1 RBC_84395 Text 3/14/06 11:01 AM Page 1 THE DEFINITIVE GUIDE TO Sourcebooks for Successful Small Businesses and Entrepreneurs February 2003 d Sponsored by
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3 RBC_84395 Text 3/14/06 11:01 AM Page 3 THE DEFINITIVE GUIDE TO Small Business The Art & Science of Small Business Lending Dispelling myths. The Niche Lenders Custom-tailored financing. Financing & Assistance Directory Financing options and resources. Government Help SME financing options. To Market, To Market... Debt isn t always the answer. What s it all Mean? Financing definitions. The Definitive Guide to Small Business Financing in Canada is sponsored by Royal Bank of Canada. Published by General Content Corporation, 112 Adelaide Street East, Suite 400, Toronto, Ontario M5C 1K President: Kirk Kelly Writer: Charles Killin Design & Production: Roger McFarlin Ad sales: Deb Houghting and Darlene Wang Copy editing: Shannon Greenlaw Photography: Getty Images Masterfile I Comstock General Content Corporation. No part of this guide can be reproduced without the written permission of General Content Corporation. Registered trademark of Royal Bank of Canada. Trademark of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. * Registered trade-mark of Visa International Service Association. Used under license. All information provided in this Guide is, to the best of our knowledge, current at the time of writing. As well, all information provided in this Guide is for informational purposes only and is not intended to provide specific financial, investment, tax, legal or accounting advice for you and should not be relied upon in that regard. Royal Bank of Canada is not responsible and will not be liable to you or anyone else for any damages whatsoever arising out of or in connection with your use of the information in this Guide or any action or decision made by you or anyone else in reliance on the information in this Guide or any unauthorized use or reproduction of such information, even if Royal Bank of Canada has been advised of the possibility of these damages. The information in this Guide applies to Canadian business only and may not be appropriate or correct outside of Canada. You should not act or rely on any information in this Guide without seeking the advice of a professional. The Changing Face of Small Business Financing What a difference a few years can make! Until two years ago, it seemed that lenders and investors were eager to finance start-ups and existing small businesses. Then the new economy, based on the growth of the Internet, came tumbling down. How does that affect your ability to finance or refinance your small business? By the late 1990s, Canada was aggressively supplementing its traditional economy with a dynamic high-tech sector. The emergence of the Internet as an engine of growth was awe-inspiring, and seemed to have limitless potential. Many of Canada s high-tech companies were small to medium-sized enterprises (SMEs). Many drew support from venture capital companies in Canada and the U.S., because small high-tech enterprises were either excellent acquisition targets for multinational corporations, or excellent prospects for a successful initial public offering (IPO). Capital that had all but dried up in the recession years of the early 90s came flooding out, from financial institutions, government agencies, labour-sponsored venture capital funds, and private investors. d The Definitive Guide to Small Business Financing in Canada 3
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5 RBC_84395 Text 3/14/06 11:01 AM Page 5 In the summer of 2000, after eight years of steady economic and market growth stimulated by low inflation and low interest rates, the rosy economic outlook began to darken. Investors began to grow wary of the Internet business model that burned cash and spewed promises. Since even the best of the young high-tech enterprises were attracting investors on the strength of future earnings earnings that were years away investors started to pull back. Then, when general corporate earnings began showing signs of faltering, stock prices plummeted and technology companies suffered most. The dot-com bubble had burst. In the ensuing two years, investors from pension funds to entrepreneurs to families have felt the pain of collapsing markets. But time is a great healer and even two years is enough time to digest events and learn lessons. What are the current prospects for financing or refinancing a small business in Canada? One caveat: while this guide presents an overview of the general financing climate, actual financing is done on a caseby-case basis. Many successful entrepreneurs are not embraced by the first lender or investor they approach. In the end, persistence, confidence and discipline can be as important to obtaining financing as understanding general conditions in the financing market. With that in mind, it s also safe to say that the general conditions for financing are different than they were even a few years ago. Some sources are intact, but others are not. For example, the market for initial public offerings has all but dried up for the present time. The IPO market is dead, admitted venture capitalist David Ferguson of Vengrowth in a July 2002 interview with Investors began to grow wary of the Internet business model that burned cash and spewed promises. the Financial Post, adding that it could be years before that window re-opens. When it does, Ferguson believes, the only companies that make it through will be profitable ones with viable business models. IPOs suffer in bear markets, and have always returned with the bulls. In the near-term, however, the IPO slump makes the capital markets an unlikely source of financing for small business and claps a restraint on venture capital financing as well. Venture capitalists make their money when their interests in an enterprise are purchased by a larger corporation through an acquisition, or by the capital markets through an IPO. This is known in the venture capital business as an exit strategy. The recent slide in IPOs has been paralleled by a similar skid in corporate acquisitions, which has temporarily blocked both classic venture capital exit strategies. In a recent Morningstar Canada web column, analyst Iain Giles noted, As public companies have halted their shopping sprees and IPOs have become few and far between, deal flow has dramatically slowed, particularly in the technology space. The good news is that venture capital companies are still out there doing what they ve always done; the bad news is that they re somewhat dormant these days, waiting for a high-tech revival. If you re not in a technology-based industry, some evidence suggests that venture capital may not be as important for your business. A Statistics Canada survey of mature small businesses (10+ years) across all industries found that, on average, venture capital accounted for less than 1 per cent of all funding. Retained earnings and bank loans constituted the major sources of funding within these businesses. In fact, equity from retained earnings accounted for an average 40 per cent of total working capital. It is interesting to note that this survey was released in May 2000, at the peak of the high-tech boom. This evidence is both encouraging and troubling at the same time. On one hand, it shows that many successful small businesses in Canada are quite self-sufficient when it comes to financing. On the other hand, financing from retained earnings relies on profitability. Have hard economic times, as experienced over the past two years, pushed small businesses into greater reliance on debt financing? The Definitive Guide to Small Business Financing in Canada 5
