Corpcentre's Blog

October 25, 2009

Need a Small Business Loan?

Eventually, most small businesses need additional capital, whether for start-up purposes or to expand an existing business. The technical process is usually straightforward; you have to ask for the money, whether from a financial institution or a private individual. Either way, the lenders will have some hard questions that you have to answer to their satisfaction. Being properly prepared is definitely to your advantage.

The lender will want to know what the money will be used for and how you will be able to repay the loan. Therefore, you should have a detailed business plan ready at hand as well as cash flow projections for your business. Additionally, a bank or commercial lending institution may wish to review your tax returns.

Prior to your approaching the lender, you may wish to check your credit rating via a credit report. Chances are very good that the lender will order such a report. Check your rating before the lender does. If you do not have a satisfactory credit rating, try and repair it before seeking a loan.

Be well-versed in all the details of your business and its finances, present and projected. Remember that applying for a loan is partly dependant on presentation, not just documents. You have to make an impressionable pitch to the lender and be able to answer all questions satisfactorily.

One area that shouldn’t be overlooked is how you plan to share the risk with the lender. How much are you investing personally? This is equally important to the lender as is your knowledge of your business.

Consider preparing to apply for a loan as if you were making the most important sale of your career. If you can adequately impress and convince the person sitting opposite you, you may close the deal.
 
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October 11, 2009

Looking for Startup Money?

Money makes the world go ’round. It also gets your startup business up and running. Many a new business venture has failed due to a lack of cash to get the operation off the ground and get through the initial difficult months until the business starts generating revenue. Unfortunately, there are no guarantees as to where you will find the necessary capital. Many entrepreneurs tend to follow a similar path in seeking funds.
 
The most popular place to look is your own pocketbook. Often, people will mortgage their homes or sell property and possessions. Certainly, there is risk involved but business involves risk and personal commitment to the venture is crucial. Of course, “personal” funds may also extend to family and close friends. Most likely, they will be far more supportive than commercial lenders and their terms are likely to be far more favourable.
 
Next in line is your neighbourhood bank. Assuming that you have a creditworthy relationship, this may be the ideal place to secure a startup loan. Also, a line of credit is most important for your business. You may not need these funds initially but they may come in handy down the line.
 
Do your research well. There are numerous loans and grants available for new small businesses from government agencies and business associations. Your local banker or your accountant may be able to help direct you to sources of funds. Similarly, professional organizations may have helpful information.
 
Investors may be the right answer for you. Although many investors prefer to become involved with established businesses, the right idea at the right time may attract investment funds to you. Your business plan should be designed with investors in mind. Be prepared to change the business plan as necessary in order to interest a potential investor.
 
Finally, don’t limit yourself to one source of funds. It may be possible for you to finance your startup form several sources. Decide what is best for your needs and don’t be afraid to seek advice from professional advisors. 
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September 30, 2009

Government Financing for Small Business

One of the most difficult results of the financial recession has been the drastically reduced amount of credit available to small businesses. Banks have become highly selective in granting loans – the lifeblood of many a business.

An important program in Canada’s Economic Action Plan is the Canada Small Business Financing Program (CSBFP). This program is designed to help small and medium-sized businesses access financing. For-profit enterprises with gross annual revenues of $5 million or less may be eligible for loan amounts up to $350,000 and $500,000 for real property.

The CSBFP is administered by Industry Canada in partnership with private sector lending institutions across all the provinces and territories. In total, more than 1200 service locations have been established to facilitate business owners seeking loans. The government does not participate in the lending process, nor does it make the decisions. The final decision is solely at the discretion of the financial institution. However, in order to encourage lenders to make loans that they otherwise might not, the federal government will cover a portion of losses due to default. A lending institution with a portfolio greater than $500,000 will be eligible for reimbursement of losses up to 12 percent of its portfolio’s value.

Loans to small and medium-sized businesses are not guaranteed under the CSBFP. Business owners should discuss their needs with a financial officer at a participating financial institution. Upon approval, the loan will be registered with Industry Canada.

This program is not available for farming businesses, not-for-profit organizations, or charitable and religious organizations.

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