Demystifying Business Credit Lines: Unlock the Full Potential of Your Company's Finances

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YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE!

CHOICES IN BUSINESS LINES OF CREDIT

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

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

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

Phone = 416 319 5769

 

Fuel Your Business Ambitions: How a Line of Credit Can Transform Your Company

 

The Business credit line in Canada.  Most clients we initially meet tend to say 'What are our chances ' when in fact we maintain they should be asking 'What are our choices ‘!   Let's dig in.

 

INTRODUCTION

 

Business lines of credit are a critical financial tool for a business - providing flexible access to cash when funds are needed - allowing a company to manage cash flow and cover short-term day-to-day expenses as well as allowing a company to assess growth opportunities. It's important to understand the advantages of business credit lines and how they are different from other forms of financing such as term loan structures, as well as the types of business lines of credit, their advantages and disadvantages, and how they differ from traditional business term loans.

 

 

WHAT ARE THE TYPES OF BUSINESS LINES OF CREDIT  

 

There are two types of credit lines -  Secured lines of credit and Unsecured business credit lines

 

Secured Business Line of Credit - The secured business credit line requires collateral, typically specific assets in the business such as accounts receivable, and inventory - Asset-based lenders combine fixed assets to further increase the size of the credit line. Business lenders take this collateral as security for the revolving line of credit facility.

 

Unsecured Business Line of Credit -  The unsecured business credit line is typically offered by a bank as opposed to a non-bank asset-based lender- Banks take a general lien on the business as a whole, typically by a loan document known as a GSA/General Security Agreement. It does not specify specific assets but places an overall blanket lien on the business- Personal guarantees are also required in this type of facility, and businesses applying for unsecured business lines should be able to demonstrate good personal credit history of the owners as well as healthy financial statements. Interest rates on unsecured credit lines are typically very attractive and are often the lowest cost of borrowing.

 

 

HOW TO UTILIZE THE BUSINESS LINE OF CREDIT  

 

There are numerous ideal Scenarios for Utilizing a Business Line of Credit - They include:

 

Addressing seasonal or cyclical cash flow gaps in a business or industry

Financing sales growth via new sales of  marketing campaigns required additional short-term

overhead expenses

Seasonal Businesses Seasonal businesses can use a line of credit to cover overhead expenses

during the off-season or bridge cash flow gaps between seasons

Covering unexpected short-term expenses as a safety net in cash flow management, ability to meet

payrolls, etc

Growth - Businesses can focus on growth opportunities around new products or services or markets

without making a long-term capital commitment

 

 

WHAT ASSETS ARE FINANCED IN A CREDIT LINE 

 

The essence of what we're talking about is the type of borrowing in a business loan that's associated with the monetization of assets via a line of credit for a small business. That's current assets by the way, which typically are essentially your A/R and inventory. We'll also discuss monetizing equipment and even real estate in this facility! Access to revolving credit facilities is a valuable tool for any business, large or small.

 

 

REVOLVING CREDIT FACILITIES ARE SHORT-TERM IN NATURE 

 

Business credit lines should be focused on short-term borrowing. Longer terms are associated with term loans for equipment, mortgages on the business property, etc. Naturally, while a term loan expires when you make that final payment business credit facilities are there and available to your firm based on your ongoing level of receivables and inventory.

 

TERM LOANS ARE FOR LONG-TERM ASSETS

 

You will of course want to match the amortization of the term loan with the useful life of the asset. Let's use computers as an example - A typical lease term might be 3 years, and you would want to retire the lease or loan by that time as it is typically time to upgrade technology. But we digress..!

 

 

ASSESSING THE 2 CHOICES IN A BUSINESS LINE OF CREDIT? 

 

And what about those ' CHOICES ' we talked about? It comes down to essentially two solutions for the business revolving line of credit:

 

1. The Canadian chartered bank solution

 

2. The non-bank asset-based business credit line - it’s typically called an ' ABL ' by the industry

 

  

WHY THE RISE OF NON-BANK FINANCING  

 

Years ago any non-bank financing was viewed as an ' alternative ‘, in some cases, there was a perception it was the financing of last resort. Absolutely not the case today as the world of business credit changed dramatically, more so after the 2008 worldwide recession, where many firms, including banks, went under.  That new form of financing, the ABL business credit line all of a sudden seems available and cost-effective in most cases.

 

KEY ASPECTS  OF THE BANK CREDIT FACILITY

 

Bank business credit agreements or those of business credit unions for large companies as well as small businesses tend to be what is known as ' covenant based '. Even if the business owner and financial managers consider the company to be in growth mode it might in many cases not be able to meet some basic debt to equity and cash flow rations that are required by Canadian chartered banks in the terms and conditions of their loan agreements.

 

THE KEY DIFFERENCE BETWEEN BANK CREDIT LINES AND ASSET-BASED LENDING FACILITIES

 

Bank credit lines typically margin just A/R and receivables, and facilities are at a fixed or variable rate benchmarked against the current prime rate.

In the case of an Asset-based business credit facility the borrowing allows you to borrow the market value of the lump sum of all your assets - so that might be a/r, inventory, tax credits, and equipment.

Any unpledged asset becomes financeable. While there is typically a ' credit limit ' in bank facilities ABL lines are more flexible and can increase as your sales and assets grow, pretty well automatically. The ability to get approved for an ABL loan also is typically a much shorter time cycle than more traditional financing through the application process.

