Today, businesses have the freedom to access financing from a variety of sources. Outside of traditional bank loans, there are numerous options that serve the unique needs of different enterprises and projects. While the variety makes it easier for small businesses to attain financing, each capital source has distinct requirements. Here, we outline the steps to follow to obtain business financing in Canada.
Securing Business Capital: What You May Need
Lenders want an accurate, well-rounded picture of your business before offering a loan. Every lender requires businesses to include specific information, making it critical to review each application carefully. However, there are some requirements prevalent among business finance lenders:
Present Your Professional Resume
You may encounter some lenders that ask for the professional resumes of the chief company owners. These documents showcase past business activities, referrals from other lenders, and even references from customers. Being prepared with your resumes before speaking with lenders is a good idea.
Articulate Your Business History
Many lenders prefer that a business has at least two years of history to show its success and ability to repay. While it is simple for established businesses to present this information, it is usually a challenge for new enterprises. However, start-ups can account for missing history by expressing their long-term commitment and plan for repayment.
Establish Your Business Plan
Any business plan you bring to a lender must be realistic and well thought out. It should include your company’s goals, and strategies for sustainability, management, and marketing. You must also outline how you will use and, more importantly, repay the funds you receive. Most lenders may either issue a limited loan to companies that do not display reliable repayment ability or no loan at all.
Consider All Possible Outcomes for Your Projections
Many lenders require loan applicants to project their monthly financial situation for an entire year. Lenders will often ask you to convey how you made these projections and demonstrate the best, average, and worst-case scenarios. This practice not only helps business finance lenders gauge your repayment ability but also may help strengthen your overall strategy for success.
Indicate Your Credit Worth
A lender may also ask you for your credit score and business credit profile to establish creditworthiness. They more than likely will decline your request for a loan if you have a negative credit score, or report personal or business tax problems, making it crucial to correct these issues before applying. You must also explain any bankruptcies or other financial struggles ahead of time to give the lender an accurate picture of your credit.
Gather Your Financial Information
Historical financial statements and cash flow projections give business finance lenders insight into your company’s fiscal condition and repayment ability. This documentation will also show them how your business performs in the marketplace and whether or not you have any outstanding debt. Using these statements and projections, a lender can decide how much cash flow you have to service debt.
Offer High-Value Collateral
Banks and various other lenders often request that businesses provide proof of collateral to secure a loan. Collateral is any business property, such as real estate, equipment, inventory, or stocks that you offer the lender for security. Business finance lenders use a loan-to-value ratio to determine if they should approve your application.
Provide Business Assets as Collateral
While many traditional lenders request specific collateral, most online lenders utilize a general lien on the business. Robust businesses with sufficient collateral benefit most from working with online lenders. These enterprises can use their business assets to borrow funds from these lenders.
Methods of Business Financing
When you take the proper considerations to attain a business loan, you are more likely to receive an offer from a lender. As mentioned, the type of lender you work with determines the exact requirements you will face. The following lenders and loans are popular options for financing a business:
- Banks, credit unions, and other financial institutions
- Personal investments
- Family and friends
- Government grants
- Angel investors
- Tax credit financing
- Equity funds and investors
- Retained earnings
Make Business Financing Simple with Easly
Companies that conduct eligible work reap the benefits of the Scientific Research and Experimental Development (SR&ED) tax incentive program. If you are a pioneering enterprise that claims SR&ED credits and need to secure business financing, turn to Easly for assistance.
We help numerous Canadian businesses expedite their SR&ED refunds through our streamlined Capital-as-a-Service platform. You will receive predictable, quarterly payments beginning as early as two weeks from applying, instead of a lump sum from the government months after filing. Unlike other lenders that require a general lien on your business, we only require priority on the SR&ED refund, making us an attractive option to your other creditors.