6 RBC_84395 Text 3/14/06 11:01 AM Page 6 Loan Authorization Rates by Size of Company Number of employees Undoubtedly so. Lending institutions, while certainly more cautious than they were a few years ago, are operating business as usual. Canada s major banks were recently forced to write down loan losses, but most of these losses have been generated by larger corporations rather than SMEs. In many ways, lenders favour a credit portfolio that distributes smaller amounts to many borrowers, because it spreads out the risk and offers the institution a range of interest rates depending on the specifics of each case. Most financial institutions across the country that began SME divisions in the 1990s still maintain them. We are a small business country; 40 per cent of the business loans we make are to customers who borrow less than $25,000, advises Jim Hamilton, vice-president, small business and agriculture at RBC Royal Bank. Indeed, the average RBC Royal Bank business loan below $1 million is $65,000. In spite of these reasonable amounts, institutions still tend to be more cautious in circumstances like general economic downturns. Has this caution constrained the debt capital markets? The answer appears to be no. This seems to be the conclusion reached by both the Statistics Canada survey cited above, as well as a more recent survey, The Path to Prosperity, co-sponsored by the Canadian Federation of Independent Business, Canadian Manufacturers & Exporters, and the companies under RBC Financial Group. This survey, released in October 2002, found that financial institutions must address account manager turnover, provide convenient access to services, and enhance the quality of advice. However, the report goes on to say that the Canadian financial services industry is a world leader in many aspects of business financing. For example, the spread between typical lending and deposit rates in Canada is the fourth-lowest among 75 countries. Canadian businesses, and SMEs in particular, get a far better deal on financing costs than American SMEs do at their banks. Small business banking fees are also lower in Canada. Loan approval rates for Canadian SMEs range between 79 and 94 per cent, depending upon size of company. Although some Canadian entrepreneurs are ambivalent about financial institutions, the report % of loans appoved % % % % Sources: Financing of Small and Medium-Sized Enterprises, Statistics Canada 2000 concludes; the hard evidence on this matter speaks for itself. To underscore its commitment to SMEs, the Canadian Bankers Association released the Model Code of Conduct for Bank Relations with Small-Medium-Sized Businesses in In its preamble, the Code states, Canada s chartered banks recognize that they have an important and unique role to play in fostering the growth of SMEs in Canada. As a minimum standard to be adopted by banks, the Code outlines a fair credit process that deals with application, approval, disclosure, and changing circumstances in the credit relationship. Among the important provisions are complaint handling, and recourse to the Financial Consumer Agency of Canada. Further reassurance about the creditworthiness of Canada s SME sector comes from Business Development Bank s President and CEO Michel Vennat. In BDC s 2002 Annual Report, Vennat says, Despite the slowing economy, small and medium-sized enterprises continued to show good results. A good example of lending institutions developing resources to help entrepreneurs run their businesses is the One-Stop Business Resource Centre in Regina, Saskatchewan. RBC Royal Bank helped create the Centre, a non-profit consulting service to individuals interested in setting up a business. Getting started can be very difficult, says Hamilton. That s why we ve aligned with other professionals, such as accountants and lawyers, to provide a free sounding board for start-ups. The objective is to provide a solid foundation so that start-ups can grow and prosper. In summary, while financing for small and medium-sized businesses in Canada, has a different profile than it did a few years ago, it has almost as many possibilities. Low inflation and low interest rates have persisted, and Canada s economy has been outperforming the economies of many other industrialized nations. While financing from the capital markets and venture capital sources has decreased significantly, this will most likely affect high-tech startups more than any other SME segment. Government and private debt financing sources have maintained their confidence in small business, and have not been overly sensitive to the sluggish economy. One final but important note for startup enterprises: every type of financing comes with costs as well as obligations. Financial institutions will lend you a dollar for every dollar of equity you invest, or will otherwise seek to lower their risk through other assets you may own. You must keep up your payments and provide regular financial reports to your lender. Private equity investors, such as venture capital companies, are in the business of accepting risk. The tradeoff, however, is that they will want to protect their investment by helping you manage your business in a hands-on way. They also look for a much larger return on their investment than a secured lender. Friends and family who invest equity in your business may feel the same way. With knowledge of financing comes the power to build your business. What s A SME? Under Industry Canada s definition, the term SME (for small or medium-sized enterprise) represents all companies with up to 500 employees. How Many SMEs? Statistics Canada says there were about 2.2 million Canadian SMEs at December 2001, including self-employed individuals. About half of these SMEs have employees, and 59 per cent of those have fewer than five. How Big? Two-thirds (66 per cent) of SMEs have annual sales less than $500,000, including almost half (49 per cent) that report sales less than $250,000. Seventy-nine per cent report annual sales less than one million. SMEs and banks Canada s banks have relationships with over 1.6 million small businesses. As of June 2001, the seven major banks authorized $71 billion in debt financing to over 819,000 SME customers in Canada. That s an increase of almost $5 billion in capital, and a 17 per cent increase in the number of customers since Sources: Financing of Small and Medium-Sized Enterprises, Statistics Canada 2000; Key Small Business Statistics, Industry Canada July 2002; Small- And Medium-Sized Businesses In Canada: An Ongoing Perspective of Their Needs, Expectations and Satisfaction with Financial Institutions, 1998 Thompson Lightstone & Company Limited; The Canadian Bankers Association. 6 The Definitive Guide to Small Business Financing in Canada
7 RBC_84395 Text 3/14/06 11:01 AM Page 7 & Art Science of Business Lending What does a lender really need to know? It may seem like a mysterious art, but lending is actually based on sound business principles. The Definitive Guide to Small Business Financing in Canada 7
8 RBC_84395 Text 3/14/06 11:01 AM Page 8 Understanding what makes banks and other lenders tick was once a major challenge for SME owners and managers. However, that s changing. It s our job to understand the business owner s point of view, says Jim Hamilton, RBC Royal Bank vice president, small business and agriculture. Bankers have traditionally been highly analytic, dealing only with numbers, and most entrepreneurs are visionaries conceptand action-oriented. The best bankers are those who can bridge that gap and truly understand the entrepreneur. That said, there is basic information any lender needs to decide whether a loan to a start-up or existing business is feasible. The first issue both a lender and borrower need to think about is how much money is needed. Somebody coming in the door who is starting their business and looking for $500,000 of loan financing may have unrealistic expectations and be taking on too heavy a debt load, says Hamilton. But most businesses starting today are looking for less than $50,000. Thanks to technology, many are starting from their home or small offices, with much lower overhead. If you are a start-up, the lender will try to assess whether you have the business savvy to make it a go. We look for people starting businesses who are coming from a place of experience, she says. If you worked for an engineering firm and decided to set up your own engineering consulting firm, I would say that