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Hi and thanks for tuning in for another episode of ask [inaudible] CPA. Today we’re talking about a business loans and I have y’all wait here with me again. And he already knows, uh, very well over the, the trials and tribulations of getting business loans for clients. They all want loans and they realize it’s not easy sometimes. Um, the quote we have here is Robert Kiyosaki, author of Rich Dad, poor dad, a good dad and is a powerful too bad deck can kill you. Um, so you know, the statistic we go back to time and time again, 50% of all Canadian small businesses will go out of business and five years and one of the top three reasons for that is they’ll run out of cash. So, um, the story that we have is, you know, business owners that either can’t qualify for a loan, they can’t get the loan quick enough or they can’t pay the loan once they get it.
Um, and you know, you already, what are the questions we think these business owners should be asking so they can be prepared? Well first, is it easier to finance operating capital or hard assets? Yeah, so it is 100% easier to finance hard assets. There are more, um, uh, opportunities available to the banks are more agreeable to learn it, lending on a hard asset that they can secure. Um, you know, we also have always have the Canada small business financing program that’s available as well, which only goes towards hard assets. So it’s, you know, um, equipment and vehicles and leasehold improvements or real estate. It’s not actually going to go to finance an advertising campaign or who finances that payroll. So, um, you know, it’s, it’s infinitely easier to find assets, hard assets in Canada than it is operating capital’s, especially for a startup. Is it easier to find it’s hard assets on the initial purchase or after acquisition?
Yeah, so the, that’s a trap. It’s easier to finance and on the initial purchase, once you already have them on the books, you know, there, there are some things that you can do, but your options are limited. Um, so you really have to ask yourself, is there going to be any sort of cash crunch in this business at all? And then if there’s going to be a cash crunch in this business, you know, are there any hard assets that we’re purchasing? Okay. So if there are heart, if there could be a potential cash crunch in this business, which most, you know, most have that potential and we are purchasing some hard assets, you know, we should finance those hard assets first because generally that’s the point where then here’s the hard part is less than do you have cash in the beginning when you need to, you know, put some aside, you have some savings, you have some personal credit that you can deploy your personal assets, you can put it into this thing, uh, and you can go in and get started with that asset.
But then later on you run into cash for operating capital. So you got to make maximum use of your financing opportunities for those hard assets at the beginning if there’s going to be a cash crunch. Because on the other, with the realization that if you run out of cash later, you’re in a need to preserve cash leader for operating capital because the opportunities to finance that are, are fewer and far between. Um, how does the processing time for business loans compared to personal loans? Yeah, so a lot of business owners, they compare it to you. You know, I bought a house and you know, they might have bought a $500,000 house and they got the deal done in two weeks. Um, you know, most realtors will tell you, hey, that’s maybe, maybe you look for a month of close in 30 days type of thing. The business loan that close in 30 days is like the holy Grill Unicorn that never comes around, uh, that often.
So I generally tell people it’s, it’s 60 days. It’s a longer approval process. You know, looking at someone’s t four, um, and looking at their overall debt and trying to determine if they have the debt servicing ratio to, uh I would recomend you Hire A CFO Edmonton before taking action, purchase a house and a apply for a mortgage. It’s so much easier than looking into a business and all the different permutations and combinations that can happen with his business. Are they going to affect the cashflow of the business? Um, and even the, the understanding of the, the business financials is sometimes a challenge going through the bank as well. So it’s going to take longer. The deal is going to take longer than it will on the personal end. Okay. Well speaking of timelines, how can form appraisals and environmental assessments affect these that mines? Yeah, so, so let’s say, you know, I’m telling people 60 days is kind of that minimum threshold for the average business and willing to get approved.
But one of the conditions that might come from the bank is we need a formal appraisal. Uh, from me. They’re a charter business valuator or sometimes the banks have specific people on their lists for specific types of industries, um, or they need an environmental assessment, uh looking to Hire A CFO Edmonton can be complicated but we can help, from a qualified individual who can provide that environmental assessment. You’re building a building and they want to know that and there’s not a whole bunch of radon gas in this building is going to be useless and they’re not good. Someone’s going to walk away from this thing. So, um, those formal appraisals, environmental assessments, those projects themselves, you know, can take 30 days, uh, you know, and that’s an efficient guy who’s, who’s running through the project. So, um, there’s one more now we’re talking about we, we had a 60 day timeline and now all of a sudden it becomes 90 days.
You don’t really quickly, because we have to do a, uh, a formal appraisal or we have to do an environmental assessment, which in itself is a, is a project all into itself and is why you should look into the benefits to Hire A CFO Edmonton. Okay, well can you get a hundred percent pine I financing for some purchases? You can, you know, there are the opportunity these days, you know, depending on the, the asset class, you know, that they’re, there can be opportunity for a hundred percent financing. So, um, some businesses might, you know, sometimes they think, you know, I can’t go get that building or I can’t buy that a business. Uh, because there’s no financing, but lots of times there’s 100% financing. Um, so it’s something that you know, you should be aware of because sometimes the ability to acquire it is, is you know, closer than, than it might seem, you know, some, some clients we’ve had and they’re locked into these rent agreements in there, they’re saying, well, I didn’t have any money to put down on the space.
And you know, when we look at the industry that they’re in, they could have acquired the space for zero down. Uh, so the mortgage payment would have been cheaper than the rent rate from day one. Uh, sometimes that’s the scenario that we look at and is something you should look for when you Hire A CFO Edmonton. So, um, you know, for all the, uh, the difficulties with operating capital, um, not that there, there is no opportunities for operating capital. It is harder, but you know, sometimes for those hard assets or initial purchases, sometimes it’s, it’s not only available but 100%. And it could terms, why is the amortization period often more important than interest rate? Yeah. So we’re looking at a business that you know, may have, potentially might have some cashflow considerations. That’s why they’re financing this to begin with. Um, and then we look at, you know, do they want a business loan that said 4% or a four and a half percent or even 5%, let’s say, um, and, but then we look at one loan is going to be paid back over 10 years and the other loan at 5% is going to be paying back over 20 years.
