YOUR COMPANY IS LOOKING FOR A CORPORATE LINE OF CREDIT!
We've Got Your Unsecured Business Lines Of Credit Solution - The Business Line Of Credi Canada
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
SECURING A CORPORATE LINE OF CREDIT - BEST PRACTICES
"Money is a terrible master but an excellent servant." - P.T. Barnum
A corporate line of credit in Canada. And what in fact does ‘ HATKE ‘ mean? It’s actually a Hindu term for ‘ different ‘, so why do firms, including your competitors by the way!.. seem to get commercial banking facilities in place in a timely fashion, and with amounts and terms and conditions and covenants that suits the needs of small business and the SME sector.
At the same time, your firm struggles to achieve the senior financing you need to grow... or survive. Let's change that.
THE POWER OF PRE-APPROVED FINANCING
We think it's all about strategy smarts and attitude when it comes to a credit line, we'll share with you how we do it at 7 Park Avenue Financial and we'll let you decide. Let's dig in!
WHAT IS A BUSINESS CREDIT LINE AND HOW DOES IT WORK?
Unsecured business credit lines are a type of financing that provides your company with access to credit for day-to-day business expenses based on a pre-approved limit - those expenses might be items such as payroll, payments to suppliers, etc.
This is a very flexible form of financing that helps business access and manage business cash flow as well as allows the company to invest in growth opportunities. Businesses are paying for the financing they use - so it's a short-term financing solution.
Typically a business needs a business line of credit because they have an investment in accounts receivable and inventory that reduces cash flow. Getting a business line of credit can be a challenge for many companies because traditional financing such as that offered by Canadian banks requires firms that have a solid combination of cash flow, collateral, and owner guarantees. Many firms are turning to alternative lenders who provide asset-based lines of credit that work in a similar manner but don't have the constraints of bank credit lines.
BUSINESS CREDIT CARDS
Business owners should think of a business line of credit, aka ' line of credit LOC ' as a loan that revolves around a specific limit that will meet their short-term business needs, allowing them to finance shorter-term working capital needs. A business credit card is useful but not a solid best solution for funding short-term obligations on a regular basis. In today's low-rate environment typically both a fixed and variable rate is offered on bank-type solutions.
There are different circumstances surrounding your need for an unsecured line of credit facility - i.e. a revolving line of business credit with an appropriate credit limit that meets your funding and growth needs. In some cases you have a longstanding relationship with the bank already - it’s just that you need more funding. In some cases, you're up for renewal.
CANADIAN CHARTERED BANK LINE OF CREDIT REQUIREMENTS FOR APPROVAL
In a perfect world, you want to achieve an agreement with the bank that you're in a position to meet covenants, grow your business reasons, and that you have the ability to produce regular financial statements and reports that back up your facility. In the case of the majority of bank lines, today in Canada for private firms in the SME /middle market sector business owners also have to be prepared to address the personal guarantee issue. They never like doing that! Who does?
WHY AREN'T YOU " BANKABLE "?
Another solid way to address why a corporate line of credit can’t be achieved is to put yourself in the shoes of the other party, i.e. the bank. Ask yourself or your financial management team why in fact the bank would decline a facility, not renew it, or decide not to increase it. In other words, to use a term the financial folks use - why aren't you ' bankable '?
IS YOUR BUSINESS ' UNDERSTANDABLE'? !
One basic reason, aside from some of the required fundamentals, is the reality that your business is not easily ' understood ‘. So if you don’t demonstrate how your business works (typically it's called the 'operating cycle’) and why you need cash flow and when you need it you are in fact somewhat doomed to failure in your search for financing.
Technology-type businesses might be a great example of a challenge in financing - at the opposite end of the spectrum if you are manufacturing nails then the business model is somewhat clear! At 7 Park Avenue Financial, our goal is to make your business understandable for business financing solutions.
NEED A BUSINESS PLAN AND CASH FLOW PROJECTIONS? LET 7 PARK AVENUE FINANCIAL PREPARE THAT FOR YOU
A strong executive summary or business plan is critical. We favour concise overviews that identify succinctly what industry you are in, a financial recap of recent sales and profits, an overview of the supplier and client base, and a positive spin on the factors that affect your industry
HOW DO BANKS AND ALTERNATIVE LENDERS ASSESS BUSINESS CREDIT LINE NEEDS?
What does the banker do with that information? They put it into the context of the fundamentals we have spoken about. The majority of credit approval decisions in banks today, in fact, all decisions when it comes to corporate credit are made by a man or woman that you'll never meet. They are in the bowels of the bank and are trained to assess risk and evaluate financials.
QUALIFYING FOR A BANK CREDIT LINE
They in fact will focus on cash flow, collateral, historical and projected profits, and ratios and covenants. Could anything be more exciting than those? We're financial types ourselves, so we actually do get excited about those, but we digress...
For small business owners, the interest rate on either business credit cards or a small business line of credit will be tied to a credit score and net worth analysis by a bank. Credit history and personal credit always weigh heavily on credit decisions when it comes to SME COMMERCIAL FINANCE.
