Types Of Business Credit Lines In Canada

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What Is A Business Credit Line ? What Type Is Best For My Company

Business Loans and Lines Of Credit - Revolving Line Of Credit

Business credit lines in Canada can come from different sources, 2 major sources in fact . Both of these sources are different on how they deliver your cash flow needs, their cost, and how they work on a day to day basis as you run and grow your company in good times, and less than good times!

Understanding those issues helps the business owner his/her financial manager to plot a ' key to success' strategy that helps ensure business growth and survival.

How To Get A Business Line Of Credit In Canada

A true business line of credit is offered by our Canadian chartered banks as well as what are known as 'nonbank' commercial lenders. These non bank lenders, often called asset-based lenders ( A B L ) operate outside banking regulations and are privately owned . Both solutions offer revolving facilities, except that the asset-based lines of credit are more focused on the actual assets in your business.

It is important to understand that typically your revolving line of credit is ultimately tied to your sales. As you sell your products and services you generate collectible receivables ( hopefully ), as well as turning inventory if your company sells a product vs. a service. Typical bank facilities focus on account receivable and sometimes have an inventory component tied to the borrowing formula. ( That formula by the way is known as a ' borrowing base ', which is an important concept to understand in business credit lines . Out of this borrowing base is what you will draw down on an ongoing basis your firms cash flow needs.

Asset based lenders focus and lend more against your assets, and in turn they tend to monitor your a/r and inventories more closely - as those two assets are typically the prime collateral for your asset-based loan.



KEY POINT - Asset based lines of credit, the nonbank type of facility, also can easily put your owned fixed assets into the borrowing formula. This total focus on ' assets ' great increases your borrowing power when combined with a/r and inventories.

Bank Line Of Credit Vs. Asset Based Credit Lines

While banks do require some ongoing reporting on your assets, typically monthly, sometimes only annually, they instead focus substantially on your operating characteristics of profit, cash flow, debt load, and character and personal collateral of owners.

Banks do finance inventories but are often challenged by the ability to both understand and monitor inventories - while asset lenders have developed experience in numerous industries and inventory types. Borrowing conditions for inventories depend heavily on the type of inventory and it's overall liquidation ability - as an example perishable foods are often hard to finance.

Business Credit Line Rates & Cost

What's my rate? That's the ongoing battle cry of business owners and financial mgrs when they consider line of credit needs and benchmark the offerings of their bank or asset-based lender. While your borrowing capacity can often double or triple in asset-based revolving facilities they do come at a higher cost.

Conventional bank financing is cheaper, but more challenging when it comes to the amount of approval, or whether your firm is bank financeable at all ! An interesting note is that in recent times, due in part to general competitiveness and the low rate environment asset loans have in fact dropped in overall cost.


Startup, fast-growing, as well as financially challenged companies are prime candidates for asset based lines of credit. They have limited or challenged cash flow generation performance, but require rapid access to cash flow and working capital. The conservative financial position as demanded by banks focuses on ratios, cash flow, debt to equity relationships, and owner guarantees.


It's important to note that many, shall we call them ' subsets’, of asset based loans can help deliver liquidity to your business.

Other Working Capital / Cash Flow Alternatives

Factoring/Confidential A/R financing

Inventory loans

Bridge loans

Sale-leaseback strategies

Purchase Order Financing

SR&ED Cash flow loans

Short Term Working Capital Loans ( Note - while these short term working capital loans are popular and positioned as business revolving credit lines they are in fact just short term loans based on 15-20% of your sales volume and are tied to personal credit history of the owner/owners


If you're focused on ' keys to success ' in your working capital and cash flow needs seek out a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success , who can assist you with your business finance needs.

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