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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
Sources of Business Financing
Understanding Business Financing in Canada
Unfortunately, sources of financing in Canada are not a ‘one size fits all’ scenario for Canadian business owners and financial managers.
That’s when the search for real-world cash flow and working capital solutions creates a real conundrum for your company. Let’s dig in.
The Business Funding Dilemma: Finding Your Path Forward
Limited access to capital strangles business growth for many Canadian entrepreneurs. Promising companies struggle daily with rejected loan applications, restrictive terms, and complex application processes that drain valuable time and resources.
Let the 7 Park Avenue Financial team show you how, by understanding the full spectrum of financing options and positioning your business effectively, you can unlock the funding needed to achieve your business goals.
An Uncommon Takes?
Supply chain financing is becoming an increasingly viable alternative to traditional loans, especially for businesses with strong relationships with larger corporations.
The Changing Financing Environment
Canada's financing environment requires a fair understanding when searching for business capital. Why is that?
Some key reasons include:
Key Factors Impacting Business Financing
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The rise of the internet in accessing both info and solutions
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Every industry has different needs
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The emergence of new highly competitive business models
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Risk-based pricing
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The requirements of business to access 'easy and convenient' financing
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The increased/diminished role of banks in financing today’s businesses
The Role of Canadian Banks in Business Financing
The role of the Canadian chartered bank has changed a lot over the past post-recession years.
Their continued need for companies that achieve good sales, good operating histories, and solid credit scores for the business owners and themselves often leads to a lack of access for businesses that can't meet these essential criteria.
Traditional Banks Versus Alternative Lenders
Debate continues to rage around whether our banks can satisfy all business lending needs.
Equity funding is an alternative to traditional bank loans, offering businesses another avenue for financing. The image of the traditional banker has certainly changed, and competition from non-bank lenders is quite fierce.
Types of Business Financing
Business financing is crucial to any business, and there are various financing options available to business owners. The two primary types of business financing are equity financing and debt financing.
Traditional Business Financing Options
Traditional business financing options include bank financing, government grants, and tax credits. These options are often more accessible and affordable than alternative financing options.
Bank loans are a common source of business funding, providing businesses with the capital needed to grow and expand.
Government grants offer non-repayable funds to support specific business activities, while tax credits can reduce a business's tax liability, freeing up additional resources for investment.
These traditional financing options can be a valuable resource for businesses looking to secure funding and achieve their goals.
Working Capital and Liquidity Management
When it comes to working capital, it's all about liquidity—your ability to grow your business while financing short-term financial obligations. More often than not, this is all about the amount and management of receivables and inventory.
The Importance of Receivables and Inventory
Most business owners quickly realize that these two key assets—turnover and financing ability—are the key to financial health and reinvestment in their company.
The Challenge of Growth and Cash Flow
Although it shouldn’t be a mystery, many business owners/managers are stymied when sales are growing, profits are in the income statement, but cash is gone! Personal savings can be a crucial initial source of business growth funding, helping bridge the gap when cash flow is tight.
Planning Your Working Capital Needs
Planning your working capital needs involves some basic arithmetic. It’s as simple as examining your growth rate, the amount of your receivables/inventory against payables, and the turnover required to make these numbers work.
Challenges for Startups and Financially Struggling Businesses
Start-ups, newer businesses, and businesses facing financial challenges face challenges in accessing cash flow solutions.
Startups and struggling businesses often need to raise funds through various methods, such as private equity, venture capital, and public offerings. It has never been more challenging to be taken seriously if you’re in this category.
Essential Requirements for Business Financing and Government Grants
To effectively access bank or alternative financing, your key essentials include:
Sometimes, only outside collateral will make your financing work, so consider that option.
Alternative Sources of Business and Equity Financing
Numerous sources of alternate financing are currently available in the Canadian marketplace. Government agencies provide financial support through grants and subsidies to foster projects that meet public policy objectives.
They include:
Alternative Financing Options
CASE STUDY:
A precision manufacturing company needed significant equipment upgrades to remain competitive. Despite strong customer relationships and consistent orders, outdated machinery limited production capacity and efficiency.
