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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Business Funding Options
Understanding Business Financing in Canada
Business Financing in Canada finds owners/financial managers (particularly in the SME area) either on… or off… ‘the grid.’
That’s our term for traditional (on) or alternative (off) loans and finance sources.
Traditional financial institutions, such as banks and credit unions, offer competitive interest rates on bank loans but have strict approval criteria, making it challenging for some small business owners to qualify. With all the business and finance changes in these post-recession years, the challenges around accessing capital sometimes seem greater than ever. Let’s dig in.
The Business Funding Dilemma: Finding Your Perfect Match
Canadian businesses often struggle to secure adequate financing, facing rejection from traditional lenders despite solid business plans. This funding gap creates stress, missed opportunities, and stunted growth.
Let the 7 Park Avenue Financial teams show you that diverse business loan sources exist beyond conventional banking, offering tailored solutions for various business needs and circumstances.
2 Uncommon Takes on Business Loans:
- The rise of industry-specific lenders who understand niche business models better than traditional banks
- Using multiple complementary funding sources simultaneously for optimal capital structure
On-Grid vs. Off-Grid Business Financing
Owners/finance managers have had to learn about various financing options and an equal amount of ‘unlearning’ in ‘on the grid’ traditional solutions provided by specific financial institutions, many of which are unavailable or somewhat inaccessible.
Misconceptions About Business Banking Relationships with Financial Institutions
Business owners in small and medium businesses often mistakenly believe that their personal banking relationships will lead them to commercial banking relationships with the same bank—they feel even more strongly about that when they have good personal credit and other personal borrowings from that bank.
However, Canadian chartered banks run their commercial borrowings from major commercial offices and head offices quite distant from the local branch relationship.
More to the point, commercial borrowing involves data points highly focused on business cash flow and other measures of business health, including debt to equity, interest coverage, and quality of assets and collateral.
Preparing for a Business Loan Application
Preparing for a business loan application requires preparation. Lenders will ask for a business plan, so updating or creating one using a template is essential.
The business plan should include financial projections, market analysis, and management team information. Lenders will review it to assess the business's creditworthiness.
Documents Needed for a Business Loan Application
To apply for a business loan, you will need to provide various documents, including:
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A solid business plan
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Financial statements, such as balance sheets and income statements
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Tax returns
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Identification documents, such as a driver’s license or passport
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Business registration and license
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A tax identification number
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A business bank account
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A business credit history
Meeting with the Bank
When meeting with the bank, it’s essential to be prepared to discuss your business plan, financial projections, and credit history. The bank may also request additional information, such as a personal guarantee or collateral.
Understanding the loan terms and conditions, including the interest rate, repayment terms, and fees, is crucial.
Business Loan Requirements
To qualify for a business loan, you will need to meet specific requirements, including:
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A minimum credit score of 600
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Minimum annual revenue of $100,000
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A minimum business age of 6 months
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A solid business plan and financial projections
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A personal guarantee or collateral
Credit Score Requirements
A good credit score is essential for a successful loan application.
A credit score of 600 or higher is typically required for a business loan. However, some lenders may consider applicants with lower credit scores. Understanding that a good credit score can help you qualify for better loan terms and conditions is crucial.
The Rise of Alternative Commercial Financing Solutions
Being unable to access traditional capital has opened the world of ‘off the grid’ finance sources - our coined term for ALTERNATIVE LOANS & FINANCING.
While most business owners associate non-bank financing with higher costs, they need to understand the benefits of these solutions. These solutions tend to be structured with regular monthly payments, allowing borrowers to plan their cash flow and understand when their debt will be fully paid off.
New businesses can benefit from alternative financing options to effectively fulfill orders and capitalize on growth opportunities.
Weighing the Costs of Alternative Financing
While alternate finance solutions do, in most cases, involve a higher cost of funds, their structure often includes a monthly payment plan, which can be more manageable for businesses.
In many cases, their short-term nature is cheaper than borrowing long-term or taking on debt that will be on the balance sheet for a long time.
Hybrid Financing? Government Guaranteed Small Business Loans
The government-guaranteed Small Business Loan is the one type of bank financing that is a ‘hybrid’ of our on-grid/off-grid financial strategy. Here, term debt at attractive rates and structures offers a great solution for equipment needs and leasehold improvements.
Small business funding through government-guaranteed loans can support equipment needs, providing entrepreneurs with the necessary capital to grow or sustain their businesses.
Limitations of Government-Backed Loans
It's term debt, but in 2022, the program included cash flow/working capital/business line of credit solutions that some businesses need.
Key Non-Bank Financing Alternatives
Understanding non-bank finance alternatives is key for small businesses to know what to borrow and when.
This is a great time to measure the amount of financing you need, what it will cost and how it will contribute to your return on investment/return on assets.
Small business loans can be a part of non-bank financing alternatives, offering flexible funding options without stringent requirements like down payments.
Types of Alternative Financing Solutions
And what exactly are those non-bank finance alternatives?
They include:
Case Study:
A Canadian Manufacturing company faced a critical expansion opportunity but lacked immediate capital. Through diversified business loan sources, they secured $500,000 by combining equipment financing, a working capital loan, and a government loan.
This strategic approach reduced their overall interest rate by 2.3% compared to traditional bank financing, enabling successful expansion while maintaining healthy cash flow.
Key Takeaways
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Understanding credit requirements drives successful loan applications
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Proper documentation preparation accelerates approval processes
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Strong cash flow matters more than perfect credit history
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Relationship building with lenders creates future opportunities
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Collateral options significantly impact available loan types
Conclusion
Are you looking to understand better financing sources 'on' or 'off' the grid?
Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with business finance needs.
FAQ
How quickly can I access business funding?
Business loan approval and funding can take 24 hours with alternative lenders or several weeks with traditional banks. Digital lenders often provide the fastest turnaround.
What credit score do I need to qualify?
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Traditional banks typically require 680+
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Alternative lenders may accept 600+
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Some asset-based lenders focus more on collateral than credit scores
What documentation will I need?
What makes alternative business loan capital funding different from traditional banks?
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Faster approval processes
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More flexible requirements
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Innovative funding solutions
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Industry-specific expertise
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Digital-first approach
How can multiple funding sources benefit my business?
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Diversified capital structure
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Reduced dependency on single lender
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Optimized interest rates
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Enhanced flexibility
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Improved cash flow management
What advantages do specialized lenders offer?
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Deep industry knowledge
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Tailored solutions
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Faster decision-making
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Better risk assessment
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Competitive terms
When should I consider non-traditional commercial loan sources?
How do online lenders compare to traditional funding sources?
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24/7 application access
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Automated processes
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Rapid decisions
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Competitive rates
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Minimal paperwork
How do I compare different business commercial loan facilities?
What are common business loan application mistakes?
How do lenders evaluate commercial credit options?
