Working Capital & Business Lines of Credit and Loans To Optimize Cash Flow

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YOUR COMPANY IS LOOKING FOR CANADIAN  BUSINESS FINANCING SOLUTIONS!

 

HOW TO MASTER BUSINESS CASH FLOW VIA WORKING CAPITAL AND LINE OF CREDIT SOLUTIONS

 

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

 

 

WORKING CAPITAL LINE OF CREDIT SOLUTIONS 

 

 

" If you can't manage your cash you can't manage your business " - Grant Cardone 

 

Business lines of credit & the right loans for your business deliver on working capital, cash flow, and growth for your company; they can come at a painstaking price it seems sometimes.

 

We're exploring the strategies that allow you to have business financing success in this area. Let's dig in.

 

 

WHAT IS WORKING CAPITAL? 

 

Working capital is all about the amount of cash a business can generate to fund day to day expenses and operations of the business. Business lines of credit allow a company to borrow up to predetermined limits and repay as cash flows come into the business. Working capital lines of credit loans and other monetization strategies give a company the flexibility to cover short-term obligations as sales revenues and expenses fluctuate.

 
  
FUELING  BUSINESS GROWTH-  WORKING CAPITAL AND A LINE OF CREDITS BOOST THE GROWTH OF YOUR BUSINESS   

 

 

When business owners and financial managers have successfully negotiated working capital facilities or term loans it should not be the end of the story. By that, we mean that the business owner and financial managers must continually focus on what the bank or other financial institution requires, and more importantly, how lenders view the customer from a control point of view. So how does the lender exert control over your business?

 

 

USING THE BALANCE SHEET TO FUEL BUSINESS GROWTH 

 

Knowing the balance sheet must be a top focus for the business owner - once a firm is over-leveraged, i.e. borrowing too heavily, the bank or commercial lender generally starts positioning around their overall security or your ability to de-leverage.

 

Balance sheet accounts in the working capital equation include inventories, accounts receivable, and pre-paid accounts - Short term liabilities include payables, emergency repair costs,  and fixed costs around items such as rent, utilities, etc, Some businesses must balance deferred revenue and accrued expenses in their day-to-day cash management of everyday business expenses.

 

UNDERSTANDING YOUR CASH FLOW  'TRIGGERS '

 

Borrowers must be comfortable and knowledgeable about the use of 'triggers '. Triggers are the implied actions the bank or institution will take when things aren't working out. This can include everything from general poor financial performance to very specific pre-agreed-upon financial ratios. And the business owner must remember that he or she agreed to and concurred with these ratios.

 

  

BANK FINANCING FOR BUSINESS NEEDS  

 

Banks want to see cash flow ' flowing ' - flowing to repay their debt - so there may be triggers put in place by the bank to ensure that minimum cash flow standards are kept, and also that owners and shareholders do not withdraw excess funds.

 

Over time business owners will probably find, in our experience, that the bank and business credit union restrictions either tighten up or loosen, depending of course on the overall comfort level the bank has with the firm. Clearly, firms that seem temporarily challenged in profits and balance sheet quality will receive much more scrutiny when it comes to approval for working capital lines.

 

Business owners can do some very solid and valuable preparatory work in the negotiation of bank triggers. If they have a solid long term history of earnings this should be a very strong negotiating point with the institution.

 

 WORKING CAPITAL IN BANKING 

 

Simply by self-introspection of the firm can the owner or financial manager focus on what is going to go wrong regarding sales, pricing, forex, etc? The owner needs to be able to talk about these issues and show how he could address them. Also, remember that traditional lending sources such as banks are not the only way to finance a business these days.

 

 WORKING CAPITAL FINANCING OPTIONS 

 

Other solutions in the alternative sector for SME/small business owners  include: Choosing the right type of financing for your business needs

 

A/R Financing/ Factoring

Inventory Loans

 Purchase Order Financing

Non bank asset based lines of  revolving credit

Tax Credit Financing

Sale leasebacks

 

Using 'what if 'scenarios help immensely and will position yourself as knowledgeable about your business.

