All about term loans to finance a small business

By Samantha Garner | April 30, 2016

small_business_financingDebt financing is money loaned to you or your business, for which the lender has a right to earn interest. Institutions, usually commercial banks and credit unions, lend a portion of the value of your business’ fixed assets. You can use this financing to buy inventory or additional fixed assets, or to help your business through a cash shortfall.

Today, let’s look at using term loans to finance your small business’ needs.

What is a term loan?

With a term loan, you will be lent money on a short-term (months to two years) or long-term (two to 10 years) basis.

The terms and conditions for repayment of a term loan, including the finance charge or interest rate, are specified in the loan agreement. A loan may be payable on demand (a demand loan), in equal monthly instalments (an instalment loan), or it may be good until further notice or due at maturity (a time loan).

The term of the loan should depend on the useful life, in years, of the assets that the loan is secured with. Term loans are usually used to finance equipment, where the term of the loan is matched to the useful life of the asset.

For example, you shouldn’t agree to a six-month term loan for a piece of equipment that’s expected to last for 10 years. Instead, tie the loan payment term to the expected life of cash inflows from your equipment, and then take your time repaying the loan.

This is synchronizing cash inflows and loan payment terms if cash is tight — and it usually is when you’re first starting your business.

Remember that cash mismanagement is a common cause of small business failure. Be sharp when you’re negotiating your term loan!

Further reading:

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Using a line of credit to finance a small business

By Samantha Garner | April 23, 2016

small-business-debt-financingDebt financing is money loaned to you or your business, for which the lender has a right to earn interest. Many small business turn to debt financing through commercial banks and credit unions. These institutions will lend a portion of the value of your business’ fixed assets. You can then use this financing to buy inventory or additional fixed assets, or to help your business through a cash shortfall.

Today, let’s look at the line of credit to finance your small business’ needs.

What is a line of credit?

A line of credit is a loan used by the borrower when needed and is usually secured by an asset. For example, a home equity line of credit (HELOC) is secured by the equity in the borrower’s home. A commercial line of credit (CLOC) is a business line of credit secured by company assets like inventory or equipment.

Lenders will usually advance between 50–80% of the value of your accounts receivable plus 50% of the value of inventory — known as a margin formula. There is an agreement between the borrower and the lender on the amount of line of credit, interest rate, and terms of repayment.

Why use a line of credit for small business financing?

Many small business owners turn to lines of credit because they’re convenient. They can be used in emergencies without having to go to the lender to ask for a new loan.

One word of warning: always arrange for a line of credit before you actually need it. Trying to get a loan when you’re already in a cash flow crisis is usually a dead end.

Further reading:

Debt sources of financing for small business

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Debt sources of financing for small businesses

By Samantha Garner | April 16, 2016

small-business-sources-of-financingNeed some financing to help you start or grow your small business? Start here. Some novice entrepreneurs assume that their good credit rating, great relationship with their bank or banker, or previous car or mortgage loans means getting a loan for a new business should be simple. However, it’s not quite that easy.

New businesses don’t have a track record of success, most new businesses fail, and banks don’t like to take risks. This means getting a business loan is a lot tougher than you might think.

That said, with the right preparation and planning you might qualify for debt financing, depending on your personal equity and that of your business. There are four common lending methods that small business owners can pursue through chartered and commercial banks and credit unions.

  1. Line of creditA convenient type of loan used by you only when you need it, and usually secured by an asset.
  2. Term loans: Loans repayable over several different time periods. Demand Loans are payable upon demand; Instalment Loans are payable in equal monthly instalments; and Time Loans are payable at some time to be determined in the future, or at maturity.
  3. Mortgages: Loans given with your personal property or real estate as collateral until repayment.
  4. Corporate credit cards

To help your chances when pursuing a loan, it’s important to understand the lender’s perspective. Generally, loans are given based on a review of your five Cs of credit:

  1. Your character
  2. Your capacity to repay the loan
  3. The capital being invested by you in your business
  4. The amount of collateral available to secure your loan
  5. The conditions of the industry and economy

Obviously with a new small business owner, the first two — character and capacity — become the most important evaluation elements. This is because your new business’ financial estimates are based on forecasts, so the lender will likely consider your personal financial history very closely.

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Legal employment standards by province

By Samantha Garner | April 9, 2016

corporations_in_canadaThere are many rules when it comes to your employees’ working conditions, ranging from work hours, overtime and meal breaks to Sunday closings, whistleblower protection, and mandatory retirement. Of course, minimum wage and minimum daily wage requirements, statutory holidays, equal pay policies and severance pay also apply.

All employers have to comply with these legal employment standards. These employment standards differ by province and by industry. Be aware of your required standards as an employer so you can any difficulties during CRA’s employer visits, and to avoid any legal issues.

Check out the Government of Canada’s Labour Program website to find federal minimum wage requirements for experienced adult workers and youth/specific occupations.

Canadian employment standards by province

To get up to speed on your provincial employment standards, visit one of the following websites:

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What’s an industrial design patent?

By Samantha Garner | April 2, 2016

industrial-design-patentIndustrial design patents can cover unique ideas, features, patterns, configurations, shapes, or ornaments of an object, and is protected for 10 years. The design is usually an article made by tools, machines, or hand.

For example, the shape of a Coca-Cola bottle or of a snowboard are both industrial designs. Basically, an industrial design patent covers the way a product looks. It can cover the shape of an object, as well as 2D features like its colour or its patterns.

Registering an industrial design patent

You must register your industrial design within 12 months of publication, so it’s protected against imitation. To register an industrial design patent, you need to submit an application form with a photo or drawing of your property, followed by an assessment. This process can take up to a year, due to the amendments and additional information that might be needed, and usually costs around $400. The maintenance of the registration fee, however, can cost around $350.

To show you’ve got an industrial design patent, you can use a capital “D” inside a circle on the object in question, followed by your name.

You can read more about industrial designs at the Canadian Intellectual Property Office’s website.

Further reading about intellectual property:

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