In the US, banks have become considerably more reluctant to loan money to small businesses ever since the 2008 recession occurred. This is quite understandable, when you think about it. Many small business owners have less than stellar credit and their collateral is negligible. Many banks do not consider these as encouraging signs. But to the north, getting construction working capital loans in Canada is actually not so much of a problem.
Helpful Banks in Canada
There are many signs which indicate that banks in Canada are much more reliable sources of funding for small and medium enterprises (SMEs):
- As of December 2013, the domestic banks in Canada have authorized the release of more than $197 billion in credit to SMEs all over the nation. Authorized bank lending to SMEs in Canada has risen by at least 20% since 2008.
- Banks are also expediting the loan application process and are offering more flexible solutions. This is especially true for smaller loan amounts.
- Banks in Canada have astonishing approval rates for small business loans, with 90% of all SME loan applications approved. In contrast, US banks approval rates for loans of more than $100,000 were only 60, and loans for less than this amount were approved only 46% of the time.
- Among the SMES who did not seek some form of debt financing, 88% of them said that they simply had no need for it. Only 3% did not seek a loan because they believed their application would be denied, while only 1% regarded the cost of the financing was too high.
- According to Canadian SME surveys, access to financing was not among their most pressing problems that affected their growth. Of more concern to SMEs were rising operational costs, unpredictable fluctuations in the demand for their products and services, and increasing competition.
- Banks can also participate in the Canada Small Business Financing Program (CSBFP). Here, the Canadian government shares in the risk with lenders in order to stimulate business in the country. Startups and small businesses which gross less than $5 million in annual revenues may qualify for CSBFP loans.
While it may seem that Canadian SMEs do not really need an alternative to traditional bank loans, there may still be a need for a supplementary solution. This is very true in case of unanticipated orders and contracts for which working capital levels are inadequate. When there are new construction projects, you may not be able to handle having to meet the payroll and pay for supplies and equipment rentals. You’ll need a quicker solution than a traditional bank loan.
And that’s where purchase order financing comes in. The finance provider may enable you to get a percentage of the value of the purchase order in advance, while it guarantees your suppliers that they will be paid once they complete their deliveries. You may also get the construction working capital loans in Canada you need to meet payroll and rent equipment. Your finance company essentially becomes your non-permanent partner in making sure that you fulfill the contract without requiring you to give up any equity in your business at all.
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