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Fixing The Perils Of Cash Flow Financing Challenges : Which Of These Solutions suits your firm ?
OVERVIEW – Information on the asset based line of credit working capital solution . How does this financing differ from factoring and what does the business owner/mgr need to know in assessing true cash flow needs
Asset based line of credit financing is fast becoming a well know funding solution for Canadian business owners / financial mgrs. Equally as popular a solution is the alternative financing delivered through various types of factoring solutions - both of these competing directly with traditional bank financing. Misunderstanding abounds around which solution might be best for your company. Let's dig in.
There's no question that SME COMMERCIAL FINANCE
needs are in constant need. Owners that are unable to properly interpret their current financial position don't properly understand the true value and importance of cash flow in the future of their business.
The cash flow that's required to run your company on a daily basis is a factor of your total ' working capital cycle '. As your current assets (receivables and inventory mostly) build up you find they cannot be liquidated as fast as they might be able to. Naturally some of that cash flow is required to service your long term debt also, specifically to service loans and leases your company might have in place on the balance sheet.
When Canadian business has too much money tied up in accounts receivable and inventory it must consider financing alternatives to address that issue. Two of those financing alternatives are asset based lines of credit (we like to also call those 'working capital facilities ', as well as factoring. Many firms that are fast growing and don't have the financial requirements to appease a Canadian chartered bank are looking therefore for alternate solutions.
Clients are always asking us which one is best for their firm. We believe that a true working capital facility is probably better than factoring, but the reality is that many firms cannot qualify for a true working capital facility.
It's key to remember that any type of ' business line of credit ' financing will have a positive effect on your cash flow, namely improving it! , and at the same time reducing the need to borrow funds on a long term basis. Prudent business owners/mgrs will avoid new debt on the balance sheet as well as recognizing the dilution of new owner equity.
The reality is that when you do free up that additional cash flow by using one of these two facilities you, as we noted, reduce your dependence on external funding or equity needs. Your firm now has the flexibility to address day to day issues, and grow. Many firms who are growing quickly won't qualify for bank financing if for the only reason they are growing too quickly!
Clients ask then what the main difference is between these two financing facilities. It's actually quite simply - a factoring facility is simply the sale of your accounts receivable for immediate cash on an ongoing basis. On the other hand an asset based line of credit provides that same level of immediate cash, but your firm hasn't 'sold 'the receivables, you have simply provided them as collateral.
The other main difference is that in many cases a true asset based line of credit will also cover inventory also, in many cases increases your cash flow availability by 50% or more.
In summary, asset based lines of credit and factoring is coming into their own in Canada as true business financing facilities, and are a viable alternative to traditional bank financing - albeit more costly .
Both facilities have different criteria for approval, and overall an asset based line of credit, or working capital facility, is probably the best facility for your firm - if you qualify. Investigate carefully and determine which type of financing might be right for your firm. Looking for the best answer to your cash flow needs? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in solving that conundrum!
Stan Prokop - founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Stan has had a successful career with some of the world’s largest and most successful corporations.
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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