One key factor underlying the current challenge facing Canadian SMEs is that property and equipment assets have fallen in value. In order to ensure that loans are adequately or well collateralized, traditional lenders, such as banks, are now asking businesses seeking loans for alternative or additional collateral. Some lenders are even asking for cash or other liquid assets as security against new or even the same level of financing — just in case the borrower defaults. One cannot help but wonder if indeed, business owners had accessible cash in reserve, would they be seeking credit in the first place?

According to one commercial account manager at a Schedule A bank, loan-to-value ratios and other underwriting standards haven’t changed: Cash flow must be sufficient to support the loan, and there must be a secondary source of repayment. That collateral was typically a combination of accounts receivable, inventory, real estate, equipment and other business or personal assets. If this were truly the case, why are so many SMEs finding it harder to get credit?

One company with which I am familiar, approached three different banks for financing. All three insisted that all the assets of the applicant company be offered as collateral — including accounts receivable, WIP, equipment, trucks and forklifts — and sign personal guarantees. Plus, the applicant would have had to deposit cash into a bank account, equal to the amount of the loan, which was anticipated to be at least $500,000.

Obviously, the company looked elsewhere in hopes of finding a more reasonable and, from their perspective, more practical alternative.

This company wanted to buy more supplies and equipment to meet and respond to increased and growing customer demand. Accessing additional credit would increase the two-year old company’s cash flow, while enabling revenue growth and corporate viability.

In the end, the company found an alternative in an innovative or non-traditional lender.

Because the company had quality receivables on their books, and an attractive cash conversion cycle, the alternative lender was pleased to welcome the new client, and is now financing and helping the business meet Q4 growth targets. It is interesting to note that it was the company’s traditional banker that sent it to, in this case, my company, which is one of a number of financial services companies that are willing to “think outside the box” to make a deal work to the benefit of both parties.

Any business with quality commercial receivables in amounts, say, of over $200,000, and solid business relationships with clients that pass a standard due diligence test, should not have to collateralize their first born, in order to access a reasonable line of credit, or one-off transactional loan. It’s about making business happen for all concerned.

Mark Gray is the regional director in Western Canada, for Maple Trade Finance Inc. Gray can be contacted via e-mail at