Working Capital Financing : Study Finds .... Your Business Needs It!

YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING!

WORKING CAPITAL FINANCING BUSINESS LOAN SOLUTIONS IN CANADA

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Financing & Cash flow are the biggest issues facing business today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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The Secret Sauce of Successful Businesses: Understanding Working Capital Financing

Working capital financing alternatives are necessary to finance your growth... or if you're not growth-obsessed, just your survival. As our 'study' says - your business needs it. Let's dig in on all you need to know about the types of working capital financing!

INTRODUCTION

Every business owner knows cash flow is the lifeblood of a company - but as business grows cash gaps occur between sales and cash - Working capital finance solutions fund short term expenses and help prevent financial failure - Ensuing you understand the mechanics and value of tradition and alternative financing solutions is key.

HOW DO YOU DETERMINE YOUR WORKING CAPITAL NEEDS

Understanding how much funding you actually depends on factors such as current cash position, short term needs, and long term investment goal - The working capital ratio ' formula ' simple - On the balance sheet subtract current liabilities from current assets - this shows how much working capital is available - but business owners should ensure they take into account asset turnover in accounts receivable and inventory , as well as seasonality and unexpected expenses.

That's where maintaining cash flow projections around sales and collections is critical - as well as monitoring your cash conversion cycle, DSO , etc.

WHY IS WORKING CAPITAL IMPORTANT

Ensuring you have enough cash allows your business to meet short term obligations around liquidity and operating expenses . This sustains overall viability and avoids financial strain and operating difficulties. The ability to bridge the gap between outgoing expenses such as payables against income receivables helps a business manage better on a day to day basis , while also considering business growth .

Expansion of your business via increased sales, new orders, contracts, etc., always demands more cash in the funding of your day-to-day activities. There are traditional and non-traditional ways for you to achieve business financing success.

REVOLUTIONIZE BUSINESS OPERATIONS WITH WORKING CAPITAL CASH FLOW FINANCING

At 7 Park Avenue Financial more and more of our clients realize that many non-traditional forms of working capital are become very traditional based on new alternatives available to finance your business and address short term funding needs around accounts payable and other short-term obligations.

Cash flow and working capital needs are being achieved more and more today by financing strategies for small businesses that were either unheard of, non-existent, or frowned upon in previous years regarding other business loans and finance solutions.

WORKING CAPITAL BUSINESS LOANS IN CANADA

Let's recap some of those traditional and non-traditional sources of financing. Suppose you feel you need assistance to understand the wide variety of solutions available for your firm. In that case, we strongly recommend that you talk to 7 Park Avenue Financial, an experienced, trusted, and credible business financing advisor to ensure you have choices.

SMALL BUSINESS FUNDING

Those alternatives for working capital finance funding options:

A/R financing - accounts receivable financing solutions - invoice financing that mirrors the credit line solution for funding business needs - Same business day funding for your sales/outstanding invoices - daily sales can be funded via the accounts receivable factoring solution.

SR&ED tax credit bridge loans - financing for your r&d costs in the development of new products and services

PO / Contract financing

Non-bank full business line of credit facilities - abl business line of credit

Merchant cash advances/short term working capital loans - Financing based on monthly sales - good credit score of owners required! These facilities can be accessed in a relatively short period with flexible repayment terms structured to your sales and cash inflows - these loans are on shorter terms, typically 12 months with monthly or weekly payments based on sales history.Many online lenders offer this financing option.

Equipment Leasing - address your needs for new equipment or technology via leasing companies or term loans for asset acquisition from traditional banks.

Bottom line? Therefore creativity and access to capital become a priority for the business owner to get working capital and avoid a negative working capital situation.

We're told that banks are lending again. If you believe that (sometimes we're not quite sure!), focusing on business bankers actively and aggressively looking for your business is essential.

TRADITIONAL FINANCING OPTIONS

For companies that qualify for bank traditional financing options solutions for cash flow include working capital term loans, business lines of credit, business credit cards - etc.

Bank financing is one of the least expensive financing areas, but of course, it comes with loan covenants, ratios, and personal guarantees. Those very issues are why many Canadian business owners prefer to consider non-bank and independent finance company options.

GOVERNMENT LOANS / THE CANADA SMALL BUSINESS FINANCING PROGRAM

When it comes to banks, we'll also mention not to forget the CSBF loan, which in our opinion, is, bar none, the best business financing in Canada for companies with revenues less than 10 Million dollars. (Also called the Government Small Business Guaranteed Loan program). The program services a very specific need for early-stage businesses, franchises, etc.

