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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business commercial loans and working capital solutions – Save time, and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Business Commercial Loans: Financing Challenges and Solutions for Canadian Businesses
Understanding the Landscape of Business Financing
Business financing plan challenges rarely come with a ‘clean white canvas’ regarding options sought by Canadian business owners/financial managers seeking commercial loans or other forms of finance for their businesses.
Understanding borrowing capacity is crucial when seeking commercial loans, as it helps businesses identify opportunities to maximize their borrowing potential. Let’s take a ‘start from scratch’ viewpoint. Let’s dig in.
The Business Funding Challenge: Breaking Through Financial Barriers
Problem: Canadian businesses frequently struggle to secure adequate financing for growth and operations. Without proper funding, companies miss crucial opportunities, lose market share to competitors, and struggle with cash flow management.
Solution: Let 7 Park Avenue Financial show you how Business commercial loans provide flexible, tailored financing solutions that align with your company's specific needs and growth trajectory.
An Uncommon Take:
Combining multiple commercial loan types can create a more resilient financing strategy than relying on a single loan product.
How Commercial Loans Work
Commercial loans work by providing businesses with a lump sum of money that must be repaid over a set period, usually with interest.
The funds can be used for a variety of purposes, such as purchasing equipment, financing expansion, or covering operational costs.
To secure the loan, lenders often require collateral, which could include property, equipment, or other business assets.
The interest rate and repayment terms are determined by several factors, including the lender’s policies, the business’s creditworthiness, and the loan amount. Typically, the repayment is structured in regular installments, which helps businesses manage their cash flow effectively.
The Two Main Financing Options: Debt and Equity
The reality around the only two options for financing your business (debt or equity) still nevertheless provides numerous subsets of solutions within those two categories. In fact, in some cases, there are even ‘hybrids’ of those two financial choices.
Different loans are available depending on the specific needs of a business, allowing potential borrowers to choose the most suitable options based on their particular requirements.
The Importance of Understanding Your Business Stage
So, if you could start over in your financing options, your understanding of where your business is in the spectrum – i.e. start-up, early-stage, growth, etc. – is critical. Understanding the business stage is essential for planning business growth.
Companies can burn through a lot of cash in the start-up/R&D phase and those that can are encouraged to take advantage of Canada’s SR&ED program if applicable.
Those R&D credits can be easily monetized via an SR&ED bridge loan, replenishing that much-needed early-stage cash flow.
Types of Commercial Loans
Business Term Loans
A business term loan is a commercial loan that provides a lump sum of money to a business for a specific period, usually 3 to 10 years.
These loans are repaid in regular installments, often monthly, and can be secured or unsecured. Business term loans are commonly used to finance major capital expenditures, such as purchasing new equipment, expanding operations, or refinancing existing debt.
They can also be utilized to cover operational costs, providing businesses with the flexibility to manage their finances effectively.
A business term loan's interest rate and repayment terms will vary based on the lender’s criteria and the business’s creditworthiness, making it essential for businesses to present strong financial statements and a solid business plan when applying.
Financing Solutions for Firms That Are Not Yet Profitable
Finance solutions for firms that are not yet profitable can also present a challenge. However, if you have revenues, those sales can be easily monetized via A/R financing or inventory finance solutions.
Firms can also borrow money to finance their operations by securing loans from banks or commercial lenders, even if they are not profitable. Large sales or contracts from legitimate clients can also be financed via P.O./Contract/Sales Royalty finance solutions.
Expanding Markets and Client Bases for Business Growth
Many Canadian firms sometimes focus on North American or overseas clients and markets. A line of credit can help businesses manage cash flow when expanding into new markets.
In these cases, traditional finance solutions such as bank lines of credit or A/R factoring will, in those scenarios, require some form of credit insurance on your client base.
The Role of Secured Financing in Debt Solutions
Debt financing suggests ‘secured financing’ via hard assets/term loans, etc.
At the same time, some business owners prefer to ‘chase’ solutions such as ‘angel investments,’ reverse takeovers of public companies, or the proverbial (and somewhat elusive) ‘venture capitalist.’
