Small business financing: SHOW ME THE MONEY!! (or don’t…our experience)

Now that our business plan was prepped and ready to go, it was time to present it to the banks in order to get the financing we needed to get rolling. Here is the recollection of our experience in dealing with said banks.

Young, Eager, and Optimistic

Since we were still living in the Toronto area at the time, the plan was to set up meetings with as many banks in Guelph as we could in 1 day. This way we would only need to make a 1-day trip out of it and get everything dealt with efficiently. Keep in mind this was pre-COVID times.

While setting up these meetings, I felt on fire! My mindset at the time was that we would present our “killer” business plan to the banks, and it would result in a bidding war for who could get us the most money at the best rate.

Up to that point, we had heard from others and seen ads about how great banks were with supporting small businesses and getting them what they needed. We were excited to get in, give our pitch, get out, and wait for the approvals to come rolling in. Looking back now, perhaps we were a little too optimistic, some may even say, naive.

Context on Our Financing Needs

To provide some context, the unit we were set on was an empty shell. Meaning that no one had occupied the space yet in that building. It had gravel floors and no walls. Our goal was to raise enough funds to cover the leasehold improvements (the construction of the unit) and the equipment we needed to get the clinic operational (tablets, computers, chairs, supplies etc.). From the quote we had gotten for the leaseholds, and our estimate on what we needed for equipment, we were asking for approximately $120,000.

Keep in mind, at this point in our lives, we completed our undergraduate degrees and were almost finished our 4-year chiropractic program. Our work experience to this point included 4 months per year in the summers while incurring government student loans and student lines of credit. All in all, our net worth was already in the negatives (waaaaay negatives).

Our Day of Meetings

So, we booked the meetings with 3 banks and made the short drive to Guelph to present the plan. All in all, our spirits were still intact at the end of the day. Here’s a quick recap as to how these first meetings went:

We left each of the 3 meetings we went to feeling very optimistic. We presented our business plan to each and outlined our short and long-term goals. Each advisor seemed very positive about the likelihood of us getting approved for the financing we needed. Bank #1 suggested we apply through their Small Business Line of Credit (LOC). At Bank #2, the Canadian Small Business Financial Act (CSBFA). Finally, at Bank #3 their Professional LOC.

The Canadian Small Business Financial Act (CSBFA) is where the federal government guarantees 75% of your borrowing in the case of default. Therefore, the business owner is only liable for 25%. Note that the government will only pay out your borrowings if you aren’t able to satisfy the loan and apply for bankruptcy. However, it’s a great program for new businesses if they are able to get approved.

Here’s the link for more information on the CSBFA

Following Up

While each meeting was very different we had a great feeling about all of them. Bank #1 lasted 30 mins, Bank #2 60 mins, and Bank #3 just 5 mins. The next day we sent over any extra supporting documents that were asked of us from each advisor. The replies we got from each of these advisers were very different and that’s when things started to go downhill.

  • The first reply we received was that our information was sent to another advisor who would “be in touch”. (Bank #1)
  • Another thanked us for sending over the remaining documents and noted that they would put in an application. (Bank #2)
  • The third bank did not reply at all. After 5-6 follow-ups over the course of a month, we gave up on pursuing said bank. So long, bank #3.

So, now we were working with 2 banks; waiting to hear from the new advisor (Bank #1), and waiting to hear back in terms of approval/denial (Bank #2).

Financing with Bank #1

We eventually did hear from the new advisor at Bank #1 and set up a meeting. The meeting went well, and they were able to submit an application that day. We were told that the turnaround on their applications was quick (1 week). In their opinion, we weren’t asking for a lot of money so it shouldn’t be an issue getting approved.

It turned out they were right, and we received approval after 2 weeks. The email we received went like this: “Hi guys, please see your attached approval, let me know if you have any questions”. While this was exciting for us, we had a couple of concerns. The first being that we only had 30 days to accept the loan at which point we’d start owing payments immediately. Normally an approval will have a 90-day expiration. Our second concern was the lack of rapport it seemed this advisor was attempting to build with us.

