Tweet

Working Capital & Cash flow Challenges for Small and Start up Firms in Canada

Guest post by: Stan Prokop

Article Overview: The article highlights the challenges small and or new Canadian businesses face in attracting proper working capital and cash flow facilities .

Working Capital & Cash flow Challenges for Small and Start up Firms in Canada

Business owners for new and smaller firms are keenly aware of the challenges they face in raising working capital facilities with traditional Canadian chartered banks.

Banks by their nature and charter wish to loan against good collateral, which in many cases cannot be raised by the entrepreneur. As often as we criticize our banks for not lending aggressively to small business we do forget that they make only very modest interest rate profits on a small business. The basic arithmetic is should be know to all - the bank takes depositor money, pays currently a 2-3% yield to us depositors, and lends it to small business in the current 5-6% range. On a bad loan the bank can lose it call, and on good loans they are only making 2-3% spread. And of course they have branch staff, infrastructure, branches, technology, etc all invested in their business. They have costs also. We aren't defending the banks, but we think it is important that we all understand the arithmetic.

Small business and new businesses are often in high growth mode. As such there is no track record of cash flow, profits, etc that can be tracked and somewhat predictable. In fact the profits and cash flows are quite volatile.

The business owner and financial manager finds that the banks find it very challenging to lend to their business simply because it is difficult to assess the risk with all the volatility we spoke about.

Banks are interested in minimizing risk - and the business owner for a small and medium sized firm is usually a very unlikely candidate for a venture capital type investment. The venture capitalists don't mind the risk, they like an ultra good return also!

In general commercial chartered banks in Canada do not make sizeable loans to small and medium sized firms. Certainly banks are approached the but the business owner soon finds that the banks simply does not understand their business. In many cases the firm has acquired possibly too much debt already, and at the end of the day there is just not enough collateral for the bank.

Personal guarantees and the pledging of personal assets becomes a major discussion point, and collateral required often is 2-3 times the value of the loan.

Small and new businesses desperately need lines of credit and overdraft facilities, which are unfortunately restricted by cash flow and debt ratios that the bank requires. The old adage seems somewhat more true than every - the chartered bank can lend to a small business as soon as they don't need it!

What are the alternatives to these huge working capital challenges - we feel that the two strongest alternatives are non bank working capital facilities, also know as factoring and receivable financing , as well as a true working capital cash loan sponsored by the federal government bank for business .

Related Articles
  Is Your Company In A Constant Whirligig On Business Cash Flow & Working Capital Funding Challenges ?
  nterested In Understanding Business Working Capital in Canada ? Cash Flow For Operational Needs
  Working Capital Loans – Cash Flow Business Financing Canada
  Sources of Financing for Working Capital Cash flow in Canada
  Working Capital Financing – Commercial Financing Solutions
  Working Capital and Business Lending in Canada Without the Voodoo!
  Working Capital Financing Canada – For Sales and Growth
  Working Capital Financing – Canadian Corporate Financing Solutions
  Confidential Cash Flow Factoring - Turn Accounts Receivable Into Your Best AR Finance Strategy
  Working Capital Business Financing Sources
  Factoring – Financing in Canada – A True Alternative Financing Solution
  How The Right Factoring Firms in Canada Can Provide Financing Factor Facilities Confidentially
  The Black Hole Of Canadian Financing – Is Financing Cash Flow And Working Capital Your Corporate Finance Challenge?
  Working Capital Finance Loan Advice – What Business Credit Is Available For Your Firm ?
  Get Approved For Cash Flow Funding Via A Merchant Cash Advance In Canada
  Inigo Montoya’s Guide to Cash Flow Financing . The Business Working Capital Loan demystified !
  Lease Financing in Canada - Why is it a solid Financing Alternative ?
  Staying Afloat via cash flow financing – Cash Flow for Business Solutions
  Canadian Merchant Cash Advances Are Small Business Loans that Make Financing Sense For Your Company
  Someone’s Got Your Back On Cash Flow Solutions ! Canadian Working Capital Management

Article Tags: canadian businesses, cash flow challenges, working capital



Related Forum Posts
Re: Improving Cash Flow - Thanks for your information. guide on how to avoid the problems of over trading. <-- Where is this guide? Any URL? guide on debt factoring and invoice discounting: the basics. <-- Where is this guide? Any URL? I just want to learn more about this. I am also looking for a good article on: What exactly is Cash Flow? Ways to improve cash flow at individual level and organizational level? I think it is a problem of thinking and mind sets problem. If we can change the way of spending, we can have more Cash. Robert
canada resources - I used to have a connection to a franchise consultant in Canada at "Franchise Officer" in Toronto. I wish I could remember his name ( but I can check my files at the office tomorrow). Anyway, he had a lot of connections to banks in Canada. He may know of them and may be able to offer some feedback. If you are looking for a business loan, Canada has similar business loan programs to that of the USA's Small Business Administration (SBA). I think its SLBS in Cananda, and I probably have the list of it's lenders in my office also. Do you think either can be helpful? If so, I can get back to you with this information tomorrow. Let me know!
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital
Re: What is Your Favorite Thing About Owning A Business? - [quote="freddyb45":1t3lpfi8]For me it's the fact that all the time and effort you put in is worth a lot more, due to it making you "business" more profitable. Working for yourself is also a positive, although employing people you can trust is quite different.[/quote:1t3lpfi8] I like this idea. Working for yourself means you are investing in your own future, not someone else's, although there is value in working for someone else first to gain experience and confidence. Working for yourself does not automatically mean success, fame and fortune. For most entrepreneurs, it takes much work and dedication to get to the point of financial success and comfort - sometimes years. But the benefit is, again, you know you are investing in yourself and building equity for your own future. GT :-]
The Value of Mentoring - Successful mentor pairings (in case there was any doubt as to the value of mentoring): 1. André Ouellet (President, Canada Post) mentor to Mark Whalen (Urban Organics and winner, Young Entrepreneur Award) 2. Marc Lefrançois (President, Via Rail Canada) mentor to Jeffrey Campbell (Core Networks, Inc. and winner, Young Entrepreneur Award) 3. Donald Kendall (former CEO of PepsiCo) mentor to John Scully (former CEO of Apple) 4. Harland Sanders (the Colonel) mentor to Dave Thomas (founder of Wendy's) 5. Stuart Friend (KMart manager) mentor to Wayne Sales (CEO of Canadian Tire) 6. Jim Rohn (author, motivational speaker) mentor to Anthony Robbins (author, motivational speaker) 7. Robert Patterson (CEO, National Cash Register) mentor to Thomas Watson (founder of IBM) 8. Henri-Paul Rosseau (President, Laurentian Bank of Canada) mentor to isabel Rodriquez and Yves Besner (i4design and winners, Young Entrepreneur Award)


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Basic Operating Question (BOQ) for Empowerment

Self Employed Business Ideas

Is the iPad useful? One CEO tells all ....

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.