 

  

IS THERE A DISADVANTAGE TO NON-BANK OPERATING LINES OF CREDIT?  

 

Recently we were at a client and the CEO asked a very basic question -  ' What then is the downside of ABL ‘.  The answer? Other than a typically higher cost such as the interest  rate on the facility  the benefits are:

No outside collateral required

Higher borrowing power,

Unlimited growth - it’s not a capped credit line per se. While the credit history of your business is important, the focus nevertheless is on ... Business assets & sales!

 

If we had to state one ' downside ' it might be the fact that you are required to report more regularly on your asset lists. In many cases that made most of our clients better managers of their business.

 

Having a good credit line in place allows companies to avoid higher cost interest charges for short-term working capital loans, merchant advances, business credit cards, etc - Those latter 3 work but are not optimal for day-to-day funding of your operations and also demand a focus on the credit score/credit rating of the business owner/owners.

 

The business owner must balance the cost of capital versus access to sorely needed capital to run and grow the business. Important to know is the fact that of course you only pay interest on the amount of the facility you are using, as that amount will fluctuate depending on the inflows and outflows of cash in your business - every company has a different operating cycle.

 

Bank business credit is always going to be low-cost and flexible if your firm meets traditional criteria. When it doesn’t the business owner should know that he or she has another choice, the ABL line. And by the way, many clients often try ABL for a year or so and then are faced with the decision that they are eligible to be ' bankable ' in the traditional sense.

 

 

WHAT IS THE DIFFERENCE BETWEEN A LINE OF CREDIT VS.  A TERM LOAN 

 

Term loans and lines of credit are 2 different types of financing - for term loans banks and commercial finance companies and asset-based lenders focus on the current financial health of the business - term loans provide a fixed lump sum installment of capital with periodic payments structured as repayment of the loan

Business credit lines are revolving facilities that allow companies to draw funds as they need them and they pay interest only on the funds that are used under the facility - That is why credit lines are suited to general working capital and cash flow needs giving business flexibility of when to borrow for specific purchases.

 

  

  

CONCLUSION - REVOLUTIONIZE YOUR BUSINESS CASH FLOW WITH THE POWER OF A BUSINESS LINE OF CREDIT     

 

Business credit line facilities give a business the flexibility to manage cash flow needs and fund day-to-day operations - Business owners must assess what type of credit facility meets their specific needs that will allow the company the financial flexibility it needs in different market conditions in today's competitive landscape.

 

Bottom line. You have a choice in your business credit needs. Call  7 Park Avenue Financial,  a trusted, credible, experienced Canadian business financing advisor with a credible track record who can help you facilitate the business credit line you need.

 

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

 What is a business credit line? 

A small business line of credit is a flexible business financing option that provides established businesses with access to a predetermined amount of capital under a credit limit,  the facility is used by the business as needed for various short-term financial needs. Unlike term loans, lines of credit allow businesses to borrow, repay, and borrow again (similar to a business credit card ) under the revolving nature of the credit lines, up to the approved credit limit. The company does not have to continually reapply for business credit under this type of financing tool. An unsecured line is often offered by banks to established businesses. A monthly or annual fee may apply to a credit facility.

 How long do you need to be in business to get a line of credit? 

The length of time a business needs to be in operation to qualify for a line of credit varies depending on the individual lender and the requirements around the size of the facility. Typically businesses that have been operating for at least two years are eligible for a bank or credit union facility, as it demonstrates stability and a track record of business success. However, some lenders such as asset-based lenders may offer lines of credit to newer businesses, depending on their financial performance and other factors around collateral and guarantees.

 Is personal credit checked for a business line of credit? 

Yes, personal credit is often checked when applying for a business line of credit. Many lenders consider the personal credit score of the business owner or primary applicant as an indicator of creditworthiness and financial responsibility. While having a strong business credit profile is essential, a good personal credit score can also help increase the chances of being approved for a line of credit and secure better terms. Asset-based lenders place less emphasis if any at all on personal credit history, but banks place a high level of emphasis on the credit history and net worth of the business owner in assessing a higher credit limit. Online lenders offering credit facilities also focus on the business owner's credit score.

 

 Does a business line of credit affect credit score? 

A business line of credit can affect both personal and business credit scores, depending on how the credit line is managed and the nature of the personal guarantee. If the business makes timely payments and maintains reasonable balances that fluctuate in the facility,  relative to the credit limit, it has a positive impact on credit scores. Late payments, high balances, or defaults can negatively affect credit scores. It is essential for businesses to build business credit responsibly to maintain a strong business credit profile. The minimum credit score required by most institutions is 650.

 

Click here for the business finance track record of 7 Park Avenue Financial

Asset-Based Lending (ABL): The Game-Changing Business Credit Line Solution You Need to Know About

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YOUR COMPANY IS LOOKING FOR A CANADIAN ASSET BASED LINE OF CREDIT! 

SUPERCHARGE  BUSINESS GROWTH - LET ABL REVOLUTIONIZE YOUR BUSINESS CREDIT LINE NEEDS

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing businesses today

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

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

 

LEVERAGE BUSINESS ASSES - EMPOWER YOUR BUSINESS - THE ABL BUSINESS CREDIT LINE STRATEGY

 

 

Asset based lending in Canada is the closest thing to a ' generic ' business credit line facility in Canada. So why do we describe clients ' ABL  ' solutions in that manner? 