s good. If you worked in an engineering firm and wanted to start up an ad agency, I might not feel as comfortable. A good credit history is also important, even if it s just responsible handling of a credit card. A major concern of business borrowers is often the lender s request for a personal guarantee, something Hamilton says is hard to avoid. For start-ups, realistically you must give a guarantee. The banker needs to know that the entrepreneur believes in his or her business. You may also need to offer security or collateral, but bankers are aware of the criticisms that they sometimes ask for too much. Recently, many major banks and other financial institutions have taken a lot of the pain out of getting smaller loans. For instance, RBC Royal Bank VISA* CreditLine for small business is a credit card with a $50,000 limit that requires no business plan, no security and only a personal guarantee. Resources to help SMEs learn about loan requirements are plentiful. Detailed guides are available in most bank branches and some even provide software to help. RBC Royal Bank for example, has free software called The Big Idea which is available on the bank s Web site. It includes a SME start-up guide, examples of business plans, loan applications, and descriptions of their business services. If you re after a larger amount of money, a lender will likely need more details on your business. Requirements for written business plans when applying for financing will vary across financial institutions, however, a business plan can Understanding what makes banks and other lenders tick was once a major challenge for SME owners and managers. be helpful for both the lender and borrower. There are lots of good books and even software you can buy to help create a full-fledged business plan, but here is an approach that may be a good starting point: Introductory letter A professional courtesy in some regard, it briefly states why the plan has been written and highlights its major features. Title page, contents & executive summary This will help a lender get a feel for the breakdown of information. The summary is important. Don t assume people will read your plan cover-to-cover. Succinctly state what the business is about, what will make it successful, and how much you will need from the lender to get there. If you or others already have money invested in the business, outline how much and how it was spent. If you have security or collateral to offer, this is a good place to highlight it. As well, explain the financial health of the business. Business summary & history This provides an overall picture, from the time the business was started to its future objectives. The industry This provides a snapshot of current market conditions for the industry, consumer demand and a brief analysis of the competition. The lender will often want to know how large the industry sector is and why it may be different from others, such as seasonal cycles. When discussing your competition, it may be helpful to give as much information as you can about their size, sales, strengths and weaknesses. Also, it may be able to describe the trends that are shaping your industry over the next five to 10 years. Services/products This is a key component of the plan, where you describe what is unique about your products and services, 8 The Definitive Guide to Small Business Financing in Canada
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10 RBC_84395 Text 3/14/06 11:01 AM Page 10 and how this differentiates you from your competition. Management The background, responsibilities and qualifications of key personnel, as well as any references. The lender will often want to know how much key people are paid. Marketing plan Who is the target market, how big is it and how will the business generate its sales? Here, you may want to explain costs and pricing policies, as well as distribution and promotional plans. Women & SMEs Women Running SMEs Forty-five per cent of all SMEs have at least one female owner. For 34 per cent of all SMEs, women hold half ownership or more. Size of Business Majority female-owned businesses tend to be smaller and have fewer employees, accounting for 16 per cent of SMEs with fewer than 5 employees, and 4 per cent of SMEs with more than 100 employees. Structure of Firms Forty-four per cent of majority femaleowned SMEs are incorporated, 51 per cent are sole proprietorships and 5 per cent are partnerships. The corresponding figures for majority male-owned SMEs are 55 per cent incorporated, 47 per cent sole proprietorships, 8 per cent partnerships. Source: Survey on Financing of Small and Medium-Sized Enterprises, Statistics Canada The Definitive Guide to Small Business Financing in Canada Capital equipment If you own or need land, buildings or equipment, it may be useful to explain what it s worth or costs, how it is to be financed and why it is vital to the success of the business. Operations An important part of any manufacturer s proposal, this briefly explains the mechanics of your business work flow, inventory controls, personnel requirements and production schedules. Financial plan Profit-and-loss, balance sheet, projected income, sales and, most important, cash flow statements are vital. Risks This is where you demonstrate your business savvy and backup plans. For example, you may want to explain the worst-case scenarios for your business, what steps you are taking to avoid those risks and what you can do to minimize their impact if they were to happen. Conclusion This is where you can restate the goals and objectives for your business, the financing you re seeking, and why you believe you are a qualified applicant. That s the written plan, but it s also often wise to emphasize certain points during face-to-face discussions with lenders. The fact that you have equity or personal capital at risk is often important. Credit history, particularly if it is with that lender, is often important, as are your references and personal reputation. If your cash flow is strong enough to cover loan payments and interest, you may want to discuss those figures and make it clear that it will not place a strain on the business. You may also want to make a point of emphasizing security or collateral you have to offer such as receivables and inventory. If you re using equipment or property as security, the lender may need valuations and proof of insurance. Most lenders accept real estate, equipment and personal assets such as homes, stocks and bonds, life and fire insurance as security. Don t expect a lender to accept 100 per cent of an asset as collateral. A University of Western Ontario study, Banks and Small Business Borrowers, found the liquidation value of assets was often well below the market value and that the average recovery rate on collateral used for SME loans is less than 65 cents on the dollar. Banks usually follow internal guidelines for collateral. For example, an assignment of accounts receivable within 90 days may be valued at 50 to 75 per cent. A chattel mortgage on business equipment or machinery may be limited to 60 to 80 per cent. Inventory often isn t given more than 50 per cent of its value when used as collateral. Hamilton advises, The best time to approach a bank is right when the business is starting. Typically there may be no borrowing requirement at this time. This allows both the banker and the business owner to get to know each other and develop a relationship as the business grows. Are there times when a business will be unlikely to get a loan? Yes. If they have a poor credit history or have a previous bankruptcy, realistically, they are not likely to get a loan, says Hamilton. Also, a time of crisis is not the best time to be looking for a new banking relationship. Still, he says, most lenders want to know if a SME is experiencing difficulties and want a chance to offer early financing solutions or advice. Says Hamilton: It is critically important for a business owner to maintain a relationship with its lender. Your banker should support you through tough times if you keep the lines of communication open.
