR YOUR BUSINESS ASSET AND TECHNOLOGY REQUIREMENTS
Equipment Loans -/ Mortgages - Billions of dollars of capital assets are financed in Canada through equipment lease finance solutions and quick credit approval at competitive interest rates for small business owners. Using independent commercial lease firms allows you to access capital outside the bank, and are a strong source of additional credit for any business. There is really no upper or lower limit for asset financing via the equipment lease. Technology needs are well suited to lease financing and provide business owners with a fair amount of flexibility in asset acquisition and replacement.
WHAT FUNDING SOLUTION WORKS FOR YOUR BUSINESS?
It’s critical to pick the right debt or asset monetization strategy in business, carefully assessing how long you need the financing. Considerations should include your firm's overall credit quality, the amount of liquidity you have, and restrictions demanded by lenders under different loan scenarios.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor relationship, to achieve the ' survive and thrive ' commercial loans tailored to your business financing needs with financing solutions tailored to your business.
Small businesses that know the basics of our 5 focus areas allow the owner/manager to access the right amount of capital for business growth at the right time and not feel vulnerable in both tough and good times.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is the advantage of a commercial bank loan?
The main advantage of a commercial bank loan is the ability for a business to access reliable and predictable funding without having to consider additional equity investment into the business - commercial bank loans can be funded on fixed or variable rates and allow for businesses to manage cash flow more predictably,
Commercial loans from banks can be utilized for operating costs via business lines of credit, purchasing assets and technology, or expanding operations via growth or acquisitions,
What is the most common commercial loan ?
The most common commercial loan is a commercial real estate loan which is used to fund, via commercial mortgages, the purchase of company-owned facilities for a growing business that might include offices, warehouses, factories, etc, The small business loan is another commonly used loan by SMB's and these loans can be secured or unsecured.
