(Ottawa) – November 10, 2014
Getting financing is one of the biggest challenges for any small business. For a small business selling outside of Canada, it can be even tougher because of risks associated with some countries and new, unknown foreign buyers.
There are so many financial products and services available that making sense of them can be daunting for any business, large or small. Adding another layer of complexity is that sometimes these products work best in combination with each other.
So what is a small business to do? Here are two things that any small business can do to get more financing today.
First, one of the easiest and least expensive ways for a small business to access financing is to insure the invoices that their buyers owe them. Those amounts, known as the accounts receivables on their balance sheets, are often the biggest assets small companies have. Insuring these receivables guarantees their value, which will in turn make their banker happy enough to lend against these amounts.
This a short-term working capital approach, but it helps create some breathing room to finance the completion of the sale the business just made, with a little extra for unforeseen expenses. There are a number of providers of Accounts Receivables Insurance in Canada, all with different offers unique to sectors or areas of risk.
A second way to immediately increase access to financing is by using guarantees. Consider a small company that just won the biggest contract in its history, nearly double what their business made all of last year. Ramping up production and staffing to deliver upon that hard-won sale will require significant expenditures.
Unfortunately, standard underwriting principles typically set limits for financing based on a percentage of revenues for the past three years – not enough for a company undergoing a major expansion to supply a big, new buyer. But by applying a guarantee to the contract or to their financial institution, their bank can deliver the cash needed to make this big leap forward.
There are many different type of guarantees, but all achieve the same result, sharing the risk and the capital between two parties, making for a lighter load on the respective balance sheets of the financial institutions (yes, they have those too). A guarantee is a bit more expensive than the insurance option, but it will represent a small fraction of the liquid capital they will receive in return.
These are two of the simpler and inexpensive ways to increasing the amount of financing available to a small business. Both are widely available within the Canadian market.
For small businesses that have internationals sales, Export Development Canada (EDC) is Canada's leading provider of financing, insurance and bonding products for small Canadian companies that have contracts or business outside of Canada.
Small companies that have business abroad can learn more about these products at EDC Solutions or by calling 1-888-434-8508.
Chris Dallaire is the Vice-President, Small Business Solutions, at EDC.
ExportWise.ca article about small businesses solutions: Two ways small businesses get financing immediately
-30-