The bottom line is that the best business line of credit is one that matches your needs when it comes to day-to-day funding and long-term growth possibilities as your sales grow. Interest rates are important and should be considered but ultimately access to capital in lieu of new owner equity injection is the most probable solution for business growth.
CONCLUSION - MAKE THE MOST FOR BUSINESS LINES OF CREDIT FOR GROWTH AND SUCCESS
So our key point today. It’s all about understanding the process around business lines of credit and doing it right. Be in a position to create a finance proposal that will get your company the corporate line of credit that you in fact need. The business line of credit rates will vary with your overall credit profile.
NEED HELP?
Need some help? Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with business advice and finance needs.
FAQ: FREQUENTLY ASKED QUESTIONS/ PEOPLE ALSO ASK / MORE INFORMATION
What is a corporate line of credit, and how does it work?
A corporate line of credit is a method of financing that allows a company to borrow funds on an ongoing basis within a predetermined credit limit set by the bank or other commercial lender - Unlike term loans lines of credit are a solid method of cash flow management because facilities are a revolving credit according to the inflows and cash outflows of the business and require no minimum monthly payments.
Businesses pay interest only for the amount of facility that is used. Interest rates vary with the type of lender and size of the facility and the overall credit quality and business credit score of the borrower. Unlike a term loan structure loan repayment terms are not defined as installments. Lines of credit are not suitable for capital investments which are long-term in nature - so for small businesses, long-term assets should be financed via equipment loans or equipment leases.
What are the advantages of using a corporate line of credit?
The advantage of a corporate credit line is that it is a short-term financing solution that gives the company flexibility to manage cash flows - Understanding the pros and cons of using a credit line for short-term financing is key - Facilities revolve and are drawn down only as needed - this type of business finance solution allows a business to better manage andy seasonality or cyclicality in the business, as well as allowing the company to address unexpected short term liabilities and expenses. Leveraging a corporate line of credit for growth opportunities is a key advantage of this type of facility. Major banks offer significant online banking services with business bank account offerings.
What are the risks of using a corporate line of credit?
The risk in using a corporate credit line is that the business may rely too heavily on the facility and place less emphasis on overall financial risk management. Depending on the type of facility and financial institutions or commercial lenders external collateral and personal guarantees may be required to secure the facility - analyzing the impact of interest rates on the facility is key to good business financial management and helps business owners navigate the risk and rewards of such a facility.
One potential risk of using a corporate line of credit is that businesses may become too reliant on it and find themselves unable to pay back the borrowed funds. Additionally, interest rates on lines of credit can be higher than those on traditional loans, and businesses may need to provide collateral and proof of creditworthiness to secure the line of credit.
How do businesses qualify for a corporate line of credit? Can Your company meet the business line of credit requirements?
To qualify for a corporate line of credit a business must demonstrate either sufficient business collateral in the case of asset-based lenders or solid creditworthiness for unsecured credit facilities from banks, - Types of collateral that may be used to secure credit line include inventories, accounts receivable and potentially any commercial real estate secured by the company. A business plan will often help a company secure a credit line and should demonstrate growth potential and profitability potential.
What should businesses consider when evaluating repayment terms for a corporate line of credit?
When evaluating repayment terms for credit lines business owners and financial managers should consider factors such as borrowing costs/interest rates, miscellaneous fees and potential penalties for default of financial covenants and balance sheet ratios under the credit agreement.
How does a business line of credit work?
A business line of credit has a set amount of credit limit and a company can borrow up to that limit - Interest is paid only on the amount of funds that are drawn down on the line of credit - To qualify companies must meet general creditworthiness guidelines around past financial history, and be able to produce proper financial statements that reflect good cash flow. Businesses can draw down on funds electronically or write cheques on the business bank account. As the credit line is replenished with cash inflows to the business new availability is determined under the credit limit. Banks and commercial lenders will periodically review the facility limit based on the business performance of the company.
What are business line of credit rates in Canada?
The rates for a business line of credit in Canada will vary based on the type of lender of financial institution as well as the general creditworthiness of the borrowing company. Most line of credit rates are variable and fluctuate based on a formula geared to the bank of Canada overnight rate.
Other factors that determine the rate are the financial health of the business and the quality of the financials. Some industries may benefit or suffer based on current economic conditions in the country and industry. Businesses have the potential to access credit lines from banks or non-bank commercial lenders, with banks typically offering the lowest borrowing rates - Certain fees, terms, and conditions should be reviewed and researched by borrowers.
What is the difference between a business line of credit or a loan?
A business line of credit is different from a loan - Loans are typically term loan structures with fixed amortization and installment payments - on the other hand lines of credit are revolving credit facilities typically funded at variable interest rates.
Repayment terms under credit facilities are made via inflows of cash to the business which lowers the amount owing so the company has maximum repayment flexibility. Another major difference is that credit lines are used for short-term financing and loans are for asset purchases or long-term investments.
Click here for the business finance track record of 7 Park Avenue Financial
