Most owners hear a bank decline as a judgement on the business. In our experience it is almost always a judgement on the file against the bank’s policy of the day. Canadian chartered banks lend inside a box defined by debt service coverage, leverage, industry appetite and operating history. Step outside any one of those lines and the answer is no, however good the underlying company.
What a decline usually means
- Growth outran the balance sheet: receivables and inventory are up, retained earnings have not caught up, and the leverage ratio tripped a covenant.
- A one-time event: a bad contract, a write-off, a flood year, a lawsuit settled. One bad year on the statements and the model says no for the next two.
- Sector appetite: energy services, hospitality, cannabis and forestry all cycle in and out of favour at the banks’ head offices regardless of the individual operator.
- Operating history: a new entity after a reorganization or acquisition rarely has the two full years of statements a bank wants to see.
What to do next
Ask for the reason in writing. A relationship manager will usually tell you which ratio or policy drove the decision, and that tells you whether the problem is fixable in six months or structural. Then separate the question of capital from the question of banking: you can keep your operating accounts, payroll and merchant services at the bank while a private lender provides the facility the bank will not.
Private credit underwrites the collateral and the plan, not the policy manual. Where a bank sees a covenant breach, we see equipment with real liquidation value, receivables from strong customers and an owner with a credible path back to bank financing. Most of our borrowers return to a bank within two to three years, with a better story than the one that was declined.
Have a situation like this? Tell us about the deal and a principal will respond within two business days. Cascade lends to businesses only, in Canadian dollars, and every rate we quote is an annual rate.
