Funding: the crux of the matter for SMEs

Two founders and presidents of growing SMEs, Anie Rouleau (Baleco) and Jeff Letendre (Like a Hotel), share their experience with securing funding: difficulties encountered, business opportunities, and practical tips. A portrait of one of the realities of entrepreneurship.

Access to external funding can sometimes be difficult for SMEs

External financing is an “eternal activity for a company,” according to Anie Rouleau. Jeff Letendre agrees that you must constantly seek it out, although it is never easy to obtain, no matter the SME’s stage of development… an opinion that Anie shares.

In 2012, Anie founded Baleco, a company that manufactures and distributes eco-responsible products. “When I started out,” says Anie, “I didn’t have access to funding. I was 47 years old, so I was no longer considered to be a young entrepreneur. Because of this, I didn’t meet any of the eligibility criteria for grant programs.” At the end of her fourth year, Anie finally got a line of credit from the National Bank, followed shortly thereafter with a loan from the Business Development Bank of Canada (BDC).

Jeff Letendre’s experience was a similar one. The businessman was 33 years old when he launched his start-up Like a Hotel, a holiday rental site that offers all the comfort and security of a hotel, in Montréal and in the Laurentians. At first, he was unable to find any sources of funding. His innovative business model needed to be proven before convincing anyone. Today, Jeff is in discussion with a large financial institution.

From these accounts, it’s easy to understand how challenging it can be for small start-ups to get grants and support from financial institutions. But we can also see that, after a few years in existence, there are more contacts to turn to. To be sure, Jeff concurs, while recalling the one condition required for this openness to occur: company profitability.

Tips and resources to support these companies

What did these two entrepreneurs take away from their search for funding?

Three tips. The first is unanimous: external financing is a company’s Plan B. “The SME must be able to finance itself. That is Plan A,” says Jeff. “I paid for my company by borrowing against my home mortgage and my RRSP,” confirms Anie. Conclusion: external funding should be intended to support a project, not to support the whole company itself.

The second bit of advice is to be well prepared. Anie, who has just recently helped out two start-ups, has created an exhaustive list of documents to prepare for financial backers (it appears following the article). “Entrepreneurs see this list of papers as a mountain they must climb,” says Anie, “when, in fact, it’s an easy file to put together.” According to Jeff, “it’s a good exercise to carry out, as it allows the company to re-establish its objectives and its course of action.”

The last tip comes from Anie: “Don’t be afraid to pick up the phone to ask questions, as people prove to be very available. You should avoid email in this regard.”
“External financing is a company’s Plan B”

A course of action: “Seize every opportunity to make yourself known, while being selective about the activities you choose—notably as far as networking is concerned—, at the risk of losing yourself in the multitude of events taking place every day,” says Anie. The challenge is to maximize the power of the network: “There’s always someone who can put you in contact with another someone who could be of interest for your business.” Baleco’s president speaks from experience: “The BDC directed me to the National Bank, which took the time to come visit my SME and to become familiar with my products.” This meeting resulted in the signing of a contract giving the company an $80,000 line of credit, collateralized by its trade receivables and inventory.

Meeting key people at the right time… this is what Jeff managed to do when he took part in the Funding Meet-and-Greet – SME Growth, organized by Acclr last November. “It was one of the activities that proved to be beneficial to my company,” he says. “The Acclr and Chamber stamp of approval sets up a relationship of trust between funders, investors, and serious entrepreneurs.” It was during this event that the president of Like a Hotel met a renowned financial institution. “We have been in discussion since then, and we speak on a weekly basis,” Jeff concludes.

As for Anie, the event gave her a chance to get back in touch with Emploi-Québec, even though her current financial needs no longer meet the institution’s eligibility criteria. “My company does online sales, and I was hoping to obtain funds to develop my marketing strategy on the Web,” she explains. Emploi-Québec’s employment integration program had previously allowed her to hire two employees.

Institutions to prioritize: “The BDC and the Fonds de solidarité FTQ have people you need to sit down with because, by virtue of their mandate, their collateral requirements are not as stringent as those of the banks. With a conventional bank—except when a government program secures the loan—, if you borrow 100,000 dollars, you must have the same amount in collateral,” explains Jeff.

A need to enhance appreciation of Québec entrepreneurship?

Given the banks’ aversion to lending money to Québec entrepreneurs, Baleco’s founder believes there is a need for some increased appreciation of entrepreneurship. “The Charbonneau commission put forth an image of corrupt entrepreneurs,” she explains. How do we change the situation? How do we shed some light on entrepreneurs’ concern for their employees, their community, their environment? To address these issues, she has joined a think-tank made up of some 40 entrepreneurs, an initiative led by Michael Sabia, President and CEO of the Caisse de dépôt et placement du Québec.

More to read about Baleco

More to see about Like a Hotel

List of documents to prepare for financiers – according to Anie Rouleau:

  • Financial statements, notably including revenue, expenses related to merchandise sold, administrative, marketing, and financial (that is, financial costs associated with loans) expenses
  • Statement of earnings
  • Financial report
  • Financial projection for the first year (2017-2018)
  • Planning that extends to 2019 at the most
  • A page on sales growth assumptions
  • Provisional sales and expense budget
  • Personal assessment (home ownership, RRSP…)
  • A presentation on the company
  • A 3- to 5-page business plan including an organization chart (number of employees, functions…)
  • Link to your LinkedIn page or CV.

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