Mathieu Gauthier
Senior Director | Financial advisory

Have plans to grow your business? Ready to invest? Here’s how to maximize your chances of obtaining financing.

After reviewing your business strategy, you’ve put together a plan that will enable you to achieve your growth objectives. For some it’s acquiring another company, while for others it could be constructing a new building, making Industry 4.0 upgrades or turbocharging their operational capacities. No matter what you’ve got planned, you’ll need a loan from a financial partner.

While applying for financing might seem simple, there are a few things you need to do first to make sure your application is properly supported and approved.

How to present your project to your financial partner

Discuss your project with your lender

The first thing you need to do is schedule a call with your financial representative. This simple step can help you gain helpful information on how to effectively prepare the rest of the process. The purpose of the conversation is to discuss the general outline of your growth plan and ask your lender what information they’ll want to see when analyzing your loan application.

Know what information to include in your request

Your lender should give you a list of information you need to provide. The level of detail will depend on your relationship with the lending institution. If you’re a long-term client and interact with your lender several times a year, they will mostly ask about the specifics of your plan. However, if you rarely contact them or you’re a new client, they’ll probably ask for information about your business and its history.

Set up a timeline

Your call with your lender is also a good opportunity to establish a timeline. Once you’ve submitted all the required information, find out how long it will take to complete the remaining steps, which include the financing proposal, final approval and disbursement of the funds.

If you have a well-structured plan and effectively respond to your financial partners’ queries, you’ll gain their trust and cut down processing times.

Small, medium or big project: assessing all costs

Consider all costs

The scope of your project is likely to influence the type of financial arrangement you obtain, and sometimes even the number of lenders involved. Therefore, it’s important to detail all the costs associated with your initiative, including indirect expenses. For example, if you plan to purchase new equipment, think beyond the purchase price. There’s also the cost of transporting and installing the new equipment, disposing of the old equipment and training staff on how to use it.

Plan for contingencies

To prepare for unforeseen events and ensure you don’t run out of funds part-way through the project, you should include a contingency budget. Generally, setting aside 10% of your project costs should give you enough leeway in the event you have to change course.

Getting to grips with numbers

Most of the information requested by your lenders will be financial in nature. That’s why it’s important to have a good grasp of your business numbers. There are two critical aspects that lenders tend to focus on.

1. Your repayment capacity

Repayment capacity refers to your ability to meet your financial obligations via the funds generated through your company’s activities. One of the most frequently used terms in banking jargon is EBITDA, which stands for earnings before interest, taxes, depreciation and amortization. EBITDA is used to determine whether your business has the available funds to service its debt. To take out a new loan, your business must generate sufficient earnings to cover all your principal and interest payments.

Estimate future profitability

In some cases, a company’s historical performance may not justify a new loan but its future profitability is expected to increase thanks to the new project. While entrepreneurs often evaluate projected growth based on increased revenue, lenders tend to focus on increased profitability (i.e., earnings). An additional $1 million in sales that doesn’t translate into EBITDA growth won’t increase your chances of being approved for financing.

Some specialized financial partners will base their funding decision solely on your ability to generate earnings, and won’t even take into account any guarantees offered by the company. Understanding how your upcoming project will impact the company’s profitability is crucial.

2. Your working capital needs

The second thing to consider is your company’s working capital. Lenders sometimes require a down payment as a financing condition and companies often draw directly from their cash reserves to make that down payment. To determine the maximum amount you can put toward the down payment, you first need to calculate the minimum working capital needed to run your company’s operations. Using historical cash flow data, you’ll be able to establish a minimum liquidity threshold to sustain your operations. Additional sums—referred to as surplus cash—can be used for the down payment.

Prepare your financial projections

Developing financial projections is important to help you properly assess the direct and indirect benefits of your project, and for determining your working capital needs. Financial projections can initially help your team decide which projects are worth pursuing, and later they can be included with the information package provided to your financial partners.