11 RBC_84395 Text 3/14/06 11:01 AM Page 11 Account Statements Payroll Bills GST Remittances There is a better way to manage your business finances. RBC Royal Bank Online Banking has made it easier than ever for you to manage your banking and financial needs. You can go online to view your entire financial picture at a glance, as well as make a wide variety of transactions. Now you can: View all your accounts (Canadian and US Dollar) Transfer funds between accounts File your taxes, GST payments and payroll source deduction remittances 24 hours a day To start enjoying the NEW Online Banking for Business now, visit or call us at ROYAL 7-0 ( ). TM Trade-mark of Royal Bank of Canada. RBC and Royal Bank are registered trade-marks of Royal Bank of Canada. Registered trade-mark of Visa International Service Association. Used under license. Make bill payments Research other products and services or rates Copy activity from business accounts loans and VISA files to many popular accounting software packages.
12 RBC_84395 Text 3/14/06 11:01 AM Page 12 Custom-Tailored Financing: The Nich Lenders Depending on what you need money for, there s a broad range of alternative and new financing options available to SMEs. 12 The Definitive Guide to Small Business Financing in Canada
13 RBC_84395 Text 3/14/06 11:01 AM Page 13 he For fast-growing, highly leveraged companies, efficient collection of accounts receivable is the first strategy for easing cash flow bottlenecks. However, getting cash against receivables is just one of the many alternatives SMEs can use to ease cash flow, raise money for an expansion or to secure long-term loans. Banks offer a much wider range of financial services than they did in the past. As well, there are some niche financial services players in the marketplace worth considering. Private term lenders, merchant banks, insurance companies, pension funds, bridge financiers, leasing and factoring firms are some of the options. Each is geared to lending money for specific uses and, depending on your needs, may be able to offer financing at a cost that doesn t impair your credit rating or give away equity. For example, traditional lenders typically don t like long-term debt on their books. This exposure makes some lenders nervous, and low interest rate guarantees beyond a few years simply a well-known brand name with licensing potential, can satisfy the lender s need for security. Long-term lenders also require frequent reporting on the health of their investments, to the point where they may take an active role advising borrowers about managing their operations. Note the similarity here to risk capital investors. THE FACTORS OF BUSINESS LIFE Customers who don t pay on time or become collections nightmares are SME cash flow killers. Even SMEs with reliable accounts may have a project or expansion in mind with immediate cash requirements. What to do? Some business owners may not be aware that some finance companies specialize in outright purchases of accounts receivable for cash a service traditionally known as factoring. In years past, factoring companies were considered a last Private term lenders, merchant banks, insurance companies, pension funds, bridge financiers, leasing and factoring firms are some of the options. aren t as profitable as floating rates or shorter terms. For some SMEs, however, the nature of their businesses or the capital equipment they re buying may require a 5 to 10 year term, with amortizations of 10 to 25 years to make payments affordable. They may even need an unusual payment pattern if it s a seasonal business or projectbased firm. Lenders for long-term opportunities typically require borrowers to have a profitable track record and, if they don t have much cash on hand, to have good assets such as a plant or equipment to use as security. Even intellectual property, such as resort because the customer would be told to pay the factor directly. This sent a signal to the customer that the supplier was financially unstable. Today, factoring companies offer a range of services, often working transparently. Some even operate as an outsourced accounts receivable department, sending out your invoices and tracking collections. Here s how they work: the factoring company pays you about 70 to 80 per cent of the value of your receivables as soon as a sale is made. When the customer pays in full, you get the rest of the money less the factor s fee and any interest charges. Some factors may agree to The Definitive Guide to Small Business Financing in Canada 13
14 RBC_84395 Text 3/14/06 11:01 AM Page 14 Youth & SMEs Young Entrepreneur Help The Ministry of Economic Development and Trade delivers the Student Venture Loan Program in conjunction with Royal Bank of Canada. Students between the ages of 15 and 29 can borrow up to $3,000 for the purpose of owning and operating a summer business. Other government programs for student business loans are available, including Student Business Loans (BDC), Student Venture Capital (NB) and Youth Entrepreneurial Scholarships (NS). The Young Entrepreneurs Small Business Loan program is a First Nation and Inuit Youth initiative geared to young (34 and under) Status Indian entrepreneurs, living on reserve in N.B., N.S. and P.E.I. Joint Venture partners are Ulnooweg, non-recourse deals, which means they assume the risk for bad debts. Many will accept the risk without a personal guarantee. Factors look for a good credit history in companies and their customers. They ll also expect you to deal with customer complaints, service calls and warranty claims. the Provinces of N.B/N.S. and ACOA, and T-D Canada Trust for N.S. and Royal Bank of Canada for N.B. Youth Business is a non-profit, private sector initiative designed to provide mentoring and funding to young Canadian entrepreneurs. The founding members are the CIBC, Royal Bank of Canada, and Canadian Youth Foundation. Youth Business is structured to provide loans on average of $7,500, with a maximum of $15,000 for qualifying businesses. The Young Entrepreneurs Association, started in 1993, promotes entrepreneurship and delivers seminars on a variety of business topics. It also provides peer support and networking opportunities through its corporate sponsors, such as Royal Bank of Canada. Using your assets If you don t want to sell your accounts receivable outright, a viable alternative can be asset-based financing. Asset-based financing uses the inherent value in your company s accounts receivable and inventory as security for debt capital. Under the asset-based financing model, a bank can lend more money to companies that might not qualify for conventional bank