Bank Financing and Other Alternative Sources of Funding in Canada

Bank Financing and Other Alternative Sources of Funding in Canada
Bank Financing and Other Alternative Sources of Funding in Canada
September 11, 2016

Canadian small businesses are faced with the problem of funding. There are more than adequate banks to serve the loan needs of all Canadian small businesses. Likewise, there are lots of loan products to choose from including credits, fixed loans and variety of products and services. However, the major challenge that still remains is that some of the businesses are grappling with the way banks reason so that they would not find themselves in trouble in the long term.

Canadian banks are among the top in the world

There is wide availability of funds for Canadian businesses. The most interesting part is that Canadian banks are ranked among the best in the world in capital, profits, management and so on. This means that business owners can trust the source of their funding. They can also be sure of getting reputable advice on their business.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Being top class means more hurdles

For the fact that banks in Canada are top class, it means the requirements to secure a loan would also be higher and this can be a huge setback to small businesses that may not be able to present such documents. Some of the requirements would include collateral, cash flow records, personal guarantee and conservative loan to value scenario. Getting a personal guarantee is not usually easy because it involves a lot of explaining and trust for the guarantors to agree to withhold their asset on your behalf.

Interest rates by banks may be frustrating

It is not always easy when you have to do all the work and in the end share your proceeds with those who did not have a hand in your labor. That is just the way it may seem to small business owners and managers. On the part of the bank, the interest rate may seem fair but the businesses won’t see it in the same light.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Alternatives should be considered

Canadian banks are really great in trying to help businesses grow (and if you have had a long standing personal relationship with them, you can trust that things will be a lot easier too) but the setbacks mentioned earlier makes it necessary to consider alternatives.

Asset based lenders are a good alternative

Unlike banks that would go as far as looking at characters and guarantors and the rest of them, asset based lenders will only focus on the asset of the company (more like separate the individual from the organization). Asset here refers to inventory, receivables, equipment and real estate (where it is applicable). They lend according to the capacity of your asset. This may be a problem to someone whose dream is bigger than their asset.

Read also: What You Never Knew about the Small Business Administration Loans

Account receivables and sales make a good source of finance

There is a form of financing that only makes use of account receivables and sales growth (A/R and sales). You can consider this type of financing when your sales are on the rise but you have tried your hands unsuccessfully at the traditional form of financing. Let the sales record do the magic for you.

Other forms of financing exists that have different requirements

Forms of financing often take the name of their requirement. The various other financing alternatives available include; PO finance, inventory loans, sales leasebacks, equipment financing and working capital term loan.

Seek advice from the professionals

The choice of which form of financing suits your business may be hard to make. If you find yourself in this trap, it is always best to consult a trusted Canadian business financing advisor to assist you.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Canadian banks are ranked top in the world.
  • Funding remains the problem of small businesses.
  • Traditional loans are a rigorous procedure.
  • Your sales record can get you loan.
  • Banks often judge a business by the character of the owner or management.
  • Alternative loans should be considered if traditional loans fail.
  • Interest rates are always a source of worry to small businesses.
  • Asset based lenders cannot lend more than the asset of the business’ worth.
  • Loans are often named after their requirement.
  • Seek expert advice before committing to any loan.

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