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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Debt is not always a bad thing. Debt for the right purpose and in the right amount can be a good thing." - Warren Buffett
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business Debt Financing 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”
Debt is not always a bad thing. Debt for the right purpose and in the right amount can be a good thing." - Warren Buffett
Business Loan Solutions
Debt financing choices can help to both strengthen... or hinder your business. Is there some formula for debt and asset financing via the right financial institutions or non-bank lenders?
Several tools, as well as a basic knowledge of your business finance needs, come into play. Let's dig in.
FINANCING IN BUSINESS - CANADA
When, in fact, does the business owner/financial manager use ‘debt‘ to run and grow the business?
The answer? Bank loans are a common form of debt financing, which businesses often use to secure funding for operations and capital expenditures.
Ensure you understand the mechanics of a debt solution, know which bank or non-bank lenders offer the financing you need… and have explored all options when looking to borrow money, up to and including government loans and business credit cards.
Canadian businesses are undergoing a digital transformation, and online banking and lending solutions abound, including short-term working capital loans.
In most cases, regarding business financing, you require assets and assets/cash flow to support a debt transaction.
The assets you need to support debt financing are varied - equipment, real estate, inventories and receivables. When it comes to a business loan rate of interest your firm’s overall credit quality is important to focus on and present positively. In some cases, that might include a business plan.
THE IMPACT OF DEBT
Taking on debt financing allows a business to grow without finding additional equity investors, allowing owners to maintain full ownership control. Different types of debt exist, including bank business loans, equipment/asset/technology financing, and working capital loans.
3 Uncommon Takes:
- Debt financing can improve your credit capacity, making future borrowing easier
- Strategic debt timing can lead to tax advantages that offset interest costs
- Using debt financing can create helpful financial discipline through regular payment structures
KEY ELEMENTS OF A LOAN OR LEASE
Most business owners associate a debt finance business loan with fixed payments and terms. When acquiring specific assets, they can be secured via either a term loan or a capital lease - both are forms of debt finance. The essence of those transactions is evident:
An interest rate
A fixed-term
A Monthly Payment
Securitizing the collateral in question
Interest payments are a crucial part of debt financing, providing predictability for financial obligations and can be tax-deductible.
FINANCING SOLUTIONS IN CANADA
Various forms of debt finance a firm’s current assets, such as receivables, inventories, and purchase orders.
Types of debt financing include:
Another form of debt financing is merchant cash advances, which provide businesses with immediate working capital in exchange for a percentage of future sales.
Three rather ‘tricky’ issues will almost always arise and must be considered when entering various debt financing forms. Those issues are ‘personal guarantees,’ ‘covenants,’ and dealing with other secured creditors.
Types of Business Loans
Business loans are debt financing that provides businesses with the necessary funds to operate, expand, or improve their operations.
Several types of business loans are available, each with unique characteristics and benefits. Understanding these options can help you choose the best financing solution for your business needs.
Business Term Loans
A business term loan provides a lump sum of money upfront, which is then repaid over a fixed period of time, typically with a fixed interest rate.
This type of loan is often used for long-term investments, such as purchasing equipment or real estate. Business term loans can be secured or unsecured, and the interest rates and repayment terms vary depending on the lender and the borrower’s creditworthiness.
These loans are ideal for businesses looking to make significant investments to drive growth and profitability.
GOVERNMENT SBL LOANS
Government SBL ( small business loans ) are business loans that Industry Canada (Government SBL ) guarantees via a participating financial institution.
These loans are designed to give small businesses access to capital they might not qualify for. Government SBL loans have favourable terms, such as lower interest rates and more extended repayment periods, making them an attractive option for small businesses.
However, the application process can be lengthy, and the borrower must meet certain eligibility requirements.
Despite the rigorous application process, the benefits of Government SBL loans often outweigh the challenges, providing essential support for small businesses aiming to grow and succeed.
Business Lines of Credit
A business line of credit is a loan that gives a business access to a revolving line of credit.
This means the business can borrow and repay funds up to a specific credit limit as needed. Business lines of credit are often used for short-term financing, such as managing cash flow or covering unexpected expenses.
The interest rates and repayment terms vary depending on the lender and the borrower’s creditworthiness. This flexibility makes business lines of credit valuable for maintaining smooth operations and addressing immediate financial needs.
Business Credit Cards
Business credit cards are loans that provide a business with a revolving line of credit. This means the business can borrow and repay funds up to a certain credit limit as needed.
Business credit cards are often used for short-term financing, such as managing cash flow or covering unexpected expenses. The interest rates and repayment terms vary depending on the lender and the borrower’s creditworthiness.
Business credit cards offer the convenience of quick access to funds and can be an excellent way to manage day-to-day expenses while building a credit history.
Invoice Financing and Invoice Factoring
Invoice financing and invoice factoring are loans that provide businesses with access to capital based on their outstanding invoices.
Invoice financing involves borrowing money from a lender based on the value of outstanding invoices, while invoice factoring involves selling outstanding invoices to a third-party company.
These types of loans are often used by businesses with a high volume of outstanding invoices and need quick access to cash. However, they can have high interest rates and fees and may not be suitable for all businesses.
It’s essential to carefully review the terms and conditions of any loan before applying and to consider alternative financing options. Invoice financing and factoring can be powerful tools for improving cash flow and ensuring your business has the liquidity it needs to thrive.
