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Helping Canadian businesses beat the odds!
Helping Canadian businesses beat the odds!
Hi there, and welcome to another edition of ask spurl CPA. Today we’re talking about Canada small business financing loans. So I’m here with. Cool. Cool. Thanks for being with me. Why don’t you tell everybody where you’re at in the CPA pursuit. Just Edmonton Accountant midterm for my, uh, one of the prerequisites. So still working
towards that. Yeah. What was that course in a intermediate financial accounting. So the quote I have for you today is a Robert Kiyosaki, author of Rich Dad Poor Dad. And he said, good debt is a powerful tool, but bad debt can kill you so high. He’s pretty much not on the fence on that quote at all. Um, so the, the statistics that we have is 23 percent of entrepreneurs who fail this running out of cash as the, you know, one of the concerns which makes the second most common reason for failed entrepreneurs to list of going out of business. Edmonton Accountant the story that we have is, you know, business owners, they come into us and they’re, they’re running at a cast and he cash to for operations. But when you look back previous in the business, they didn’t finance some of the hard assets that are a little easier to get financing on ’em. So when it comes to that camera, small business financing program, a call, what do you think are the questions that these business owners should be asking?
Uh, what does C, S, b, f, p stand for and who can qualify for these things?
Si Es b, F P, a little bit of a mouthful. Canada small business financing program and these are loans under that program, um, who can qualify for these loans are small businesses and the program defines the small businesses as um, Edmonton Accountant, companies that have less than $10,000,000 in revenue. So that’s kind of the threshold. So it’s a, it’s a real wide angle. So right from startup to 9 million, $999,000, these, this program is available for business owners. It’s not often, most people don’t often know about it, but it’s available.
What is the advantage of CSB FP loans from the Edmonton Accountant banks perspective?
So the main benefit from the bank’s perspective is the federal government is effectively guaranteeing the loan, so the bank knows that they’re really never gonna default on this loan, which is fantastic if you’re a bank. So, uh, they, they, they are backed by the federal government, so businesses who otherwise might not qualify might qualify for a loan under the Canada small business financing program. So if it’s, you know, a little bit of a risk of your project or you don’t have as much history in the business, you know, Edmonton Accountant business might qualify for a CSB fee loan, uh, but not qualify for a conventional commercial loan.
Okay. What is the main disadvantage of CSB FP loans from the banks perspective? So the main
disadvantage is the paperwork. So the bank has to coordinate with the federal government so the bank can set their own policy, they have to dot all the i’s and cross all the t’s and coordinate with the federal government to make sure that they’re going to agree with this loan and they’re going to back the loan in the event of a default. So sometimes the banks are, you know, it goes outside of their regular processes, it’s going to take them a little more time to qualify the loan process, the loans. So, um, it’s, you know, it’s not all sunshine and roses for the banks from the bank’s perspective. Edmonton Accountant On one hand they get it guaranteed by the federal government. On the other hand, they’re going to spend a lot more time and money getting this loan
approved by the federal government. What type of banks are more likely to lend under the program?
It’s been my experience that the small credit unions and the smaller banks are more likely to lend into the program. So here in Alberta over we’re talking about both a atb and service credit union or even some of the smaller credit unions, but thinks that every once in a while there’s a big bank will lend on it, but it’s not uncommon for the big bank to say they’re going to lend on it and have, you know, such bad terms that you wouldn’t lend on it. For example, they’re going to say, yeah, we’ll do a candidate of small business financing. Well, Edmonton Accountant, but we’re only going to lend 50 percent of the asset value, which most people, you know, they’re putting up a $200,000 piece of equipment. They don’t have $100,000 lying around. That’s why they’re going for a loan. So, um, you know, generally the smaller credit unions, credit unions or even smaller credit unions are the way to go if you’re trying to access
this program, what items can be financed under the program and what cannot be financed.
So it’s, it’s hard assets generally. So we’re talking about equipment and lease hold improvements and in real estate and that’s real estate that’s used in an active business, not, you know, a rental properties or items like that. So it’s, you know, you’re not going to be lending to build your website or to finance the payroll costs or to do some advertising that’s not going to be approved under these, under this loan. It’s kind of unfortunate because the u s, uh, a equivalent to this loan actually does give the freedom, it gives them freedom for a little bit more. Uh, but in Canada it’s hard assets. So we’re looking at a new truck, I needed a new, Edmonton Accountant, um, a saw or you know, I need to build out my, my leasehold, improvements for my new location that’s going to be a, that’s going to be financed, but soft assets, operating capital is not
okay. What is the maximum amount that can be financed for equipment and these holes.
So the equipment and lease holds are capped at $350,000. So any combination of equipment and lease hold up to $350,000. Um, so you could have 100,000 equipments and $250,000 in leaseholds. Um, that’ll, you know, that’s available for financing if you’re approved. But that’s the cap on those tapes.
Assets, okay. What’s the maximum amount for that can be financed for real estate.
