Working Capital Financing – Canadian Corporate Financing Solutions

As a Canadian business owner or financial manager you are still somewhat bullish on sales and profit growth for 2010 – at the same time that growth requires working capital financing and corporate financing solutions that at times seem very challenging to achieve.

The reality is that small, medium, and even to some extent large corporations in Canada is demanding more access to working capital and cash flow financing – while at the same time the typical institutions who provide this capital are in fact denying access to many facilities that are required.

Business owners do not need to be told or hear about the difficulty and challenges in acquiring working capital facilities. Most firms think of Canadian chartered banks when they contemplate permanent or temporary working capital increases. This might be a bulge request for a temporary increase in their borrowing facilities, or sometimes a more permanent facility in the form of a term loan that might be tied to equipment, cash flow needs, etc. Various statistics are available which validate the difficulty that business owners have in obtaining working capital financing. Most of the needs seem to be short term based. In Canada unsecured working capital loans are available from the governments crown corporation bank, and, alternatively, through private independent financing firms. As the transaction tends to be a bit larger in size these loans tend to be called subordinated debt, or mezzanine type loans.

When a business is significantly smaller and can’t support the requirements of a more traditional cash flow or working capital loan Canadian business owners have actually turned to credit cards and personal equity loans to finance their business. This works, but comes at a higher cost. In general we believe clients we talk to want to separate their business finances from their personal finances.

Are their other solutions available to address working capital needs in Canada? Yes, there are several. One of the solutions you might consider is a working capital facility, also known as an asset based line of credit. This facility, available through specialty firms and advisors, generally significantly increases working capital while at the same time not bring on extra debt to your balance sheet.

Many clients we talk to don’t fully realize that they can unlock working capital that is in effect hidden on their balance sheets – It is a dual strategy of maximizing efficiencies in working capital, while at the same time leverage those current assets (most receivables and inventory, to their maximum borrowing power. These funds can help you avoid taking on more debt and allow you to grow sales and profits at the same time.

In summary, working capital and corporate financing solutions are in demand by Canadian business. Unfortunately supply is not fulfilling demand. Traditional solutions via Canadian chartered banks may not be available to your firm, and in some cases your firm might simply not qualify for the standard metrics around this type of loan / financing. Speak to a trusted, credible and experienced advisor who can suggest alternative solutions that deliver on cash flow and avoid additional debt. That’s a great business planning and financing strategy.