Evaluating your guarantees

Even if your business performed well historically, it could still face a bad year or be hit with unforeseen circumstances affecting its profitability. Therefore, to minimize their losses, lenders may require tangible guarantees from your business. The type of guarantee you’re able to provide will have a direct impact on your loan interest rate.

Get an accredited appraisal

Available guarantees are an important asset for businesses when applying for a loan. The company’s tangible assets can provide leverage in your financial arrangement. To maximize the available leverage on an asset, you may need to get an accredited appraiser to determine the asset’s market value. In most cases, the market value of an asset is higher than its book value (the figure presented in the company’s financial statements).

Important: When communicating with your lender, ask them to provide you with a list of accredited appraisers that they recognize. Some lenders only accept reports prepared by accredited appraisers.

If a business doesn’t have much collateral to offer, the lender may request a personal guarantee from the shareholder. However, personal guarantees can be a source of worry for entrepreneurs who are concerned with protecting their personal finances. The lender’s main goal in this type of arrangement is to make sure the entrepreneur will do everything they can to sort out any financial problems that affect the business. A personal guarantee provides the lender with extra reassurance that every effort will be made to keep the company afloat and able to service its debt.

By following these steps, you’ll be able to present a well-supported financing application to your financial partners and maximize your chances of success.

Having the backing of an experienced team can go a long way to reassuring your partners. Working with experts can also help you avoid costly errors down the road. Our team of financial advisors has the expertise to assist you with every step involved in your financing application, from initial planning to receiving your funds.

04 May 2021  |  Written by :

Mathieu Gauthier is a management consulting expert at Raymond Chabot Grant Thornton.

See the profile

Next article

“Be confident.” That’s the message of hope that Lucien Bouchard recently shared with business people attending an online meeting hosted by our firm.

Acknowledging that these are very difficult and uncertain times, the former Quebec Premier said he believes that entrepreneurs and the general public have every reason to be optimistic.

“The potential is there for a truly extraordinary economic reopening. If we create the right conditions, we’ll enjoy a full recovery,” said Mr. Bouchard during an exclusive conversation with Emilio B. Imbriglio, President and CEO of our Firm.

Without going so far as making predictions, Mr. Bouchard remains convinced that “a surge of enthusiasm” will occur once people are able to start socializing, going to work in-person, travelling, enjoying cultural activities and dining in restaurants. “This individual enthusiasm will be matched with an economic boom,” said Mr. Bouchard, who is a partner at Davies Ward Phillips & Vineberg, a law firm.

He offered a clear message to entrepreneurs and young people: be confident, be prepared and be ready to adapt. Emilio B. Imbriglio agreed that these qualities are key for overcoming the challenges that inevitably occur at some point in a business’ lifecycle.

Quebec and Canada are wealthy and full of promise, stressed Mr. Bouchard. “Things are looking very good for the future of our younger generations,” he said.

Even though both the provincial and federal economies are in a good position to bounce back, he acknowledges that the public finance situation is currently raising a lot of questions. The situation has changed due to the pandemic and achieving a balanced budget is no longer the top priority.

“As it stands, governments can’t predict when we’ll be able to return to balanced budgets. This means public finances will need to be managed differently. It is sure to be a delicate matter,” explained Mr. Bouchard.

“However, we should be confident knowing that, since 2008, the international financial community has learned to work together.”

At the same time, he’s urging governments not to jeopardize the economic recovery by increasing the tax burden on businesses and individuals.

A lesson in leadership

According to Mr. Bouchard, the COVID-19 pandemic has given us the opportunity to learn a lot about ourselves. It has also reminded us how important interpersonal relationships are. That’s why nurturing connections with family, friends and colleagues is essential. “Having good team chemistry is fundamental.”

The pandemic has also highlighted the importance of strong leadership. Mr. Bouchard praised Premier François Legault for confidently handling the crisis, which he describes as very different from the ice storm that occurred in January 1998, when he headed the Quebec government.

In his view, François Legault is “the man of the hour,” who was ready and able to lead through the current crisis thanks to his experience in the private sector and in politics. The former Premier believes that having a solid background, a strong work ethic and a practical approach are what made Mr. Legault an exemplary leader.

