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FINANCING OPTIONS / SMALL BUSINESS LENDING FOR BUSINESS LOANS AND FINANCING NEEDS
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
"The best way to predict the future is to create it." - Peter Drucker
Unlock your business potential: Discover how commercial loans can turn your financial struggles into success stories.
COMMERCIAL LOAN SOLUTIONS IN CANADA
If you're an owner or manager in the SME Commercial area, commercial financing in Canada is often dubbed ' Super Rare '!
Depending on various business needs, finance companies and banks offer many traditional and alternative loans.
We're covering some of the new rules regarding successful commercial lender solutions in Canadian business financing. Let's get started.
Commercial Loans: Funding Solutions to Run Your Business
As we've noted, lending to businesses in the SME (small to medium enterprise) sector is only seen in TV commercials and print advertisements. However, with some proper homework and expert assistance, numerous new business financing solutions are available to run or grow your business.
CAN YOUR COMPANY SATISFY COMMERCIAL LENDING CRITERIA?
A bank loan for business / or an operating loan?
For the most part, the owner/manager has to reconcile that although Canadian chartered banks maintain their willingness to lend to your firm, the reality quite often is that your business can’t satisfy the criteria needed to achieve proper, low-cost, and flexible bank financing via a term loan or revolving line of credit.
Let’s examine some key factors related to bank loans and other commercial financing solutions, including commercial lending. One of those is sales or the lack thereof.
Revenues are a key driver in your ability to access business credit. Many pre-revenue start-ups with little revenue will find it exceedingly difficult to achieve traditional financing. It’s those revenues that will create cash flow that banks mandate.
CONSIDER THE CANADA SMALL BUSINESS FINANCING PROGRAM
Yet, early-stage firms can still access numerous loans from commercial finance companies. One hybrid solution is the Canada Government Small Business Guaranteed Loan Program, which provides loans up to 1.1M to purchase assets or even leasehold improvements to a business.
The ‘Guaranteed’ terminology revolves around the fact that the Federal government guarantees most of the loan to your bank. In real estate, a cap of a loan amount of 1 Million $ exists under the program.
Regarding startup small business loans and a small business loan with flexible terms, good rates, and a limited personal guarantee, the Government ‘SBL Loan’ can’t be matched! It can even be used as a loan to buy business entities such as a franchise. Restaurant financing and business acquisition loans are a large part of the program’s utilization under Industry Canada's auspices.
Canada’s non-brick-and-mortar federal crown corporation bank also provides working capital term loans and asset financing often complementary to the total finance solution you require. Additionally, the Canada Mortgage and Housing Corporation (CMHC) offers insurance for residential and commercial mortgages, supporting lenders and borrowers during various stages of property financing, particularly for multi-unit properties.
Sometimes, you might need a commercial mortgage loan for commercial properties, real estate, and construction loans as a borrowing solution. The Small business government loan provides term loans on real estate, but this is rarely used under the program, with typical asset categories financed, including business equipment (new and used), technology, and leasehold improvements.
Financial institutions such as a Canadian chartered bank or credit union typically underwrite government loans. Let the 7 Park Avenue Financial team help you with the application process, which will go much faster than you might imagine!
THERE ARE OTHER CANADIAN BUSINESS FINANCING SOLUTIONS
Other non-bank loan solutions that can monetize your assets into valuable cash flow include:
A/R Financing / Confidential A/R Finance
Inventory Finance
SR&ED Tax Credit Monetization
Purchase Order Finance
Short-term working capital loan / Merchant Cash Advance / Business Credit Card
Equipment Financing - asset equipment purchase funding via a lease or equipment loan
Asset-based business credit lines - the line of credit alternative to bank loans
Vendor financing
Commercial Loans / Real estate Funding / Bridge Loans/ Constructions Loans
Our Corporate Finance Division also offers customized solutions to support mid-sized companies in enhancing their business operations.
BUSINESS LOAN INTEREST RATES CANADA
The interest rate on any commercial finance type will be a factor in the financing, amount of financing, and overall credit quality as determined by financial institutions such as banks or alternative lenders.
For a growing business, the principal's credit score and personal credit history is key to approval. A good score is in the 650 range as defined by the credit bureaus, and interest rates are often based on these bureau scores, which consider loan repayment capability.
HOW CAN THE BUSINESS DEMONSTRATE REPAYMENT OF LOANS AND OTHER FINANCING SOLUTIONS
The ability to demonstrate loan repayment is best shown via a solid business plan and cash flow forecast, emphasizing the ‘cash flow’ part, not meteoric sales projections that resemble a hockey stick.
7 Park Avenue Financial's business plans meet and exceed the requirements of banks and commercial lenders. Talk to our management team about business plan requirements.
While many firms can be self-financing to a certain degree, at a certain point, small business owners will often realize that the right amount of loan type and debt, aka ‘leverage,’ will help grow the business faster. This is particularly true when considering commercial mortgages with specific eligibility requirements and features that differ from residential mortgage options.
