Canadian Business Financing Commercial Credit Pitfalls

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Small Business Financing Canada

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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Email = sprokop@7parkavenuefinancial.com

When it comes to Canadian business financing and commercial credit in Canada it's not always happy talk! We can learn a lot about the mistakes we and others have made in the past, right ? We're full of sayings today, but our other favourite is that there is a lot of tuition to be paid in the school of business experience, whether it's bank financing or business funding / commercial funding via an alternative lender.

In many cases when it comes to business finance a mistake can be corrected - the worst case is of course business failure, bankruptcy, etc. Those experiences make business owners and managers shall we say ... ' resilient '.

How do business loans work? That's a common question from new clients at 7 Park Avenue Financial. Securing financing improperly from business lenders is one of the worst mistakes your business can make. And that doesn't necessarily mean rate, it means structure and purpose of the financing. And when you don't know how and when to raise capital or monetize assets that just compounds the problem. Business bank loans in Canada always carry the issue of personal guarantees - let's not forget .

From your lenders perspective, it’s all about risk and the amount they are willing to take with your business. So you become a winner when you obtain the financing you want and your bank or commercial finance firm feels they have not taken the excessive risk. That's a great point to remember.

THE PERSONAL GUARANTEE AND OUTSIDE COLLATERAL ISSUE

To make their loans and financing ' less risky ‘banks and other finance firms make ask for personal assets as collateral. While in many cases that can't be avoided the business owner should take great caution to over collateralize their lender. That mistake becomes very costly in the event of business failure, as many bank loans for businesses has proven over time - Pandemics included!

SHORT TERM OR LONGER TERM FINANCING?

Matching the right term to your financing is critical. Remember that a bank or finance company, Lease Company, etc always feels less certain about the longer-term. Why? Simply of course because the long term future is uncertain for any business.

DON'T MAKE THE MISTAKE OF GIVING UP EQUITY TOO EARLY

Many businesses are forced to give up some for of equity in their early years. That might be from an investor, a lender, a partner/strategic partner etc. When you do that you're of course giving up significant returns at a future point in time.

DEALING WITH BUSINESS FINANCING EXPERTS COUNTS

We probably couldn’t count the number of times we have felt that clients have simply aligned themselves with the wrong firms, people and financing. In a perfect world, you want to deal with people who are knowledgeable about your company and industry and let's not forget the importance of understanding costs in financing and small business loan rates.

BOOTSTRAPPING REQUIRED ?

We hear a lot about ' bootstrapping ' these days. Essentially it’s utilizing personal and ' friends and family ' savings as opposed to seeking outside funding. That’s good and bad we think. You do have less or no external debt, but again you've pledge personal assets that ultimately will affect your personal credit history.

The best bootstrapping arrangement is one in which you feel very confident about future cash flows - allowing your to be more comfortable with traditional or alternative business loan rates and structures.

CANADA SMALL BUSINESS FINANCING LOAN

The Canada Small Business Finance Loan is one the best and most popular loan programs in Canada - it is not a grant, it is a term loan available at good rates and the most flexible terms. In recent years the program was updated and the new loan limit is 1 Million dollars. Known by many as the SBL loan its a very popular program for buying a business or financing a franchise, as well as the utilization of the two asset categories - financing equipment and leaseholds.

To learn more about the program click HERE

Many customers explore the other ' quasi-government' solution, ' bdc loans', offering another possible government route for numerous types of financing including a cquisition loans and working capital solutions.

So when it comes to exploring banks that loan to small businesses business owners would do well to review those above two mentioned solutions.

What is the key take away today? Simply that Canadian business financing, either via debt or cash flow and commercial credit asset monetization must be taken on in the context of short term, long term, and daily operations financing. There are serious implications to taking ' other people’s money '. You can pay a lot of expensive tuition when you don't understand your needs and potential sources of commercial credit in Canada.

Seek out and speak to a trusted, credible Canadian business financing advisor who can assist you with your commercial credit needs, with the benefits of experience.