Business loan interest rates in Canada are a constant discussion point with clients when we're discussing financing options for loans and asset monetization strategies. And it's safe to say there is a huge ' FUD ' factor when it comes to that discussion. FUD is of course Fear, Uncertainty and Doubt, and the costs and different financing alternatives certainly create that FUD factor in the mind of the Canadian business owner and financial manager. Let's dig in.!br>
Different types of funding for your business brings the issue of costs and the sources of that capital. The Canadian business owner and financial manager sometimes forgets to address the fact that there's a difference in where that capital comes from and the rates that come with that financing instrument.
The reality is that the sources of capital you choose already have defined their required rates of return, whether that be a Canadian commercial bank. A commercial finance company or an alternative lender of sorts. Their business models dictate how that financing is to be priced and there's very little ' wiggle room' once you're inside the 'credit box.'
What then are key factors that determine your interest rates and cost of financing? They include key areas such as:
Financial strength in your balance sheet and income statement
Where your company is on the maturity cycle - i.e. Start up, pre revenue, fast growing, mature, etc
Industry issues and concerns - industries are always in or out of favor - the stock market is a great example of companies that are in their halcyon days or alternatively in a death spiral
Management credibility and reputation
Risk assessment by underwriters associated with your lender - this will shock you but some of them have a bias!
As a general rule we can say that depending on the type of financing you require or choose the rates in Canada are generally 3%. The challenge is that it's either 3% per annum or 3% per month, depending on the financing vehicle you choose. And in some cases that 3% per month makes a ton of sense and is justified...
It's also important to understand who the players are and who offers what, when it comes to debt financing, and of course equity financing, which is not the focus of today's discussion.
Who then makes up the Canadian business landscape? Key players include:
Canadian chartered banks
Commercial Finance Companies
Equipment finance companies
Private Equity/VC types
Their solutions are priced, as we said to risk and the overall business model of your lender. Solutions include:
Commercial bank lines of credit
Mezzanine/cash flow financing
Asset Based lines of credit - non bank
Confidential Receivable financing
Buyout /merger financing
When the business owner/manager understands their own firms risk profile, and what the benefits are of any type of business financing they can better eliminate the FUD factor when it comes to business loan interest rates and financing costs in Canada.
Seek out and speak to a trusted, credible and experienced CANADIAN BUSINESS FINANCING ADVISOR with a track record of assisting firms who require the right financing, right now!
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 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. Info re: Canadian business financing & contact details :
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