What do banks look at for small business loans?

Banks consider the business owner's personal financial details around income, outstanding debt, unused credit lines and personal credit scores which generally should be in the 650+ range. From the business perspective, banks look at revenue and sales growth, the ability of the business to generate cash flow, and the debt-to-equity ratio on the balance sheet.

Essential Business Financing Loans & Cash Flow Funding Solutions

Q: How do small businesses obtain financing?

Businesses obtain financing through various sources which include banks, business oriented credit unions, and a variety of alternative financing lenders in the commercial business financing landscape. Some business owners choose to access government guaranteed loans as well as various grant financing programs that are available.

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UNDERSTANDING BUSINESS FINANCING LOANS IN CANADA

Money won’t create success – the freedom to make it will ‘ - Nelson Mandela

Does Business Financing & your cash flow funding search resemble that old proverb about the bad ballerina? For those that don't know, it goes as follows - “A bad ballerina blames the hem of her skirt." The meaning? Simply that a good ballerina can dance in anything.

So your business should be able to acquire the right type of commercial loans you need in any circumstance - no excuses! Let's dig in.

At 7 Park Avenue Financial, we know that business financing is needed for various aspects of a business – that might mean startup costs, financing the purchase of new assets or technology, or accessing term loans and lines of credit for short-term operating cash flows or longer-term investments in the business.

Small Business financing loans may or may not have to come from your bank - they might even come internally through better asset management. We'll explain later.

Properly structured business loans are an alternative to equity financing - owners don't want to give up equity earlier than needed, given that equity financing is always more expensive than debt financing for a growing company.

Canadian business owners and financial managers are looking for real alternatives to financing for cash flows, profits and growth. Companies looking for SME COMMERCIAL FINANCE solutions, including start-ups, are almost always experiencing some level of financial stress - sometimes more extreme than others.

BUSINESS LOANS WITH LOW INTEREST RATES

Is it possible to get working capital, operating credit lines, and other funding sources from other financial institutions and commercial financing companies outside Canadian chartered banks? Our answers are a resounding 'yes!

Canadian chartered banks offer term loans and revolving credit facilities based on both the overall assets financed - i.e. receivables and inventory - however, there is a significant emphasis placed on the balance sheet and income statement ratios, covenants, external collateral, and personal guarantees. Get past those, and you'll have a solid funding plan in place - given that interest rates in Canada are generally low - Entrepreneurs can use the bdc simple business loan calculator to assess the impact of rates and payments.

But is the bank the only way to fund your business? Absolutely not! Credit lines are available from what typically is called non-traditional sources, but the reality is that in the current environment, nontraditional financing is fast becoming 'traditional.'

Working capital and business credit lines can also come from asset-based lines of credit. In some cases where just receivables are involved, factoring or receivable discounting becomes a business’s main cash flows and working capital source.

WHAT TYPE OF BUSINESS FINANCING LOANS WORKS FOR YOUR COMPANY / INDUSTRY?

Naturally, you can supplement working capital with a variety of long term business funding loans and options which include understanding the differences between secured and unsecured business loans.

ALTERNATIVE BUSINESS FINANCING OPTIONS

EQUIPMENT FINANCING & LEASING OPTIONS: Lease financing - technology purchase and business equipment purchase needs - acquiring new equipment and technology financing for business needs is easy to achieve via prompt credit approval

Short-term working capital loans - small business financing companies offer short-term loans based on your historical and present sales volumes - loans are typically 15-20% of your annual sales volumes - This type of small business loan financing helps companies when traditional bank loans are not an option - Companies will pay interest at higher market rates but financing is very accessible for your short term busines purposes

SR&ED Tax Credit Financing - start-up business loans in Canada have many companies investing in r&d - use Sred loans to recover your refundable tax credits early rather than waiting for the refund

Business Credit Cards/ Online banking loans via merchant cash advances for businesses/small business working capital loans

Recurring Revenue Financing / Saas Financing - Financing for tech companies: Companies in the tech space can take advantage of creative venture debt solutions to monetize their client contracts and provide cash flow to fuel growth and valuation

SMALL BUSINESS LOANS FOR STARTUPS

Small businesses looking to access business capital can be helped by the CSBF government loan program - providing business financing for amounts up to 1.1M dollars for asset purchases - Recent changes in 2022 to the program included new categories of financing including working capital and lines of credit - Talk to the 7 Park Avenue Financial team about how we help clients with the application process.

Govt Guaranteed Business Loans (The CSBFL) - Canada, Small Business Financing Program is a business loan structured as a term loan. It is used by thousands of businesses every year to fund key asset needs such as equipment, leasehold improvements, technology needs such as computers and software, and even real estate. No external collateral is required, and the personal guarantee required by the government is limited. Business owners/borrowers should be prepared to demonstrate good personal credit scores and as that is a condition of loan approval.
The loan amount for the program is 1.1M $.

Talk to the 7 Park Avenue Financial team about meeting the eligibility requirements for the program, which include a good business plan for business purposes - 7 Park Avenue Financial business plans we prepare for clients meet and exceed bank and all commercial lender requirements for the loan details required in the credit application of this government of Canada program.

OTHER KEY BENEFITS OF THE GOVERNMENT 'SBL' LOAN

An attractive and competitive interest rate with a tailored monthly payment /amortization - Intangible assets can now be financed under the program which further supports business looking for the capital they need

Loan amortization from 2-5 years for eligible purchases of assets - a longer amortization period is available for commercial real estate

CHOOSING THE RIGHT FINANCING FOR YOUR BUSINESS

The advantages of non-bank alternative financing are that, on average, you will be eligible for much more margin on your working capital requirements. What does this mean - simply that as your inventory and receivables grow, you will be able to climb up the liquidity ladder without being capped at a certain limit?

ABL lenders for a business loan are experienced in assessing the value of your sale and assets for the right non-bank business credit line. The ability of a business owner to know that he has access to working capital as his business grows is key, of course.

Non-bank working capital financing for business working capital usually comes at a higher cost than traditional bank financing. But we encourage clients to do a careful analysis of what that additional capital can do for their firm in several key areas of business success:

Ultimately small businesses want to know that liquidity can grow as your business grows. In summary, ensure you understand both your capital needs and, even more importantly, your options.
Proper business financing will protect your cash flow funding requirements and allow your business to grow. Business loan interest rates in Canada will vary based on the transaction size, type of funding, and whether you are accessing traditional or alternative capital.

CONCLUSION - MEETING THE SMALL BUSINESS FINANCING CHALLENGE

Business loans are the primary source of financing for Canadian companies. Break out of that Ballerina Proverb syndrome and get rid of excuses around putting your business on the right financing path. Let's get started! Talk to 7 Park Avenue Financial; a trusted, credible and experienced Canadian business financing advisor who can ensure you have the right business advice on commercial loan access and funding to meet all your business growth needs.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

How do I qualify for a business loan?

To qualify for business loans good personal credit and business credit are required for traditional bank financing in Canada, as well as the government loan program. Alternative lenders are much less focused on personal credit scores and are focused on key business attributes such as sales and assets.

How do small businesses obtain financing?

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Business Financing Loans Cash Flow Funding | 7 Park Avenue Financial

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