 

Discussions with your bank need not be absolute and immediate on any time of loan negotiation - you can get a great informal sense of what the bank is thinking and work from that point forward. Try and read between the lines as to what is hot, and what a Vis is not with the bank Vis their perception of your firm, industry, etc.

 

In summary, business owners need to show maximum flexibility in working capital and loan negotiations. Negotiations should be from strength, accentuating the positive.

 

Example - strong forecast sales and profits can potentially offset a weaker balance sheet. That's when those alternative financial solutions should well be investigated. Trade-offs with the bank are also encouraged - and fewer triggers and covenants are better than more! Understanding the pros and cons of using a line of credit facility is key to effective business cash management.

 

 

 

' Never take your eyes off the cash flow because its the lifeblood of business ' - Richard Branson

 

 

 

 

 CONCLUSION  - SECURE YOUR BUSINESS FUTURE VIA FLEXIBLE  WORKING CAPITAL SOLUTIONS 

 

And yes, there is more than one bank in the world for small businesses, although business owners should be cautioned that shopping around is not always optimal, and can in fact backfire, particularly for a small business. Business owners beware! Speak to 7 Park Avenue Financial,  a trusted, credible, and experienced Canadian business financing advisor who can help avoid those painstaking finance errors.

 

  

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION 

What is working capital, and why is it important for businesses?

 

Working capital is the funds availability that a company has that allows it to cover day-to-day operations Maintaining effective cash flows in the business allows the company to operate effectively and manage current liabilities such as accounts payable - A positive working capital position allows a business to capitalize on short-term opportunities.

 

What is a line of credit, and how does it differ from other types of financing?

Business lines of credit are a type of loan financing that allows a company to draw down on funds - Unlike term loans these facilities allow a business to pay interest only on funds that are used and drawn down on the facility - In optimal situations, business credit lines fluctuate according to sales and cash inflows from collections.

 

  

How can businesses determine their working capital needs, and what factors influence the need for cash flow?

 

  

Businesses determine working capital needs by utilizing financial measurement techniques such as the current ratio formula which subtracts current liabilities from current assets on the balance sheet to provide a net working capital amount as an example.  Other factors include the size of the business and the asset turnover in key balance sheet accounts such as accounts receivable and accounts payable. Some businesses and industries have a seasonal business aspect to sales revenues which also impacts cash needs.

 

What are the benefits and drawbacks of using a line of credit for working capital?

 

Companies that utilize a line of credit for working capital need to benefit from the flexibility to access funds as needed when there is a cash flow shortage  - Drawbacks for business owners to consider include interest rates and costs of financing and the danger of overborrowing or over-reliance on the facility.

 

 What are some alternatives to a line of credit for working capital, and how do they compare?  

 

Alternative financing solutions to a line of credit for a company's working capital needs that are short term financing based include financing solutions such as business credit cards and invoice financing, aka ' factoring ', as well as merchant cash advances which are short-term working capital loans repaid on an installment basis based on a credit limit calculated around monthly revenue and owner personal credit score and credit history. This type of small business loan / working capital loan is easily accessible but more costly.

Many firms use invoice financing as an alternative to a traditional bank business line of credit when traditional financing is not available to the business. This also eliminates overreliance on lines of credit. This method of financing allows funds to be deposited into the business bank account as sales are generated.

 

 What are some best practices for managing working capital and using a line of credit effectively?  

 

Businesses can utilize best practices around working capital management that include maintaining regular cash flow forecasts and monitoring asset turnover utilizing calculations for days sales outstanding and inventory turnover. Cash flow facilities should not be used to fund long-term assets - these assets should be funded via the use of equipment loans and lease financing which allow a business to match cash flow to useful asset life.

 

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

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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

Revolving Loans And Business Credit Facilities In Canada

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Business credit facilities in Canada increase your firm’s ability to access the cash flow and working capital you need to run and grow your business. At the same time, the challenge of accessing these revolving loans has many firms feeling as if they are temporarily ' off the grid ' when it comes to business financing needs. Let's dig in.


