22. The BC Government Financing Assistance Programs
Forest Renewal BC
A new program to sponsor and provide financial assistance to employers expanding and requiring training for employees. This program provides training allowances to employers in forest related industries. Also, the program can provide loan guarantees for expansion through the community futures programs.
Forest Renewal has provided funds to local community futures organizations to make loans available for up to $75,000
qualified businesses. The programs are administered through the Credit Union lending infraucture. Along the same
lines, in co-operation with BDC loan programs and guarantees are available through BDC up to $1,000,000 per applicant.
Equity Capital Program
The Equity Capital Program (formally called the Small Business Venture Capital Program) is designed to encourage arm's-length investors to make equity investments in businesses involved in export enhancement, import replacement or otherwise diversifying the B.C. economy. The prime objective of the Equity Capital Program is to assist business creation, expansion and preservation in "value-added" sectors of the provincial economy. The program is designed to reduce the debt-to-equity ratio in small businesses and thus strengthen the B.C. economy as a whole. The Government of B.C. provides a tax credit to investors equal to 30 per cent of their investment.
The concept works in this way. Say 5 High net worth individuals wish to invest in a qualifying business. A VCC is applied for and if granted, their funds are pooled together in a VCC that owns a minority interest in the targeted company. If a wider net of investors is required then other factors come into play such securities regulations and Offering of memorandums. The participating shareholders of a VCC cannot be specified shareholders of the investee company.
Employee Share Ownership Program
The Small Business and Equity Investment Branch of the Ministry of Small Business, Tourism Culture supports two types of employee investment. The first is the Employee Share Owners Plan (ESOP) which provides employees with an opportunity to invest directly in shares of company which employs them. Employees can get a 20% tax credit on a total investment of $50,000 per employee. (maximum tax credit is $2,000 per year). The gov't also contributes half of the set-up costs.
Employee Venture Capital Corporation
The other is the Employee Venture Capital Corporation (EVCC) which encourages employee groups to purchase shares in their own EVCC, which in turn invests in one or more companies. Tax credits are similar to those of an ESOP, but employees can also put the investments in their RRSP.
Small Business and Equity Investment Branch
629 - 999 Canada Place, Vancouver, B.C. V6C 3EI
Telephone: (604) 844-1823 Fax: (604) 844-1830
Financial Incentives for Employers
For information on financial assistance for employers hiring income assistance recipients, contact the local Social Services office listed in the blue pages of the telephone book.
23. The Federal Government Financing Assistance Programs
For information on individual programs contact:
Suite 900-650 West Georgia Street, Vancouver, BC V6B 5H8
Telephone: (604) 666-0434 Fax (604) 666-8330
Business Improvement Loans (BlLs)
A business improvement loan is available through Canadian Chartered Banks and some Trust companies to assist small businesses in the purchase, installation, renovation or improvement of fixed assets. Assistance includes up to 90% of land and buildings, or up to 80% of equipment costs to a maximum of $250,000. BIL interest rates are a maximum of prime plus 1.75 per cent.
Program for Export Market Development (PEMD)
The PEMD is designed to encourage export marketing activity in new markets outside of Canada. Assistance includes contributions towards costs incurred by a company in its development of new markets (repayable if incremental sales are made in a new area). Contact Industry Canada in Vancouver at (604) 666-0434.
Labour-Sponsored Venture Capital Corporations
In some situations, where the Federal Government co-ventures a LVCC tax credits of up to 15% for shares purchased after March 5, 1996 are available.
Western Economic Diversification
This is a Federal organization setup to assist small business in variety of ways. They do not provide direct financing but have setup a variety of loan funds with various financial institutions and will assist with information, screening, consulting and applying for a specific fund. They can pre-screen applicants and offer advice on what lending programs are best suited to meet the small business owners needs.
24. Buy now Pay Later
This is a selling inducement that is becoming very popular for financing big ticket items such as computers, appliances, stereos, furniture etc.. In some cases there is no payment required for up to one year - no interest and no principal. However, there is a small administration up front of about %50 in most cases.
Caution must be used here. This would not necessarily be part of a prudent personal financial plan. Though in a business start-up this may fit. In a startup, cash flow is usually less in the beginning and over time, sales increase and cash flow would improve making it easier to afford down the road. As a result, a business may be in a better position to pay for the purchase out of future cash flow rather than now at the start-up stage. In contrast, where personal cash flow is often flat and tied to a set wage, this would serve no purpose or advantage and merely delays the inevitable.
An alternate way of realizing working capital is through Supplier Financing. Trade Creditors offer terms of 30 days before payment for stock purchases is due. With newer, unproven operations, C.O.D. (Cash On Delivery) is often required. Occasionally, in a buyers' market, an important large dealer will be offered 60 day payment terms. Often a 2% discount will be offered to dealers who pay within 10 working days and a penalty (e.g. 1.5% per month interest) will be imposed on account balances unpaid after 30 days. This can be a very important source of financing, special terms can sometimes be negotiated with suppliers.
26. Floor Planning
Although a relatively new financing source, floor planning is a lending approach in which companies can finance their inventories. In floor planning, inventory is financed based on the credit of the vendor as well as the company receiving the financing. The inventory purchased acts as collateral until the sale is made. Occasionally, such a supplier promotion plan will enable a dealer to pay for specific items only as they are sold (supplier retains ownership of goods until paid for).
