Business capital requirements in Canada often boil down to some basic truths the business owner/financial mgr/entrepreneur needs to address when it comes to financing for businesses.

One of those truths? Knowing the true state of their financial condition and what financing they do and don’t qualify for when it comes to meeting commercial lending requirements in Canadian business.

Business Loans In Canada

Whether you are smaller or start-up firm looking for information on how to get a business loan or a larger established firm looking for growth financing or acquisition opportunities we’re highlighting 3 mistakes that commercial loan seekers like your company need to avoid making when addressing, sourcing and negotiating your cash flow / working capital and commercial financing needs.

1. Understand the true condition of your company finances – These are almost always successful addressed when you spend time on your financials and understand how your financial statements reflect your access to commercial loans & business credit in general

2. Ensure you have a plan in place for sales growth and financial needs as it relates to commercial financing

3. Understand that actual hard facts about cash flow which is, of course, the lifeblood of your company

Can you honestly answer or feel positive about all those 3 points. If so, pass Go and collect $ 100.00!

A good way to address your company’s finance plans is to ensure you understand growth finance solutions, as well as how to manage in a downturn – i.e. not growing, losing money, etc; It’s never fun to fund yourself in an economic or industry downturn such as the COVID pandemic of 2020!

When we talk to clients of new or established businesses it seems they are almost always talking about sales, so the ability to understand and focus on the differences in their profits and cash fluctuations is key.

How do cash flow and sales plans and projections affect the type of financing you require? For one thing sales growth usually starts out by consuming your cash, not generating it. A poor finance plan will drag your business down and addressing financing simply gets tougher and tougher.

Three basics always emerge when it comes to your search for the right business capital and financing.

1. The amount of financing you need

2. The type of financing (debt/cash flow/asset monetization) The business loan interest rate will be dramatically affected by whether you choose traditional or alternative financing solutions. Private business loans in Canada come from non regulated commercial finance companies most often known as ‘ alternative lenders ‘. These lenders are typically highly specialized in one ‘ niche ‘ of business financing and may be Canadian firms or branches of U.S. banks and non-bank lenders

3. How the financing is structured to be manageable with your day to day operations

What Finance Company In Canada Can Meet Your Borrowing Needs & Why Is Capital Important In Business

Let’s identify and break down key financings your firm should know about and understand if they are applicable and achievable to your business. They include:

A/R Financing / Factoring / Confidential Receivable Finance

Inventory finance / floor planning / retail inventory

Working Capital term loans

Unsecured cash flow loans

Merchant working capital loans/advances – these loans are geared toward short term cash needs and are typically one year in duration. Loan amounts are typically 15-20% of your annual sales revenues.

Royalty finance

Asset based non bank business lines of credit

Tax credit financing (SR&ED bridge loans)

Equipment Leasing / Sale leasebacks – Equipment financing in Canada is used by almost 80% of all companies looking to acquire new, and used, assets.

Govt Guaranteed Small Business Loan program – Government Loans in Canada are sometimes referred to as ‘ SBL’, aka Note: BDC Finance solutions are available from this Canadian non-bricks and morter crown corporation. A small business loan via the government-guaranteed loan program comes with true flexibility around term loan duration, market rates, no pre payment penalties, and of course the low personal guarantee that is required by borrowers. These two ‘ government ‘ loan solutions are often perfect for financing a new business.

If you’re focused on not making mistakes in your business finance needs and want to capitalize on the solutions your competitors are probably already using seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow and commercial financing needs.

Stan has had a successful career with some of the world’s largest and most successful corporations.

His employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) In 2004 Stan founded 7 PARK AVENUE FINANCIAL – He is an expert in Canadian Business Financing.

Understanding how to start a legitimate online business starts by first understanding the way online marketing and sales works. Below I have outlined 5 different phases that you can use to help you prepare and successfully launch your online business Although following these phases will drastically increase your chances of success, ultimately the key to your online success will fall on your own unique ability to get things done! Your drive, determination, ability to set goals and follow through with them will determine your level of success with your online business. Most people tend to rush into things without doing their proper due diligence and research. You need to first know what it is you’re promoting or marketing. Is it a physical product or service? Who your target market is and what do they expect to gain from your company or business. Once you take a moment to figure this out then, you’ll move on to phase 2 of your initial set up.Phase 1 – Register your Business EntityThis is so Important but yet most people totally skip it. Getting your company registered with your state will save you a ton down the road. You can find tons of resources online to register your business name with your state. If you want to create a legitimate online business do yourself a favor and take care of the legal side of your business right from the beginning It will allow you to operate as a legally registered business, accept forms of payment under your business name, hire staff (if needed), write off business expenses, open up business accounts, open up a line of credit for your business, save you in instances when someone trying to sue you and you have the benefit of being able to write of business expenses using your company’s Tax ID number.Phase 2 – Choosing your nicheThis is the simplest step but, for some can take the most time to overcome. I suggest you choose a niche in which you know. Try to go into a niche that you’re comfortable with that you’re also interested in. Don’t let the products decide what niche you’re going to go into. You choose your niche and then you choose a product that fits your specific niche. Don’t try to spread yourself too thin either. If your business is structured around music & equipment, avoid complicating things right off the bat by introducing other non related products that don’t coincide with your main product. Get good at selling one thing before you move on to the next.Phase 3 – Selecting Your Base of OperationsThis is the phase where you decide what online platform you will use to base your initial campaign from. If its physical products then you might want to start off by creating a seller account in the marketplace where your targeted audience is known to be, that receives a good volume of traffic. If you plan on going the digital route or information marketing, you will most likely need to create a website of your own. Whichever you choose, keep in mind that this should be your central hub for all traffic and communications between you and your potential customers. Your online business needs to look as legitimate as possible right from the start. People base a lot of their buying & interaction of perception. The more authentic and legitimate your online business looks, the greater your chances of converting visitors into potential customers and traffic into leads which ultimately converts into a paid customer.Phase 4 – Preparing Your Home Base to Open ShopOnce Phase 2 is completed and you’ve found your central hub make sure that you’ve done everything cosmetic that you can possibly do. If you want to look like a legitimate online business right from the start then it would be beneficial to have a company logo created and a few different website banners designed that match your overall theme. You can have this created for cheap by going to a site like fiverr.com. You also want to decide on a color theme for your website that matches your logo. You’ll need to choose who or what will be presented as the face of your online business. People want to know who or what figure represents this company in the public eye.Phase 5 – Getting CustomersOnce you have went through the 4 phases and you have a product or service to promote your next step will be to drive customers or leads to your online business. What’s having the best product or service in the world if no one can find it? No good at all. There’s two forms of driving customers to your online business or as we online marketers refer to it as “driving traffic” and that’s the free way or the paid way. Paid ways include but are not limited to google ads, banner advertisements on other high traffic websites, TV advertising radio & newspaper ads. Some free ways to drive traffic and generate leads/customers consist of social media, word of mouth, youtube.com, blogging & article marketing or joining a network with other like-minded individuals The free ways could appear to be slower, results wise but in the log run can be the base source of stable traffic & leads for your business, if your marketing budget was to dry out. Consider your budget and map out your strategy wisely.

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?