by Tim Wilson
Innovative financing alternatives to traditional big banks, governments
Canadian business has a reputation for being conservative. That’s not always a bad thing; Canada’s financial system weathered the financial melt-down in 2008 better than the US because we were exposed to less risk than our brothers and sisters to the south. But a conservative approach to financing can be a problem, in that Canadian businesses are over-reliant on two sources: the big banks and government. The truth is there are many innovative private sources of financing that do not involve undue risk. One of these is The Funding Portal.
“We have a transformative approach to helping companies get financing,” says Teri Kirk, CEO, The Funding Portal. “We are stepping out of the offline world to overcome barriers of time and space, using the web to make financing easier, faster, and cheaper.”
The Funding Portal, also known by its web address TheFundingPortal.com, bills itself as a comprehensive service for access to both government
funding and private financing. By aggregating information on more than 7,000 sources, the portal can provide access to partners and services to secure the funding.
“Manufacturing was our first and biggest vertical,” says Kirk. “We think it will always be our biggest, given that, broadly defined, 65 per cent of economic activity in Canada can be considered manufacturing.”
The Portal is easy to use, and has proven to be popular–every month more than 17,000 Canadian organizations use it to find funding. Not bad for a web site that was launched in April 2013. The company is now self-financing from its two revenues sources: access fees, and the sale of data analytics services.
“We try and keep the access fees as low as possible,” says Kirk. “This is web-based, and people expect savings. We want to drive those cost savings into the marketplace. It is a tiered system, with fees at each level.”
Rolling the dice on interest rates
If you find a financing option, the question then becomes: is this a good deal? Even if you are matched up with an opportunity via The Funding Portal, it’s worth at least opening another line of communication with companies that specialize in leasing and financing. Their rates may vary, but they often have unique industry knowledge that can prove valuable.
“The bigger discussion has come down to whether it makes sense to use a regular bank or a third party lending company,” says Michael Oksiutik, associate director, business development at CIT Canada. “Banks may appear to be cheap, but do you want to borrow against a floating rate on a bank lien versus a fixed rate on a lease?”
This is something people really need to think about when considering their options. Canada has a smaller market, and businesses are challenged to assess the degree to which they want to trade off growth opportunities with risk.
“If the bank rate is cheaper, what will that mean five years from now?” says Oksiutik. “It is not inconceivable that we can go from historically low back to average rates. It comes down to personal tolerance, and what the owner’s financial strategy is, which often includes consideration of depreciating assets.”
Oksiutik says that equipment leasing is one area where a company like CIT can really add value and begin to distinguish itself in the marketplace. In total, CIT leases equipment in six areas, including light industrial.
“We are seeing a lot of strong survivors in Canada,” he says. “These are companies that have weathered the storm. From our perspective, we are committed to try to find ways to help people out, and for them to do what is right for their business, including the possibility of specialty financing.”
When financing gets adventurous
One area often overlooked is venture capital, which is seen as the sole province of high-tech or bioscience. However, manufacturing in Canada is increasingly innovative, with companies embracing new materials, such as composites, and radical processes like 3D printing. Nonetheless, both manufacturers and the venture capitalists themselves are only now seeing the opportunity.
“The role of venture capital in manufacturing in Canada is pretty limited,” says Michael Woollatt, CEO of the Canadian Venture Capital Association (CVCA). “VCs tend to look at smaller, innovative companies, whereas private equity tends to look for larger manufacturers to invest in productivity enhancements.”
Both approaches are critical to growth, but Canada could do better in releasing sources of private capital to support the manufacturing sector–something that creative start-ups like The Funding Portal might be able to help with. Venture capitalists, after all, want to make money off their investments like anyone else.
“This distinction between venture capital and private equity exists in Canada, but doesn’t really exist anywhere else,” says Woollatt, suggesting that Canada’s challenge is predominantly cultural. “Venture capital funds innovation, and private equity fund productivity–but both are critical to growth.”
The challenge for Canadian manufacturers, big or small, is to find their way to the money. Clearly, arranging long term equipment financing with companies like CIT can help, but so can a shot in the arm designed to promote innovation, and investment in new opportunities and markets. For that, the innovation is not only on the shop floor–it’s also in how we approach financing. SMT
Tim Wilson is a contributing editor. [email protected]