Acquiring financial capital

  Spring 2017 - Acquiring Financial Capital
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 Acquiring financial capital
You’ve got the discipline and determination required to make your business succeed. When the time comes to expand, and borrowing money seems inevitable, that same discipline and determination will be required to help you repay your loans as scheduled.

You know that. But convincing the money lender? That’s another story entirely. The key is preparation. Knowing in advance what’s required before you meet with a lender will make the experience less daunting and a positive outcome much more likely.

With that in mind, the financial team at Explore Local have put together these tips to help you prepare for the borrowing experience and increase your chances for success.

How much to borrow

Determining how much money and the type of financing you’ll need is as simple as adding up all the known and anticipated costs of the expansion or new business venture.

Calculate the cost for capital assets like land, buildings and parking, equipment and its installation, and your need to pay for the day to day expenses of running the business like buying ingredients, paying for staff, rent, utilities and consultant fees etc.

Keep in mind that the term debt is often used for capital purchases whereas an operating line (or line of credit) is used to supply working capital. Be liberal with your anticipated costs and conservative with your assumption of sales. Add 10 per cent to the expenditures of start-up costs to cover unforeseen expenses, and reduce your revenue expectations by 10 per cent. If, based on those asumptions, all payments can be maintained, you’re on the right track financially.

Successful credit approval

Understand Your Requirements

Do your homework online and see what the creditors are offering for loan packages. Select the one that best suits your needs in amortization period, interest rate and payment frequency.

Ask Questions

Call the financial institution that is best able to meet your needs. Find out the information they need for credit review and timelines, and ask about the approval process.

Know Your Limitations

Apply for the loan based on your ability to make payments and still have money leftover for personal living costs and savings. Be honest with yourself and resist the urge to over-borrow—just because more money than you need is offered doesn’t mean you have to accept it.

Create a Checklist

An incomplete application will only be declined, so gather all the information the lender requires in advance of your meeting.


Financial institutions have their own credit “scores” or they use the ones generated by third-party credit bureaus—but they likely won’t share them with you.

You should contact Equifax or TransUnion credit bureaus directly to get a copy of your credit report (free) and also your credit score (nominal fee) before you start looking for money. That way, you know where you stand and can use your rating to negotiate terms.

Your credit score

Lending institutions use different formulas to calculate credit scores, and your score is also affected by your own financial behaviour.

Consistently paying your credit commitments on time and spending within your limits (credit card balances should be kept at less than 70% of your borrowing limit) will improve your credit score. The longer you maintain that status, the more your credit score improves.

Having a mix of revolving credit (e.g., credit cards) and installment credit (e.g., a car loan) is seen as a good indicator of your ability to manage credit—provided all payments are up to date.

And it’s never a good idea to apply for credit just because you can—only open a new credit card account when you actually need one.

Conversely, late payment of bills, a credit card balance consistently near the maximum or exceeding the limit will lower your credit score.

However, if you never use credit cards you’re not establishing a credit history, and that can be as harmful to your credit score as negligent payments. It’s actually better to use credit in moderation, keep your balances low, and pay on time.

Stating your case

So you’ve chosen a lender and made that first appointment. It’s important that you arrive prepared—bring all the business documents they told you to bring when you called for an appointment (see more about this on page 3).

Develop a 30-second compelling pitch for your business that will catch the lender’s attention but keep it realistic.

If this gets the interest of the lender you can tailor your approach to tell them the rest of your plans and future revenue streams.

Know your costs of production—if asked and you don’t know your costs, there’s not much chance of getting that loan.

Show your prospective lender what your financial ratios are before and after the changes you are planning.

Show them you can repay the new loan in addition to all of the other cash flow obligations of your business.

Your prospective lender will give your financial management ability a high grade if you can speak their language: Know what liquidity means and what yours is; what solvency means and what yours is; what profitability means and what yours is.

For more detailed information on any of the topics discussed here, check out the live links:

For more information on where and how to access financial resources and other valuable financial information, check out these options:

Explore Local Financial Resources for Local Market Producers and Processors

This is not a comprehensive list of all available programs, but a starting point from which to build. Available in spreadsheet or PDF format.

New Venture Specialist’s Biz Info

This site has lots of great information about starting and growing a business. Check out the Financing page under the Starting a Business tab for tons of finance-related resources.

Alberta Agriculture and Forestry

The above link takes you to a page with numerous free publications on a variety of topics. Below are a few of the finance-related documents, but visit the website to view all available publications:

Developing a Business Advisory Board

Working With Your Lenders

How Much Money Do I Need?

Where Can I Get Money?

How Do I Get Money?

Get the Loan You Need

Applying for a Commercial LOAN

Once you decide to take the plunge and apply for a business loan, your chosen lender will require detailed financial information from you before you can sign on the dotted line and collect your cash!

Below is a list of the information you will be asked to provide. For more detailed information on applying for a commercial loan, watch for Explore Local’s Financial Advice Webinar series coming soon.

• Security – Collateral

• Business plan

• Business’ financial details

• Projected financial statement outcomes and ratios

• Accounts receivable details

• Accounts payable details

• Personal financial details

• Insurance information

• Past tax returns

• Agreement on future ratios

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For more information about the content of this document, contact Eileen Kotowich.
This information published to the web on March 31, 2017.
Last Reviewed/Revised on April 3, 2017.