Accessing Capital in Small Communities Part 2 Debt

Accessing Capital in Small Communities Part 2: Debt Capital

Housekeeping Your Participation Open and close your control panel Join audio: • Choose Mic & Speakers to use Vo. IP • Choose Telephone and dial using the information provided Submit questions and comments via the Questions panel Note: Today’s presentation is being recorded and will be provided within approximately 1 week.

Session Recording • Recording of today’s session will be available online shortly • Visit gov. bc. ca/Economic. Development and look under BC Ideas Exchange for our past webinars

Speakers: – Dylan Hrycyshen, Business Advisor with Small Business BC – Susan Stearns, General Manager, Community Futures Fraser Fort George

Learning Outcomes After this webinar, you’ll be able to: • Summarize the types of capital and forms of financial capital • Describe the types of debt capital that businesses use and where they can access it • Know what makes a good application for debt capital and how you can support business in your community access debt capital

What is Capital? • Assets that make it possible to generate economic benefit Human Financial Social Built Natural

Forms of Financial Capital for Economic Development • Equity: money given for shared ownership • Debt: money loaned at a cost, to be repaid • Grants: money provided for specific outcomes, generally not repayable.

Equity Vs Debt Advantages of Equity Advantages of Debt • Money does not need to be repaid* • No interest payments to use up limited cash flow • Equity partners may also contribute knowledge and connections • Don’t need to qualify for a loan (credit history, business banking criteria) • Lender has no claim on future profits or control of the company • Interest on debt can be claimed on income taxes • No need to comply with securities regulations • Variety of types of debt to meet your specific needs

Equity Vs Debt Disadvantages of Equity Disadvantages of Debt • Sharing ownership, decisionmaking, future gains of your company • Slow, complex process to access financing • Ending the relationship = “it’s complicated” • Money rarely comes in small amounts • Interest costs must be paid regardless of business results • Tough to qualify for loans based on credit history • Lenders may require more collateral that you have • Non-repayment results in asset seizure and credit problems in the future

A Closer Look at DEBT CAPITAL

Dynamics of Debt Capital • Secured vs. unsecured • Timeline: revolving, short term, long term • Repayment terms • Cost of borrowing

Sources of Debt • • • Family & friends Banks & credit unions Government-backed lenders Financing companies (leasing, mortgage) Be wary of Predatory lenders

Lenders Considerations • Risk/return tolerance • Portfolio diversification • Not always about the business • Early repayment- who benefits?

Term Loans • Sum of capital to be used for purchases • Principle + (Prime) Interest • Fixed Assets – Equipment, Inventory, Vehicles, Property • Long or short term repayment – From 1 to 25 years • Secured by the asset purchase

Credit Lines • • • Revolving debt Interest only on money spent Short(er) term repayment Bulk (balloon) repayment Best for revolving cashflow purposes

Start-up Loans • • • New vs Existing business Startup = Initial launch or less than 1 year Based on business plan and cashflow Character and experience based Combination of term loan and Lo. C

Microlending • • • Easier access to startup funding Reduce Red Tape Without previous or poor credit history Simplified application process Technology or peer to peer lending

Equipment Loans / Leases • • Suppliers can provide in-house financing Work directly to build relationship Tools, Equipment and Inventory Prevents purchasing obsolete equipment

Expansion loans • Available to businesses looking to expand • Offered by: – Banks and financial institutions – Credit Unions – Business Development Bank – Community Futures

Succession loans • For entrepreneurs looking to take over an existing business • In the next decade, there will be more businesses for sale than entrepreneurs to purchase them • Learn more at Venture. Connect. ca

Lending Sources for Businesses in Small Communities

Big 5 Banks & Credit Unions • Majority of rural communities have one of the 5 major banks or a credit union in their community • These financial institutions offer several loan options for businesses • Relationships are key

Canada Small Business Financing Program • Applications are made through your financial institution • Check the website before you visit your local bank

Government-Backed Lenders • The Canada Small Business Financing Program • Business Development Bank of Canada • Women’s Enterprise Centre • Futurpreneur • And Community Futures

Spotlight on: Community Futures • Decisions are made locally • Partnerships with likeminded financial institutions and organizations • High-risk lenders • Focus on loans that will support the local economy

Tips on Accessing Debt Capital

Being a Good Candidate for a Loan • • • Capable Product or service Exemplify experience and enthusiasm Momentum (not just equity) Reliable business and financial plan Collateral and Credit (if possible) Network and professional advisors

How Small Business BC Can Help • • • Provide one-one Coaching Rich content library to learn for Free 40+ topics in Education Centre Interactive webinar Talk To an Expert

How Can You Help Businesses? • Provide/arrange business planning supports • Build/maintain networks with financial institutions • Referrals to legal/accounting support • Make connections to government-based lending programs • Work regionally!

Resources & Support Organizations • • Credit Counselling Society Business Development Bank of Canada Women’s Enterprise Centre Futurpreneur Innovation Canada’s program and service tool Canada Small Business Financing Program Coast Funds

Resources & Support Organizations Regional Economic Trusts: • Northern Development Initiative Trust • Island Coastal Economic Trust • Southern Interior Development Initiative Trust Crown Corporations: • Nechako-Kitamaat Development Fund Society • Columbia Basin Trust

Qand. A

After This Webinar • Please complete the Feedback Survey after this webinar where you can request the complete survey results • Recording Posted In Approx. 1 Week to gov. bc. ca/economicdevelopment (look under BC Ideas Exchange) • Don’t forget to register for our next webinar!

Thank you for joining us! Need more info? Email: Economic. Development@gov. bc. ca