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Redesigning Your Business Financing ? These Solutions Just Might Help
OVERVIEW – Information on asset based lending in Canada. Bank alternative financing solutions can make or break your business . Here's why and how !
A bank alternative financing solution traditionally has been thought of as a ' non traditional ' form of Canadian business financing. The truth of the matter is these forms of alternative financing (sometimes dubbed ' fintech ‘) are becoming more mainstream every day. If you're looking for a ' redesign ' of your business finance capital solutions we think we've got some solid solutions. Let's dig in!
The goal of owners and financial mgrs is always to increase their cash flow and working capital to run and grow their business. There's no bigger fan of Canadian banks than us, but there is a general feeling from many businesses looking for SME COMMERCIAL FINANCE solutions that the bank alternative isn't always available when they need it.
Canada's Globe & Mail business newspaper on OCT 11/2016 highlighted insights from many entrepreneurs, many of who maintained that Canadian bank solutions were either unavailable or irrelevant. Another article on the same day accused the Royal Bank Of Scotland of literally forcing small businesses defunct in an effort to improve capital ratios!
Asset based lending in Canada is a previously non traditional ( but becoming more traditional every year!) form of financing that significantly increases cash flow and working capital for Canadian business .
The two main drivers of an asset based line of credit facility in Canada represent the majority of every firm's current assets or working capital assets - they are receivables and inventory.
Asset based Lending for Canadian firms differs from traditional chartered bank type financing in that lines of credit are made available against inventory and receivables on their own merit so to speak . What do we mean by that? Simply that these type of facilities are very non covenant based. Unlike bank operating facilities which have a lower cost of financing asset based lines of credit do not have covenants, rations, and significant external other collateral attached to them .
This type of business financing is very much formula driven, to the point where the Canadian business owner or financial manager always knows his or her working capital availability subject to current and projected sales growth .
This type of financing works best because asset based lenders are experts in quality of receivables and value of inventory. In an asset based lending facility you are not taking on debt, you are simply liquidating receivables and inventory at a fast pace, and as you grow your working capital and cash grow commensurately with your sales and revenue growth!
Security for the facility is imply a charge on the assets being financing- as we have stated those assets include a/r and inventory, but in many cases equipment and real estate can be added on also . A general security agreement, commonly known to financiers as a 'GSA 'is taken as collateral for the facility, in exactly the same manner as a Canadian bank might take. This collateral is in effect the 'underpinning' of the facility.
A simple way to understand this new type of financing in Canada is to simply think of the assets being the collateral, not your overall balance sheet and financial strength and operating metrics.
Because you receive a higher margining or borrowing base in asset based lending there is more reporting required. As a business owner you can view that as a bad thing or a good think - many clients have told us the additional monthly reporting they do for their asset based lines of credit helps them understand their business better
In the case of the receivables component 90% of available a/r is financing, and depending on the overall quality and liquidation value of your inventory margins on the inventory component tend to be anywhere between 40-75% in our experience.
Numerous 'subsets' of asset based finance can deliver on short term and intermediate term finance needs. These should also be understood by the owner/mgr. They include:
Equipment financing
Inventory Loans
SR&ED Tax credit loans
Factoring/ Confidential receivable finance
Sale leasebacks
If you're focused on growing your business, eliminating finance anxiety, and redesigning how you currently fund your business seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with alternative financial solutions that make sense.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
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ABOUT THE AUTHOR
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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