Commercial Bank Financing In Canada : Eliminating What Could Go Wrong With Your Business Credit

Business loans via commercial bank financing in Canada can often leave business owners / financial mgrs with the sense that something isn’t right. We’re looking at the access to capital via bank solutions, ensuring that business credit ‘ works’ for your firm. Let’s dig in.

Bank finance solutions are of course not the only way for you to fund your business. Other solutions may well achieve the goal – they include:

Asset based loans – Asset based business credit lines

Factoring /AR Financing

Inventory loans

Purchase Order/Contract financing

Equipment leasing

Royalty/Sales Finance
SR&ED Tax Credit Finance

Why does business tend to gravitate towards ‘ the bank ‘ for its financing needs? Two most common answers to that question are cost and flexibility.

When does bank financing not work for your firm? The answer typically is that your firm can’t demonstrate ‘ cash flow ‘ and ‘ collateral’ that are the two main components of the bank credit decision. Your ability to properly demonstrate consistent cash flow is always the focus of the banker.

Because are banks in Canada are both highly regulated, as well as being ‘ public companies ‘ they are scrutinized by both the govt and shareholders on a constant basis. Many business owners/financial mgrs are therefore mistaken when they adopt the mindset that there is a major difference between different banks.

Key point – While there isn’t significant differences in the bank lending mindset there are huge differences in individual bankers relative to their expertise and capability and reputation within the bank. Our point? It’s the banker, not the bank!

One of the greatest challenges a company can face is when the business becomes ‘ off side ‘ on the bank relationship. That ‘ special loan’ or’ problem loan’ status can be a difficult one to overcome if you don’t have the proper advisor in place.

At that point your ‘ collateral’ and ‘ capacity ‘ are not working , and you need to get it working – quickly . While in some cases the bank relationship can be saved that unfortunately is not always the case. That’s the time to consider a ‘ specialty lender.

An interesting aspect of Canadian business finance is that many of the ‘ non bank’ solutions offered by commercial finance firms have been targeted by banks. A majority of the banks now offer some or all of the specialty offerings offered by commercial finance companies. So once again it’s incumbent on the business owner/ financial manager to evaluate the cost, quality of the relationship and expertise, and your ‘ capacity’ to meet bank requirements. The caveat – beware the intense conservatism of the bank as it relates to financial covenants, reliance on back up personal guarantees, etc.

If you feel your business credit needs are ‘ hardly working’ and you want to elevate status to code ‘ working hard ‘ seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can ensure you are making the right financing decisions.