Properly structured revolving loans allow your business to access credit for day to day operating facilities. In some ways they are the ultimate in flexible financing given how they are repaid, and ' revolve ', allowing you to constantly ' re-borrow ' to meet cash flow needs. It is critical to not confuse an operating line of credit with term loans, which have fixed repayment, typically on a monthly basis for anywhere from two to 5 years most often.

Interest rates are a key consideration in a revolving credit facility and rates are typically not fixed when a bank facility is in place. Alternative lenders who offer non-bank business lines of credit typically do not utilize variable rates for their facilities. At the end of the day both Canadian bank and Non-Bank lenders provide solutions that allow you to fund and replenish working capital for ongoing operations and growth. The non-bank lender will charge more for their facilities but in most cases the amount of credit they provide to your firm would typically not be available from a bank.

WHAT TYPE OF BUSINESS CREDIT LINE IS BEST FOR YOUR FIRM?

It is important to distinguish between secured Business credit facilities  as opposed to unsecured lines of credit. Typically banks and Asset Based lenders will offer a facility that is secured by the assets of the business, as well as a focus on the firm's ability to generate sales. The current assets of the firm, typically cash on hand, accounts receivable, and inventory are the main security for the majority of facilities. External collateral will often be secured under the same facility, and that will be fixed assets and real estate if applicable.

Typically the 'ABL ' ( Asset Based Lender) will offer a larger facility as their ability to understand and work with your asset based is a key differentiator in non-bank lending. They will almost always margin receivables and inventory to a larger extent than Canadian chartered banks. Their focus on the value of the assets is very different to bank lending which has a larger focus on operating cash flows, profits, balance sheet ratios, external guarantees of owners, etc.

Many facilities these days are offered under the term ' Working Captial Loans '. These facilities are in effect short term loans based almost solely on the sales of your firm. They are not tied to margin formulas around a/r and inventory, instead, loans are made based on the annual sales revenue of the business. Loans typically are based on a formula of 15-20 percent of your annual sales and are paid back on a daily, weekly, or monthly basis, specifically geared to your cash inflows.

These loans are quite expensive, and around out of the MERCHANT ADVANCE industry that provided credit to retailers who to don't sell in the B2B/Business to Business marketplace. No collateral is taken on these loans, and they often rank behind any of your other secured creditors or senior lenders . The personal credit history of the owner is a key discussion point in the approval process. These ' unsecured' facilities are not really a line of credit for businesses in the true sense of the word.

TERM LOAN OR BUSINESS LINE OF CREDIT? WHAT TYPE OF BUSINESS CREDIT SOLUTION SUITS YOUR FIRM?

We've shown the differentiation of a business revolving credit facility versus short term working capital loans. The other item to consider is whether a term loan of a revolver facility is best for your firm. Term loans are typically cash loans based on the historical cash flow of the business. Loans are typically 2-5 years in length and provide a permanent cash flow injection into the business.


Qualifying for a term loan is significantly more different than a business credit line , given the credit line is focused more on the assets of the business, both current and fixed, while term loans are repaid typically monthly, over a defined period of time, based on cash flow. It would not be unusual that a business line of credit would be repaid and used many times over during the time that a term loan would be in place. So think of the credit revolver as your short term operating needs, accessing funds based on sales and asset turnover.



When firms are ' off the grid ' they are financing themselves successfully - they are business finance ' self-sufficient '. What then are the qualifications your company needs to access business credit lines, and are there choices?



Revolving loans always come down to borrower assets. This type of loan is either offered by a Canadian chartered bank, as well as independent commercial finance companies.

BANK LOANS FOR BUSINESSES

Canadian banks offering a revolving facility are focused on a credit limit that will fluctuate according to the borrowing limit. Paying that facility down regularly as you generate sales and collect receivables is key to a bank type facility. For a commercial line of credit you are only paying for what you have drawn down on the facility and interest costs decrease with less use of the facility. This allows your business to capitalize on sales opportunities.

Bank credit lines usually are margined against only inventory and receivables and margins are more conservative than asset-based lending facilities. Banks structure lines of credit as 'demand' loans callable at any time. Normally the bank facility is shown under current liabilities as typical credit lines are reviewed annually with the current liability limit of 12 months.