Challenge: The company required $750,000 to purchase advanced CNC machines and implement automated quality control systems. Traditional bank financing alone wouldn't provide sufficient capital without straining cash flow.
Solution: The company developed a multi-faceted financing strategy:
- Secured $300,000 through the Canada Small Business Financing Program with favourable terms
- Obtained $200,000 in equipment financing backed by the new machinery
- Utilized $100,000 in invoice factoring to maintain working capital during the transition
Results: Within 12 months of implementing the financing strategy:
- Production capacity increased by 40%
- Manufacturing defects decreased by 65%
- Energy costs reduced by 25%
- Secured three new major contracts worth $1.2M annually
Key Takeaway: By leveraging multiple financing sources rather than relying solely on traditional bank loans the company modernized operations while maintaining healthy cash flow, demonstrating how strategic financing can fuel manufacturing growth in Canada's competitive landscape.
Key Takeaways
- Understanding credit requirements ensures higher approval rates for traditional financing.
- Strategic financial planning unlocks multiple funding channels simultaneously.
- Proper documentation preparation accelerates the approval process significantly.
- Revenue-based financing options reduce personal liability exposure
- Expert assistance maximizes government funding opportunities effectively
Conclusion
Do you require help with the right cash flow and working capital financing?
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor.
FAQ
What financing options are available if I have less than 2 years in business?
Several options exist, including startup loans from BDC, angel investors, crowdfunding, and government grants designed for new businesses. In some cases, venture capitalists and angel investors may be a solution for equity financing versus debt capital companies.
How long does the financing approval process typically take?
Timeframes vary by financing type: traditional bank loans (2-8 weeks), online lenders (1-5 days), government grants (1-6 months). Alternative finance firms provide the fastest approval.
What documentation do I need to prepare?
Essential documents include business plans, financial statements, tax returns, cash flow projections around repayment and interest payments, and collateral information.
How do I qualify for a small business loan?
To qualify for a small business loan in Canada when borrowing money, you typically need a credit score above 650, at least 6 months in business, minimum monthly revenue of $10,000, and complete financial documentation, including tax returns, bank statements, and a business plan. Lenders also consider your debt service coverage ratio and industry type.
What government grants /loans are available?
The Canadian government offers numerous grants, including the Canada Small Business Financing Program, Scientific Research and Experimental Development (SR&ED) Tax Credit, Canada Job Grant, and regional development grants through agencies like FedDev Ontario. Industry-specific grants are also available through Innovation Canada.
When should I consider equipment financing?
Equipment financing is ideal for purchasing expensive machinery, vehicles, or technology that will generate revenue. Consider this option to preserve working capital, take advantage of tax benefits, or upgrade essential equipment without a large upfront investment.
Who provides startup capital in Canada?
Startup capital providers include the Business Development Bank of Canada (BDC), Futurpreneur Canada for young entrepreneurs, venture capital firms like OMERS Ventures, angel investor networks, accelerators such as Creative Destruction Lab, and government programs like the Industrial Research Assistance Program (IRAP).
Why choose invoice factoring?
Invoice factoring is beneficial when you need immediate cash flow, have reliable customers but long payment terms, want to avoid debt, or don't qualify for traditional loans. It converts unpaid invoices into immediate cash, typically providing 80-90% of invoice value within 24-48 hours.
What collateral is required?
Collateral requirements vary by financing type. Traditional loans often require business assets, real estate, or personal guarantees. Equipment loans use the purchased equipment as collateral. Some alternative lenders offer unsecured options based on cash flow and revenue history rather than assets.
Where to apply for business grants?
You can apply for grants through official government portals, including Innovation Canada, Canada Business Network, and provincial economic development websites. Industry associations, regional development agencies, and the Business Development Bank of Canada also maintain comprehensive grant databases.
How much financing can my business get via the Canadian government loan program?
Financing amounts depend on factors including annual revenue, time in business, credit history, and industry type. Generally, companies can access 10-30% of their annual revenue through alternative loans such as merchant cash advances (short-term working capital loans ) , up to $1 million through CSBFP, and varying amounts through alternative lenders based on monthly revenue and cash flow.