“The most important qualities for a business leader to have are to be very well prepared, to have outstanding communication and listening skills, and to be able to keep a cool head,” said Emilio B. Imbriglio, adding that using a strategic approach to overcoming difficulties is also important.

The convergence of several critical issues

The pandemic accelerated a number of trends that were already emerging within the business world, such as the transition to e-commerce.

“We’re going to see an increased reliance on digital technologies; it’s inevitable. But does that mean traditional sales will disappear completely? Not necessarily. We mustn’t overlook the importance of human interactions,” said Mr. Bouchard, who believes that consumers will always want to be advised in person and to view certain items with their own eyes before making a purchase.

During the webinar, Mr. Bouchard also discussed several other important issues, including Canada-U.S. relations. “We need to restore a friendly relationship [with the United States], and let that translate into economic benefits,” he said, recalling the good working relations that existed between Prime Minister Brian Mulroney and the Republican presidents in the 1980s.

Mr. Bouchard also confirmed that the environment is another critical issue. “We’ll need to make sizeable investments if we want to address environmental concerns.” However, there’s no easy way to meaningfully tackle climate change while pursuing economic growth at the same time. “We need to rely more heavily on science, because that’s the only way to develop truly renewable and economic energy.”

Diversity is another key issue. “We need immigrants. We need to accept interculturalism and manage it effectively,” he said.

With regard to women in decision-making positions, he sees progress being made and a real desire to give more opportunities to female leaders. That said, he’s not convinced that implementing coercive measures (such as quotas) is the most effective way to increase female representation. He believes that “the main driver behind gender balance will be the achievement of a critical mass of qualified women, a phenomenon that is undeniably occurring and extremely positive.”

Next article

Guillaume Landry
Partner | CPA, CA, CIRP, LIT | Recovery and reorganization

Are your company’s finances deteriorating? Consider restructuring to get your business back on track to profitability.

Don’t wait for the situation to get worse. Be proactive and act before it’s too late.

To respond in an appropriate and timely manner, you need to pay attention to the warning signs and take them seriously. Issues to watch out for include rapid growth, decreased profitability or repeated losses, loss of an important client, major quality flaws or underperforming financial systems, to name just a few.

These events in the life of a business, if not adequately addressed, can lead to cash flow shortages with many serious consequences:

  • Difficulty paying invoices and salaries;
  • Failure to comply with financing conditions;
  • Deteriorating financial ratios;
  • Financial reporting that is inaccurate and not up to date;
  • Significant rise in employee turnover.

It’s important to watch out for the warning signs and act as quickly as possible to avoid a liquidity crisis. The longer you wait, the fewer tools will be available to help your business.

Diagnose the issue

The first thing you need to do is perform a realistic assessment of the situation.

1- Analyze the situation

Analyze the operational situation for each business unit as well as the financial structure. Doing this will help you identify the source of the issues. You should review every single department and each employee, looking at all the relevant expenses, tasks and operational processes. It’s also important to verify that all your equipment is working properly and efficiently.

2- Consult with your employees

Don’t forget to ask your employees for their input. They can point out deficiencies and suggest solutions.

3- Prepare a cash flow projection

The next step is to create your short-term (3 month) cash flow projection and identify your borrowing capacity. Maintaining positive cash flow is key to your restructuring plan because it will give you the time you need to straighten out your company’s finances. This short-term cash flow projection is critical. It will indicate how much time you have left to act before your business runs out of funds.

4- Evaluate long-term viability

Finally, evaluate the long-term viability of your business by establishing monthly (for the first year) and annual financial projections. Simulating a range of scenarios will help you determine how much financial leeway you have and what you need to do in order to maintain a sufficient profit margin.

Ask for help

Restructuring is a complex and demanding process. You’ll have your hands full managing emergencies and day-to-day activities.

Get an expert to guide you

Working together with a restructuring specialist is highly recommended. They’ll be able to objectively analyze your situation and guide you through all the steps that are new to you.

