After receiving countless emails from entrepreneurs following our articles we decided to fresh up and update business owners and entrepreneurs with latest the developments on the business financing market in Ontario. We will discuss the situation with cash flow loans, working capital loans, equipment and renovations loans that exists on the market right now. Also as usual we will give our potential clients-entrepreneurs some pointers and advice on how to approach this types of financing in order not to waste time and money.

It’s not a secret that small business loan financing is a tough market to be in. Most lenders are simply not interested in providing such loans to small businesses due to volatility and risk of defaults.  But nevertheless, small business owners require capital for development constantly. The most common request is a working capital financing, or cash flow financing.  Small business loan program that is offered by chartered banks and guaranteed by Canadian Government doesn’t cover it at all. What it means; if you are a small business owner, and you enter a chartered bank asking for working capital money or cash flow loan, they simply have no tools to help you.  Some may argue that entrepreneur may receive a business line of credit from a chartered bank, we would not contest this. The thing is most of those lines go as high as 25,000.00 and not a cent more. In our experience most small entrepreneurs asking us for funding require minimum 100k-150k or more. The main reason for it, is that in current market place 25k is not going do much and will most definitely fall short on any expansion requirements that even smallest businesses have.

Because of the above, entrepreneurs are looking for possible ways to finance their working capital and cash flow needs through alternative institutional lenders that are not chartered banks. There are not that many options and most entrepreneurs fail obtaining so required small business loans before even starting. Simply because they are not well equipped to work with professional lenders.

Professional underwriters require very specific set of documents in very specific form in order to even review the files. The business plan, marketing plan, use of proceeds and 2-3 year proformas has to be prepared and submitted up front. Most small business owners, do not have a sophistication to prepare these documents well enough for them to be reviewed. Therefore the deal falls without any analysis in about 90% of cases.  This might not mean that there is no way to get the loan approved. If the business has strong cash flow and dynamics of growth, properly prepared set of projections and due diligence documents will increase the chances of successfully approved small business loan immensely.  Also operating capital and cash flow loans once approved are easier to fund because they are not directed at a specific use. They do not require invoices and deliveries of renovation works and equipment on the premises.

When it comes to small business loans for equipment and renovations, the most common program for business financing it is small business loan program guaranteed by Canadian Government. This program exists on the market for a long time. Unfortunately entrepreneurs do not have much success obtaining funding through this program. Major reasons are similar to the above. Business plan, projections, use of proceeds and all other support documents have to be prepared in a specific format so underwriters can read through it easily. Another problem is a lack of good knowledgeable underwriters at locations. Most of these deals are going through banks branches. For small business loans under 250k, local branch handles the underwriting and corporate office reviews and approves the deal. For deals above 350k commercial branch handles the underwriting and corporate office approves the deal.  It’s unfortunate but in local branches advisers have very little experience with these type of loans and generally decline most deals without reviewing them. Commercial branches have better personnel but less interest in such amounts as for them they are effectively not interesting.

All of the above create very difficult environment in obtaining small business financing. We suggest all small business owners to use professionals from our firm to help you going through the process as smoothly and as fast as possible.

Happy Financing every one!

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