 

The answer is simply that it's a one size fits all solution to working capital and cash flow needs.  It's generic that it's always, and we mean ' always,' about your business assets. That's why thousands of businesses choose asset based lending.

 

' ABL ' (Asset-based lending ) is a method of financing your business via a revolving line of credit - The company's assets, such as inventories, accounts receivable, and fixed assets are combined into one facility as security interest collateral. This gives the company flexibility around working capital needs experiencing cash flow and/or growth challenges. Let's dig in!

 

 

A BUSINESS CREDIT LINE SOLUTION TO CONSIDER! 

 

The proof in the pudding about ' ABL ' is that top finance experts tell us that asset-based lending gains traction every day - and again, generic if only for the reason that start-ups, small and medium-sized and large firms all can use this facility.

 

 

HOW DOES THE ABL CREDIT LINE WORK? 

 

The asset-based financing method provides a business with a revolving business credit facility where the assets of the business are the collateral - Typically the assets include accounts receivable, inventories, fixed assets and even commercial real estate if owned by the company.  These facilities, unlike bank financing, don't focus on the cash flow of past business credit history, the focus is ..  Assets! 

 

In that way, the company can access via asset based lenders, cash in times of fluctuating cash flows or other unique needs of the business.

 

If ABL credit lines are that generic, how do the business owner and financial manager find the right facility for his firm, and who does he or she find it from?  Here it's all about what we call ' the tiers ‘. There are several types of lenders, and you have to know the size and quality of your transaction and who is best matched to finance it. Working with an expert in the area will, of course, help!

 

 

We're reminded of one of our mentors who once said ' tuition is costly in the school of experience, ‘When it comes down to a strategic financing decision, the cost of a bad experience can be expensive in many ways. 

 

 

 

 

KEY DIFFERENCES BETWEEN ASSET BASED LOANS AND TRADITIONAL   

 

ABL loans differ from traditional bank-type financing in focus on the collateral for the loan - Bank financing will focus on personal guarantees, outside collateral, and business credit requirements around ratios on the balance sheet. Abl focuses on sales and the tangible asset of the business - which allows companies with irregular cash flows or seasonality and cyclicality in their business to access funding. 

 

While many types of bank loans require repayment schedules, the ABL revolver facility allows the business to draw on funds and pay for those funds only when required - allowing for better cash flow management and cash planning.

 

 

ELIGIBILITY CRITERIA FOR ABL  ASSET BASED LOAN FINANCING 

 

In order to qualify for ABL credit lines a business must meet certain criteria -  Typical criteria include the ability to produce proper financing statements and aged schedules of balance sheet items of eligible accounts receivable, inventory,  and accounts payable. The business should also be free from government liens and be up to date with provincial and federal taxes owed. Good balance sheet asset turnover will help approve an ABL line of credit, so firms focusing on dso,  inventory turns, etc are strong candidates. An inventory appraisal might also be required.

 

 

 

WHY DO BUSINESSES GRAVITATE TOWARD ASSET FINANCE SOLUTIONS? 

 

The answer is painfully simple - it's a challenging financing environment for companies searching for SME commercial finance.

 

Once owners and finance managers pick up on the fact that access to ABL provides liquidity and often makes a firm more financially competitive, it's easy to see why that road is better travelled.

 

 

WHAT ARE THE TYPES OF ASSETS UNDER ABL LOAN BUSINESS LOANS COLLATERAL? 

 

Some confusion around ' ABL ' is that many business folks consider it as only an equipment financing solution - however, in our context, it’s a business credit line that finances all your current and fixed assets - typically A/R, inventory, and equipment. Like bank credit lines, it's a ' senior facility 'and provides aggressive financing on those assets via eligible collateral.

 

Accounts receivable are a key form of ABL collateral - invoices under 90 days old are eligible for financing at advances rates in the 90% range.

 

Inventories can be in the form of  raw materials, work in process, or finished goods and each type of inventory will have an advance rate placed on borrowing power

 

Fixed assets used in the business and critical to business operations can be included in abl credit lines, as well as commercial real estate if that applies to the transaction - Often, a real estate component might be under a short-term separate bridge loan.

 

More and more asset-based abl business lenders can include some form of financing around IP, patents, brands, and copyrights if that is applicable to a transaction.

 

It should be noted on very large transactions in the millions in the form of appraisal or field exam might be required- although note this is for very large deals generally in the range of 10M  plus.

 

The uniqueness of this business credit line is that those assets named above are financed under one revolving facility. The best ' deliverable ' for ABL is its ability to allow you to borrow aggressively on the real assets in your business, based on their ' real values.  Bottom line = higher borrowing margins!

 

So who's using and/or checking our ABL finance? Its companies can access any or enough bank financing for firms that can’t meet ratio, covenant, and personal guarantee requirements typically mandated by the bank.

 

Bottom line? Investigate ABL business credit lines as a viable working capital option used by thousands of companies like yours, including your competitors. Opting for this solution will give you overall liquidity and cash flow that helps your business grow and succeed.

