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When corporate partners and venture capital aren't available or don't make sense the Canadian business owner/manager turns to debt capital and asset-based financing choices for working capital and asset monetization. Wouldn’t it be great to have some solid choices in that area? The reality is that you do but just might not know it. Let's explain some key things around asset based lending.
We suppose we can make the case that when it comes to asset based loans debt is lower risk than equity, plus we always know what’s going on vis a vis payments of principal and interest. The potential danger is that by virtue of your covenants and the collateralization of assets they may be claimed by your lender who is primarily interested in protecting their capital.
We sometimes think that the above scenario is how the business owner/manager believes the lender wants to behave. That certainly is not so, as what lender would really want to be repaid from the normal operations and cash flows from your business.
THE ASSET BASED LOAN IS COLLATERAL LENDING OF SALES AND ASSETS
The actual ' assets' of your business are what normally drives most of the business financing in Canada. Because these assets have specific values balance sheet accounts such as buildings, inventory, and receivables are in fact the collateral behind your borrowing when it comes to ' asset based lending '. No mystery there. It's a classic example of balance sheet finance.
The alternative to hard asset collateral is the cash flow monetization of assets. And, oh yes, you can actually borrow against future cash flows, sometimes even on an unsecured basis if you can prove that historical and future cash flows are real and reasonable and carry a normal element of risk.
CAN YOUR COMPANY MEET THE TWO KEY CRITERIA IN CASH FLOW LENDING
How does the lender in Canada measure the risk of cash flow and debt repayment? This is primarily done via two rules of thumb
The cash flow formula is known as EBITDA
The ratio of total debt to your total shareholder equity
These ratios and calculations are then typically embedded into a loan document that makes them, in essence, a condition of the loan. The bottom line, a healthier business with good cash flow and low or reasonable debt has a great chance of achieving more debt capital. If EBITDA and debt/equity are ' out of whack ' then it's safe to say that challenges in obtaining debt capital and asset financing will ensue!
CONSIDER SHORT TERM FINANCING OPTIONS VERUS LONG TERM SOLUTIONS
When accessing both debt capital and asset financing it's important to determine what category or timeframe you are looking to address. By that, we mean short term financing of one year or less, typically business credit line solutions, or long term financing that typically might be 3-5 years, and finally an ongoing line of credit financing for your daily ongoing operations. The asset based lender establishes an ongoing borrowing base certificate on which you can draw down against accounts receivable and inventory.
BANKS VERSUS ASSET BASED LENDERS AND NON BANK COMMERCIAL FINANCE COMPANIES
While debt capital in Canada primarily comes from banks, insurance companies and pension funds for medium-sized to larger corporations there are numerous independent commercial finance companies and asset-based lenders that address the start-up and SME sector in Canada. It' all about knowing who to turn to and when. The key point to remember? It's a simple one. Assets can be financed!
CONCLUSION
The bottom line today. Pretty simple - simply that asset financing and cash flow financing for debt capital is available through collateralizing your receivables, inventory, equipment, real estate, etc. The trick is knowing who, what, when, and where! Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your debt capital and asset finance needs and choices.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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.
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