A personal guarantee is often required for various loan types, including commercial loans, as lenders assess the financial viability of applicants and may hold company officers accountable for repayment through this guarantee.
The Government’s Role in Financing
Let’s not forget the ‘Government.’
Along with the SR&ED program that we mentioned, there is, of course, the Government-guaranteed Small Business Loan, which provides financing (maximum 350k) for thousands of businesses in Canada at attractive rates and structures.
Government business loans are another excellent financing option for SME's. They offer benefits such as lower equity requirements and longer repayment terms than conventional loans.
Common Pitfalls in Accessing Traditional Financing
Understanding Traditional Financial Institutions' Focus
Where do many owners/managers requiring SME commercial finance solutions miss the point when they try to access traditional financing?
One is simply understanding the focus of traditional lenders such as banks and other financial institutions and other lenders.
Their focus? Profits and sustainable cash flow! Their fixation with your ability to pay their interest and principal is… focused! When no additional collateral can cover their preoccupation with cash flow and loan servicing, it is unlikely they will get bank/traditional financing.
Understanding the amortization schedule is crucial when dealing with traditional lenders, as it provides a detailed breakdown of loan repayment terms, helping borrowers comprehend their monthly payments and total interest expenses.
Exploring Alternative Financing Solutions
The good news? That ‘clean white canvas’ we’ve been talking about can deliver other forms of accessible financing – they include:
Alternative financing solutions can help finance operations by providing financial support for agricultural activities, such as using equity in the farm to buy land and manage overall farm expenses.
Non-Bank Asset-Based Lending (ABL) Business Lines of Credit
Non-bank Asset-based ABL business lines of credit.
Leaseback and Asset Bridge Loan Finance
Lease/sale-leaseback/asset bridge loan finance.
Inventory Financing
Working Capital Solutions
Working capital solutions include:
Factoring
Confidential receivable financing
CASE STUDY:
A mid-sized Canadian manufacturing company specializing in precision parts faced significant challenges with aging equipment that limited its production capacity and efficiency. Despite strong market demand, it was losing competitive ground due to slower production times and higher operational costs.
The Challenge:
- Outdated equipment caused frequent maintenance delays.
- Production bottlenecks limited the ability to take on new contracts
- Energy inefficiency led to excessive operational costs
- Competitors with modern equipment were winning market share
- Quality control issues were affecting customer satisfaction
The Commercial Loan Solution: Working with a commercial lender, The company secured a $500,000 equipment financing loan with:
- 5-year term
- Competitive interest rate of 6.2%
- Monthly payments aligned with projected cash flow
- 90-day deferred payment period during installation
- No penalties for early repayment
Implementation Strategy: The loan enabled the business to:
- Purchase state-of-the-art CNC machinery
- Upgrade automated quality control systems
- Install energy-efficient lighting and HVAC
- Implement modern inventory management technology
- Train staff on new equipment
Quantifiable Results: Production Improvements:
- 35% increase in productivity through faster production cycles
- Production capacity increased from 1,000 to 1,350 units per shift
- Defect rate decreased from 3% to 0.5%
- Setup times reduced by 40%
Key Takeaways
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Credit assessment fundamentals drive loan approval decisions, focusing on business credit score and cash flow metrics
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Collateral valuation methods determine lending limits and interest rate structures.
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Documentation requirements encompass financial statements, tax returns, and business plans
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Repayment terms affect cash flow management and the overall cost of borrowing
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Risk assessment protocols influence loan conditions and covenant requirements
Conclusion
Are you looking for a 'start over' strategy that works for your business finance needs?
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you solve the Canadian business finance conundrum.
FAQ
What collateral is required for commercial business loans?
Business commercial loans typically require business assets, real estate, or equipment as collateral, depending on the loan size and purpose.
How long does the commercial loan approval process take?
The approval process generally takes 2-4 weeks, varying based on loan complexity and documentation requirements.
What are the current interest rates for business funding?
Commercial loan interest rates typically range from 6 -12%, determined by business creditworthiness, loan terms, and market conditions. Certain alternative financing solutions may come with a higher rate but will often provide more access to capital
