Hope beyond the bank
In my last column I addressed the new attitude I've heard so much about. Yes, the banks are open for small and home-based businesses more than ever before. This isn't to say, however, these institutions are now into taking risks. It simply means that there is a new set of rules and using them has made the playing field a little more even for those looking for seed or expansion capital.
However, the chance that you will turned down for that crucial loan still exists, even if you play by the rules. But hope spring eternal. Creative alternatives that were, at one time, prevalent beyond Canada's borders, have found their way into our business community. Others have been here all along.
Business literature is ripe with ideas about alternative financing. Here is a sampling of some that have crossed my desk in the last little while.
To meet the needs of borrowers in a specific field. So purchase price for say equipment, under a lease using the source of that purchase as collateral.
For entrepreneurs of all stripes, the Business Development Bank of Canada aims to please and to build small and medium-sized businesses. This Crown corporation is known as a complimentary lender.
The name may sound imposing to the at-home entrepreneur, but look again: the BDC may be willing to take a look at you. According to their literature they provide "terms loans, guarantees, venture loans and venture capital to capital to commercially viable, small and medium-size enterprises unable to obtain adequate financing from conventional sources on reasonable terms and conditions."
Assessments here are made based on the applicant's management capability and future repayment capacity. If you don't yet feel that you have the expertise, BDC does offer management services such as specialized training, counselling and mentoring. The BDC will even help you develop long-term strategic plans or to prepare a financial proposal.
If you know several other business owners who are in a similar situation, perhaps a business credit group is possible. Agencies such as Calmeadow Metrofound claim to use such groups to replace collateral.
For example, an individual chooses his group members on the merit of their business acumen. Each group member will receive from the fund an initial loan of $550. When each loan is repaid then the group may access additional sums of credit by $1,000 installments to a maximum of $5,000.
All new loans are subject to approval by the members of the group. The terms are flexible and Calmeadow charges market rates of interest.
In yet another approach, a service known as invoice dicounting will turn all those outstanding receivables into cash. A new source capital. The Interface Group Ltd., claims to issue cash based on the purchase of an invoice when it is produced, as the goods are shipped.
If you still aren't comfortable borrowing from any source, consider an agreement that will leave your available capital free for inventory. Leasing options for equipment are possible and wise when you consider the cost and frequency of upgrades.
Perhaps a little of every financing option is in order.
Remember, variety is more than just the spice of life. It is also sound advice when investing and choosing deposit options. It can also work when borrowing.