WeCanFinancial.ca gets a lot of inquiries from entrepreneurs looking for commercial loans, for their businesses that do not fall into the small business loan program in Canada. Businesses without much equipment or leasehold improvements, but with strong cash flows, existing contracts or purchase orders. Typically these types of businesses, which we call cash flow businesses, finance all of their needs internally, or through family and friends. The reason for lack of institutional financing sources is very simple – in Canada there are not that many sizable cash flow lenders. WeCanFinancial.ca and our team works with 3 lenders in Canada that are capable of placing cash flow loans. In comparison – in US the number of such lenders is in hundreds. Therefore there is a massive demand for this product here but literally no supply.
Now back to the cashflow financing from institutional sources. Once the business owner or entrepreneur finalizes the business plan for funding, the negotiation begins in terms of debt service coverage, use of proceeds, millstones of financing, term of financing type and repayment schedule and penalties. Not every cashflow business will qualify for any type of loan. The process is both art and science and relationship matters a lot in this process. WeCanFinancial.ca has established channels with major financial providers, and proprietary underwriting program called EBL – Easy Business Loans. Having a luxury of speaking to people that we like, strong track record of deals and repayment, just the fact that the client is coming from us with our business plan helps a lot to go through initial underwriting steps.
Debt service coverage ratio is also very important metrics for the cashflow businesses to qualify for financing. To simplify this for financially non-savvy clients, the rule of thumb to qualify for cashflow loan is below– your business needs to make twice as much per year than it spends on all of the expenses including the loan coverage.
We typically work with the client in order to establish the required debt service coverage through historic numbers, by normalizing the financial statements to show the tax minimization tactics. We work with the client to establish realistic and achievable 3 year cashflow plan, use of proceeds and cash utilization plan in order toe maximize EBITDA and pre tax profit. We model the above based on the current operations of the business, expected operations post financing, with sensitivity analysis added to the projections.
Business plan also gets thoroughly reviewed and updates for specific requirements for the specific bank that provides the financing. WeCanFinancial.ca has extensive and deep knowledge of each bank that we work with, and each program that entrepreneur will qualify for. This saves a lot of time for the business owner, and since business financing is a very time consuming process, time saved is always a good thing.
Business plan as usually takes a central place in the whole process. Properly prepared plan will save a lot of headache to the lender, if they understand it correctly. Properly prepared projections, use of proceeds, break even analysis and historic financials will simplify the process a lot as well. WeCanFinancial will continue updating our clients on weekly basis.