Small business owners who have survived the recession, or the growing ranks of entrepreneurs now looking to start a new business as the economy improves, likely dread the thought of approaching a bank for financing.
Bank executives who specialize in working with small businesses say they have more money to lend than ever and, rather than being predisposed to turning people away, are looking for entrepreneurs with good stories and business ideas that make sense.
The sunny optimism that is unclenching bankers' fists can be attributed to the fact that Canadian financial institutions rode out the global economic crisis virtually unscathed and, with the economy now running on all cylinders, can't lend out their money fast enough.
"If you take a look at the capital ratios of the banks right now, we are awash in money is the bottom line. We are awash in surplus capital," says Mark Shoniker, a Bank of Montreal managing director who specializes in small business.
The big banks are expanding their loan programs aimed at small business and are "trying to encourage small business to do more things, bigger things [and]invest in some capital equipment today," Mr. Shoniker says.
He believes that Canada is at the start of an upward economic cycle, although he warns the improvement could be choppy.
Entrepreneurs should take some confidence in the fact that federal programs such as the Canada Small Business Financing Program and agencies such as the Export Development Corp. are stepping up to assist the banks with financing.
"Those types of programs work very well for new businesses," said Mr. Shoniker, who noted that Ottawa's small-business loan program recently helped a client finance the purchase of a jewellery store that required improvements such as new furniture and fixtures. "Those are hard things traditionally for us to lend on for new startups when it comes to things like leasehold improvements."
While it may sound counterintuitive, a stronger economy could force small business owners to see their banker more often, not less. That was certainly the case for Tom Molloy, president of QPharm Inc., a small pharmaceutical packaging company based in Cambridge, Ont.
After 14 years of utilizing cash flow to fund its growth and using its bank operating line sparingly, it was faced recently with the need to add expensive equipment to fill new orders. After some discussion with the Bank of Montreal, its long-time bank, QPharm secured a $150,000 revolving credit line that would give it the flexibility to expand without constantly seeking banking approvals.
Mr. Molloy was approved for his new funding request in just an afternoon, a quick turnaround that he attributes to a decade-and-a-half relationship with the bank and an understanding account manager.
"In my case, the account manager and her support team came and saw the business, understood what it was and felt more comfortable given our long-term relationship, where we were trying to go and the financials associated with the growth that we were experiencing," he said. "We had the right people who took the trouble to understand our business."
Most entrepreneurs will not have the luxury of having the bank come to them as QPharm did, which means that they should approach banks with a well-thought-out narrative or clearly defined need.
"It all starts off with: What is the vision of the company? What is different about the company? And, what do you project the company being able to produce?" said Michael Michell, national director of small business client strategy with the Royal Bank of Canada.
For somewhat-established small businesses, the need could be alleviation of a cash crunch caused by, for example, a backlog in receivables and/or a plan needed to improve cash flow.
And forget all that Business 101 advice about making sure you have a bulletproof business plan and sales projections before you even think about meeting with an account manager, Mr. Michell said.
"The one thing that we have been very consistent with over the past year is we don't mind" if small businesses do not have every last possible bit of financial information.
"In fact, we prefer to get engaged as early as possible so that we have a better understanding. We can provide some guidance as to some of the risks. At the end of the day what we are really doing is trying to help the company succeed."
How to seek a business line of credit
BMO's Mr. Shoniker has some advice for entrepreneurs seeking a business line of credit or an expansion to their business financing:
Be prepared: "The better story that they can tell, the better reception they will receive," he said, adding that the storytelling creates a "comfort level."
Do some homework: "It doesn't hurt for them to call up and say to a guy like me, 'Mark, what have you done in this [industry] Do you know our business?' "
Be realistic in expectations: "Always realize that when you do come in at the start of a relationship people are tentative."
The relationship will change over time: "If you are dealing with a financial institution, you should feel quite comfortable in the belief that as your prospects continue to improve, as we get to know each other more and more, that you should be getting the best and the most preferential of terms that [the bank]has to offer, and when you ask for those things you should get a hearing."