What You Need To Know About A Business Line Of Credit
Business credit lines in Canada. We sometimes think it’s a lot like ' sensible shoes '. You suddenly realize how important they are! So when it comes to working capital funding in Canada the business owner quickly realizes the importance and value.
WHAT TYPE OF CREDIT DOES YOUR COMPANY NEED
But is the Business ' LOC’ something that only the Ouija board can discern as to what's the best business credit for your firm? Some firms even use a business credit card as their line of credit/short term financing solution - that's one of the ways to bank your firm, but not the best of course, it just takes some drilling down into what is available and what's best.
WHAT IS THE MAIN USE OF BUSINESS CREDIT LINES
If there is one solid use for business credit lines it’s simply their ability to finance your business as you move along in growth. If you're not self-financing and don't have a huge equity position (coupled with slow-paying clients) the corporate credit line gives you cash flow.
ASSED BASED LENDING SOLUTIONS CAN ALSO FINANCE ACQUISITIONS!
Don't forget also, as we've been known to preach that solid a/r and inventory balances can even be used to partially finance acquisitions - all the better if the firm you're acquiring has those same type of current assets.
2 KEY CHOICES IN A BUSINESS CREDIT LINE - WHICH ONE WORKS BEST FOR YOUR FIRM
In Canada, you have 2 Choices for access to business revolving credit. One is the ' go-to ' - our Canadian chartered banks. Interest costs with banks are of course low, and these days they actually couldn't be much lower. Bank requirements for business credit lines might be viewed as 'strict' by many borrowers.
Quite frankly we have never felt they were necessary strict - it's just that we must assume if the bank is lending unlimited amounts at low rates that they can be easily forgiven for asking for companies with good financials, profits, positive cash flows, external collateral, and good personal credit history/credit score of owners, including of course the proverbial ' PG ' - the dreaded personal guarantee.While the business owner may wish to separate their credit profile from the business the banks do not see it that way - they want to know if you manage your personal finances similar to the way you run or will run your company!
ASSET BASED CREDIT LINES ARE THE NON BANK SOLUTION FOR WORKING CAPITAL
When your firm can't access bank credit for revolving facilities your other choice is in fact a lot more accessible. It's the ' ABL ' - The asset-based business line of credit. Although 98% of the time asset-based credit facilities are more expensive they are easier to access from an approval perspective. Facility sizes run on the small size to the 250k range - and large facilities run to the tens of millions of dollars, usually funded by independent commercial finance companies. There is no reason for your firm to be using business credit cards to fund your business on a day to day basis!
WHAT IS THE COST OF ASSET BASED CREDIT
When it comes to interest rates in asset-based lending is more costly, but your firm has access to more business cash - and of course, you only pay interest on what you are using in the facility. Subject to credit approval both a variable or fixed rate is available in most credit facilities both in traditional banking and alternative finance.
DO BANKS OFFER ASSET BASED CREDIT FACILITIES
An interesting thing about ABL credit is that it's offered by the Canadian banks as a part of their business loan offering. but they don't run many TV commercials on that one. We won’t get into why we think that’s the case, but give us a call anytime and we'll tell you why we think that way!
ALL ASSET CAN BE FINANCED UNDER AN ABL FACILITY
Surely most business owners know they can't really access business credit line facilities if they don’t sell on commercial credit terms. From the occasional call, we get we're never quite sure they do in fact realize that. However, an interesting point is that ABL lending has subsets of inventory and equipment financing, so you in theory could have an ABL line that simply margins inventory and equipment. A good example might be a retail chain.
Our banks are very trusting when it comes to letting you run your business on a credit line. They in some cases only do an annual review of your financials, in certain cases, you might be reporting monthly on some basic business metrics. By the way, you maintain the use of the same business bank account in ABL lending.
ENSURING YOU HAVE PROPER FINANCIALS AND UP TO DATE BUSINESS INFORMATION AND AGINGS
Asset-based lenders offering credit lines are more giving but less trusting with small businesses . By that, we mean that they trust, and they verify! So be prepared to do a bit more reporting and expect the odd personal visit here and there! We meet many business owners who wonder what their bank looks like! But of course, there are a lot of great bankers in Canada who know their clients business. There is no defined credit limit in asset based financing as the facility grows as your assets and sales grow for your products and services.
CONCLUSION
Don't feel that the non-access to funds via a business credit line puts you in 'crash landing' mode. Take advantage of different financing options in order to get approved for the funding you require . Understand your needs, alternatives, and seek out a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Click Here For 7 PARK AVENUE FINANCIAL website !
7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.
Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced
business financing consultant
.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 financing 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.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
7 Park Avenue Financial/Copyright/2020
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