A bank line of credit approval has requirements that are very clearly defined, as businesses must demonstrate shareholder financial commitment and growing sales and profits, as well as the ability to produce properly qualified financials and more often than not a business plan or cash flow projection.


The two asset categories primarily driving your ability to access a business credit line are accounts receivable and inventories. While these two ' current assets' on your balance sheet can be financed separately they are best combined in either a bank credit line or commercial asset based line of credit.




Understanding the approval process is key to success in business credit lines. Factors that a bank or commercial lender will consider will be the size of your facility, the overall credit profile of the business and your ability to generate cash flow from sales to ensure the facility revolves properly. While banks might place emphasis on personal credit scores this is less so when dealing with a non-bank asset based lender .

How Does The Revolving Line Of Credit Facility Work?

The use of the business line of credit is tied to your need for funding your daily operations as they relate to working capital and cash flow, In any business sales fluctuate for a variety of reasons and expenses will not always match incoming and outgoing cash flows. The ability to draw on your line of credit facility and then replenish it as receivables are collected is the key to credit availability. Typically banks will review the facility annually, sometimes more often and ongoing credit will be based on sales and the circumstances around your financial performance as they relate to profits and cash flow generation.



Companies can in a way almost pre-determine their qualified credit line borrowing amount. That's because both the banks and commercial finance firms lend between 75-90% against receivables and specific percentages against inventory. While not all companies carry inventory these days it's important to note for those that do the actual quality and marketability of the inventory play a key role in assigning a borrowing percentage.



Companies who do best in accessing business credit lines from banks or finance companies typically demonstrate that they can ' turn over' assets - specifically collect their receivables and generate inventory turns. That type of positive operating performance distinguishes many firms who successfully can access revolving business credit facilities.



Rates and financing costs associated with revolving loans vary. While the lowest cost and flexibility is associated with banks the non-bank commercial asset based financing industry almost always address the needs of borrowers with assets, albeit at a higher cost.



In today’s competitive financing market many ' niche ' subsets of business credit facilities exist. These potential alternate solutions include:



P O Financing

Tax Credit Finance

Letters of Credit

Royalty Financing


Business owners and financial managers should review the need for a credit line facility as the requirement to bridge the cash flow gap in your cash conversion cycle - helping you fund the working capital needed as a dollar flows through your business in different timelines.



If your firm wants to get ' back on the grid ' when it comes to commercial borrowing needs seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help your firm identify best financing solutions.





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

Revolving Loans Business Credit Facilities 7 Park Avenue Financial

How To Manage Costs Of Sales Of Receivables Via Factoring – Business Cash Flow Financing Explained!

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A Better Alternative – Understanding A/R Financing Costs

Information on how to understand and manage the costs of sales of receivables when utilizing the business cash flow strategy known by most business owners as factoring or invoice financing

When Canadian business owners and financial managers contemplate sales of receivables as a business cash flow strategy often the cost, and understanding the dynamics of that cost is top of mind. In general A/R financing, aka ' factoring' is somewhat understood in the Canadian business financing marketplace. And if it isn’t understood, it certainly is not as well known as to its mechanics, benefits, and how to do it the pr
When Canadian business owners and financial managers contemplate sales of receivables as a business cash flow strategy often the cost, and understanding the dynamics of that cost is top of mind. In general A/R financing, aka ' factoring' is somewhat understood in the Canadian business financing marketplace. And if it isn’t understood, it certainly is not as well known as to its mechanics, benefits, and how to do it the proper way.



We have often thought that it's simply that when firms are usually entertaining a new cash flow or working capital strategy it's because ' dire straits' have set in, and the company finds itself short of cash or generally unable to meet obligations on both operating expenses and other debt such as equipment leases, etc.


We have often preached that some of those basic problems can be fixed without external financing, i.e. a stricter credit granting policy, better matching payables outflows to A/R inflows.


However, when it’s absolutely certain that a new business financing strategy is required A/R financing is certainly one that thousands of firms are considering everyday. Why? Simply because it brings fast efficient cash flow to your firm through the sales of receivables. The way that A/R finance works couldn’t be more simple- that why we're often dismayed when we learn clients have been misinformed or led astray on pricing and factoring mechanics on day to day operations... simply speaking... how it works!!