financing. Claude Alexander, Senior Manager, Portfolio & Risk for RBC Royal Bank s Asset-Based Financing division, says that asset-based financing was developed over 20 years ago by American investment bankers to acquire companies by leveraging their assets. Now it can also function as a mechanism to finance general working capital requirements, taking the form of a revolving line of credit with a limit that floats with the value of a company s working capital assets: accounts receivable and inventory. As a company increases sales, it grows accounts receivable and inventory, says Alexander. Then the credit limit will grow by the same amount. Since financing is directly related to assets, balance sheet and income statement covenants are not as important when compared to conventional bank financing. This means asset-based financing may be able to provide larger overall operating lines of credit compared to covenant-based facilities. From a business perspective whether it s long-term secured borrowing, factoring, asset-based financing, or other emerging forms of financing such as leasing alternative financing sources can help keep your traditional debt under control. V A R I E T Y I S T H E S P I C E O F B U S I N E S S Continuing a trend from previous years, entrepreneurs running some of the fastest-growing small and medium-sized businesses in Canada use a wide variety of financing sources. Almost all dip into their own pocket, public stock issues being the next most common source of financing. Chartered banks and friends and relatives were slightly ahead of venture capital, followed then by a diverse range of other financiers including angels or even suppliers and customers. Rank & Company Year Industry Location Revenue Revenue Growth Profit Profit Source of Founded % Financing 1 CryptoLogic Inc 1995 Internet-casino software and services Toronto, ON $256,672 $67,455,000 26,181% ($722,887) 28,001,000 1,12,13 2 Pivotal Corp CRM software and services North Vancouver, BC $399,000 $95,290,000 23,782% ($1,261,000) ($32,455,000) 10,11,13,15 3 Phonetime International Inc Prepaid long-distance phone cards Mississauga, ON $130,876 $20,148,708 15,295% ($86,548) $769,000 2,4 8,11,13,14,15 4 Intrinsyc Software Inc Embedded systems hardware & software Vancouver, BC. $82,472 $10,940,424 13,166% ($602,928) ($3,734,165) 1,7,8,9,11,12,13 5 DreamCatcher Interactive Inc Video-game publisher Toronto, ON. $283,308 $30,001,043 10,490% ($542,134) $3,424,210 4,11,12 6 Hi-Alta Capital Inc Western Canada insurance brokers High River, AB $230,311 $22,449,174 9,647% ($75,476) $991,820 3,4,5,67,8,10,11,13,14 7 Sylogist Inc Enterprise and mobile-workforce software Calgary, AB $215,775 $14,933,070 6,821% ($206,818) ($183,367) 6,8,11,13,15 8 Hydrogenics Corp Fuel cells for cars and power generation Mississauga, ON $168,094 $11,490,000 6,735% $8,758 ($4,632,000) 7,9,11,13,15 9 Whitehill Technologies Inc E-document software for law firms Moncton, NB $116,639 $7,829,973 6,613% $5,073 $903,282 1,4,8,9,11,15 10 JDS Uniphase 1981 Fibre-optics components mfr. Ottawa, ON $74,833,000 $4,911,300,000 6,463% $12,941,000 ($85,260,400,000) 7,11,13 11 Iamgold Corp Gold mining and exploration Markham, ON $1,259,000 $81,665,000 6,386% $3,972,000 $10,948,000 4,6,7,8,10,11,12,13,15 12 Proprietary Industries Inc Real estate, oil & gas, mining Calgary, AB $934,829 $58,108,626 6,116% $215,767 $16,789,454 4,7,11,13 13 BCE Emergis Inc Online insurance-claim Montreal, QC $11,025,479 $656,400,000 5,853% ($614,880) ($414,400,000) 11,13 and bank-transaction processing 14 Bridges.com Inc Interactive career-planning software Kelowna, BC $336,339 $19,524,945 5,705% ($570,244) ($1,180,732) 4,8,11,13 15 Edge Entertainment Inc Movie and TV production Saskatoon, SK $121,237 $6,490,379 5,253% ($3,053) $182,885 4,8,11,12,15 Source of Financing: 1 - Angels, 2 - Barter, 3 - Bond, 4 - Chartered banks, 5 - Customer, 6 - Employees, 7 - Foreign lenders /investors, 8 - Friends and relatives, 9 - Government, 10 - Other financial institutions, 11 - Owners, 12 - Private investors, 13 - Public stock, 14 - Suppliers, 15 - Venture capital Source: PROFIT: Your Guide to Business Success, The PROFIT 100 ranking of Canada s Fastest-Growing Companies June The Definitive Guide to Small Business Financing in Canada
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16 RBC_84395 Text 3/14/06 11:01 AM Page 16 Small Business Financing Assistance Directory Many banks, trust companies, credit unions and traditional lenders now offer much more than loans. Leasing, factoring, import and export financing and even venture capital are among the services available. These and other listings can be found in various public sources, including the Internet and in government and trade association guidebooks. For example, one of the most comprehensive and up-to-date lists of financing options can be found at the Sources of Financing section of Industry Canada s Strategis Web site (strategis.ic.gc.ca). General Financing Sources RBC Royal Bank SME financing range & avg.: $1000 to $5+ million; avg. $81, to 60 months SME portfolio: $20 billion Preferred SME: No restrictions Special SME programs: Wide variety of SME programs, including term financing, Royal Business Overdraft Protection of up to $5,000; Royal Business OperatingLine, offering a line of credit between $5,000 and $100,000 (or higher, if needed); RBC Royal Bank VISA* CreditLine for small business, which offers a line of credit of up to $50,000; asset-based financing; and Canada Small Business Financing (CSBF) Loan, offering up to $250,000 for equipment and property purchases/improvements (government guaranteed). Contact: Local Business Banking Centres or ROYAL 2-0 ( ) BMO Bank of Montreal Varies 300 month maximum Preferred SME: No restrictions Special SME programs: Wide variety of SME programs, including Small Business Line of Credit (SBLOC) offering between $1,000 and $50,000, Operating Line of Credit (OLOC) for amounts over $50,000, and US loans through Harris Bank. Contact: Local branches or CIBC Canadian Imperial Bank of Commerce $1000 to $5+ million Preferred SME: No restrictions Special SME programs: Wide variety of SME programs. Contact: Local branches or CIBC. National Bank of Canada Preferred SME: No restrictions Special SME programs: Wide variety of SME programs Contact: Local branches or Scotiabank $1000 to $5+ million Special SME programs: Wide variety of SME programs. Contact: Local branches. TD Canada Trust $1000 to $500, to 180 months Preferred SME: No restrictions Special SME programs: Wide variety of SME programs. Contact: Local branches or American Capital Partners Limited $1,000,000 to $15,000,000 