 

  

KEY BENEFITS OF ASSET-BASED LENDING ABL BUSINESS CREDIT LINE SOLUTIONS  

 

Working capital access - short-term business needs can be met around cash flow/working capital

 

ABL facilities are custom tailored via flexible credit structures and higher borrowing advances than traditional loans - Busines access cash when needed

 

Asset-based credit facilities are known as covenant light -  reporting requirements and eligibility criteria are significantly easier to manage around business operations and finance needs -

 

Reporting process revolves primarily around monthly borrowing base requirements around a/r and inventory, as well as a/p schedules.

 

  

KEY TAKEAWAYS - ABL FINANCING  

 

All types of businesses can use asset-based lending  to finance their business

Typical borrowers include manufacturers, distributors, retailers,

Businesses that are restructuring or focused on turnaround are perfect for an ABL solution

Companies using ABL financing face minimum reporting and  little to no focus on the balance sheet and financial ratio covenants required by banks

ABL increases financing capacity and allows companies to be flexible in financial decision-making without third-party lender approval

 

 

  

CONCLUSION - ASSET BASED LENDING ABL FINANCE  

 

Asset-based finance solutions provide a unique and flexible form of financing for Canadian businesses requiring working capital.

 

Leveraging assets solves the business cash flow challenge and growth goals. Talk to the  7 Park Avenue Financial team to ensure you make an informed decision around this business financing method.
 

Asset-based financing is growing in popularity every day as a business financing solution for companies seeking flexible access to cash flow and working capital - The unique ABL business credit line options allow businesses that are leveraged and who might not be able to achieve traditional bank financing to secure the money the company requires for business needs.

 

Investigate ABL as a viable working capital option - work with an expert in the area. If you opt for this financing solution, your liquidity and overall cash flow should improve significantly!

 

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor to explore ‘generic ‘business credit line solutions to maximize borrowing capacity!

 

  

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK  MORE INFORMATION  

 

  

  

 What types of assets can be used as collateral in asset-based lending (ABL)?     

 

Asset-based lending uses a variety of business balance sheet assets as collateral - these include a/r, inventories fixed assets and real estate. Business lenders evaluate each asset category and construct a credit line that will provide liquidity to the borrower.

 

 

 

How does asset-based lending differ from traditional cash-flow lending regarding financial covenants and flexibility? 

 

Unlike traditional cash flow lending that focuses on financial covenants and balance sheet and liquidity ratios around debt and debt service, ABL lending has few covenants and allows businesses to access liquidity based on sales growth and business assets. That financing provides flexibility to the business borrower to improve cash flow.

 

 

 

What limitations or risks are associated with asset-based lending (ABL) as a business credit line? 

 

Businesses should ensure abl financing does not encourage overleveraging of the company - and they should be aware of monthly reporting requirements and the types of assets used as advances for the facility on a day-to-day basis.

  What type of business can benefit from ABL Financing?   

 

Businesses that can benefit from ABL financing solutions include manufacturers, distribution companies, and some types of service companies.  Any business facing a cash flow challenge or requiring financing for larger orders around seasonality in their business can benefit from ABL business loan borrowing capacity credit approval secured by assets.

 

   

What are the limitations of ABL Asset-based lending solutions?   

Businesses should ensure that declines in sales or asset values and be a potential facility risk to future growth. As borrowing bases are reduced the amount of credit availability declines on financial and physical assets around the company's cash flow. Companies with growing sales and good asset turnover present less risk to the ABL business loan lender. Not all business assets might be eligible for collateral financing, including highly specialized assets or inventories with no real resale value.

 

 

 

Click here for the business finance track record of 7 Park Avenue Financial

Asset Finance: A Smart Way to Secure Your Business's Credit Line and Working Capital

 

YOUR COMPANY IS LOOKING FOR WORKING CAPITAL FINANCING SOLUTIONS!

Maximizing Your Cash Flow: How Asset Based Financing  Can Help Fund Your Business's Credit Line

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

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

CONTACT:

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

  

Building Your Business's Future with Asset Finance for Working Capital  

 

Business line of credit needs are often best solved when your firm understands why you need this type of financing/working capital facility. And the good news? 

 

 

What You Need to Know About a Business Line of Credit Via An Asset Finance Strategy 

 

Using asset finance as a business line of credit strategy provides companies with a flexible financing solution to borrow funds as needed for day-to-day short-term expenses. It allows the company to explore growth options. As a working capital strategy, asset-based lending provides the same revolving credit lines based on a higher loan-to-value ratio for borrowing based on asset finance eligibility.

 

 

 

ASSET BASED LENDING IS YOUR ' HACK ' FOR IMPROVING CASH FLOW 

 

Cash flow management is a critical requirement for any business, large or small. By focusing on effective asset turnover and proper management of accounts receivable and inventories, all companies' short-term cash flow gaps experience by all companies can be met by focusing on an ' ABL ' solution.

 

  

  

ASSET FINANCE EXPLAINED  

 

Asset finance is a method of financing a business that uses business assets of the company such as receivables, inventory, and fixed assets as collateral for borrowing. Companies obtain working capital via collateralized loans as a flexible financing option.

 

As a business owner, you don't need one of those ' Artificial Intelligence Bots ' ( such as Chatgpt )  to run thousands of algorithms around your cash flow needs.

 

It's all about understanding how your company is doing and what type of solution is available!

