Working Capital Financing – Canadian Solutions

Working Capital Financing – small and medium sized firms in Canada do not necessarily have the options that some major corporations have in putting short term and long term working capital in place for their business. Larger companies have somewhat easier access to credit, operating lines, and ability to tap into public or private equity.

But what options does the small and medium sized business have in Canada for generating working capital and cash flow?

Every business owner knows the challenge of not being able to accept large orders or contracts because of a lack of funding. And if they are in fact able to take on that business it of course means they wont get paid right away – they will have to wait 30, 60 or 90 days for their receivables to be collected .

Working capital itself assists your firm to meet its daily requirements and allows you to grow the business. It also allows your firm to extend credit on favorable terms to your customers.

Solution? There are a number of solutions to consider. If all firms were the same size and had the same problems we might have some easier decisions. The fact is though that when we meet with clients to outline working capital solutions each company is in a different industry, they have different business model, and their funding needs vary by size and nature.

Let’s recap some of the solutions available.

In many cases you may wish to consider an angel investor for your business – another way of looking at this is a strategic partner, perhaps a supplier or customer who sees significant benefit in working together with yourself.

Canadian chartered banks offer a number of programs, but you should ensure you feel you can meet bank requirements. Some of those requirements are that you have been established and the owners of the business have a good reputation and reasonably solid credit history. You should be able to produce financial statements and demonstrate that your receivables and inventory are turning. It’s great to produce a forecast or a business plan, which also assists you as a good planning tool.

Fortunately or unfortunately we have observed that many small businesses in Canada are financing by a certain amount of credit card debt. We can only say on this point that if you are able to meet the credit card payments and get a reasonably low rate credit card it is in fact a source of working capital, not the best one, but it works.

Another great working capital solution is to take out a home equity line of credit and loan it to your business. The business pays you back, and the loan interest is deductible – it’s a solid strategy in many cases.

The government of Canada offers a Small Business Loan program that is one of the best programs in Canada for Canadian business. The one technical point on this program is that it covers only equipment and leaseholds and real estate, so you should ensure these programs meets your exact needs. One other government entity on the federal side offers working capital term loans; these are cash term loans and are generally unsecured, with only the promise to pay of your company and yourself as owner. Rates are excellent for what you are getting.

One of the most power forms of working capital financing comes in two flavors – factoring, or an asset based non bank lending facility for receivables and inventory. These two facilities are probably the best working capital solution in Canada, as they give you full liquidity against your current assets, receivables and inventory. And as importantly, they don’t put debt on your balance sheet, just cash. That is a good thing!

Speak to a trusted. credible and experienced business financing advisor to determine your working capital needs and which solution works best for your Canadian firm.

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/working_capital_financing_canadian_solutions.html