Working Capital Financing – Canadian Challenges and Solutions

Working Capital Financing - Your Canadian business is challenged to find the best working capital solution for your firm. Canadian business owners and financial managers have unique needs – factors that affect their needs are the types of customers they have, their industry characteristics, etc.

Let’s break tradition and insert the summary of our information we’ll share right here! Quite simply it’s that you have a choice of working or seeking advice from an expert or a non-expert in business financing. We’ll take an expert any day!

There clearly in the mind of Canadian business owners exists a gap in financing solutions. Working capital is needed by your firm for both long term and short term needs.

One of the best programs, bar none in Canada is a government sponsored guaranteed loan that goes by the name of CSBF loan, or BIL loan, and most people commonly call it the SBL Loan, which stands of course for small business . There is only one problem with it, as we tell our clients. It’s simply the program covers only equipment and leaseholds and real estate – and that aren’t working capital!

Working capital needs are commonly day to day needs - other terms for it are operating lines of credit and net working capital. The two most common assets in this category are receivables and inventory. So short term working capital needs need to be addressed within those two asset categories.

The best form of working capital financing is of course free financing – what is that you ask? Its supplier financing, because the credit suppliers grant you has no financing charges applied to it, and by delaying payment of your payables you are in effect generating cash flow and working capital. But that must of course be balance off by the need to maintain positive supplier relations in the context of a long term business relationship.

The biggest challenge in the working capital environment is fast or dramatic growth within your firm. Sales are great, fast growing sales are even better, but at the end of the day they require your additional investment in receivables and inventory.

How can your firm finance receivables and inventory. It can be done in a number of ways – those methods include –

- Bank operating lines
- Inventory financing
- Floor plan financing
- Asset based lending
- A permanent cash flow loan that injects working capital but is paid back on a long term basis

Most small and medium sized business we talk to have a major challenge in obtaining the proper overdraft or line of credit facilities from their banks. Quite often they also have a hefty inventory component in their working capital needs and are unable to get proper margining on inventory. In those cases we strongly recommend to clients that they focus on alternative financing – this comes at a higher cost but often times can be the source of financing that takes your company to the next level of sales and profit growth.

In summary, working capital challenges are complicated. You need to determine what your cash flow needs is, how they will be met, and if they aren’t being met by your current financing strategy consider alternative methods of working capital financing. And, as we stated, you can talk to a non-expert in this area, but we don’t recommend that!