If we had to simply one key benefit of factoring pricing it’s simply that you are only paying for the financing you are using. Using a simple (that’s our style by the way!) example of a 100.00 invoice it works as follows. As soon as you generate the invoice and can validate internally that you have shipped or earned the revenue for your product or service you receive a large amount, typically 90%, as an immediate payment for the sale of that invoice.


We can hear you already. ‘What about that other 10%"? The industry terms that the holdback and you get that back, less the financing cost, as soon as your customer pays. And by the way, if you have a number of accounts, and are utilizing an a/r finance strategy doesnt it make common sense to sell, or ' factor' your better paying customers. That’s because, as we have said, you only pay for what you use and your financing costs are decreased with those better paying customers.


Many of the benefits of factoring are overlooked because of the cost factor. We won’t even mention that your company now has the ability to simply survive sometimes, but more importantly, think Sales! Revenue! It's these lost opportunities that no longer are ' lost' since you are now immediately cash flow positive - what an exhilarating feeling that must be. Instead of uncollected A/R the left hand side of your balance sheet now shows ' Cash on hand’!


In Canada the ' fee' to sell a receivable is in the 1-2 % range on a monthly basis. The danger is when clients compare this directly to commercial bank interest, which in many ways is the wrong analogy. And remember, there is not debt here, you're monetizing or cash flowing assets on your balance sheet. In many cases we see you now have the ability to double your revenue without taking on additional debt, if in fact that debt was available to you.


Looking for the inside scoop? Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in ensuring that sales of receivables as a business cash flow strategy , if done properly, with the right partner, is a solid path to growth and success.

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

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

Click here for 7 PARK AVENUE FINANCIAL

http://www.7parkavenuefinancial.com


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.
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 finance executive 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.

Stan Prokop

Canadian Business Capital – Bank Business Lines of Credit & Alternatives

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Canadian Business Financing - Tried & Tested Real World Alternatives

Information on acquiring bank business lines of credit in Canada. How are these facilities secured, how do they work, and are their alternatives to business capital requirements other than the bank?

Business Capital. Easier said than done, right? Let's examine how  bank and other secured lenders offer business lines of credit - More importantly, we're going to bet a dollar ( we're conservative by nature!) that you might not be aware of some other options and alternatives for business line of credit financing !

Business operating lines are used to finance your investments. Your investments in   receivables, inventory, and other current asset accounts of course.  Canadian banks willingly offer these credit facilities (no seriously, they do) but the quality of the collateral they take is critical to that offering!

So how do the Canadian banks structure that facility in order to be made whole and feel comfortable in providing you with that business line of credit that is so badly needed for working capital and cash flow financing.  For a starter, they take a first charge on the actual assets that are used to margin the facility - those current assets are  accounts receivable, inventory (  raw materials, work in process and finished goods ) , all secured via a common security agreement which is typically referred to as a GSA ( General Security Agreement )  . You'll of course be surprised at how un - general and very specific this agreement is!

So once you have a bank operating line of credit how long does it last for. In our experience these facilities are renewed on an annual basis - with the two criteria for renewal being your business financials of course, as well as how the account has operated over the past year.

How are limits established for bank business lines of credit in Canada? Typical ' ratios '' or ' margining ' as we have called it are 75% of accounts receivable under 90 days, and some per cent age of inventory. It's only our opinion, but Canadian chartered banks really struggle with the inventory component of your business lines of credit - most typically because they can’t be expected to have experience on the value and disposal of all types of inventory.  So typically you are very luck if you can get anywhere from 10-50% inventory financing on the value of your inventory.

Do your customers ever find out about how you are arranging business capital? Not really, the security is registered at a central registry, but clients and suppliers are never notified unless, of course, your loan is called.