Real estate can also be financed under the program, and no personal assets are taken as security! Repayment terms are typically 2-5 year term loans with fixed installments. Interest rates are attractive under the program and a solid business plan is required, outlining your needs in the 3 financeable asset categories of equipment, real estate, and leasehold improvements. A minimal personal guarantee is required by borrowers.

In 2022 major changes to the SBL program added numerous cash flow/working capital/line of credit financing to the program.

The term loan structure is the only alternative under SBL loans, the program is not a line of credit or lump sum cash loan. The total amount available is 350k, which is 1 Million dollars if real estate is financed. It's an excellent way to take advantage of attractive long term financing for your need to cover specific asset requirements or financing of leaseholds.

As a business owner, you can also consider putting new permanent capital into your firm via your own saving or a partnership with an associate or strategic partner - i.e. getting a supplier to provide financing via extended terms.

We also wish to point out that business working capital is somewhat generic and means many things to many people. The textbook tells us that you have the magic' working capital' number if you take your current assets and subtract your current liabilities.

That's great, but the actual number of ratios you get has no real meaning. The solution is simply analyzing your receivable and inventory turnover in conjunction with your accounts payable demands.

The textbook calls this your cash conversion cycle - but it brings real meaning to your day-to-day financing needs as it will show you how long it takes for one dollar to flow through your company from order to cash. Measuring those asset turns helps uncover the need for working capital loans.

CONCLUSION - WORKING CAPITAL FINANCING FOR THE ENTREPRENEUR

Funding working capital properly is a business tool for managing cash flows of your business - Understanding what types of traditional and alternative lending solutions work for your business is critical - allowing the company to cover expenses and grow sales revenues - Different types of solutions are available based on the financial health of your business and its operational needs in your industry.

Small business owners are keenly aware of the importance of good cash flow. At that point, you can consider various strategies to improve cash flow based on your operating cycle of collections, inventory on hand, and supplier payment terms.

Working capital - it's essential; it's available to address your business growth and potential for new markets and customers - for more information, talk to the 7 Park Avenue Financial team about our business financing services to understand your cash flow options to allow you to meet your financial obligations via solutions from traditional lenders and the new world of alternative business financing to address your particular business credit profile.

FAQ:FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What is the role of working capital in business operations?

The role of working capital, also known as net working capital, in business operations is to finance day-to-day expenses. This includes paying for utilities, rent, salaries, and inventory. It essentially fuels the everyday operational functions of a business, ensuring that it can meet its short-term obligations.

How does a working capital loan differ from a regular loan?

A working capital loan is specifically designed to finance the daily operations of a company. Unlike a standard business loan, which can be used to invest in long-term assets or other large capital expenses, working capital loans are intended to provide short-term liquidity. They help businesses cover routine expenditures such as accounts payable and wages.

What are some common sources of working capital funding?

Common sources of working capital funding can be categorized into internal and external sources. Internal sources include retained profits and reducing current liabilities. External sources range from short-term loans, trade credit, merchant cash advance, factoring, and invoice discounting. Businesses may also use bank overdrafts or establish a business line of credit. Lines of credit allow the business to pay interest on only funds drawn under the revolving credit facility which can be unsecured or secured depending on the lender.

What are some benefits and risks associated with the aggressive approach to working capital financing?

The aggressive approach to addressing the working capital ration in finance entails keeping a lower level of current assets compared to current liabilities on a company's balance sheet. This strategy can potentially lead to higher profitability due to a lower cash-to-cash cycle time and higher asset turnover. However, it also carries a higher risk of liquidity problems. If the company cannot convert its assets into cash quickly enough, it may face difficulties meeting its obligations.

How does invoice financing work as a form of working capital finance?

Invoice factoring is a popular short term financing method allowing businesses to borrow money against unpaid invoices / amounts due from customers. It is not a small business loan per se, but a monetization of receivables on the balance sheet.Companies sell their accounts receivable (invoices) to a third-party company at a discount. This provides businesses with immediate cash, which can be used to cover operational expenses, thus improving their cash flow. It is particularly useful for businesses that have longer payment terms or those that struggle with late payments, or companies that don't qualify for a business revolving line of credit.

What are three working capital strategies for a business?

Three Working Capital Financing Strategies

Conservative Approach: This approach involves maintaining a higher ratio of current assets to current liabilities around short term business financing needs Although safer, this method can potentially yield lower profitability.
Aggressive Approach: Here, the business maintains a lower level of current assets to current liabilities. It may lead to higher profitability, but it also brings about a higher risk of liquidity problems.
Moderate Approach: This strategy strikes a balance between the conservative and aggressive approaches, maintaining a moderate level of current assets to current liabilities.

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Thursday, June 1, 2023