Seeing as this was February 2020, we weren’t in the position to take on an extra $120,000+ debt when the plan didn’t have us opening the clinic until at least September. As well, the lack of rapport building did not sit well with us as this was meant to be a major step in the process. If this was any indication as to the support we’d be receiving from the bank once we had become customers, we didn’t feel our business would be supported.

We made the decision to not take the loan at that time. While it was difficult to turn down the money at the time, we felt it was the right call.

Financing with Bank #2

Bank #2 showed more support as far as rapport was concerned. They seemed positive, and genuinely interested in developing a long-term business relationship. They had also provided positive feedback that approval was highly likely. However once we sent them our supporting documentation they requested, things started to change.

Every time we had a question or needed to set up a quick call, our contact was “just about to start their vacation” and wouldn’t be able to discuss matters until they returned. It eventually got to the point where their next holiday would be for 3 weeks and suggested that if we wanted continued support from the bank they would hand our account over to a colleague. Due to the positive feedback, we agreed to switch contacts in order to expedite the process.

The Outcome

After MONTHS of back and forth with Bank #2; sending documents, adjusting certain aspects of the business plan, clarifying certain points, adding on a strong guarantor, navigating a global pandemic, and eventually cutting what we needed for financing in half, we received a call from our new contact on the Friday afternoon before labour day weekend (7 months after our initial meeting with this bank)…

“Hey guys, so we just heard back from the underwriters, and the bank won’t be able to approve you for financing”.

According to Bank #2, our assets combined with our guarantor assets were not strong enough to satisfy the 25% of the loan that was required. This means the bank felt in case of a bankruptcy situation, we did not have approximately $15,000 in assets?! It was confusing and frustrating for us to understand, seeing as our guarantor’s assets included multiple properties and vehicles. We were also annoyed with the constant positive reassurance over those months. However, there was no way in changing the decision of the bank at this point, and we had to move forward.

Where This Left us For Financing

SO, while all of the back of forth was going on, we took the positive reassurance of being approved as a green light to put an offer in on our lease. This blindsiding news from Bank #2 left us with 1 week to get our financing squared away. After which our offer was void and we could potentially lose the space. Talk about timing!

We acted quickly to reach out to Bank #1 to resubmit an application. Since we had been approved previously, we hoped we would be again. Our contact asked that we send over the lease agreement and there would be no problem submitting the application. The lease was sent almost immediately after reading that email, and we didn’t hear from that contact again. Thanks for nothing Bank #1.

So where did this leave us? Essentially we were back to square one, and with the condition on the lease running up, we were in jeopardy of losing the space and having to start the whole process over again.

The Juicy Goods

While this may seem like a negative story, there was a lot of good that came out of it.

  • First and foremost, you’re probably wondering how we ended up financing our space. We were fortunate enough to get the financing we needed through family. After seeing how much time, effort, and research had gone into our planning, they entrusted us a portion of their personal line of credit at a defined rate of repayment over a period of time.
  • Secondly, we learned a lot about how the lending system works with respect to banks. Yes, we weren’t approved for financing at this point but down the road, if there is a situation that requires some form of borrowing we will be more prepared to go through the process.
  • Most importantly, we gained intangible experience in dealing with mishaps and how to be agile. Coming into this journey we recognized that it wouldn’t be easy and that there would be difficult times. It turns out that there is a difference between having that understanding, and actually working through difficult situations. We now know a little bit more about what we are made of. We have the confidence that we can handle the tough times when they inevitably occur again.

In hindsight, we are extremely thankful for this experience and we know that we are stronger as business and life partners because of it. It made us assess how we wanted our business to deal with other businesses. We realized as a small business, building rapport with other businesses is something we value.

Final Piece of Advice

To leave you with a piece of advice – don’t be afraid to put yourself out there and fail. The amount we now know would not be possible without these experiences. Failure is feedback, and how you choose to act following it is what matters most!