One of them, if you have 20 years to pay it back, even though it’s a 1% more, that can be the difference between running out of cash or not is have a long enough to actually pay back that loan. And we’ll see a lot of these, especially asset loans where they’ll have, you know, blended rates, especially on a 100% financing deals where they’ll finance the 80% over 20 years, but then they’ll finance the other 20% or 10 years. Well, the problem is that little initial few years of the business is usually the, the most strained on the cashflow. Um, so if we can get a longer amortization periods, sometimes that’s more important than the rate. Um, why are good bankers, good problem solver? So really with the bankers, um, you know, there’s bankers who can just tell you yes or no, I qualify or not. Um, but often the bankers will have very set, let’s call them rules that they have to, you know, um, that, that they have to satisfy internally.
Now, just because the deal as it’s presented doesn’t qualify right now. That doesn’t mean the deal can’t qualify at all. It just might be. Maybe it means the deal has to get done in a separate corporation where that corporation, for example, uh, would they have first charge over that, uh, other corporation. So some bankers, you know, the, the poor bankers will come back and say, no, it doesn’t, it doesn’t qualify and that is why it is important to Hire A CFO Edmonton. But the good bankers will say, you know, it doesn’t qualify. But if we were to submit the deal like this, um, you know, if the numbers were to look like this, we could take him to look at it. Now, that’s a good banker. That’s the type of banker that you want to actually be doing, uh, that you want to be, uh, you know, doing business was because they’re going to help you, you, um, what is alone on the writer and how does this limit the, uh, the authority of your banker?
Yeah. So some people think that their banker is, has the be all end all say and you’re, they’re going to be able to advocate on your behalf, you know, rates to the bitter end and writes you the check. The problem is, is what happens is the person that you deal with internally then submits this deal to an underwriter, uh, you know, someone in the bank who’s, you know, purposely cut off from you that you can’t prejudice by, you know, selling them onto your idea and they just look at the mirror, its merits of the deal in its entirety. So the person who you know is underweight or who makes the final say you never get to interact with them. And even your banker themselves, they have very limited interaction with them because they don’t want, the banks don’t want the, the underwriters approving loans that are going to be bad just because they’re friends and the banker gets their commission and they’re happy and then the under and then the underwriter approves it and the banks of the money.
So even the banks cut off the communication or limit that communication. You know, here in Alberta, a lot of times, especially if you’re going through a big major bank, the decision is being made once your banker submits it to someone in head office in Toronto, uh, and it’s someone that you never speak to and your, your banker has limited contact with. Um, you know, that’s who makes the ultimate decision. So, um, the relationship is one thing and having a problem solver is another thing. But thinking that it’s everything, um, it’s certainly not. Um, why shouldn’t you always pursue more than one lender simultaneously? So we always have the, the issues where, you know, earlier on in my career I would say, hey, we got a banker and they think the chances are favorable. Um, and so we’re just gonna roll with that. But let’s go back to the timelines.
You know, it can take, you know, we say 60 days to get a deal approved and that’s kind of the deal. So, and now we have the other factor where the ultimate decision is getting made by an underwriter. And a lot of times there’s due diligence that goes to the bank. We’ll go through and they’ll think it’s a good deal, and then they’ll do more due diligence and they’ll say, no longer. Now it’s no longer a good deal. Um, that doesn’t mean that the loan is, is not viable. It just means it’s not viable at that institution. Um, now if you’ve pursued one lender, now you gotta start all over again, and that 60 day time clock, it starts all over again. Now if you pursuing more than one lender, now all of a sudden you have a backup plan. So a lot of deals will just fall apart if you’re trying to buy a building or a business.
And if you ask for another 60 days, uh, you know, or another 90 days like that, that a lot of time, that deal is not there anymore. So, you know, uh, we like to pursue least to lenders all the time on any deals that we’re doing and until, until that check has written until it funds and you don’t, even if we have to pay more than one loan application fee, we’re still gonna do that. Um, because, you know, we were talking, you know, it’s 500 bucks or 1000 bucks for a loan application fee when the entire deal falls apart if you don’t have the lender. That is why it is important to pick whell when you Hire A CFO Edmonton. Um, our leasing companies a good secondary choice to finance hard assets, they’re there, they’re jelly, a good secondary choices there. They’re normally not going to be the same rate as the banks are gonna offer. So normally it’s, we’re looking to get a bank loan first and then leasing is next.
You have to be very careful because there’s some, you know, least products up there, you know, six, seven, eight, 9%. And then there’s some of these products out there that are 20, 25%. Um, which are the ones that you don’t want is probably the deal breaker that you don’t want to go, uh, go after. So they are a good, uh, you know, secondary choice. I would say your primary choices, let’s get bank financing first cause it’s probably going to be at a, at a lower rate. But if not, you know, leasing is, can be a very viable alternative. You just have to be very aware of various throught that those, that the, uh, uh, Lisa’s the terms that you want because often the, the interest rate that their report is not the real interest rate. They might have a financing charge cooked into the deal or something like that. So that’s what we have here today. Thanks so much for tuning in. Again, you’ll please hit the and subscribe to continue, get more tips on helping you with your business. And if you have any questions, you want to answer it in future videos, leave them in the comments below. Thanks very much.