Form a crisis management team

At the same time, set up a crisis management team and simplify the governance structure to make it more agile.

Get the support of your bank

Another key point is to get in touch with your bank as soon as possible. Explain the situation and tell them how you plan to get your business back on track. Ensure that you have their support.

Don’t forget your partners

Pay particular attention to your relationships and communications with suppliers, clients and employees. They are key stakeholders in the success of your restructuring plan.

The keys to successful restructuring include swift action, not being complacent and addressing real problems, and maintaining seamless communications with all stakeholders.

Restructuring measures

Next, you’ll need to prepare and implement various restructuring measures, which can be either operational or financial in nature.

Operational measures:

  • Review your business plan;
  • Closely examine each department to identify areas where you can reduce expenses. Make sure to carefully analyze the impact of each reduction. For example, what would happen to sales if you cut your advertising budget?
  • Shut down unprofitable divisions following a detailed profitability analysis;
  • Analyze the profitability of contracts in order to modify or terminate those that aren’t profitable. For example, you might decide to reduce the number of products sold to a client and only maintain those that are profitable;
  • Discontinue products or services that are not profitable or that contribute very little to your business objectives;
  • Review your operational processes;
  • Renegotiate property leases;
  • Renegotiate working conditions or collective agreements with employees.

For these measures to be effective, you’ll need to establish an action plan outlining specific objectives and follow up periodically to update your plan as needed.

Note that laying off employees and terminating business contracts or commercial leases can be very costly and can compromise your company’s restructuring plans.

Financial measures:

  • Review your working capital management strategy so you can quickly free up cash and have the time to restructure the business. Try to negotiate longer payment terms with your suppliers and shorten payment terms offered to your clients (for example, by offering rebates);
  • Restructure your debt by renegotiating terms and interest rates on loans;
  • Sell or liquidate surplus inventory.

Two restructuring approaches

If you want to ensure the survival and future feasibility of your business, you’ll need to reach an agreement with your creditors. There are two possible approaches:

  • The informal approach, outside the legal framework;
  • The formal approach, as laid out in the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA).

The informal approach

  • The procedure is confidential. That means you can negotiate an agreement with one creditor without the other creditors finding out the conditions you agreed on;
  • Applies to simple situations;
  • Applies to renegotiations with a single creditor or a small group of creditors with similar interests (for example, renegotiating contracts);
  • The company should have a detailed and comprehensive business and restructuring plan (timeline, restructuring costs, etc.).

The formal approach

  • For situations where the company is insolvent but has the potential to become profitable again thanks to a restructuring plan. Being insolvent means no longer being able to pay your debts on time or having more liabilities than assets;
  • Public procedures governed by the provisions of the CCAA (for companies that owe more than $5 million to creditors) or the BIA;
  • Protects your assets from being seized by creditors;
  • The legal proceedings must be initiated by a Licensed Insolvency Trustee (LIT).

Once the LIT submits the required legal documentation, your liabilities are automatically frozen and you are protected from legal action by creditors. This will give you the time to prepare a restructuring plan with the help of the LIT.

You will also put together a proposal or arrangement with your creditors. On average, accepted proposals represent 8% to 10% of the total amounts due.

The proposal is then submitted to a vote by creditors. To be approved, the creditors must accept the proposal by a majority in number (50% +1) representing at least two thirds of the value of the voting claims. The proposal is binding on all creditors. In the vast majority of cases, proposals are accepted.

If the proposal is accepted, directors may be discharged of their liability for unpaid government debt (sales taxes, etc.).

Do you have questions or need advice on how to turn around your company’s finances? Contact our experts today!

This article was written in collaboration with Ayman Chaaban.

27 Apr 2021  |  Written by :

Mr. Landry is a partner at Raymond Chabot Grant Thornton. He is your expert in recovery and...

See the profile

Next article

Investors, clients and governments are increasingly demanding: businesses must place sustainability at the heart of their business model.

