Business Loan Considerations
By Angela Altass
Whether you are starting a new business or looking to expand an existing one, deciding to apply for a business loan to help ease financial burdens is a serious consideration.
Otis Mushonga, director, programs and partnerships, ACCESS Community Capital Fund, suggests having a conversation with the bank that you already have an existing relationship with as a starting point to investigate viable options for business loans before seeking out other external sources.
“The next step would be to seek advice and guidance from available business supports, such as small business enterprise centres and the BDC,” says Mushonga.
Small Business Enterprise Centres (SBECs) offer Ontario entrepreneurs the tools they need to start and grow their businesses. The Business Development Bank of Canada (BDC) is a financial institution devoted to Canadian entrepreneurs.
“There are many business lending programs available in the ecosystem,” says Mushonga. “ACCESS Community Capital Fund helps early-stage start-ups who are unable to qualify for financing through traditional financial institutions and other lending programs due to a combination of factors. Typically, convenience and carwash businesses require large amounts of capital investment which, in most cases, is more than $10,000, which is the maximum loan through ACCESS. However, we consider individual needs on a case-by-case basis to determine if our program is the best fit.”
To apply for a business loan, documents will have to be provided to the potential lender. For an ACCESS Community Capital Fund loan, for example, you need to provide proof of income, a credit report, notice of assessment from the Canada Revenue Agency, a business plan and cash flow projections, business registration, two pieces of valid photo identification, proof of address, a resume, and bank statements.
Mushonga offers the following tips for people to consider when seeking business loans:
Understand the cash flow requirements of the business in order to determine how much you will need to borrow.
Research the business financing options available and their eligibility criteria.
Check your personal credit before applying to ensure you meet the credit score requirements for the identified options.
Reach out to the potential funder to ask questions about the loan eligibility requirements so that you are applying to the most suitable option.
Avoid predatory lenders.
“Many people believe that it is not possible to get a business loan for a convenience store,” says real estate and commercial mortgage broker Nilesh Dalwadi with BizPro Realty in Brampton, Ontario. “That’s not true. We have been successfully doing business loans and commercial mortgages, or a combination of both, for convenience store buyers. The buyer must have good credit, some industry experience and a strong personal net worth to qualify for the business loan.”
Convenience store business purchases involve various additional expenses other than paying the purchase price, notes Dalwadi.
“The buyer has to pay for the value of the inventory,” notes Dalwadi. “There are also various deposits involved, such as lottery, a deposit of first and last month’s rent with the landlord, security deposit, hydro deposit, and cash to put into the ATM machine. Canada Post requires a deposit if the store has a Canada Post outlet and, of course, there are the closing costs to the lawyer. On top of this, the buyer has to keep some working capital for any planned or unplanned inventory purchases and accidental repair or maintenance expenses. Most buyers do not have enough cash funds available to meet all of these expenses and deposits. Some buyers do have enough cash funds but still prefer to get business loans, if possible, so that they can enjoy a smooth cash flow in the initial phase of the business takeover.”
When considering business loans, it is imperative to be prepared. Seek information from reputable sources and be wary of predatory lenders who could be using fraudulent, deceptive, and unfair tactics to target vulnerable people.
Further information to assist small business enterprises in Ontario is available at www.ontario.ca/page/small-business-enterprise-centre-locations.
ACCESS Community Capital Fund is a non-profit organization that fosters inclusive economies by providing access to financial resources and creating economic opportunities by removing barriers to entrepreneurship through financing, education and mentorship. Further information is available at www.accessccf.com.
