New business start up financing in Canada; the Canadian business owner and entrepreneur wants, and needs some solid advice and information that firms financed by larger VC firms already have. Many say the system isn’t working when it comes to financing a new venture. Do we agree? Yes… and No! Solutions do exist.
In the case of the start up its all about the traction you need to get to a cash flow positive and profit situation. The challenge is of course getting there, when it comes to the often larger capital investment you need to make to ‘ bootstrap ‘ the business.
Let’s look at the basic challenge, which is simply the inability of the entrepreneur to obtain business credit. We’re often amazed at clients speaking about financing they have received at the inception of their business; who believe they have been awarded some real ‘ business credit ‘.
The reality? The bank or other institution, perhaps a leasing company or other commercial finance firm is placed a 100% emphasis on your own net worth and collateral and personal assets. You have of course provided the proverbial ‘ PG ‘ – personal guarantee on your ‘ business financing ‘. Trust us on that one, no business credit has been granted!
Vendors and suppliers are a large part of the challenge. They can be forgiven for wanting to ensure they can get paid. In some cases one of the solutions to the ‘ supplier credit ‘ scenario is a purchase order financing arrangement. This allows your supplier to be paid and ship the product you need, with the collateral being the inventory, receivables and sales that are generated out of that arrangement. That type of financing is expensive, but if you have solid gross margins that can withstand that cost supply chain/PO financing is a great solution for the business start up.
Business credit cards certainly are frequently used in the start up phase, and we’re not talking about the ‘ miscellaneous’ purchases, as we have run into many clients that are financing a large part of their start up on the credit card concept. The problem with this? First of all their personal credit might be at risk, given they are more often than note making maximum usage of their card facilities. Secondly, as an overall strategy it’s recommended by experts that you separate your business and personal life when it comes to financing. Need help on that one… ask your spouse for an opinion!
Important in new business start up financing is your ability to fundamentally understand the cash flow cycle and how you can address each component of it. The cash flow cycle is pretty simple – its understanding how a dollar flows through your company from the timing around operations, production, shipment, and collection of your sales into your business bank account. The shortfalls you experience along the way need to be addressed with working capital solutions.
Some of those solutions:
The BIL/CSBF loan program – government guaranteed up to 350k
Sale leaseback financing / bridge loans on assets already purchased
Comprehensive Asset Based Lending – non bank credit lines on inventory, A/R and equipment
Tax Credit Monetization of SRED Tax credits
Securitization of receivable contracts
So, is the challenge of financing a start up in Canada there? Absolutely, but at the same time solid solutions are available also. You are in a position, with the right assistance, to leap frog those barriers. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist your start up to mature into a great business story.
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
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