A recent study sheds some light on businesses’ concerns with regard to the environment and sustainable development. What are the benefits and what concrete actions can businesses take to adopt a more environmentally responsible approach?

Over the course of the past decade, the importance of sustainability has increased significantly all over the world – not only in terms of how individuals live their lives, but also how governments frame policy as well as how businesses develop operating models and plan for the future.

The ongoing pandemic, meanwhile, has produced a paradoxical challenge for mid-market businesses. And despite COVID-19, the need for action on sustainability has never been more urgent.

Emilio B. Imbriglio, President and CEO of Raymond Chabot Grant Thornton said: “A consensus is emerging on the importance of acting to preserve our environment. Integrating sustainability into an organization’s business strategy has become a must for the continuity of organizations and to maintain our economy’s vitality. It is a responsibility of business leaders to influence all stakeholders. It is also an opportunity for local businesses to develop new markets.”

Linda Mannerby, Head of Sustainability at Grant Thornton Sweden, explains, “Companies that understand global challenges and risks, adapt their business models, and manage their business impact – both positive and negative – have a greater opportunity to survive long-term.”

Sustainability in the mid-market

It is clear that sustainability has become a strategic focus for blue-chip businesses. In line with the UN’s Sustainable Development Goals, the likes of Shell, Unilever, Microsoft, Apple and American Airlines – to name just a handful – have all recently announced plans to reduce their net carbon dioxide emissions to zero within the next few decades. Grant Thornton’s IBR research has focused on the extent to which mid-market companies are embracing sustainability.

The findings show that a significant proportion of mid-market businesses are attuned to its importance: just under half (48%) believe sustainability will have a net positive financial impact on their business, while a similar number (47%) expect a sustainable approach to lead to improved operational efficiency and lower costs. Meanwhile, 43% say financial success and sustainability are of equal importance.

The mid-market is clearly attuned to the growing importance of sustainable businesses, but the data also suggests that many mid-market firms are unsure of how to put any commitment to sustainability into practice. 48% agree that most companies of their size don’t know where to start when it comes to sustainability measurement.

Another notable finding is that businesses in emerging markets are prioritising sustainability issues to a greater extent than their counterparts in developed economies, and also expect a greater positive financial impact from integrating sustainability.

Why embrace sustainability?

One of the key motivating factors for mid-market businesses to make sustainability a guiding strategic principle is the growth opportunities this kind of approach can create.

One of the number one motivations for integrating sustainability into strategy is to obtain investment, as year on year there more capital in the world is allocated in accordance with sustainability parameters. Many investors and banks also use sustainability as a proxy for a company’s approach to risk management.

And this may be one factor underpinning the fact that businesses in emerging economies are more likely to prioritise sustainability.

The Quebec government is reportedly being drafted a bill with the objective of introducing ecological criteria in future calls for tenders, according to the Chair of the Conseil du trésor, Sonia LeBel. These criteria have yet to be defined, but this is another indicator that the environment is an issue that companies must take into account now in their growth strategy. This becoming an essential consideration for an organization in order to remain competitive.

The government’s initiative echoes the 2030 Plan for A Green Economy presented in March 2021, which confirms a consensus on the importance of taking action to preserve our environment and, by extension, maintain a viable economy.

Integrating sustainability into core business strategy also drives innovation and ultimate business growth, explains Katerina Katsouli, ESG & Sustainability Director at Grant Thornton Greece. “Increased innovation results in a boost to sales, contributing strongly to business growth. Sustainable and socially responsible companies can establish a clear point of brand differentiation, helping shield them from lower-cost competitors.

“These businesses also stand to gain great value when it comes to reputation. They are better able to build trust with stakeholders, gain willing recommendations from clients, and protect themselves from scandals, regulatory challenges and other reputation-busters.”

The impact of taking a sustainable approach

As the trend towards sustainability gathers pace, says Emma Verheijke, Partner Sustainability & Impact Advisory at Grant Thornton Netherlands, mid-market businesses simply cannot afford to be left behind.

