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WORKING CAPITAL LOAN & FINANCING SOLUTIONS FOR CANADIAN BUSINESS
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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
Bank financing in Canada is often viewed as a ' hurdle ' for business owners/financial managers, particularly in the SME COMMERCIAL FINANCE needs area. These can often be overcome with some basic knowledge of successful strategies to achieve what is arguably the lowest cost/most flexible financing available to the Canadian business owner. We're diving into some truths and myths around bank lending. Let's dig in.
DOES YOUR FIRM MEET BANK CREDIT REQUIREMENTS FOR FINANCING
We're not 100% sure of the percentage amount of bank finance applications declined in the Canadian marketplace. Still, we know that it's difficult for them to overcome getting inside the box in talking to clients. The box? That's the credit box of ratios, covenants and collateral that your firm must fit in. When you are not approved, you're forced to get financing ' outside the box '! - more on that later.
Let's cover some basic bank solutions to your capital needs. Let's discuss several key areas you can affect ' pre-qualify yourself on, thereby improving success chances.
The good news in Canadian chartered bank financing for entrepreneurs is that, when successful, you can achieve all your short, intermediate and long-term financing needs for your business.
Those needs? They include:
THE UNSECURED BUSINESS LOAN
Unsecured business loans: Your immediate cash flow substantiates these loans. Terms are shorter in nature and are often for interim financing or seasonality finance needs of your business. Companies should show good asset turnover and effective management of balance sheet current assets and current liabilities, including accounts payable.
BUSINESS CREDIT LINES
Business line of credit: This, of course, is to cover off your ongoing working capital needs. It's quick daily access to your ongoing working capital and cash flow needs. In essence, it funds your working capital accounts on your balance sheet - typically A/R and inventory.
EQUIPMENT FINANCING
Term loans/ Leasing - These solutions allow you to finance fixed assets and take on debt that makes sense for your firm. While not all Canadian banks offer ' leasing' solutions for assets, they partner with major well-known players in some cases. A term loan can also often achieve the same results and equipment lease finance.
BANK CREDIT REQUIREMENTS FOR FUNDING
Let's cover off some basics around the process. First of all, it's critical to have a strong handle on what can be called your ' use of funds. Knowing how much to ask for allows you to look at your financial statements and ensure you can meet the 'debt service' ratios required for approval. Key point - banks love ratios! Get used to it! Typically a cash flow ratio of 1.25:1 is required. By knowing your cash flow ratio, you can literally determine yourself the amount of business credit you will qualify for - all other things being equal.
PERSONAL CREDIT HISTORY
In the SME COMMERCIAL space in Canada, owners must have reasonable personal credit. Know your credit score and be prepared to address issues that might arise out of that discussion.
GUARANTEES AND COLLATERAL
Canadian chartered banks focus a lot of collateral, both inside the business and the owners outside net worth/assets. Different types of assets have different values - a good analogy would be real estate versus perishable inventory. Big difference in collateral!
THE CANADA SMALL BUSINESS FINANCING PROGRAM FOR GOVERNMENT LOANS VIA BANKS
Bank financing can also be achieved via the Government Guaranteed Business Loan, which is administered by the banks but is actually a govt program; it’s a great way to achieve inside-the-box financing that you might otherwise not qualify for. This financing is one of the best solutions for small businesses in start-up or early-stage companies. This is a term loan and not a line of credit. Real estate can also be funded under the program, although typical uses are equipment and leasehold improvements.
NON-BANK ALTERNATIVE SOURCES OF CAPITAL
A working capital loan may not necessarily be the only type of loan financing you need to run and grow your business. If it's necessary to go ' outside the box,' don’t forget that numerous non-bank solutions exist for business capital needs. They include:
Accounts Receivable Financing / Invoice Financing/ Confidential A/R Finance
Inventory Finance
Asset-based non-bank lines of credit
Tax Credit Financing for refundable tax credits - financing for research and product development and development of intellectual property
PO/Royalty financing
Leasing/Sale leasebacks - Acquisition of new production equipment/ technology
Short term working capital loans / Merchant cash advances - these short-term loans are typically 12 months in nature and provide lump-sum financing and are easily accessible but come with higher interest rates. Owners must be able to demonstrate good credit via credit score/personal credit history, etc.
CONCLUSION
Small business owners constantly in need of business credit and sources of capital for ongoing business needs. If you're looking to do a rework on your mindset of what Canadian chartered bank business financing is or is not, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your capital needs - inside and outside the box!
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Stan Prokop
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