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No nonsense information on small business.

Aug 2, 2011 - 1 minute read - Comments - business news

New CBC Show Searching for Canadian Businesses In Need

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The producers of Dragons’ Den are looking for Canadian companies that are struggling financially. Top Canadian investors will give their time and money to help make the chosen businesses a success. To apply a company should have the following attributes:

  • Must have been in operation for at least three to five years or more
  • Gross revenue of $500,000 per year on average
  • More than 5 employees
  • Privately held business, family business, partnerships, limited partnerships
  • Must be willing to commit to being filmed on camera for up to a two-week period
  • A business registered in Canada
  • Fluent English speakers

The selected businesses can benefit from:

  • Free top-notch business consultation
  • Experts who will visit your business, no travel is necessary on your behalf
  • A chance to get an investment or a loan for your business when other sources have been exhausted

To apply email your name, company name and contact information by August 12, 2011 to bigdecision@cbc.ca

Jul 18, 2011 - 2 minute read - Comments - entrepreneurship

What Is A Small Business?

The exact description of a small business varies depending on which source you consult.

The Canadian Bankers Assocation defines small businesses as those having authorized credit limits of $500,000 or less, while medium-sized businesses have authorization levels of up to $1 million.

The Export Development Corporation defines small exporters as having sales of less than $1 million.

For the Canada Small Business Financing Program, Industry Canada uses a definition of $5 million in revenue or less. Industry Canada also has an employee based definition where businesses are considered small if they have less than 100 employees or less than 50 employees if it is a service based business. A business that has between 100 and 500 employees is considered medium sized. Businesses with less than 5 employees are called Micro Businesses by Industry Canada.

The term small and medium-sized enterprise (SME) is a commonly used term by many organizations. Industry Canada defines it as a business having less than 500 employes, while those with more than 500 employees are considered large businesses.

To provide a point of comparison, the U.S. Small Business Administration (SBA) defines a small business as having as much as $21 million and 1,500 employees in annual revenue, depending on the product or service being offered.

As you can see, the SBA definition of a small business is considerably larger than the Industry Canada definition. It’s important to undersand this difference because if the small business you are starting is going to sell products and services to other small businesses, a Canadian small busines with 50 employees might have very different needs than a U.S. small business with 1,500 employees.

Jul 14, 2011 - 2 minute read - Comments - banking

Comparing Small Business Overdrafts at Canada's Banks

Overdrafts for small business bank accounts are attached to a business’s account so that if a cheque takes the account below a $0 balance, the overdraft will be there to pay the cheque. These overdrafts are usually meant to cover small, short term deficits in cash flow. Due to their higher interest rates, they are not the most ideal bank product for long term borrowing needs. Businesses with larger cash flow financing needs, such as those with accounts receivable, should look at a business operating line of credit instead.

The following table compares the overdraft product at the Big 5 Canadian banks.

Feature RBC BMO CIBC TD Scotia
Maximum Limit $5,000 N/A $10,000 $10,000 N/A
Interest Rate Prime + 5.0% N/A Prime + 5.0% Varies N/A
Monthly Fee $10 or $5/cheque N/A $9.50 $10 N/A
Application Fee None if electronic,
$25 in branch
N/A None None N/A
Link Website N/A Website Website N/A

The Bank of Montreal and Scotiabank do not actively promote a small business overdraft product. They most likely offer an operating line of credit product to clients who have a need for a small business overdraft. This many not be price competitive and the application process will certainly be more in depth than for a simple overdraft. Make sure you get the details before going forward.

Generally speaking, the bank will make its lending decision by running a personal credit check through Equifax or Trans Union. The bank will then calculate a credit score based on this information and an automated system will recommend an appropriate overdraft limit for you. The algorithm that is used to calculate the overdraft limit is kept secret by the bank because they don’t want people attempting to game the system, but your personal credit record will factor heavily into the recommendation. Your local banker usually has little power to increase the recommended limit.

A small business overdraft might make sense if your business operates on its own cash but at times the balance on its account comes close to zero. An overdraft might save you the embarrassment of having a cheque returned NSF.

Jul 12, 2011 - 1 minute read - Comments - business news

Visa Announces Winner Of 'Canada's Longest Elevator Pitch' Contest

Anna-Maria Mountfort

Anna-Maria Mountfort is the winner of the $10,000 credit to her Visa Business card for having the best elevator pitch among the five finalists who competed by giving their pitches during the 60 second elevator ride to the top of Toronto’s One King West Hotel And Residences. Anna-Maria’s business, mimiTENS, makes specialty children’s mittens right here in Canada.

