Getting financing can help your business get back on its feet. Our Financial Reporting professionals have worked with a number of organizations to get the funding they need, and we will discuss reporting options with you regarding the three items lenders are looking for.
Published: April 30, 2020
Updated: April 30, 2020
The federal government has announced several loan programs for Canadian businesses. However, there are a number of things you must do with regard to financial reporting to successfully apply for these loans. Financial reporting is also necessary to qualify for any form of credit, whether it's a new or expansion of an existing line of credit. It's a best practice for any organization to work with their accounting advisors keep this up to date.
Recently, BDO hosted a webinar with the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) on the government financing programs and the key information needed to support successful applications for these programs and others.
Here are three types of documentation lenders are often looking for:
Up-to-date financial statements are key. "Now is not the time to say I'm seven months behind in my financial reporting," says Mary Ann Wenzler-Wiebe, Vice-President, GTA West at BDC. "We need up- to-the-minute reporting."
An audit, review engagement, or a compilation (or Notice to Reader) can be provided on financial statements. For the options that are best suited to you, read How to get financing without an audit
Many lenders want to see cash flow projections. You can work with your advisors to create projections based on different scenarios such as one-, two-, or three-month closures or a return to revenues ranging from 50% to 100%. The factors to consider in the projections may include government and income tax incentives, deferral of payments, temporary layoffs, interest on loans, and additional financing.
Missing information can slow down the approval process or could lead to having the loan denied, says Wenzler-Wiebe. "I know it's a lot of work to try and forecast especially when you don't have revenues. But the reality is you need to get to the right number to solve the problem," she explains. "When we are comfortable and we understand that we're going to get to a sufficient number to help get to the other side, it's easier to get to an approval."
Nearly every organization has been affected by the pandemic. As a result, your 2020 business plan is out of date and must be adjusted to reflect the current economic environment.
For example, to support a request for a working capital loan, such as the Business Credit Availability Program (BCAP) from EDC, you must address these key questions:
- What activity level do you expect to operate at for the next six months? (e.g., a complete shutdown, at a reduced level, or all employees are working remotely.)
- What are your monthly carrying costs? (e.g., rent, insurance, wages, utilities, and loan payments and interest.)
- Does the working capital loan cover your cash needs for the next six months and what other sources of income are available? (e.g., government programs/incentives and shareholder injections.)
- What are your agreements with key suppliers on payment terms/support for the next six months? (e.g., customers have cancelled orders and suppliers have offered price abatements)
"Sometimes it doesn't need to be a formal business plan, but a conversation between your trusted advisor and the client," says Wenzler-Wiebe. But now is the time to work with your advisors to prepare and review that plan.
Next steps
What you plan on doing with the funds you apply for will affect whether or not you're approved. For instance, a request to support ongoing operations will be looked upon more favourably than a request to pay down the amount owed to another lender.
When deciding what programs to apply for, it can be overwhelming. "The best advice is to start working with your financial institution. They are going to be aware of these different programs to make sure that you are identifying the ones that make the most sense and are working towards meeting the requirements for those specific programs," says Glen Millard, Regional Vice-President, Ontario at EDC.