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Commercial Business Finance Loans for Working Capital
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Financing & Cash flow are the biggest issues facing businesses today
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UNLOCK YOUR BUSINESS POTENTIAL: COMMERCIAL BUSINESS FINANCE LOANS FOR WORKING CAPITAL
INTRODUCTION
Commercial business financing loans are a crucial part of allowing your business to meet its working capital needs. Those funds are needed to allow your company to fund day-to-day operational costs and meet obligations around inventories, accounts payable, payrolls, and rent and fixed debt payments. We're taking a look at the types of business loans and how you can make the most of solid business finance strategies.
Recently we came across the thought that knowledge without wisdom is dangerous. Wow! That seemed to us totally applicable to thousands of Canadian business owners and financial managers who struggle to manage or find working capital and commercial business finance loans and solutions for their companies.
But what about combining knowledge with the wisdom of experience? Now that’s a concept! Yes, it might take some time to investigate a solution but boy, in the long run, wouldn’t it be worth it?
UNDERSTANDING WORKING CAPITAL LOAN SOLUTIONS
Working capital loan financing can greatly enhance cash flow for businesses that have seasonality or sales that are cyclical in nature inside their business model and industry. The ability to access funding during off-peak periods of the business is essential as unpredictable revenue streams will create constant cash flow challenges.
It's never easy when Canadian business owners and financial managers are out there looking for solutions. Although rates interest rates in Canada are generally perceived as 'quite low' the ability to access cash flow solutions is still a challenge.
WHAT ARE THE TYPES OF WORKING CAPITAL LOANS - WHICH ONE SUITS YOUR BUSINESS?
TERM LOANS - A term loan is a lump sum cash installment type of loan that is repaid over a specific period of time - It injects permanent working capital into the business.
BUSINESS LINES OF CREDIT - A line of credit is a revolving credit facility that allows the company to draw on funds as needed under a pre-determined limit. A business credit line can be sourced via a bank or an asset-based lender, and there are significant differences between the two facilities. Businesses pay only on the amount of facility that is used, and, similar to other short-term working capital facilities they provide a solution to ongoing fluctuating cash flow needs.
Commercial bank facilities from Canadian chartered banks are the obvious solution. If your firm can withstand financial statement due diligence around historical profitability, ratios, covenants, and personal collateral of owners then you're clearly eligible for the lowest cost form of business financing in Canada.
Asset-based credit lines are a solid alternative to commercial bank lines of credit. Smaller and start-up firms can access basic working capital facilities that simply margin A/R and inventory in a combination type arrangement.
INVOICE FINANCING / FACTORING / CONFIDENTIAL ACCOUNTS RECEIVABLE FINANCING - Businesses can fund unpaid invoices of immediate access to cash - Outstanding invoices are either ' sold ' or ' assigned' to a factoring company or a bank and this method of financing addresses the issues of late paying clients and the need of every company to invest in sales growth by carrying accounts receivables.
BUSINESS CREDIT CARDS / SHORT TERM WORKING CAPITAL LOANS / MERCHANT CASH ADVANCES via online lenders - Small business loans via business credit cards provide the convenience of accessing working capital as well as allowing companies to access finance under an interest-free grace period. Merchant cash advances via an online lender can fund retailers via projected future credit card sales and repayment from the business bank account is via daily or weekly payments from cash inflows to the business.
Revolutionize Your Business Operations with Working Capital Loans
All of the above financing solutions serve a unique purpose, and every business owner and financial manager should consider which options best suit the business needs of the company.
If your company has a solid asset base, and good cash flows from a historical perspective, then you of course have a stronger chance of being more successful in business financing.
On the other hand, if you find yourself experiencing hyper-growth, or coming out of a period of financial losses or turnaround scenarios then you need some help in both identifying and, even more importantly, accessing commercial business finance loans and solutions.
At the end of the day, your solutions boil down to traditional or alternative... it’s as simple as that. Many new solutions that we focus on with clients are viewed as alternative, ( compared to traditional banks ) but the reality is that these types of financings are gaining traction every day.