Preferred SME: Existing companies, selective start-ups Special SME programs: Specializing in financial restructuring, acquisition financing and refinancing. Contact: (416) Canadian Western Bank $250,000 to $20,000,000. Preferred SME: SMEs in western provinces Special SME programs: Operating lines of credit, term loans, equipment financing and leasing, real estate and energy lending. Contact: Offices in B.C. and Alberta. BNP Paribas (Canada) $1 to $5 million Fees: Service charges 1 per cent max. Preferred SME: No restrictions Special SME programs: Offering export financing, operating and term loans and working capital. Contact: Regional offices or (514) HSBC Canada $250,000 to $5+ million; 12 to 120 months Preferred SME: Companies in British Columbia., Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia and Newfoundland. Special SME programs: Wide variety of SME programs including term loans, lines of credit, and the government guaranteed Small Business Improvement Loan of up to $250,000. Contact: Local branches or (604) Lasalle Business Credit, (Division of ABN AMRO) $5 million and over 12 to 180 months Preferred SME: Businesses in IT and telecommunications, manufacturing,medical/bio-technology/chemical, services, transportation and wholesale/ retail industries. Special SME programs: Revolving credit, term loan facilities or cash flow facilities Contact: (416) Laurentian Bank of Canada Preferred SME: Quebec-based businesses Contact: BLC-1846 Société Général (Canada) Preferred SME: Businesses in the environment, information technology and telecommunications, manufacturing, mining/petroleum/gas, services and transportation industries. Special SME programs: Export financing Contact: (514) The Definitive Guide to Small Business Financing in Canada
17 RBC_84395 Text 3/14/06 11:01 AM Page 17 Commercial Lenders Typically, funds are invested on behalf of pension funds and insurance firms and the loans are usually asset-based in terms of collateral. Also included in this group are factoring companies. CIT Group Inc. Special SME programs: Short or long-term loans, leasing, asset management and financing, and industry-specific finance solutions. Contact: Locations in Alberta, Ontario and Nova Scotia. Execucor Financial Preferred SME: No restrictions Special SME programs: Lease financing, loans, venture capital, and lines of credit. Contact: Penfund Group $1,000,000 to $7,000,000 SME portfolio: $300 million Preferred SME: Established commercial and industrial businesses with the exception of real estate and natural resources sectors. Contact: (416) Government Sources In addition to the major programs and organizations listed here, there are many other federal, provincial, regional and even municipal programs geared to serve the needs of SMEs. Contact your local economic development authorities for more information. ATB Financial Varies Preferred SME: Alberta-based businesses. Special SME programs: Wide variety of SME programs, capital financing, operating, professional practice and government guaranteed loans, as well as the Alberta BusinessCard MasterCard with a limit up to $50,000. Contact: Local offices or Atlantic Canada Opportunities Agency (ACOA) Varies Preferred SME: All Atlantic Canadian-based SMEs except those in retail/wholesale, real estate, government services or personal/social services. Special SME programs: Wide range of SME programs, including the interest-free Business Development Program, and the Young Entrepreneurs ConneXion with loans up to $15,000 (ages yrs.) Contact: Local offices or (506) Business Development Bank of Canada (BDC) Up to $100,000 for start-ups Up to six years Preferred SME: Start-ups or within first year of sales. Special SME programs: Long term financing to provide working capital, fixed assets, marketing/start-up fees or the ability to purchase a franchise. Contact: Local branches or BDC-BANX. Ministry of Enterprise, Opportunity & Innovation $3,000 to $15,000 Preferred SME: Ontario-based summer entrepreneurs and startups. Special SME programs: Summer Company Program for students aged yrs. My Company Program for young people aged yrs. Contact: Local Small Business Enterprise Centre or Business Self-Help Office. Saskatchewan Industry and Resources up to $10,000 Five years Fees: $30 administration fee Preferred SME: SMEs based in Saskatchewan, except those in direct farming, exploration (such as mining and oil extraction), residential real estate, multi-level marketing or charitable organizations. Farming operations eligible for funding from Saskatchewan Agriculture, Food and Rural Revitalization. Special SME programs: Small Business Loans Association (SBLA) Program for startup and non-traditional entrepreneurs. Contact: (306) Leasing RBC Royal Bank Royal Business Lease or Royal Business Leaseline $50,000 and up Contact: Local branches/business centres for applications or ROYAL 2-0. ABN Amro Leasing $50,000 to $5+ million; 12 to 72 months Fees: $400 processing fee Preferred SME: Businesses in forestry, construction, manufacturing,mining, petroleum/gas or transportation industries. Special SME programs: Leasing and financing construction, materials handling, production and transportation equipment. Contact: (905) GE Capital Canada Equipment Financing $25,000 to $5+ million; 24 to 120 months Preferred SME: Businesses in agriculture, construction, forestry, manufacturing, mining/petroleum/gas, and wholesale/retail sectors. Contact: (514) HSBC Canada Leasing $250,000 to $5+ million; 36 to 120 months Preferred SME: Companies in B.C., Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia and Newfoundland. Special SME programs: Specializes in providing custom tailor lease or finance arrangements on the full range of capital assets. Contact: (604) IBM Canada Ltd. Varies Special SME programs: SuccessLease* program financing up to $100,000; TOTAL Solution Financing including Total Usage Financing. Contact: extension 710. TD Asset Finance Corp. $100,000 to $5 million + 36 to 120 months Preferred SME: No restrictions Special SME programs: Capital and operating leases, conditional sales contracts and sale and leasebacks. Contact: Venture Capital A full listing of active venture capital corporations can be obtained from the Canadian Venture Capital Association in Toronto. RBC Capital Partners $5 million and up Varies Preferred SME: Dependant on applicable financing product. Special SME programs: Venture capital and private equity investments, mezzanine debt, primarily in the energy, technology, life sciences and telecom industries in North America. Contact: (416) RBC Technology Ventures Inc. Preferred SME: No start-ups; market-ready companies in selected high growth emerging sectors in North America. Special SME programs: Small Business Venture Fund. Contact: (416) Access Capital Corp. $500,000 and up. The Definitive Guide to Small Business Financing in Canada 17
