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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
Unlock the hidden potential of your business with smart financing strategies that go beyond traditional loans.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business Funding via cash flow 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”
Understanding Funding Your Business: Financing in Canada
Navigating the Myths and Realities
Funding a business in Canada sometimes seems like sorting through urban legends and myth vs. reality.
Financing choices via banks or commercial finance firms sometimes seem plentiful or non-existent! We'll review some basics around 'de-stressing your ' credit crunch' with a view toward high-functioning finance solutions that make sense for your firm. Let's dig in.
The Reality of Canadian Business Financing
The reality in Canadian business financing is that your firm will often experience a contraction in business financing capability.
That might be due to external reasons, such as the 2008 world depression debacle, or simply challenges in your own business, such as profit/loss, etc. And let's not even talk about the Covid epidemic!
Vulnerabilities of Small Businesses
The harder reality is that small firms tend to be much more vulnerable, and many business owners/financial managers look to newer non-bank finance solutions for business credit.
Those who seek bank credit typically look for revolving credit lines or term loans, while others turn to lending institutions for more flexible options to complement their own money and funds.
The Financial Institutions Relationship Myth
Many business owners certainly would agree that the ‘bank relationship’ concept is often more of a myth than reality, as financial institutions focus on commercial credit scoring with a focus on ratios.
Canadian business banking’s hard reality is that there is no real distinction in services and credit appetite, unlike the U.S., where choice abounds based on a different banking system.
Business Financing Options
Business financing options are various ways businesses can obtain the necessary funds to operate, expand, or start a new venture. These options can be broadly categorized into debt financing and equity financing.
Debt Financing
Debt financing involves borrowing money from a lender, such as a bank or financial institution, with the promise to repay the loan with interest. This type of financing is commonly used by small businesses and startups to cover startup costs, expand operations, or finance specific projects.
Debt financing can be obtained through various sources, including banks, credit unions, and online lenders.
Some common types of debt financing include:
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Small business loans: These loans are specifically designed for small businesses and can be used for various purposes, such as expanding operations, purchasing equipment, or hiring new employees.
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Line of credit: A line of credit is a loan that allows businesses to borrow and repay funds as needed, up to a specific limit. This flexibility can be beneficial for managing cash flow and covering unexpected expenses.
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Invoice financing involves borrowing money against outstanding invoices, allowing businesses to access cash quickly. It can be a valuable tool for companies that experience customer payment delays.
Sources of Financing
Various financing sources are available to businesses, each with its advantages and challenges.
Venture Capital Firms and Investments
Venture capital firms are investment companies that fund startups and small businesses in exchange for equity.
Venture capitalists typically invest in companies with high growth potential and a strong management team. Venture capital investments can finance various business activities, such as product development, marketing, and expansion.
Some benefits of venture capital investments include:
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Access to capital: Venture capital firms can provide significant amounts of funding to businesses, allowing them to pursue growth opportunities and expand their operations.
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Expertise: Venture capital firms often have experienced professionals who can guide and support businesses, helping them navigate challenges and make informed decisions.
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Networking: Venture capital firms often have a network of contacts and connections that can benefit businesses, providing access to new markets, customers, and partners.
By understanding the various business financing options and sources, businesses can make informed decisions that align with their goals and growth strategies.
The right funding approach, whether through debt or equity financing, can provide the necessary resources to drive success and achieve long-term objectives.
Alternative Financing Options
Asset Based Lending (ABL)
Many businesses are looking towards Asset-Based Lending (' ABL ' ). This directly replaces bank credit lines, providing working capital finance based almost solely on your business assets—not the ratios!
Subsets of Asset-Based Lending
Some interesting and popular subsets of asset-based lending include A/R financing, Inventory finance, and others.
Equipment leasing or sale-leaseback strategies, which are tremendously popular, can address your business's harder assets', such as equipment or real estate.
Government Financing Programs
The Grant Myth
If you're looking for a true ' urban myth, 'spend some time looking for ' government grants '. While some ' grants ' (aka ' free money'?) exist, they rarely can finance a business and often require ' matching ' from government agencies.
Real Government Funding Options
The two government financing scenarios that are NOT myths are the Canadian Government Small Business Loan and the SR&ED refundable tax credit program. These two programs fund over 10,000 businesses yearly for amounts reaching 10 billion dollars—there is no urban myth about these two programs. The government small business loan is the best option for many entrepreneurs to start a new business in addition to their own equity interest.
Tips for Successful Financing / Preparation is Key
For real-world financing in Canada, it's highly recommended that you include both a business plan/cash flow forecast and a total focus on cash flow and debt repayment reduction in those documents.
Naturally, tracking records and business assets/collateral always help! Start-up entrepreneurs, take note!
Key Takeaways
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Understanding different funding sources tailored to your business stage and industry
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Assessing your company's financial health and growth potential
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Preparing comprehensive business plans and financial projections
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Building strong relationships with potential investors or lenders
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Evaluating the long-term impact of various funding options on your business structure
Conclusion
Funding your business is the lifeblood that fuels growth, innovation, and long-term success in the Canadian market.
Are you looking to de-bunk some Canadian business financing urban legends with a view to time management ( and ' de-stressing ' !)?
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with commercial finance options and solutions that are ' high functioning' for your business.
FAQ
What are the advantages of diversifying my business funding sources?
Diversifying funding sources can provide more excellent financial stability, reduce dependence on a single lender, and offer flexibility in managing cash flow and growth opportunities.
How can strategic funding choices impact my business's long-term growth?
Strategic funding choices can provide the necessary capital for expansion, research and development, and market penetration, ultimately positioning your business for sustainable long-term growth.
Why is it important to match funding types to specific business needs?
Matching funding types to specific needs ensures you obtain capital with appropriate terms, costs, and repayment structures that align with your business objectives and cash flow projections.
What role does timing play in securing funding for my business?
Timing is crucial in securing funding, as it can affect your ability to capitalize on market opportunities, negotiate favorable terms, and align capital infusion with your business's growth stages.
How can the right funding strategy help me maintain control of my business?
The right funding strategy can help you maintain control by balancing debt and equity financing, avoiding excessive dilution of ownership, and preserving decision-making autonomy.
What are the potential risks associated with different types of business funding?
Different funding types carry various risks, including high interest rates, loss of equity, personal liability, and potential conflicts with investors. It's crucial to thoroughly assess these risks before committing to any funding option.
How do international funding options differ from domestic ones for Canadian businesses?
International funding options may offer access to larger capital pools but often come with added complexities such as currency exchange risks, international regulations, and cross-border tax implications.
How does the stage of my business affect my funding options?
The stage of your business significantly impacts available funding options. Startups may rely more on personal savings, angel investors, or seed funding, while established companies might access bank loans, venture capital, or public markets. Each stage presents unique opportunities and challenges in securing appropriate financing.
What factors do lenders and investors consider when evaluating a funding business?
Lenders and investors typically consider factors such as credit history, business plan quality, financial projections, market potential, management team experience, and collateral when making funding decisions. They assess the overall risk and potential return on investment to make informed decisions.
How can I improve my chances of securing funding for my business?
To improve your chances of securing funding, focus on developing a solid business plan, maintaining accurate financial records, building a strong credit history, networking with potential investors, and clearly articulating your unique value proposition. Additionally, consider seeking professional advice to refine your pitch and funding strategy.
