I regularly get calls for start-up capital and unfortunately one of Company Capital’s few requirements is the enterprise has to have been in business for at least 12 months. In order to ensure we’re advancing the right amount of money to clients who have the ability to pay it back comfortably, we need to see what the business’ sales trends are. Generally, the amount customers qualify for is 1-2 months of their debit/credit card sales. We then look for any seasonal fluctuations. One of our clients is a flower shop who during Christmas, Valentine’s Day and Mother’s Day practically quadruples her business. She qualified for a higher amount than the average based on that fluctuation.
When it comes to a brand new business, there is no established “trend” therefore, a Merchant Advance is likely not the right product. I never like to tell people I can’t help them so I did some research in order to offer an alternative place to look. Canada’s Small Business Financing Program shares the risks associated with business start-ups with the major banks, making loans through traditional institutions more accessible. The BDC (Business Development Bank of Canada) is a great alternative. They require extensive paperwork however as a new business, this is an important step in the planning process. Venture Capitalists are another option. Most venture capital investors are looking for at least a 40% return, each year over a 5 year term in addition to detailed business plans. That’s a 250% return over 5 years. Yes, that’s significantly more expensive than Company Capital financing however the cost compensates for the risk.
In my research, I came across a great article about a Canadian entrepreneur who wanted to start a milkshake business. She recounts the loan process and encourages small business owners to be persistent, make a strong business plan, do your research, invest some of your own money, hire an accountant early in the process and involve them in the pitch process “they speak the banker language”.