18 RBC_84395 Text 3/14/06 11:01 AM Page 18 Preferred SME: Information technology and telecommunications. Contact: (416) Accés Capital $50,000 to $750,000. Preferred SME: Specializing in Quebec and New Brunswickbased start-ups, excluding real estate. Contact: (514) ACF Equity Atlantic Inc. $100,000 to $5 million SME portfolio: $30 million Preferred SME: Market-ready companies in Atlantic Canada with strong management team and products with a unique, competitive sustainable advantage, excluding real estate and retail. Special SME programs: Work with various chartered banks, credit unions, regional and federal governments to secure quasi-capital and venture capital funding. Contact: Toll-free in Atlantic Canada ; (902) Acorn Ventures Inc. $250,000 to $5 million SME portfolio: $70 million Preferred SME: Specializing in information technology and telecommunications; excluding real estate, mining, logging and fishing. Contact: (650) BMO Capital Corporation Up to $5,000,000 SME portfolio: $200 million Preferred SME: All sectors are eligible excluding real estate. Special SME programs: BMO Small Business Capital Program, BMO Technology Investment Program, and BMO Early Stages Capital Program for youth startups. Contact: (416) BCE Capital Inc. $500,000 to over $5 million SME portfolio: $150 million Preferred SME: Information technology and telecommunications. Contact: (416) Business Development Bank of Canada (BDC) $250,000 to $5 million SME portfolio: $360 million Preferred SME: All sectors are eligible excluding hotels, restaurants, night clubs, real estate, insurance and financial institutions. Contact: (514) Capital Alliance Ventures Inc. $500,000 to over $5 million SME portfolio: $90 million Preferred SME: Ontario businesses in environment, information technology, telecommunications,and medical/ biotechnology/ chemical sectors. Contact: DGC Entertainment Ventures Corp. $100,000 to $750,000 Preferred SME: Canadian entertainment and communications companies. Special SME programs: Expansion, capital asset, and project financing; debt or equity refinancing. Contact: (416) Deventis Capital $1 to $2 million Preferred SME: Provide equity capital and business development to emerging companies in Western Canada, excluding start-ups, resources, real estate, retail, biotech or manufacturing. Ensis Growth Fund $250,000 to $5 million 120 months Preferred SME: Manitoba business in agriculture, environment, information technology and communications, manufacturing, services and tourism. Contact: (204) Fonds de Solidarité des Travailleurs du Québec/ The Solidarity Fund QFL SME portfolio: $4.4 billion Preferred SME: Quebecbased SMEs. Special SME programs: Assistance for startups, expansions, IPO, consolidations, mergers, acquisitions and exports. Contact: Fulcrum Partners Up to $750,000 Preferred SME: Greater Toronto Area-based companies with annual growth rates of over 30 per cent, specializing in consumer products, IT and telecommunications. Contact: (416) Investments Novacap Inc. $1 million to over $5 million 60 to 120 months SME portfolio: $73 million Preferred SME: Businesses in Ontario, Quebec and New Brunswick specializing in environment, information technology and telecommunications, manufacturing, and medical/biotechnology/chemical sectors; excluding real estate, mining and other primary industries. Special SME programs: Quasiequity and venture capital. Contact: (450) J.L. Albright Venture Partners Inc. $1 to $5 million 2-4 yrs. SME portfolio: $170 million Preferred SME: Greater Toronto Area-based businesses in consumer products, information technology and telecommunications. Excluding real estate, mining, and oil and gas. Contact: (416) McLean Watson Capital Inc. $500,000 - $5 million; 24 to 60 months SME portfolio: $160 million Preferred SME: Software and information technology and telecommunications companies. Special SME programs: McLean Watson SOFTECH Fund, focusing on software companies, and McLean Watson Ventures II, focusing on information technology. Contact: (416) MDS Capital $250,000 to over $5 million 24 to 120 months Preferred SME: Medical, biotechnology and chemical sectors only. Contact: (416) Quorum Funding Corporation $1 million-$5 million; months SME portfolio: $150 million Preferred SME: Companies in information technology and telecommunications sectors, excluding startups or early stage businesses except in exceptional circumstances. Special SME programs: Venture capital, mezzanine and other financing. Contact: (416) TD Capital $1 to $5 million months Fees: Program-dependent SME portfolio: $3 billion Preferred SME: growth-oriented middle-market companies requiring financing for a wide range of circumstances including buyouts, growth and expansion, acquisitions and recapitalizations Special SME programs: Mezzanine Partners, Canadian Private Equity Partners, Private Equity Investors, Technology Ventures Contact: (416) The Definitive Guide to Small Business Financing in Canada
19 RBC_84395 Text 3/14/06 11:01 AM Page 19 Enhance Your Most Valuable Asset. Your Mind. Knowledge you can use to help build your business Definitive Guide e-learning Courses Learn online from your own home or office, at your own speed and schedule. With valuable info on marketing fundamentals. Sales and selling strategies. Customer service. Marketing on the Internet and more. It s e-learning sponsored by RBC Royal Bank and it s everything today s business owner or manager needs to sharpen their skills and get an edge in the marketplace. Get online and get what you need to succeed. Definitive Guide e-learning. Many of these courses are being made available to individual businesspeople for the first time. They include: Writing a Marketing Plan Guerilla Marketing Marketing Your Business on the Internet Promote Yourself! Opening Closed Doors Sales Strategies Sponsored by Use the Definitive Guides to help get you started with valuable advice on building your business. Then check out our e-learning site at You ll find our complete catalogue of online courses that go beyond the basics to expand your business skills in key areas now available at 10-30% off normal registration fees. Registered trademark of Royal Bank of Canada Trademark of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. This site is owned and operated by General Content Corporation. Royal Bank of Canada receives no compensation from General Content Corporation, the course providers or their agents.