 

Cash flow is vital to all businesses. 60% of business owners say they regularly struggle with cash flow and 40% say the absence of access to cash flow financing restricts their business growth.

 

 WHAT IS THE DIFFERENCE BETWEEN A TERM LOAN VERUS A LINE OF CREDIT? 

 

Both term loans and lines of credit are types of typical business financing - Term loans are lump sum cash flows requiring regular installment payments over a fixed amortization period at a specified interest rate from the lender.

Business lines of credit are revolving credit facilities that businesses use to access funds as required based on a predetermined credit limit.  The line of credit options typically offers more flexibility as it revolves and is used only as needed.

 

WHAT ARE THE CAUSES OF CASH FLOW PROBLEMS

 

Common causes of poor cash flow problems are:

Collections too slow - accounts receivable management and financing of a/r is critical around unpaid invoices

 

The operation capacity (or ability) you have available for your company might be unreliable due to a lack of sales and the ability to meet current liabilities -  Take the time to research various Canadian business financing options with a focus on the nature of your industries and the actual need for working capital - that might be for equipment, real estate, inventory, etc.

 

 

 

SHORT / MEDIUM / LONG TERM FINANCING - WHICH ONE DOES YOUR COMPANY NEE D

 

Small business owners often struggle to find the right financing for their companies. They face many options, including short-term, medium-term and long-term loans - but what does this all mean?

 

If you don't select an appropriate length of time based on your needs as a small entrepreneur, then it could hurt not only your prospects but also your financial stability in general.

 

MATCH CASH FLOW TO LOAN TERMS!

 

Business owners and their financial managers should choose financing terms that align with their current and future cash flow needs.

 

The shorter loan terms offer shorter repayment times but more sizable monthly payments. Longer loan terms mean small monthly payments but longer amortizations --and they may not work unless you have a steady cash flow coming in regularly.

 

 

  

THE IMPORTANCE OF CREDIT SCORES

 

  

Business loans will often, but not always, require a good credit score. Safe to say, though, that business owners with good credit will more likely be approved for loans, but those with bad credit may not.

 

 

 DON'T MAKE THIS MISTAKE! STAYING AHEAD OF THE GAME VIA PROPER CREDIT LINE USE

 

 

A working capital line of credit should be used for short-term needs, not long-term ones. Don't confuse short-term working capital needs with long-term, permanent requirements.

 

If credit lines provide one thing it certainly is  ' flexibility ' as it relates to your financing ' wiggle room '. You're borrowing what you need and, of course, only incurring charges for amounts you use which hopefully are constantly revolving as you turn over key assets such as receivables and inventory. Invoice financing is key to running a successful growing business.

 

  

FACTORS AFFECTING LOAN TERM OPTIONS  

 

When considering the type of business loan that will best suit your needs, it's essential first to determine what you hope to use this money for. Beyond deciding which term is right for our situation and given financial circumstances, two other factors are involved in choosing a financing solution: interest rate and potential cost versus cash flows.

 

REASONS YOUR FIRM MIGHT NEED MORE WORKING CAPITAL

 

The cash flow of your business can be volatile. You may need additional capital during the peak seasons or to keep up when there’s less money coming in due to time pressures from suppliers, employees, and government regulations demanding attention all the time.

 

Almost all companies will experience times when more working funds are required just so obligations such as payrolls go through without interruption! ...but these instances typically come at different intervals.

 

Seasonal fluctuations in business cash flow are not uncommon. This can be because many companies need added capital at peak seasons or when they receive less revenue. Others may require more money so their operations keep running smoothly during these slower times of year without cutting back on expenses.

 

Almost all businesses will experience boom-and-bust cycles. Even more, flexibility comes around simply knowing and understanding that your firm can handle the day-to-day surprises ' - aka ‘bulge ' cash flow needs around one of, or seasonal business expenses.

 

Credit lines are of course, also not term debt - while your business assets typically collateralize them, it's at the end of the day, somewhat unsecured.

 

Knowing and understanding the true financial health of your business will often dictate what type of facility you're eligible for. Key to that of course, is how long you've been in business, what type of financing rates your firm can handle, and speed and accessibility to financing approval.

 

Thousands of businesses with SME COMMERCIAL FINANCE needs take advantage of short-term working capital loans, often marketed (or disguised?) as business credit lines and typically not used for more established businesses.

 

They are sought after because they offer quick approvals and approval criteria are far less restrictive than those solutions offered by Canadian chartered banks and provide the additional working capital needed.

 

From a financial perspective, your company's health will typically dictate the type of credit line your firm can access. The two most typical solutions are traditional banking or asset-based lines of credit for funding current assets offered by non-bank commercial lenders.

 

UNSECURED LINES OF CREDIT

 

Unsecured, revolving lines of credit  & unsecured loans are effective tools for augmenting your working capital for a more established business. They provide you with a valuable tool via the ability to finance temporary needs via a small business line of credit.

 

The Line of Credit is a business tool that can be used to help you grow your company. It's important for businesses since they may not always want or need one. Still, instead, use it as needed based on their revenue and balance sheet needs -your firm will pay interest on the facility used at any given time -A personal guarantee is required on unsecured credit lines.