So real estate has a separate cap and it’s up to a million dollars. So if we’re talking about acquiring a piece of real estate that’s shop or a storefront that’s going to be used in an office commercial space used in an active business, it cap the total loan can be up to a million dollars. So that’ll be the total loan. So if you, again, if you had some equipment of $100,000, they let you know $900,000 on the real estate. So two different limits. Edmonton Accountant One for a equipment on for real estate and a million dollar limit is a hard limit for any combination of that as well. So
got it. What interest in loan application fees they charge to these loans.
So the interest is unlike conventional loans where the bank’s going to look at, you know, how credit worthy you are and, and how much they want to take a risk on. You were. And then they set the interest rate. The Canada’s small business financing loans, they’re there a set rate the banks can’t choose, Edmonton Accountant you know, what rate to charge you. So it’s prime plus three percent rate. Now is the rate. So we’re talking in a prime interest that you know today at three point nine, five plus three percent, we’re talking six point nine, five percent, so it’s not a low interest rate and it’s usually kind of in the middle of the road type of interest rate and it was not towards the higher end or some commercial loans, but it’s certainly not towards the lower end either. A six point nine, five percent thing that floats with prime, that prime goes up, that loan goes up at Brian goes down, that loan goes down, the financing fee is two percent. So that’s a one time fee or a 100,000 the first year it’s a $2,000 financing fee on top of the regular interest rate, but that’s just in year one is to help mitigate some of the costs of actually processing this loan, which is a little bit onerous to get it
processed. If the government is backing the loan, what’s the risk for the entrepreneur?
So the risk for the entrepreneur is the bank can still request security on it. I’m so used to be going back a few years at the bank was actually limited in the amount of security that they could ask from the entrepreneur. Uh, I believe historically it used to be 25 percent. We’re going back probably about five years in this, um, and the banks could not ask for more than that security. Edmonton Accountant, which was really nice if you’re a business owner because you’re not putting your house on the line, you’re not, you’re not putting any, any savings on the line by getting this loan. But now, uh, you know, they, with the rule changes a few years back, the banks can ask for, Edmonton Accountant, basically a personal guarantee on the entire amount. Um, so there’s still, the entrepreneur is really only going to do this on a something that they think is going to pay back. So although the federal government is backing it, you know, you’re still listed as a guarantor. So it’s, you know, the bank’s discretion and they’re going to go after you or they’re going to go to the federal government or a little bit of both. So it’s no longer a no risk or limited risk product and you can be on the hook for the entire thing. So that’s an important distinguishing item about that loan that didn’t use to be. So, uh, but it is there now.
What are the benefits of doing a business plan before applying for a loan?
So again, because you’re taking the risk on this loan as an entrepreneur, um, you know, we want to have a business plan in place to make sure that we can pay it back. Um, and the other secondary, uh, item a why you should more like one a and a one and one a is you want to actually qualify for the loan. So doing a business plan before is actually going to increase your chances of qualifying for this loan. Edmonton Accountant, you know, we’re big proponents of getting professional help on business plans because, uh, you know, uh, it’s good to have more than the business owner’s eyes. Look on business plans. You want as many people to poke holes in the business plan as possible. That’s the benefit as well as the cashflow components of any business plan there. They’re a bit of a struggle too, so I’m getting a formal business plan in place is first of all, give me, give you the most opportunity to actually qualify for the business loan so you don’t want to get to know and then try to have to go back afterwards because that can be a bit of an uphill battle you want to be at, you know, yes.
Or at least maybe a, but you don’t want to be a hard no on your application. Then try to go back through the system again because like I said, it’s not every bank who’s going to want to do these deals, so you don’t want to, um, you, you don’t want to get thrown in that no pile, uh, already. Edmonton Accountant, so the first thing is to do a business plan. Seeing increases your chances to actually get the loan. And the second thing is to make sure that you’re actually gonna be able to pay this thing back. So it’s not uncommon. We get business owners who’ve come in and they have qualified for this, but they didn’t really have a realistic plan to actually make the loan payments. The banker who said yes, we have to realize that who these bankers are going through, they’re going through small business bankers a lot of time.
So these are not, you know, a lot of times these aren’t bankers with 20 years experience, these are bankers had been on the job for less than five years, are often, you know, less than two years at the small business end because the small business banker tends to be a stepping stone position. They go from a small business banker and if they’re good they get promoted and if they’re bad they get fired. But no one really usually stays as a small business banker. Edmonton Accountant, that’s just the way they, they, they have their HR strategy. So just because you qualified it doesn’t mean you’re going to be able to pay it back. Um, and is that business strategy solid? That’s the business plan that you want to have in place. So, um, and I increased my chances to qualify and increase my chance of having a business that’s going to successfully pay this back. That’s why you do your business plan before you qualify for these loans. So I think that’s all the time we have here today. Uh, you don’t feel free to leave a comment and hit that subscribe button for a future videos. Thanks very much. Thanks.