These plans empower a representative of the supplier to enter your premises and take spot-counts of the supplier's merchandise in your stock. The supplier then invoices you for what has been sold according to the representative's report, and replenishes your stock to the original agreed level. This system also permits the supplier to constantly alter the mix of his/her merchandise on your shelves, quickly replacing slow moving items with those that seem to sell more quickly in your particular market.
27. Community Based Organizations
One such organization is Community Futures. This organization promotes self-employment through small business start-up and ownership as a viable option to UIC or welfare.
There are 32 Business Development Centres (BDCs) operated under the Community Futures Program throughout the province (excluding the lower mainland and the CRD). The BDCs are able to make business loans to a maximum of $75,000. Recently, an additional $75,000 has been made available through the Working Opportunity Fund in some specific areas.
The loan evaluation process requires a business plan. If upon the initial interview the application has merit it is then presented before a board of community representatives for a final lending decision.
The lending practices and decision processes are radically different. Here the emphasis to lend or not is not based entirely on security and the numbers but on intuition. I’ve had a chairman of the local board remark to me, “... this is a very unique organization, entirely different from any I’ve experienced in the past where our decisions not based on cold hard facts but often on intuition”.
Each BBC is under the control of a local board. For addresses and phone numbers of the BBC contact the local Human Resources Development Canada office, Community Futures Branch or call Community Futures, Human Resources Development Canada in Vancouver at (604) 666-5515.
An entrepreneur set up a wilderness tour company to take tourist through remote parts of the west coast. In order to finance his equipment he made a deal with Coleman to supply his camping gear, in return he would make time on every tour to explain the features of the equipment his was using and plug "Why this was the best...". In effect, he became sales rep for the company. The company benefitted from his captive audience of groups up to 10 people at a time and he did not have to pay for his equipment. He used this same approach on other suppliers for his tents etc..
29. Trust Companies
Canada Trust has recently introduced a new small business lending program targeting owner operated small businesses. They will lend up to a $50,000 Line of Credit against personal property (up to 75% of the appraised value) with rates starting at prime and in most cases unsecured. They place a greater emphasis on personal credit history and income. In most cases they do not go through the usual business evaluation process and do not require company financial statements.
For loans over $50,000 and up to $250,000 they will secure this against real estate up to 75% and require company financial statements. They do not do start-ups unless they are approved franchises. They generally require that the business has been operating for at least 3 years with a least 2 profitable years.
30. Letter of Credit
Letters of credit are simply promises to pay by financial institution if there is a default or on demand. No funds change hands but is simply a promise to pay a specific payee and for a specific amount. In this way, this can be used as collateral for trade payables or the like.
31. Foreign Banks
Recently introduced legislation for financial institutions has been announcedby the Secretary of State Doug Peters to allow foreign banks to operate branches in Canada without having to establish Canadian subsidiaries first. For example, Wells Fargo, a major US bank, intends to mass market unsecured loans of up to $100,000 to Canadian small businesses. At the time of this printing, the program is not yet available but has received the approval of the Canadian government and is proceeding.
ING of Holland is a “virtual” bank operation with no conventional branches that pays above-average interest rates on savings and offers lines of credit for a flat 7.8 percent.
Don't Take No for an Answer!
If your proposal is refused, ask for the specific objective reasons. Do not accept reasons such as "We just don't want to do it" or "We don't think it will work". By finding out why you were refused, you can determine if it is worth changing the proposal and, if so, what you have to do to make it acceptable. Use the lender's assessment of the proposal as feedback to help you identify and correct any weaknesses in your plan. If certain changes (more collateral, further capital, revise sales forecasts etc.) will make the proposal acceptable, decide if your are willing to make the changes suggested. If so, get the lender's assurance that your proposal will be accepted once you have complied with these requirements. Rarely, is plan A (first submission) the version that is accepted and implemented. Often, some changes are necessary to make the plan fit the circumstances and specific requirements of the lender. Don't be surprised or discouraged by these requests.
The Beatles were rejected by 5 record companies before EMI signed them.
Dr. Seuss was turned down 27 times before his first book was published.
Henry Ford suffered 3 bankruptcies before he got it right.
Richard Bach was turned downed by 18 publishers for Jonathon Livingston Seagull
In sourcing the financing for my clients sawmill, we were turned down 8 times and did 3 business plan revisions over ten months. Finally, on the 9th attempt we found a banker who was willing to take a chance.
Be Prepared for the Fee
Most lenders will evaluate a loan application on a preliminary basis. If they see merit in proceeding further then normally a fee will be asked for in advance. Most of this fee will be refunded if the application is later rejected. Fees can start @ $1,000 and go up to 2.5% of the loan principal amount.
Get the offer in Writing
Once your request has been approved, ask the lender to put the offer in writing, specifying the terms as well as the obligations of both the lender and the borrower. A written offer ensures that there will be no misunderstanding and establishes the basis for further negotiation.
Prepare to Negotiate
Often, business owners are so anxious to have their applications approved that they don't bother to question the terms and conditions of the loan. In fact, many of the terms and conditions of a loan are negotiable.
Try to negotiate a minimum acceptable level of security or collateral given. That way, if you need to go back to the "financing well" again down the road, you have something to offer.