GOVERNMENT HELP FOR SMALL BUSINESS / BUSINESS LOANS THAT ARE AFFORDABLE
The Canada Small Business Financing Program is a solid finance solution for many firms, including start-ups. Excellent terms under government-guaranteed loans even allow for lump-sum payments without penalty - Many potential franchisees seeking franchise finance/franchise financing utilize the program. Restaurant loans are also a popular part of the government loan program.
Talk to the 7 Park Avenue Financial team about which financial institutions participate in this program and what supporting documents are required to access funds. Under the program, no personal assets are taken or secured as collateral, but a good personal credit score is required for approval.
Debt financing can also provide tax deductions, as the principal and interest payments on this debt can be deducted from business income taxes.
Leasehold improvements for leased property, fixed assets, equipment, and real estate financing can be facilitated under the program for eligible businesses. Commercial mortgage rates for business purposes in Canada are of course at all-time lows.
Flexible repayment terms for small businesses and new businesses are keystones of the government loan program.
Farming businesses in Canada have their own version of the same program and can access Farm Credit Canada for a farm loan. These are long-term loans with typical amortizations of 2-5 years and longer and are good for start-ups, too.
In the SME COMMERCIAL FINANCE sector, almost all transactions tend to be supported by some level of personal guarantees from owners.
Those business owners who enjoy bank financing or other forms of senior secured lending must be prepared to deal with other creditors’ priority positions when it comes to financing assets. Except for equipment lessors, debt lenders will typically impose ‘ratios and covenants’ around your overall financial performance.
ASSET-BASED LENDERS - THE CANADIAN NON-BANK ALTERNATIVE
The good news about achieving the right business loan via debt financing is that more choices and alternatives have never been available.
Of course, lenders include Canadian banks and commercial finance firms for a working capital loan solution, asset-based lenders, equipment lessors who provide financing for equipment, bridge loan lenders, and online ‘ niche ‘ providers.
Businesses can raise capital through various means, including issuing shares of stock or borrowing money. Each has its own implications for ownership and repayment obligations.
DID YOU KNOW
- 84% of small businesses use some form of debt financing
- Average business loan amount in Canada: $350,000
- 67% of businesses prefer debt financing over equity
- Business loan approval rates: 62% for traditional banks
- Medium-term business loans average 18-36 months
KEY TAKEAWAYS
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Creditworthiness fundamentals drive lending decisions immediately
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Revenue stability demonstrates repayment capability conclusively
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Collateral requirements protect lender interests effectively
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Debt service coverage ratios determine borrowing capacity directly
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Documentation preparation accelerates approval processes significantly
CONCLUSION - SMALL BUSINESS LOAN SOLUTIONS IN CANADA
Innovative business debt financing empowers Canadian entrepreneurs to scale their operations without sacrificing ownership equity.
Are you looking for more information and are focused on running/growing your company with the right amount of debt financing for now and the future?
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you ensure you've got the right formula for your borrowing needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is a business loan?
A business loan is when you borrow a fixed amount (as opposed to personal) from the lender for your company's needs. It can be used in many different ways, like purchasing inventory or fulfilling purchase orders. Business loans AND working capital financing are great ways to get the funds you need for your business.
How does a business loan work?
Business loans work a lot like personal loans. A company borrows money from a bank or commercial lender and must eventually repay it with interest. There are many lenders out there for business financing. Rate (interest) rates, loan term length, repayment structure, and any other important factors that would fit into this category should also be considered before making an educated decision about where best to apply.
How does business debt financing help maintain control of my company?
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Preserves ownership equity completely
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Allows independent decision-making
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Maintains profit retention
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Provides tax-deductible interest
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Enables strategic growth planning
What are the disadvantages of debt financing?
Debt financing can put assets at risk and impose financial strain, especially for businesses with inconsistent cash flow. Additionally, qualifying for debt financing can be challenging due to stringent requirements.
Are interest payments on business debt tax deductible?
Yes, interest payments on business debt are often tax deductible, reducing a company's tax obligations and facilitating better budgeting and financial planning.
What makes business debt financing better than equity financing?
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No ownership dilution
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Fixed repayment terms
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Tax advantages
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Clearer cost structure
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Simpler exit strategy
How quickly can business debt financing impact growth?
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Immediate capital access
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Fast equipment acquisition
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Rapid inventory expansion
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Quick hiring capability
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Instant opportunity seizure
What types of business debt financing offer the most flexibility?
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Revolving credit lines
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Term loan options
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Equipment Financing
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Invoice factoring
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Bridge loans
How does business debt financing affect my company’s future?
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Builds credit history
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Establishes banking relationships
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Creates growth opportunities
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Improves financial discipline
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Enables market expansion
What minimum requirements exist for business debt financing?
How do I compare different business debt financing options?
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Interest rate variations
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Term length differences
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Repayment structures
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Fee comparisons
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Collateral requirements
What risks should I consider with business debt financing?
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Payment obligations
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Cash flow impact
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Collateral exposure
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Credit Implications
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Market fluctuations
Will business debt financing affect my personal finances?
What documentation do lenders typically require?
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Financial statements
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Tax return
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nk statements
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Business plans
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Legal documents
How does the business debt financing approval process work?
What factors influence business debt financing terms?
What makes a successful business debt financing application?
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Strong financial records
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Clear business plan
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Solid cash flow
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Industry experience
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Complete documentation