CONSIDER EQUIPMENT FINANCING FOR YOUR ASSET ACQUISITIONS NEEDS FOR TECHNOLOGY AND OTHER FIXED ASSET NEEDS
An excellent example of ‘ good debt ‘ is equipment leasing, where certain assets you need can help you substantially grow revenues or decrease expenses.
CMHC insurance is another vital aspect to consider. It mitigates financial risks associated with commercial mortgages, serving as a protective measure for lenders and borrowers during stages like construction, purchase, or refinancing of multi-unit properties.
KEY TAKEAWAYS
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Interest rates: Understanding how they affect total loan cost and monthly payments
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Collateral: Recognizing its role in securing loans and reducing lender risk
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Loan terms: Grasping the impact of repayment schedules on cash flow management
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Credit requirements: Knowing how business and personal credit scores influence approval odds
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Loan types: Identifying the most suitable commercial loan options for specific business needs
CONCLUSION
Commercial loans are the lifeblood of business growth, fueling innovation and expansion across industries.
Business owners want to ensure they have the ' New Rules ' down on both traditional or alternative financing solutions and eliminate ' super rare' from their commercial financing thoughts.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with critical needs.
FAQ
What are the main advantages of using commercial loans for business growth?
Commercial loans provide access to substantial capital, allowing businesses to invest in expansion, equipment, or inventory. They offer flexible repayment terms, potential tax benefits, and the opportunity to build business credit while preserving cash flow for day-to-day operations.
How do interest rates affect commercial loan decisions?
Interest rates directly impact the cost of borrowing and monthly payments. Lower rates can make larger loans more affordable, including for a commercial mortgage, while higher rates may require careful consideration of loan amount and terms. Understanding rate structures helps businesses make informed decisions about timing and loan selection.
What types of collateral are typically required for commercial loans?
Typical forms of collateral include real estate, equipment, inventory, and accounts receivable. The type and value of collateral can influence loan approval, interest rates, and borrowing limits. Some loans may require personal guarantees from business owners as additional security.
How can a strong business plan improve the chances of securing a commercial loan?
A well-crafted business plan demonstrates financial stability, growth potential, and repayment capacity to lenders. It should include detailed financial projections, market analysis, and a clear strategy for using loan funds. A compelling plan can increase approval odds and potentially secure more favourable loan terms.
What factors do lenders consider when evaluating commercial loan applications?
To determine creditworthiness and loan terms, lenders assess business and personal credit scores, cash flow, debt-to-income ratio, industry outlook, and management experience. They also evaluate the purpose of the loan, the collateral offered, and the business's overall financial health.
How do commercial loans differ from personal loans?
Commercial loans are specifically designed for business purposes and often involve larger amounts, different tax implications, and more complex approval processes than personal loans. They may offer longer repayment terms and require more extensive business finances and operations documentation.
Can startups qualify for commercial loans?
While it can be challenging, startups may qualify for certain types of commercial loans. Options include SBLGovernment Loans loans, equipment financing, or alternative lenders. New businesses often need to demonstrate strong personal credit, a solid business plan, and some form of collateral or personal guarantee to secure funding.
What is the typical timeline for obtaining a commercial loan?
The timeline for securing a commercial loan can vary widely, ranging from a few days to several months. Factors affecting the process include the loan type, amount, lender policies, and completeness of the application. Canadian Government loans generally take longer, while some online lenders offer faster approvals for smaller amounts.
Are there government-backed commercial loan programs available in Canada?
The Canadian government offers various programs to support businesses, such as the Canada Small Business Financing Program and the Business Development Bank of Canada (BDC) financing options. These programs often provide more favourable terms or assist businesses that may not qualify for traditional bank loans.
How does seasonal business income affect commercial loan eligibility?
Seasonal businesses may face unique challenges when applying for commercial loans. Lenders typically assess average annual income and cash flow patterns to determine loan eligibility and terms. Some lenders offer specialized products with flexible repayment schedules tailored to seasonal business cycles.
What are the key differences between secured and unsecured commercial loans?
Secured loans require collateral, often resulting in lower interest rates and higher borrowing limits. Unsecured loans don't need specific assets as collateral but may have stricter credit requirements, higher interest rates, and lower borrowing limits. The choice depends on your business assets, credit profile, and funding needs.
How do commercial loan covenants impact business operations? Loan covenants are conditions set by lenders to protect their interests. These may include maintaining specific financial ratios, limiting additional debt, or restricting significant business changes. Understanding and complying with covenants is crucial, as violations can lead to default or loan acceleration, potentially affecting your business's financial flexibility and decision-making.
What role do commercial loans play in business acquisition strategies?
Commercial loans can be instrumental in funding business acquisitions, providing the necessary capital to purchase existing companies or assets. They allow buyers to leverage their current resources, potentially acquire larger businesses, and structure deals that benefit both parties. Understanding various loan options and their terms is essential for successful acquisition financing.