Naturally many firms do  also require long term financing commitments for  business capital assets - i.e. those ' fixed assets' on our balance sheet . Typical bank term loans in Canada range from 3-5 years, sometimes longer, and have strict repayment and cash flow coverage requirements

As many Canadian business owners know, often personal assets are also charged as extra collateral for business lines of credit in Canada.  These include cash savings, home equity, cash surrender value of life insurance policies, etc.

So why do the majority of Canadian business owners and financial managers always try to get bank financing in place. In might just be force of habit, but we think two other factors play a role. They are the cost of bank financing in Canada (its low!) and, as importantly, their lack of knowledge of other financial options.

There are other financial options for business capital in Canada other than the banks? Yes, there are! Prudent owners and managers should investigate ever growing alternatives including asset based lending, confidential invoice financing, tax credit financing, and purchase order financing, and unsecured cash flow loans. How's that for alternatives!

To more closely explore traditional or alternative options in business capital in Canada consider talking to a trusted, credible and experienced Canadian business financing advisor, who can put you on the path of business lines of credit that make sense.

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

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com


Click here for 7 PARK AVENUE FINANCIAL
http://www.7parkavenuefinancial.com


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.
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 finance executive 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.

Stan Prokop

Working Capital Lines of Credit and Loans That Work - Not Just For the Bank!

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Working Capital Lines of Credit and Loans That Work - Not Just For the Bank!

When business owners and financial managers have successfully negotiated working capital facilities or term loans it should not be the end of the story. By that we mean that the business person needs to continually focus on what the bank or other financial institution requires, and more importantly, how they view the customer from a control point of view - i.e. are they in control or able to exert control on your business.

The balance sheet must be a top focus for the business owner - once a firm is over leveraged, i.e. borrowing too heavily, the bank generally starts positioning around their overall security or your ability to de-leverage.

Borrowers must be comfortable and knowledgeable about the use of 'triggers '. Triggers are the implied actions the bank or institution will take when things aren't working out. This can include everything from general poor financial performance to very specific pre agreed upon financial ratios. And the business owner must remember that he or she agreed to and concurred with these ratios.

Banks want to see cash flow ' flowing ' - flowing to repay their debt - so there many be triggers put in place by the bank to ensure that minimum cash flow standards are kept, and also that owners and shareholders do not withdraw excess funds.

Over time business owners will probably find, in our experience, that the bank restrictions either tighten up or loosen, depending of course on the overall comfort level the bank has with the firm. Clearly firms that seem temporarily challenged in profits and balance sheet quality will receive much more scrutiny.

Business owners can do some very solid and valuable preparatory work in negotiation of bank triggers. If they have a solid long term history of earnings this should be a very strong negotiating point with the institution. Simply by self introspection of the firm can the owner or financial manager focus on what is going to go wrong re sales, pricing, forex, etc. The owner needs to be able to talk to these issues and show how he could address them.

For a start calculate your own key operating ratios, if they are going to be discussion points with your bank or institution you might as well know your numbers now. Using 'what if 'scenarios help immensely and will position yourself as knowledgeable about your business.

Discussions with your bank need not be absolute and immediate on any time of loan negotiation - you can get a great informal sense of what the bank is thinking and work from that point forward. Try and read between the lines as to what is hot, and what a Vis is not with the bank Vis their perception of your firm, industry, etc.

In summary, business owners need to show maximum flexibility on working capital and loan negotiations. Negotiations should be from strength, accentuating the positive. Example - strong forecast sales and profits and potentially offset a weaker balance sheet. Trade-offs with the bank is also encouraged- and fewer triggers and covenants are better than more! And yes, there is more than one bank in the world, although business owners should be cautioned that shopping around is not optimal at all times, and can in fact backfire, particularly a small business. Business owner beware!

Stan Prokop is the founder of 7 Park Avenue Financial. See http://www.7parkavenuefinancial.com. The company originates business financing for Canadian companies and is a specialist in working capital and asset based financing of all types. For more information or contact details please see: http://www.7parkavenuefinancial.com/Home_page.html.

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

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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.
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 finance executive 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.

Stan Prokop





















Article Source: http://EzineArticles.com/expert/Stan_Prokop/432698


Article Source: http://EzineArticles.com/3679339









Article Source: http://EzineArticles.com/3679339