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Getting Money: What Lenders and Investors Want

For family-owned businesses in Canada, securing additional financing or capital is often a pivotal step toward expansion and sustained success. Whether it’s for scaling up operations, bridging gaps in cash flows, or preparing for future growth, understanding what lenders and investors are looking for can significantly enhance your chances of securing the needed funds. This comprehensive guide delves into the core aspects of financing, from different sources of capital to the critical elements of your business that financial partners scrutinize.

  1. Understanding the Need for Additional Financing

Before approaching potential financiers, it’s crucial for business owners to understand why they might need additional funds. Common reasons include:

  • Sales Growth: Expanding your market reach and increasing production to meet customer demand requires capital.
  • Inventory Requirements: Stocking up on inventory before peak seasons can necessitate substantial upfront costs.
  • Expansion of Facilities and Staff: Growth often requires physical expansion and additional personnel.
  • Revenue and Expense Mismatches: Bridging the gap when there are timing differences between incoming revenues and outgoing expenses.
  1. Sources of Financing: What Are Your Options?

The two primary sources of business financing are debt and equity.

  • Lenders provide funds with specific repayment terms and generally remain detached from business management. They expect periodic financial reports and may require meetings.
  • Investors, on the other hand, inject capital into your business in exchange for equity. They often seek more involvement in business operations and may provide valuable expertise and networks.
  1. The Five Cs of Credit: What Lenders Evaluate

Lenders evaluate potential loans based on the Five Cs of Credit:

  • Character: Your business reputation and your personal integrity.
  • Capacity: Your business’s ability to repay the loan based on financial health.
  • Capital: The amount of money you have invested in your business.
  • Collateral: Assets that can secure the loan.
  • Conditions: The terms of the loan, including interest rates and the purpose of the loan.
  1. The Business Plan: Your Blueprint for Success

A well-crafted business plan is indispensable for securing financing. It should:

  • Demonstrate a thorough understanding of your business.
  • Outline key assumptions and how they impact your business model.
  • Include financial forecasts that show how the business can service new debt.
  1. Financial Ratios: Tools for Measuring Business Health

Financial ratios are critical tools that lenders use to assess the financial health of your business. Key ratios include:

  • Liquidity Ratios such as the Current Ratio and Quick Ratio, which measure your ability to cover short-term obligations.
  • Leverage Ratios like the Debt-to-Equity Ratio and Interest Coverage Ratio, which provide insights into the levels of debt in your business relative to equity and earnings.
  1. Leverage Ratios Across Industries

It’s important to understand how leverage ratios vary by industry, as this can affect what is considered an acceptable ratio by lenders.

  • Capital-Intensive Industries: Typically have higher Debt-to-Equity ratios.
  • Service-oriented businesses: Often operate with lower leverage ratios.
  1. Evaluating Collateral and Loan Conditions

Collateral is crucial as it secures the loan and provides lenders with a form of protection. The terms of the loan, including interest rates, repayment schedules, and covenants, can often be negotiated based on the strength of your business plan and financial ratios.

  1. Understanding Investor Expectations and Conditions

Investors not only provide capital but also become your partners. They might require:

  • Equity stakes.
  • Regular updates and deeper involvement in strategic decisions.
  • Special terms for payouts and additional protective measures like life insurance.


Navigating the complexities of securing financing requires a solid understanding of what lenders and investors look for in potential business partners. By aligning your business plan and financial practices with these expectations, you enhance your ability to secure the necessary capital to drive growth and profitability. Remember, the key to convincing investors and lenders is to demonstrate that your business is not just a viable investment but also capable of returning on that investment with interest.

For family-owned enterprises looking to explore further financing options or needing personalized advice, our team at Shajani CPA is ready to guide you. “Tell us your ambitions, and we will guide you there.”


This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.