Law Summit on Financing
By Murray Gottheil (Brampton Business Times - November 2009)
From a global perspective, money may be tight, but “there are still options for borrowers,” says Ted Mallet, VP research and chief economist of the Canadian Federation of Independent Business (CFIB). “Small business as a group is the most profitable segment for the banks, and banks have learned from previous recessions.”
Dan Leslie of TD Bank agrees. “In the last three months, we’ve added a significant amount of new businesses. We also recognize the benefits of relationships, and continue to support our clients.”
However, some business experts question the ease of dealing with banks right now.
“Traditional banks are being a lot more selective in approving loans. They make it look as if they’re using the same benchmarks, but since most businesses are experiencing dramatically reduced profits, achieving the same benchmarks is very difficult,” says James Phillipson, financing specialist at Mastermind Solutions Inc.
Phillipson was an attendee at the 2009 Business Law Summit sponsored by Mississauga law firm Pallett Valo. The summit focused on the borrowing needs of small businesses.
Mallet said members tell him financial institutions are indeed doing a good job of supporting their existing client base, but that “switching institutions can be hard.”
Lenders, it seems, are asking more questions, and certain sectors, such as automotive and construction, are currently seen as risky. That can make alternative sources of capital attractive.
One alternative is factoring. Rick Sabourin of RBG Receivables runs a financial boutique offering everything from short-term bridge loans to factoring. “We serve business people, especially entrepreneurs, and tailor solutions. With factoring, we don’t look at your net worth – it’s the credit quality of your debtors. Our question is whether your receivables will be fully collectible,” Sabourin explained.
Another alternative is asset-based lending. For Deborah Cullen of BMO’s asset-based lending group, the financial crisis has created a boom. “We’ve seen 43 per cent growth, year-over-year.” Cullen’s group lends money against assets, which can “help companies going through transition,” she explains. While asset-based lending is expensive to arrange because “due diligence costs money,” clients may be delighted with the deal.
“The panel was excellent,” said Peter Andreana, CFP, a partner at Continuum II, who advises business owners. “A lot of people go to big banks and think if they get a ‘no,’ that’s the end of the road. It was great to see the options.”
Businesses can always turn to Business Development Bank of Canada (BDC), a source of financing, management consulting and venture capital. Ian MacFadden says BDC collaborates with chartered banks to ensure access to capital, especially in times like these.
Business owners contemplating succession plans or buying out a partner often turn to Larry Klar of The Succession Fund. This group buys shares in family businesses, offering a solution to owners facing changing circumstances. “The fund becomes a shareholder,” Klar says.
However doing such a deal means “you get a business partner at the Board level and must enter into a new Shareholders’ Agreement.”
Overall, the panel agreed that was that money is available, but the price depends on the risk involved. “We structure with tiered pricing,” explained Russell Garrard of National Bank. “We price for risk.”
Murray Gottheil, a senior member of Pallett Valo’s Business Law Practice and Family Business Law Group, hosted the 2009 Business Law Summit.