Skip to main content
December 12, 2022

Business Venture Financing for New Canadians

Immigrating to a new country can be daunting on many fronts. One of the main concerns for many immigrants is how to ensure a stable livelihood once landed in Canada. Most will try and seek employment, but many immigrants were either entrepreneurs in their own country or see this as new opportunity to embark on a new business venture.
Unless you are able to fund your new business in its entirety, you will likely need financing to get the business going. Apart from all the Canadian tax and regulatory requirements, without any Canadian credit history, financing of that business venture can be a significant challenge for new immigrants. We spoke to Commercial Capital Advisor Kern Chiu of Ashdown Capital to get some insight and to explore options for new immigrants to obtain business financing in Canada.

kern_chiu

The role of a commercial capital advisor
When it comes to obtaining business financing, a commercial capital advisor creates a deal summary package and will send the deal package to a number of different banks. Once a deal has been assessed by the banks, the commercial capital advisor will get the banks terms sheets and go over all the pros and cons of each deal with the client. Once all parties agree to the chosen term sheet with a bank, an approval will be obtained and a commitment letter is generated. To ensure that the commercial capital advisor always works in the best interest of their client, it is important to note that they get paid by the client and not the bank.

Your residency status
Banks will only consider providing financing to returning Canadians or those with a permanent resident status in Canada. If you do not fall into either of these categories, you will likely need to seek alternatives other than traditional banks. If you are in Canada on a work permit, it may be difficult to obtain financing for your venture. Some banks may not finance a business owned by someone who is in Canada on a work permit.

Collateral for your loan
For a commercial loan, there are no standard documentation to provide to the bank. This can make things more challenging for the borrower as every situation is different. A new immigrant without a credit history in Canada may need to show what financial ties to overseas funding are available (e.g., bank statements and investment statements). Often times, the document the lender will need (i.e., tax notice of assessment) may be in a different format or not available at all in the country of origin.

Lender considerations
Many commercial loans are tailored for the acquisition of operating businesses. Lenders will want to look at the cash flow projections of the business, which you can obtain with the help of a certified business valuator (CBV). If a CBV is to be retained, be sure they are on the approved list of the lender. If the commercial loan involves the purchase of property, an environmental assessment may also be required. Again, check with the lender to see which approved environmental consultant firm is on their approved list.
Lenders may also want to know what the multiples are when it comes to earnings before income taxes, depreciation and amortization (EBITDA). Lenders may be looking at 3 to 4 times EBITDA. The multiples will allow the lender to work backwards to determine the amount a borrower may qualify for.
Lenders may be looking to see if there is a vendor take-back component in the purchase agreement. Knowing that the previous business owner will stay on-board to help with the transition and also provide some form of financing will provide comfort to the lender. The lender will also want to see that due diligence has been performed before the buyer has committed to this business venture. This includes obtaining prior years’ financial statements from the vendor. They will want to know the immigrant’s business background and business experience. It’s best to be prepared or your financing request may be denied.

Coming up
New immigrants coming to Canada may not only need financing for their new venture, but also financing for their place of residence. In our next article, we will look at how new immigrants can obtain financing for a new home and how to navigate the maze of tax rules to avoid being labeled a foreign buyer.

Need Help from Our Experts?
These are trying times and we are here for you. If you have and questions about these Business Venture Financing for New Canadians, please reach out to our experts or contact us.