Financing a business in Canada. Decisions, decisions… decisions! It seems you always have unanswered questions – what type of business lending is best for my firm, what types of finances are available? … who can we talk to .. and on it goes.
In fact the word ‘ debt ‘ keeps coming up when it comes to accessing financial solutions for your company… how much seems to ring a bell.
One of the things that business owners and financial managers often don’t think about is the concept of ‘ fixed costs ‘. Those costs will always stay the same, no matter if your sales revenues and cash flows go up… or down. When times are great those costs stay the same and your company rises above the tide when it comes to profits, etc. However, if sales and cash flows decline your fixed costs unfortunately don’t fall in tandem.
It’s all about leverage, and that becomes the double edged sword in business. That leverage that we associate with fixed costs and debt is risky but at the same time provides greater returns if your company is successful and growing.
We actually break leverage down into two different types – operating and financial. Financial is of course relating back to that debt and the amount we’re willing to take on. Operating leverage on the other hand revolves around the amount of fixed costs you undertake.
No mater which type of leverage you’re talking about it always comes back to that balance act of how much is appropriate.
If you are not a public company it becomes a financial decision you make as to taking on debt … unlike the public company you’re not in a position to go to the shareholders and ask for more equity . At the end of the day most Canadian business owners and financial managers borrow somewhere down the middle – by that we mean they don’t take on onerous debt, , yet they do take on some form and amount of debt .
One of the main decisions that business owners make around accessing business lending is the idea of making more return than the actual rates they are paying for debt. That becomes a challenge is your rates to finance are particularly high, which no doubt relates to your overall credit quality as perceived by lenders when financing a business in Canada. Your lenders, as we have pointed out in the past, DON’T share in the upside – they only want to cover off their risk and return. And if they have sufficient collateral or confidence in your cash flow all the better.
Canadian business owners benefit from leverage by accessing the right amount and type of financing. That includes equipment finances, term loans, bridge loans; asset based lending facilities, securitization facilities, etc. Speak to a trusted, credible and experienced Canadian business financing advisor on business lending in Canada, as it pertains to your firms needs.