 

Banks as an example, will consider focusing on issues such as business credit history and looking into the healthiness (and longevity) outside an individual’s financial statements: working capital ratio, networking cash position versus annual revenues, copies of bank statements, etc. Although many factors may affect the size of your working capital line of credit, a rule of thumb is that it shouldn’t exceed 10% of your company’s revenues.

 

Knowing how well your business is running and how to calculate working capital needs in the short term is key to both supplier and credit line provider relationships. While volumes are written on how business financial health is determined, the real world dictates it all boils down to:

 

Profit/loss generation

Operating Cash Flows

Positive/Negative net working capital positions

Existing debt

 

 

  

KEY TAKEAWAYS - ASSET FINANCING AS A WORKING CAPITAL CASH FLOW SOLUTION  

 

Asset Financing is tied directly to business asset values.

 

Asset finance for working capital is a good choice if options are limited for other cash flow financing needs.

 

Business lines of credit  are asset-based loans around a fixed amount based on asset values

 

Lines of credit can be secured or unsecured.

 

Businesses use working capital facilities to fund seasonal or cyclical cash flow gaps and fund day-to-day needs and expenses.

 

 

 

 

  

CONCLUSION - THE BENEFITS OF ASSET FINANCING FOR A BUSINESS CREDIT LINE AND WORKING CAPITAL GROWTH

 

If you’re looking for solid assistance and the cash flow/working capital solutions available in the Canadian marketplace call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can provide business credit line offerings and business growth strategies that meet your needs in the small business lending marketplace.

 

Let's explore those asset finance advantages: a working capital loan solution or a business credit line via traditional lenders or non-bank alternative financing firms.

 

FAQ/FREQUENTLY ASKED QUESTIONS / MORE INFORMATION

 

  

What is working capital financing? 

 

The funding of working capital financing is borrowing solutions focused on a company's ability to cover day-to-day expenses and commitments around current liabilities. This type of financing should not be used to purchase equipment and other long-term assets or real estate.  Businesses can also use short-term working capital loans or business credit for immediate cash flow needs.

 

  

What are the benefits of using asset finance for business credit lines and working capital?   

 

A key benefit of using an asset finance strategy for a business credit line is that it allows businesses t obtain financing using only the business assets as collateral while at the same time retaining the full use of those assets. This method of financing a company provides a flexible financing option versus the constraints around traditional bank loans as funding can be achieved more quickly and easily. The ability to generate additional revenue and profits based on cash resources is a key benefit.

Firms that are financially challenged but who have or can increase good gross margins can typically absorb the higher interest rates that come with non-bank business credit lines, often referred to as 'ABLs' -  Asset-Based Credit Lines.

 

 How can businesses determine if asset finance is the right option for their credit lines and working capital needs? 

 

Businesses should consider several factors when deciding if asset finance is the right option for their credit lines and working capital needs.  Issues that should be considered include the value of key business assets and the amount of cash flow financing/working capital the business needs. 

 

Asset financing should be compared to other potential financing options such as unsecured credit lines offered by banks to determine the best suitable option for running and growing the business. Borrowers should also ensure business loan requirements are understood around key issues such as business creditworthiness and credit history.

 

 

What is an asset-based lending line of credit? 

Asset-based lending lines of credit, also called ' ABL'S) is a type of business borrowing and financing where business lenders provide revolving credit facilities based on accounts receivable generated by ales, inventories, and fixed assets - If a company owns real estate that can also be factored into the facility.  These credit lines are used by businesses that can't access some of the business credit they need to fund working capital needs around cash management. These facilities allow a company to arrange borrowed capital they require in the future.

 

 How does asset finance work in Canada?  

 

Asset finance allows Canadian firms to use assets as collateral for a loan or line of credit. Lenders value assets and provide financing based on that value. In addition to working capital lines of credit asset finance is a valuable asset strategy that can also be used to describe equipment financing and real estate financing in business operations.

Excuse Us For Getting Fresh... About The ABL Business Credit Line Revolver Facility. Asset Based Lending… Works. Here’s Why!

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Fresh counts, whether we're at the grocery store or in today's example, the business credit line known as the ABL revolver, aka ' asset-based lending '.


Canadian business owners and managers don't often realize that that they have more of a choice in business credit lines than they think. And when it comes to choice and flexible terms all of a sudden asset-based lending facilities are getting... you guessed it... popular!


That's of course great news for companies in Canada who are looking for alternatives for day to day operating financing. The traditional small handful of firms who offer this type of financing is growing to the point where you might not realize it, but there are people willing to fight for the ability to provide you with business credit. That's the type of competition we like.



Cost is always a factor in business financing, and there is a broad spectrum of pricing in Canada that is primarily based on two factors you can pretty well guess - facility size and credit quality.


In case you haven’t heard of this method of business credit it’s simply a comprehensive credit line based on the asset of your business - those assets include inventory, receivables, fixed assets, and land and buildings if that fits into your overall capital structure.


The Canadian business owner/manager can use the ABL revolver facility for a number of reasons, and they include day to day operating capital, restructuring, acquiring another firm (yes, buying your competitor!) and our favourite reason - growth! That growth reason is one of the most important because the asset lending line of credit allows you to grow your business without the constraints you face sometimes with chartered bank commercial facilities.




We're often asked about the ' size requirement ' in this type of business borrowing. In general, we tell clients that they qualify from a low of 250k all the way up to facilities in the many millions of dollars.