Jul 11, 2011 - 4 minute read - Comments - banking funding

Understanding the Canada Small Business Financing Program (CSBFP)

Update March 10, 2014 — Industry Canada has announced updated guidelines for the CSBFP. For more information, please read our post on the changes.

The Canada Small Business Financing Program (CSBFP) is a program in which the Canadian Government provides insurance to banks and credit unions to insure small business loans. This insurance allows banks and credit unions to take more risk than they would normally be comfortable in taking.

In order to qualify for this program, your business must have less than $5 million in annual or projected revenue revenue and be located in Canada. Farms aren’t eligible under this program and should look at the Canadian Agricultural Loans Act Program (CALA) instead.

The maximum loan amount available under the CSBFP is $500,000 with a maximum of $350,000 eligible for leasehold improvements or equipment. These loan amounts are for each independent small business that someone owns. A business is considered to be independent if it receives 25% or less of its revenue from a related business and the related businesses operate out of different premises. For example, if someone owns a restaurant and a tire shop that operate out of different locations and do not pay each other revenue, each business would be eligible for up to $500,000 in financing.

Items Eligible For Financing

  • buildings and land
  • commercial vehicles
  • hotel or restaurant equipment
  • computer or telecommunications equipment and software
  • production equipment

Items ineligible For Financing

  • goodwill
  • working capital
  • inventories
  • franchise fees
  • research and development

There are additional restrictions on financing real estate. The business purchasing the real estate must occupy at least 50% of the building for its own business operations. The business must agree not to lease or sub-lease this space to another party for at least 3 years following the date the loan was taken out. The CSBFP is meant to help operating businesses. These restrictions are in place to prevent people from using this money to speculate on real estate or become a landlord.

If you’ve made purchases that qualify for the loan prior to being approved for it, you can finance them provided they have been made within 180 days prior to the approval date of the loan. What this means is that you should talk to your banker about one of these loans early in the process. If you try to go it alone and decide towards the end that you’ll need money, some of your earliest purchases will not be eligible for financing under this program if they are more than 180 days old. Existing loans cannot be refinanced as part of a CSBFP loan.

These loans come with either a fixed or floating rate. The interest rate is slightly higher than a normal small business loan due to the 1.25% annual insurance premium that must be paid by the financial institution to the Government. The interest rate will be either prime + 3.0% or the bank’s residential mortgage rate for a particular term + 3.0%. There is a registration fee of 2% of the loan amount that must be paid to the lender at the time the loan is taken out. This fee can be financed as part of the loan amount provided enough room remains to stay within the program’s loan limits.

The maximum amortization for these loans is 10 years, which can make for some pretty big monthly payments on a $500,000 loan on real estate. Under a traditional commercial mortgage, a 20 year amortization might be possible so it’s best to explore your options.

Collateral for these loans will be the assets being financed. If the loans are being borrowed in the name of a corporation, the bank has the option to take an unsecured personal guarantee from the shareholders for up to 25% of the loan amount. These guarantees can be joint and several or individual. If they are joint and several, any individual could be liable for the full 25%. If they are individual, each shareholder would only be responsible for his or her share of the 25%. In my experience, the bank will almost always take joint and several personal guarantees from all shareholders of a corporation that is borrowing under this program. If you are concerned about signing guarantees, you should contact your lawyer for advice.

The CSBFP can be a very good program, especially for new businesses. It gives the lender a degree of comfort so that it will take more risk that it is normally willing to. However, the fundamentals of the business or your business plan will have to be sound. There will have to be evidence that there will be sufficient cash flow to make the payments and the the business has a reasonable chance of being successful. If a lender takes a wild risk and finances a business that doesn’t merit financing, its insurance claim could be denied if the business fails.

For more information, see the Canada Small Business Financing Program (CSBFP) website.

Jul 8, 2011 - 1 minute read - Comments - business news

SavvyMom Is Looking For Canada's Top Mom Entrepreneur

SavvyMom is teaming up with Paypal to sponsor the SavvyMom Mom Entrepreneur of the Year Award. The winner will receive a $15,000 prize.

The nomination process is simple. Mom Entrepreneurs can nominate themselves by visiting momentrepreneuraward.ca. Your entry will be placed into the Mom Entrepreneur gallery where visitors to the site will vote for their favourites. The top 10 finalists as selected by voting will be eligible for the grand prize, which will be decided by a panel of expert judges..

Voting for your favourite Mom Entrepreneur will make you eligible for prizes as well. There will be 17 weekly draws for prize packages from Mabel’s Labels each worth $110.

If you are a Mom Entrepreneur, this is a great contest to enter. The voting process should provide good exposure for your business and winning the grand prize wouldn’t be too bad either!{}