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Everything You Should Know About Business Financing Sources & Costs In Canada
OVERVIEW – Information on business financing sources in Canada. Loans and other cash flow monetization strategies can make or break your business success
Typically (in a perfect world - and we know it's not) business owners & financing mgrs want to know that can access cash and loans on an ongoing basis. It's critical to know, and understand the costs and benefits associated with those different types of financing.
Working capital needs are often the main driver in the search for supplemental financing - When you understand what working capital is you are obviously in better position to source it!
You therefore need to know how to measure working capital in terms of your overall business needs. That’s part of the problem and challenge, because when we sit down and work with clients on working capital and cash flow needs we quickly determine that working capital and cash flow mean different things to different business owners .
The problem usually starts with the business owner assessing his working capital needs by looking at the cash available in the company bank account. That amount doesn’t of course reflect the ' near cash ' that is tied up in receivables, inventory, prepaid, etc.
We can go to the text book definition also ( not our favorite way of doing things ) and finding out that working capital is simply current assets minus current liabilities, calculated by a quick look at your balance sheet . We are not a big fan of that calculation, simply because it doesn’t give you a true sense of the turnover of those critical balance sheet accounts such as A/R and inventory. Cash flow is all about asset turnover!
By the way , don't assume bigger is better in your total working capital amount - in fact the more funds you have tied up in A/R and inventories will simply place a larger stress on your cash flow needs . That's where constant asset turnover helps - turning inventories and collecting receivables. You should regularly, at least monthly be calculation your days sales outstanding and inventory turns.
By the way, even effective payables mgmt will increase cash flow - much to the chagrin of your suppliers! Don't over manage and ruin vendor relationships which are key to a successful business. Deterioration in supplier / creditor relations is one of the worst things that can happen to your business.
So now you have a better handle on working capital, what next? Well you clearly recognize that cash on hand and growing inventory and A/R isn’t helping your cash flow at all - you need external financing. You achieve external financing by the profits you generate from your business, plus working capital facilities via a bank or independent finance company. Your needs might be seasonal, or ongoing, depending on what industry you are in.
Other more traditional alternatives are bank operating lines of credit, these come with the best rates, current in the 4-5% range in early 2010 in Canada. The only problem? Great rates but difficult financing to achieve as Canadian chartered banks demand solid financials when they are granting this type of facility. A better way to achieve full liquidity via this method is to consider a factoring or asset based facility.
Rates in Canada range for 9% / annum to 1-2% per month based on your overall financial position and size of facility. But, they offer you 100% working capital for all your business financing needs, so that’s a good trade off. 99% of the time you will have increased your available credit availability by 100% as your receivables are margined at 90% and inventory financing is also a key part of a non bank business credit line.
So back to our sources of financing and the costs associated with those sources. You of course have the option of either generating a working capital term loan, or, if it’s a larger facility, it might be called a Sub debt or mezzanine loan. Essentially they are unsecured cash flow loans with rates in Canada ranging from 10-15% - they are traditionally on a fixed term, fixed rate basis - 5 years is common.
You also have the option of putting more permanent equity into your business via an equity injection of bringing in a new shareholder. We are perfectly clear with clients that this is the most expensive form of financing, because you are giving up future ownership.
Other miscellaneous sources of business financing come with various costs but significant upside to your funding chances. These include:
Sale leasebacks
A/R Factoring / Confidential receivable financing
Bridge loans
SR&ED Tax credit loans
Merchant advances for retailers
Equipment financing for new and used assets
Understand what sources of financing are available to your firm, knowing their costs, and executing on facilities or solutions that make sense for your business is the true working capital and cash flow solution for Canadian business. Speak to a trusted, credible, and experienced business financing advisor to guide you to the right business financing decision.
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 13 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 :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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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