Interview with Derek MacArthur, Manager of Risk & Credit at Futurpreneur Canada: Breaking Down the Application Process

At Futurpreneur Canada, we often get questions on our application process and what our team looks for in applicants and their applications. To answer some of our commonly asked questions, I chatted with our Manager of Risk and Credit at Futurpreneur Canada, Derek MacArthur.

Derek’s role is to work closely with the other members of the credit adjudication team and with the customer relationships team to ensure that applications submitted meet the risk criteria of Futurpreneur Canada. And to ensure that applicants are best positioned for success from a risk standpoint.

Can you briefly describe the process that takes place after an entrepreneurs applies to a Futurpreneur Canada financing program?

Regarding credit adjudication, a complete review of the application is undertaken, which includes the credit covenant of applicants, viability of concept, strength of the business plan and its key components, accuracy and attainability of cash flow projections. The submission also must meet all Futurpreneur Canada core eligibility requirements.

Where BDC funding is requested, the submission must also meet the eligibility requirements of the BDC and a background check is conducted.

What does National Credit Adjudication suggest are some indicators of a strong application submission?

There are too many factors to list them all. The application as a whole and how all the components fit together determines the strength of the application.

In general however, stronger applications usually demonstrate realistic cash flow projections; with conservative sales, showing a gradual ramp up in sales volumes (and seasonality) where applicable. Costs should not be understated, and margins should be reasonable for the industry.  Letters of intent, strategic alliances, and sales and supplier agreements should be sourced to shore up sales and cost models where applicable.  Fixed costs should be contained to reasonable levels; the higher the fixed costs, the more difficulty a business will encounter with cash flow if sales do not materialize as projected. Businesses with high monthly rent for example, may encounter difficulty early on.

Also, the skill set of applicants is relevant to the success of the business, as the learning curve and risk for a new business owner tends to be greater when unfamiliar with the industry. Where the entrepreneurial skill set is not geared precisely to their choice of start-up, the business plan should speak to the outside consultants and support engaged to assist them as needed. The business plan should give careful consideration to the “what if” scenario, and what alternate business strategy,  sales model or product lines can allow the business to succeed if sales are not attained as expected.

How much of the application is weighted on your credit score?

Applications that do not pass our credit criteria do not qualify for our funding, hence it is core criteria and of critical importance. This is not to say however, that an application that passes our credit criteria will be automatically approved. The viability of concept and strength of file submission, and the various other eligibility criteria (in addition to credit eligibility) can also result in a file submission being deemed ineligible to our funding.

What can entrepreneurs do that don’t meet the credit requirements?

In terms of credit profile, several factors impact credit scores such as, but not limited to:

• Late payments or other derogatory information recorded on the credit bureau
• Third party collections
• Judgements
• Bankruptcy or Consumer Proposals
• A lack of credit history (AKA a thin file, which Futurpreneur deems as four reported trade lines or less)
• High credit utilization
• A high number of recent credit inquiries

These can all affect your credit profile. Futurpreneur Canada uses the Equifax consumer credit report, and while our credit scoring model with Equifax is proprietary, the factors above have a key impact on all Equifax credit scoring models. Futurpreneur Canada recommends that applicants take advantage of the Equifax Consumer Interview process to obtain more information on their personal credit profile.  In order to discuss their personal credit profile with Equifax, individuals must first order and receive a copy of their consumer credit bureau which can be requested here.

Applicants may also refer to this resource on the government website on understanding your credit report and credit score.

To make sure your application is built for success, utilize some of the free resources available online from Futurpreneur Canada here.