20 RBC_84395 Text 3/14/06 11:01 AM Page 20 Technocap Inc. $500,000-$750, months minimum SME portfolio: $100 million Preferred SME: Companies in Alberta, Ontario, Quebec, New Brunswick and Nova Scotia specializing in information technology and communications. Contact: (514) Vengrowth Funds $750,000 to $5+ million; Avg. $3 million 48 to 72 months SME portfolio: $450 million Preferred SME: Ontario-based established business in the environment, information technology and telecommunications, manufacturing, medical/biotechnology/chemical, services, tourism and wholesale/retail sectors. Mining and real estate are excluded. Contact: (416) Ventures West Management Inc. $500,000-$5+ million 36 to 60 months SME portfolio: $400 million Preferred SME: Companies in the information technology and telecommunications, medical/biotechnology/chemical sectors, excluding real estate, natural resources and non-technology. Contact: (604) Working Ventures Canadian Fund Inc. $500,000-$5+ million 48 to 84 months SME portfolio: $700 million Preferred SME: Companies in Saskatchewan, Ontario, New Brunswick, Nova Scotia and Prince Edward Island, excluding real estate. Contact: (416) Government SME Finance Options Many entrepreneurs aren t aware of the many government-related financing and support programs for SMEs. Here are a few: Canada Small Business Financing If you re running a for-profit business that s not a farm or a religious institution, and your annual gross revenues are less than $5 million, you may qualify for a government-guaranteed loan from a financial institution. The Small Business Loans Act permits authorized lenders to finance up to 90 per cent of expenses used to: purchase, install, renovate, improve or modernize new or used equipment (e.g. computers, computer software for operational purposes, manufacturing equipment, etc.); purchase land to operate the business; and renovate, improve, modernize, extend, construct or purchase business premises necessary for the operation of the business. Eligible purchases made within the past six months can be financed with this loan, and loans are advanced only upon receipt of eligible invoices. The most you can access using this program is $250,000, repaid over a maximum of 10 years. Pricing of these loans is competitive, but the government charges a 2 per cent registration fee at the beginning (usually added to the principal amount of the loan) as well as a 1.25 per cent administration fee with every payment. These fees are used to help keep the program running. If the business fails, the Federal government will share up to 85 per cent of the loan losses with the lender. Note that personal guarantees for unsecured loans are limited to a maximum of 25 per cent of principal amount under this program. Business Development Bank of Canada Business Development Bank of Canada (BDC) is becoming a major player in financing and refinancing SMEs, often working in partnership with other financial institutions. As well, BDC offers consulting, training and other services such as ISO 9000 certifications. Over the past few years, BDC has become less program-oriented, and now deals more with the individual needs of entrepreneurs. BDC also offers start-up financing that provides term financing up to $100,000 and the possibility of personalized management support. BDC Venture Capital is also a major venture capital investor in Canada, active at every stage of a company's development cycle, from start-up through expansion. Its focus is on technology-based businesses with high growth potential that are positioned to become dominant players in their markets. BDC Technology Seed Investments Group provides financing for the creation of innovative technology businesses with high-growth potential. BDC s financing is often paired with other financial, management, or commercial development resources. Other Programs The Ottawa-based Export Development Corporation plays a unique role for SMEs. EDC insures foreign receivables, provides security to an exporter s bank for any line of credit, and can even offer financing to a foreign buyer of Canadian exported products. Microcredit funds are designed for entrepreneurs who do not have access to bank credit. The purpose of these loans, which are under $25,000, is to finance the start-up of very small businesses (less than five employees and gross revenues under $500,000). The funds are managed by local economic development centres that assign security to private lending institutions. These funds often support community projects that promote employment for specific groups, such as minorities and the disabled. Among the many regional federal government financing programs, the Atlantic Canada Opportunities Agency (ACOA) is a success story in itself, providing interest-free, unsecured repayable contributions to SMEs. ACOA also operates the Young Entrepreneurs ConneXion Program that provides unsecured, personal loans of up to $15,000 to young entrepreneurs between the ages of 18 and 29. Funds can be used for business start-up or expansion, and up to $2,000 for business counselling and training costs. In Northern Ontario, The Federal Economic Development Initiative for Northern Ontario (FedNor) supports local investment funds for the startup, expansion, and/or stabilization of local businesses. These funds are operated by Community Futures Development Corporations (CFDCs) that use volunteer boards and professionals with business experience to assess applications for financing. CFDC investments are provided where financing available from personal investment, financial institutions and other sources is insufficient. Funds, normally up to $125,000 maximum, can be allocated as loans, loan guarantees or share capital equity. Western Economic Diversification Canada offers a wide range of financing programs in partnership with financial institutions to help selected western industries. WD, as it is known, focuses on knowledge and growth businesses, information technology and telecommunications, and agriculture value-added processing, as well as small and medium-sized B.C. companies in traditional industries. 20 The Definitive Guide to Small Business Financing in Canada