Quite frankly there isn’t really an upper limit, as long as you have the total assets to back up the facility. The reality is that ABL credit is very close to becoming ' mainstream' in Canada, and that’s a good thing we think.


To be honest many firms in Canada tend to use asset based credit lines as a bridge to other financings. This often means that the facility is used for a year or two, sometimes longer, as the business owner’s work towards the more traditional financing that is recognized in Canada, i.e. our banks. Many simply s are very comfortable with asset-based lending lines and choose to remain with ABL!

As we said, the bottom line is ' ASSETS ', so if your firm has them consider Canada's newest form of business financing, the ABL REVOLVER, whether you're looking for something new, or an alternative to your current situation.


Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your total financing needs when it comes to the business credit line.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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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Business credit line operating loan arrangements are often sought by companies that are new, established, or growing (that pretty well covers all the scenarios!!) their businesses. The operating loan is often the heart of a company's financial arrangements yet many business owners/financial managers don't really understand all their options for a source of credit in this area of Canadian business financing.


And yes, there are two kinds of business line of credit arrangements your company can undertake, and time has proven there's room enough in town for both of them, but which suits your firm. Let's dig in.


About those two arrangements. There is of course traditional Canadian bank operating lines of credit. These come with typically a maximum ' credit limit' that you can borrow up to based on historical benchmarks of cash flow, sales levels, and quality of receivables and inventory. Banks of course prefer receivables to inventory as they are more liquid and manageable - and quite frankly they aren't in a position to do much with inventory if something goes awry in your business arrangement with the bank.

The key benefit of a bank operating loan and commercial line of credit from a traditional lender is that it is short term in nature and provides maximum flexibility around business borrowing based on the pre-set credit limit designating the amount of funds your firm can borrow at any given time.

Canadian chartered banks offer a revolving line of credit in order to allow your company to bridge payables as receivables are collected. Most Canadian business owners will immediately recognize that more and more clients are delaying payments in order to enhance their own cash flow. The ability to delay payables is a method by which any firm can increase cash versus taking on a business loan.

Bank facilities are priced based upon interest charges on funds used via the ' operating loan ' process. Naturally, balances are paid down as cash inflows are received by the company. When borrowing from a bank a company must satisfy terms and covenants within the approval. Banks view business credit lines as ' short term ' commercial borrowing, and a bank will typically constantly revisit the approval to evaluate ongoing risk - this is part of the regulatory and fiduciary responsibility of Chartered banks in Canada.




Bank facilities are secured, with the most common security being inventory and accounts receivable. Banks consider these types of facilities ' demand loans ', allowing the bank at any time to ' call ' the loan and, you guessed it .. ' demand ' payment in full. Banks register their security on these loans via the appropriate lien filings in the jurisdiction where the business operates. These ' secured loans ' are a large part of bank lending in the Canadian economy, for businesses both small and large, public and private.


KEY POINT - Although Canadian banks secure the operating line of credit via short term current assets ( a/r and inventory ) it is important to understand that the bank will almost always take collateral on all the assets of the company, as they would enforce security by liquidating both short term and long term assets. Those long term assets typically will be equipment and, if applicable, real estate.



From an accounting point of view, the bank line is designated as a liability on the company financials, typically shown as a ' current liability ' given the bank views this as a loan that revolves within a one-year business cycle.

Many businesses in the Canadian economy operate with heavy seasonality being a part of their revenue recognition model. Business lines of credit are a great ' gap bridging ' when seasonality occurs in your company. As a company's CASH CONVERSION CYCLE increases more dependence will be placed on a line of credit for business.




Having that access to bank credit should best be viewed as a strategic tool in your financing of day to day operations. Having the credit facility in place lets you know you have access to business capital at future points in time. Business owners and financial managers should view the ' operating line ' financing of their firm as a part of their overall financing structure, as the company will typically require long term debt in some form, whether that be term loans or equipment financing.

Unsecured Credit Line For Business 

There is an important distinction between ' term loans ' and ' credit lines '. Term loans place major emphasis on the overall credit profile of the borrower - the focus will be good balance sheets, profits, and reasonable owner equity compared to the debt load. The 'credit line ' on the other hand focuses on ongoing financial performance and asset turnover.

We can make the case that the credit decisions and the amount of time it takes to get approvals in each case differ. Also, those term loans or cash flow loans ( also called ' mezzanine loans' ) come with monthly installments and a one time receipt of funds.

The obligation to make those monthly installments is different from the flexibility of the revolving facility that has no fixed payments - although it should be understood that lines of credit are best viewed by the bank when they ' revolve '. In a perfect world, the revolver facility should at some point be paid down in full and then borrowed against on an ongoing basis.

SMALL BUSINESS CREDIT LINE ? CREDIT LINE FOR BUSINESS NEEDS ?

HOW TO GET A BUSINESS CREDIT LINE

INFORMATION REQUIRED FOR BANK CREDIT LINE APPROVAL

At 7 Park Avenue Financial we focus on a complete package for clients looking for traditional bank financing. A typical package would include:

Articles of Incorporation
Financial Statements
Bank Statements
Aged payables/receivables
Inventory List
Cash flow Projection
Business Plan or Executive Summary


Generally, companies in early-stage/pre-revenue situations will have difficulty in establishing lines of credit. Companies not showing a profit or having inexperienced management  teams will also be challenged in accessing revolving credit.