That’s where the assistance of expert advice, coupled with wisdom and experience can really pay off we think. Doesn’t it make sense that if you haven’t even heard of some of these cash flow solutions then you probably also don’t have the knowledge and expertise to comfortably access them?
THE PROS AND CONS OF WORKING CAPITAL FINANCING SOLUTIONS
KEY BENEFITS - Working capital financing is typically easier to access than long-term debt financing and unliked equity financing it is non-dilutive in nature, allowing a company to access business capital without giving up ownership/control while funding daily commitments of the business and other operational costs.
Working capital loans offer several benefits and drawbacks that businesses should be aware of before making a decision.
Companies with a history of profit and cash flow can qualify for unsecured financing
DRAWBACKS - Some working capital solutions come with higher interest rates and loan costs , and in some cases may require additional collateral - Business owners will often have to demonstrate a strong personal credit history
Other solutions you can consider are :
LEASE FINANCING
PURCHASE ORDER FINANCING
SR&ED TAX CREDIT FINANCING
SECURITIZATION
Talk to the 7 Park Avenue Financial team about how these solutions work and how they can benefit your business.
THE IMPORTANCE OF WORKING CAPITAL FINANCING SOLUTIONS
Effective working capital management solutions are critical to the overall financial health and business growth of your company. The ability to monitor and finance current assets and current liabilities around everyday business expenses allows your company to be efficient and eliminate the risk of a cash flow crunch, while all the time allowing the business to capitalize on growth opportunities.
Whether your company is early stage or a start-up or experiencing fast growth the right working capital loan will provide the necessary funds to expand and grow the business into current or new markets. The key is to ensure you have a financing solution tailored to your company's specific needs with repayment terms that make sense for your business.
CONCLUSION
Every business needs the financial tools it requires to cover basic cash flow needs. Understanding the different types of cash flow management financing available and the requirements needed to apply for the best working capital loans for your business.
So, a bottom line? How about this - Experience and wisdom are a powerful combination in business - Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in maximizing working capital wisdom with... you guessed it... experience in business financing options.
FAQ: FREQUENTLY ASKED QUESTIONS/ PEOPLE ALSO ASK/ MORE INFORMATION
When You Should Consider a Working Capital Loan
Businesses should consider working capital loan solutions when they are challenged to meet the financial obligations around every day business expenses - It is critical to use this type of financing for short-term needs, versus long-term investments in the business such as expansion or purchasing assets or technology
What are the types of Working Capital Loans?
Types of working capital loans include term loans, business lines of credit, and government loans under the Canada Small Business Financing Program small business loan via a participating financial institution such as a bank or participating credit unions, which now include lines of credit and working capital solutions ( for companies under 10 million in annual revenue or projected revenue), with no prepayment penalties. Loan amounts up to 1.1M dollars in total are offered under the program.
Invoice factoring/invoice discounting are financing solutions used by thousands of small businesses, with funds received the same business day for invoices generated to clients - and some companies also consider short term loans under the merchant cash advance solution offered by some business lenders.
What is working capital?
Working capital refers to the funding a company requires to finance day-to-day obligations. It is the difference between the current assets and the current liabilities on the balance sheet - Current assets are balance sheet assets that can be converted into cash and current liabilities are short-term obligations due within a year.
How is working capital calculated?
Working capital can be calculated by the subtraction of current liabilities from current assets. This business calculation allows the business to determine if it has enough capital to fund expenses and obligations.
What is working capital efficiency?
Working capital efficiency is a calculation which measures how effectively a company uses working capital to fund sales growth and maximize profitability. By effectively managing asset turnover in receivables, inventory, and payables a company can generate sales growth with a minimum amount of working capital around short term business expenses.
What are the requirements for a BDC loan?
Business Development Companies (BDC) is a Canadian government non-bricks and mortar business bank that provides business term loan financing via a predetermined credit limit to small business owners / SMB's that have good past credit history and profits. A business plan is often required, as are personal guarantees of the business owners, as well as a good personal credit score, and their ability to invest owner capital in the business to secure loan financing. Minimum credit score requirements in the 650 range are required to get a working capital loan. The BDC does not offer a business line of credit.
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