The credit crunch grinds on. One sign of its persistence: Canadian banks’ total outstanding business loans fell by 7.1% in the six months ended June 30, 2009.
Yet, three sorts of financiers are more interested than ever in doing business. Could one be right for you?
THE BDC: The Business Development Bank of Canada has moved vigorously to fill gaps opened by the partial retreat of the private sector. It did more than $1 billion in new financings from April to June, a year-over-year jump of 37%. And it has maintained a torrid growth rate since then.
One new BDC program that should interest entrepreneurs is the Operating Line of Credit (OLOC) guarantee launched in June. The program is limited to commercially viable firms that have been in business for at least two years and have an existing OLOC with their bank of $400,000 to $40 million.
EdmÃ©e MÃ©tivier, the BDC’s executive vice-president of finance and consulting, outlines two scenarios for which the new program is designed. The BDC will guarantee a high-growth company that needs more money 25% to 80% of any increase in its OLOC that its bank approves. And for a sound business that’s in temporary difficulty, the BDC will help maintain its existing bank-provided OLOC by guaranteeing 25% to 40% of the total.
MÃ©tivier stresses that the BDC is partnering with the banks, not trying to supplant them. The Crown corporation is especially keen on companies that plan to fund expansion, staff training or entry into new markets. And because firms apply through their bank, says MÃ©tivier, “We’re relying to some degree on the banks’ due diligence, which means that once we receive the application from the bank it moves pretty quickly—within a couple of days.”
BRIDGE LENDERS: Most bridge-loan providers have been prudent in their lending, sothey weren’t forced to pull back while cleaning up deals gone sour. That’s good news for firms needing short-term cash to, say, finance receivables, make an acquisition or buy equipment or inventory.
“Overall, there’s more bridge financing available in Canada than a year ago,” says Jason Ewart, CEO of GC-Global Capital Corp., a bridge-financing specialist. “And our firm has more deal flow than ever.”
Ewart’s Toronto-based company—which is on track to grow its assets from $20 million in March 2009 to $50 million by 2011—focuses on loans of $300,000 to $3 million. That leaves larger deals to players such as the BDC, Envoy Capital Corp. and Renvest Capital Corp. GC-Global charges 1% per month for loans of up to 24 months, often with an equity kicker that’s usually less than 1% of the borrower’s equity.
“We like to see at least one year of sales under your belt, with good increases quarter over quarter, and a clear repayment strategy,” says Ewart. “And we look for [collateral] of at least two to one.”
If you meet these criteria, you won’t have to wait long. “We can provide a loan a lot faster than anyone provides equity,” says Ewart. “Those guys have a long due-diligence process, but we can close in five to 10 business days.”
VENTURE-DEBT PROVIDERS: This is another sector in which Canadian financiers avoided most of the high-risk lending that led to grief stateside. As a result, Roynat Capital, MMV Financial and other such providers of loans to high-growth companies that don’t qualify for bank financing remain at least as welcoming of new deals as a year ago. And some, such as Toronto-based Wellington Financial, have boosted their capital available for lending and are beating the bushes hard for new deals.
Wellington raised $24 million in fresh capital in January, for a total of $150 million. Mark McQueen, the firm’s president and CEO, says it has made 700 cold callssince March that have yielded many new clients. The financing isn’t cheap—a term loan will run you about 12%—but you’ll give up less than 1% of your equity, versus perhaps 25% with a venture capitalist.
Wellington typically lends $2 million to $10 million for two to three years, most often for R&D or sales and marketing. “We work with businesses that are up and running and have at least $5 million in sales,” says McQueen, “not startups that merely have great ideas.” He says a key question Wellington asks when assessing prospective borrowers is whether what they do is truly important to their customers.
Even in the current market, says McQueen, plenty of firms meet these criteria: “There’ll always be—in good times or bad—good companies to support.”