“What we see in the Netherlands and across Europe, is that there are more and more drivers accelerating this transition, from finance and employees to customer sentiment and even public-tender rules. So if you are not going to make this transition and embrace sustainability, is your business going to be future-proof? Are you going to be around in five years?”

Emma Verheijke adds: “I’m not sure this concept has really landed yet – and I think a lot of companies will start to feel the pain of not making this transition quite soon. Sustainability is no longer a nice project on the side: it is part of your core strategy. It affects your risks, your opportunities, your long-term planning, how you deal with your people, your resources and your suppliers, as well as consumer demand. Companies that see that and anticipate these issues will be the ones that have the most value in the future.”

Indeed, the IBR found that almost two-thirds (61%) of mid-market businesses think that global sustainability trends will demand fundamental changes to operating models in their industry.

Valentina Yakhnina, Sustainability Manager at Grant Thornton Israel, adds: “A side effect of becoming more sustainable in terms of your resource management is that you can increase efficiency and reduce costs – for example, if you make the effort to reduce the amount of materials you use, or find new ways to reduce waste.”

The obstacles to becoming more sustainable

For many businesses in the mid-market, the financial outlay required to implement a sustainability programme is a major hurdle to overcome – and one which has become even more of a problem as a result of the financial pressures around COVID-19.

Julia Höglund, Sustainability Advisor at Grant Thornton Sweden, says: “The biggest challenge is short-termism. Even if we don’t want to be, we are still in a system where we are pushed to deliver on quarterly financial targets, and this is still driving the change within companies. The question we usually get from clients is, ‘What is the return on this investment?’ This is sometimes difficult to answer in financial terms because it is dependent on so many global and consumer factors. What we can measure however is the return on investment across ESG (environmental, social and governance) activities, which may have an impact on overall financial performance.”

Identifying value

Sue Almond, Global Head of Assurance at Grant Thornton, says that the IBR’s findings, which found many firms draw a strong link between sustainability and financial performance, were particularly encouraging. She explains: “Financial performance of the business underpins its own sustainability. So if there is a clear line of sight from sustainability actions to overall financial performance of the business, then you have that business imperative: this is how you win hearts and minds.”

Markus Hakansson, Head of Sustainability Business Advisory at Grant Thornton Sweden, adds: “Your ability to create value as a company is not dependent only on financial factors. Non-financial factors – social and environmental – are connected to 80% of the company’s ability to create value and in the end, value is money. But this value – which can be the knowledge of the employees, or structural capital – can be held in the company for many years before it becomes cash. Understanding this concept of sustainability can be a problem for the board and owners.”

First steps in sustainability

Julia Höglund says that the key to working out what a business’s sustainability goals is opening up a dialogue with stakeholders. “This is all about finding out what stakeholders really demand,” she explains. “These stakeholders range from investors and lenders to customers, employees and the wider public.”

According to the IBR, 49% of mid-market businesses expect to face more pressure from existing and future talent to become more sustainable in the year ahead, while 55% expect to face more pressure from their customers.

According to Linda Mannerby, businesses need to assess their current position in terms of the environment and society. “You need to understand where the positive and negative impacts are,” she explains. “One of the simplest ways of doing this is by mapping your value chain: this kind of impact analysis can help you reach out to board members, raising awareness and identifying risks.”

Businesses need to be clear from the outset as to what they are trying to achieve through becoming more sustainable, Emma Verheijke says. “Is it compliance? Communication? Financing? Attracting and retaining talent – or all of the above? Because that is going to dictate the direction you are going to take.”

Once goals and material impact areas have been established, businesses can decide which reporting and assessment frameworks fit best, she adds, rather than starting with a particular framework or methodology and working backwards.

Placing sustainability at the centre of strategy

Ultimately, Markus Hakansson says, sustainability concerns should be placed at the centre of all decision-making within the company. “It is not just about putting sustainability into the business model: it also needs to feed into the strategy, tactics and operations,” he explains.

“In the perfect situation, every decision on the tactical, operative and strategic level should be made on the triple-bottom-line basis, taking into account its environmental, social and financial impact.”