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Business financing and commercial lending needs often can come in a time of industry or economic turmoil. In the language of the people, this simply means tougher times! If there is any good news it is that a number of new and alternative financing solutions are offered.
Turmoil in economic times presents all sorts of challenges for Canadian business owners and financial managers. As challenging as business financing has become so-called 'tougher times' a new group of financing services and players in Canadian business financing offer new and different types of financing for business needs.
These options are available for every business, from retailer to industrial and of course technology. Additionally, your firm can be established, start-up, or pre-revenue.
One way to consider the types of financing available on the landscape is to think of either 'traditional' finance or the new kid on the block - 'Alternative'.
The alternative financing players in the marketplace are often unregulated, simply meaning they are not bound to government restrictions as to types of lending, risk levels, etc.
A good way to think of business financing in Canada is simply by thinking of the offering as either from a regulated player, or a non-regulated player. Banks are a good example of regulated players, while firms such as equipment finance companies or asset based lenders tend to be unregulated.
Years ago may types of financing easily available today-
Examples:
Purchase Order Financing
Tax Credit Financing
Royalty Financing
...That might have been unimaginable in older times are now viewed as new and extraordinarily relevant to Canadian business financing needs.
The bottom line is that commercial lending and financing is no longer of course just offered by Canadian chartered banks. In Canada for example some major insurance companies and pension funds are the ones funding the Canadian equipment financing industry.
Alternative financing for firms is all about niches - the good news for commercial borrowers in Canada is that competition has become fierce and it’s quite often a challenge for the companies seeking Canadian business financing to differentiate from who is offering what. By the way that is where an experienced Canadian business financing advisor with a track record of business finance success can be an invaluable part of your financing search.
Alternative Financing vs. Business Banking Via Chartered Banks
We're the first ones to forgive new clients who think that the only ' go-to ' for appropriate business financing solutions are Canadian charter banks. Numerous other lenders have taken up the slack, and are often complementary to client banking scenarios.
Captive finance companies also provide a significant amount of financing in Canada. They play a significant role in many transactions that otherwise might not be able to meet more stringent bank criteria.
Alternative finance solutions can include:
Inventory Financing
Purchase Order / Supply Chain Finance
Asset Based Business Credit Lines
Equipment Leasing / Sale Leasebacks
When Canadian business owners and their financial managers have a strong knowledge of both the finance offering and the competition for that offering that leads to:
Best rates
Flexible Terms and Structures
By the way, for all the competition that Canadian banks have, and given they are viewed as the strongest and best run in pretty well the whole world, they haven’t necessarily stood around watching their business financing and commercial lending decline. They have expanded into the U.S., purchased independent commercial lease financing and auto financing firms, and rebranded these firms into their own offering.
Many smaller companies in Canada, those ranging under 5 Million dollars in revenue utilize independent commercial receivable financing firms, known as 'factors' to finance their working capital needs. The need for this and other types of creative financing is huge because of the general strict credit criteria of the Canadian chartered banking system.
At 7 Park Avenue Financial, our recommended 'Receivable Finance' solution is Confidential Receivable Financing, allowing your firm to automate your sales into constant cash flow, with your firm doing your own billing and collecting.
Non-bank financing firms have different levels of pricing, and those rates are commensurate with the risk level, transaction size, and type of financing provided. Alternative finance companies have proved themselves to be very successful and strong competitors of the Canadian banks.
Canadian non -finance firms have a number of finance offerings that allow premium pricing and servicing the SME (small to medium enterprise) sector provides strong growth opportunities.
So how does the ever-changing Canadian business financing landscape affect you, the potential borrower? The bottom line is that a variety of finance offerings allow you to maintain an open door to get the maximum amount of financing your firm needs. Smaller firms have the ability to use lease asset financing, receivable financing, tax credit financing, purchase order financing from a variety of competitors.
Take a hands-on approach to your finance needs, by speaking to a business finance specialist who can help you manage the relationships you need to have in place to access business financing options that make sense for your firm.
Stan Prokop
