BDC insights for tech companies looking for financing – and why your accountant should be your first stop

Securing financing from a top lender like BDC doesn’t depend on luck or a splashy pitch deck. There’s a surprising amount you and Zeifmans Technology and Startups team can do beforehand to speed up the application process and ensure your tech business gets the loan it needs. 

We chatted with Marc-André, Regional Director of Technology Industry at BDC about their specialized tech business services and what you should know before starting the loan process. 

Financing considerations 

Before approaching any loan provider, it’s important to consider a variety of factors, such as: 

  • the proposed loan-to-value ratio for real estate financing, as a high ratio will mean a higher interest rate, 
  • amortization length, 
  • initial principal postponement and repayment flexibility, 
  • risk of on-demand lender recalling loans in poorly performing market segments, 
  • and application processing times. 

Successfully securing financing 

Once you’re ready to apply, Maheu shares his top tips for a successful loan application process. 

Tip #1 – Know when to approach a financing provider (and who) 

Because some banks may not fund early stage R&D, startups need to have a solid product and be able to prove they’re a market fit. “Their go-to-market strategy needs to be established, and we’ll help them achieve it and accelerate market growth,” Maheu said.  Zeifmans can help you get a step up by crafting a startup business plan and applying for SR&ED credits, which may help fill the funding gap for early-stage R&D.

 Tip #2 – Know what the banks look for 

One of the primary things that banks consider is if the company has adequate cash and will be able to sustain its cash flow should the need arise. The bank will likely want to know if the business has access to investors or capital. Zeifmans can help you demonstrate responsible financial management and monthly expenses, allowing the bank to determine that the loan will either successfully help bridge the shortfall or encourage growth.  

 Tip #3 – Be prepared 

Banks want to mitigate operational risks and will try and identify them by examining a company’s cash flow projections for the next 12 to 24 months. Maheu says entrepreneurs often misunderstand the application process but reveals it’s simply a matter of being prepared. That’s why BDC has created their Financing Toolkit for Tech Businesses. Doing the prep work beforehand and preparing cash flow projections establishes your business as a solid investment opportunity and a lower risk. Zeifmans can help answer common lender questions like expected monthly cash inflow and outflow, revenue and expense forecasts, and total current assets. 

 Tip #4 – Understand your financial metrics  

Maheu says the lender will want some assurance that the entrepreneur is forward-looking and understands the financial evolution of their business. Demonstrating that you understand the financial metrics specific to your business tells the bank that you both speak the same language and are aligned on measurables and results. For a SaaS business, Maheu recommends having monthly recurring revenue, churn rate and new client acquisition costs ready to share.  

 Tip #5 – Respond to lender questions quickly 

Zeifmans can help speed up your loan application by helping you quickly respond to lender questions so the bank can make a decision faster.  

Tip #6 – Don’t oversell it 

Maheu cautions entrepreneurs to be transparent and resist the urge to oversell their business. The relationship with the lender is based on trust which, once lost, is hard to earn back. Having your financial projections prepared by an independent thirdparty – complete with backed-up assumptions and multiple scenarios – can help ensure reliable, accurate estimates and reduce the risk of inflating future returns.  

Tip #7 – Be ready to fulfill your covenants 

The more risk a lender takes on, the more securities and covenants they will enact to mitigate those risks. “We want to know which direction the business is going, that it’s on track, and that it’s reporting back to us,” Maheu said. This is why the most common loan covenant for small businesses is that they have to submit yearly financial statements to BDC.  

Why choose BDC

 As the bank for Canadian entrepreneurs, working with BDC means working with an entire services ecosystem designed just for you. 

 “It’s about being part of a network. You join an organization that has both financing, capital, direct investments and advisory services,” Maheu said, adding that BDC’s mandate is to support small and medium businesses as they grow, allowing the bank to work with companies earlier in their development than a traditional bank who may have a more restricted appetite for risk.  

 BDC supports more than 60,000 entrepreneurs and has a dedicated team of tech industry specialists. Today, BDC is actively supporting 3,500 tech businesses with a total of $3 billion out in loans and capital. They provide a broad range of funding, including  equipment, real estate, hiring and marketing

What to know about BDC’s financing solutions 

BDC has a variety of loans to meet your business’s needs 

Because tech businesses have unique needs, BDC offers several financing options. Tech businesses may want to opt for non-dilutive, flexible, patient capital over equity funding, for example. 

Dilutive funding, or equity financing, means a business owner has to cede a portion of ownership to an investor in exchange for financing and this can result in loss of control over critical business decisions and a portion of future profits. Choosing a non-dilutive loan in your initial growth phase allows you to grow intact and invest more into your business.  

In this case, the bank will propose covenants – basically terms and conditions of a loan.  “A covenant ensures that a company stays on track. It’s not to constrict the business but rather makes sure that it operates within the parameters agreed to when the loan was approved,” Maheu said. 

Collateral-free patient capital  

With patient capital, no collateral is required for security. However, most of the time BDC does require personal guarantees from founders of new companies or those with less experience running a successful venture. 

“It’s important to us to see that the founders are really committed to the business and that they’ll stay on. It’s also to make sure that the bank’s commitment is well-served.” 

BDC offers repayment flexibility 

Repayment flexibility is critical for many tech companies, but bear in mind it will impact the cost of the loan. We encourage you to discuss some of these potential options with your Zeifmans advisor: 

  • Regular recurring payments 
  • Recurring revenue model: This option allows for a step-up repayment structure matched to your revenue forecast. Essentially, you’ll be able to gradually increase payments as your revenue grows. 
  • No principal payments option: Commonly used by software companies with long sales cycles, a loan with 1 to 3 years of no principal payments lets businesses start repayment once key clients have been onboarded and begun paying monthly subscription fees.  

Conclusion 

Before you apply for a loan, be sure to speak with your Zeifmans advisor. There’s so much we can do behind the scenes – like helping ensure you get the right financing solution, properly preparing your loan application for the best chance of approval and quickly responding to questions to speed up the decision timeline.  

Insights

Q&A with Partner, Jennifer Chasson

Q&A with Partner, Jennifer Chasson

With over 25 years of experience and 100+ successful transactions under her belt, Partner, Jennifer Chasson, brings invaluable expertise to the table. Whether it’s guiding as an advisor, mentor underwriter, ...