KEY POINT - Understanding qualification criteria, timelines, loan costs, and miscellaneous fees are crucial to being successful in obtaining bank credit. Understanding bank requirements around loan covenants, debt to equity ratios, and the proper amount of owner equity contribution in the business is key to successful bank negotiations if an advisor is not used. That debt to equity ratio typically desired by a bank is in the 2 to 1, or 3 to 1 range - implying the bank wants to see the proverbial ' skin in the game ' of owners.

We advise clients to always have a backup plan in place for alternative financing solutions when time is of the essence and financing is critical.

THE ABL NON BANK BUSINESS CREDIT LINE

The other alternative, gaining more traction every day in Canada is the Asset-Based Credit Line.        " ABL " )These facilities are offered by commercial finance companies and mirror bank arrangements really only when it comes to how you access funds and how the facility revolves. In almost all other cases differences are a bit more dramatic.
For companies that have a higher debt to equity ratio, or fluctuating profits and cash flow that is erratic at times- For that reason, it is the perfect facility for a business line of credit. The ability of a company to generate working capital by being able to cash flow the assets they have in the business.

At 7 Park Avenue Financial we have found that the ABL solution can assist companies in various categories of financial health - those that require restructuring and turnaround as well firms who require financing significantly more than a bank is willing to provide. That allows firms to grow without being impeded by the covenants and other restrictions a bank might place on a borrower.

Business credit line operating loans give a company the flexibility it needs to manage day to day operations through the ' operating cycle ' of the business - namely the time it takes for a dollar to flow throughout the company from the sale to cash collected. Depending on what industry the company is in that might be a significant amount of time - business experts call it the ' cash conversion cycle '.

Common users of non-bank business credit facilities will often include manufacturers, distributors, retailers, etc although services based companies can also utilize the asset based facility. Outstanding balances of the credit line will fluctuate based on sales revenues and cash needs.



Operating loans via asset-based lending allow a company to borrow a much larger percentage of margin based on the value of the assets. The collateral in the receivables, inventory, and equipment is called a ' borrowing base ' and provides funding on an ongoing basis based on sales revenues and ongoing operations.

In Canada the majority of the banks offer an asset-based business credit line operating loan, but these boutique divisions withing the bank are much smaller and many borrower feel that bank ABL's mirror traditional bank lending - which may or may not be the case in our experience here at 7 Park Avenue Financial. Remember also that banks operate in a highly regulated capacity, while the vast majority of non-bank commercial loan provides in asset-based lending are private firms that are self-regulated. Some ABL lenders in Canada are subsidiaries of foreign corporations wishing to establish a commercial lending base in Canada.




The solid advantage of an operating loan is the fact that you are only using credit when you need to - the facility revolves and interest is only charged on the funds you are using at any given time. Banks tend to structure these facilities as ' demand loans' which means they can be ' called' at any time. Trust us that's not a call you will always want to take!


To effectively access operating loans and business lines of credit of this type you need to ensure you have some key basics nailed down. They include perhaps a business plan or executive summary, but always your historical as well as up to date financials and a cash flow forecast. While asset-based line of credit lenders don't place an overemphasis on the personal credit of owner’s banks insist that the owner demonstrate personal creditworthiness and external assets as backup collateral.

carries.

BENEFITS OF THE ASSET BASED BUSINESS CREDIT LINE OPERATING LOAN

1. Companies take comfort in the fact that they have a steady supply of cash flow based on revenues generated - as revenues grow a company must invest more capital in receivables and inventory which have a time component attached to their conversion to cash

2. Any company that has some level of seasonality or ' bulge ' needs can access liquidity during times of large orders and the necessity to build inventories

3. Rapidly growing firms experiencing ' hyper-growth ' often cannot access traditional bank finance but ABL solutions allow the constant

4. While banks place significant reliance on covenants and operating ratios for financing approval the asset based lender is ' collateral-based ' and instead focuses on regular monitoring of business assets to maximize borrowing power

5. Many asset-based lenders have special niches of expertise in a variety of industries and will frequently customize a borrowing solution outside of the ' credit box ' of a Canadian chartered bank.

6. In some cases, an asset based lender will consider an ' over advance ' of the facility - allowing the company to temporarily borrow beyond the approved limit. A firm's cyclical nature will often be the driver in a request for an over advance - a classic example is when sales are slower but there is a need for inventory build-up due to seasonality. In other cases a borrower might be viewing an opportunity to acquire a large amount of product at special pricing.




At 7 Park Avenue Finacial, we strive to provide a balanced approached to the bank vs non-bank credit line facility debate.

So it's important for ABL borrowers to understand that the cost of business credit lines in the asset based lending environment will almost always be more expensive, and must be factored into the final borrowing decision. Many companies feel that need to constantly update their reporting places some level of burden on the company. Asset based credit lines provide the lender with the ability to control the business cash account when the borrowing base is lower than the approved operating line of credit amount.



Asset credit lines also differ substantially from a bank business loan in that they will almost always lend against your fixed assets as a part of your borrowing line. That's a key difference, especially in companies that are capital intensive.


If you're looking to ensure your search for operating finance and a business credit line operating loan is a boom, and not a bust, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your operating loan and corporate loan needs.





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

Business Credit Line Operating Loan Solutions Canada