Business Finance In Canada: Financing Cash Flow Allows Your Business To Take Off

 

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YOUR COMPANY IS LOOKING FOR CASH FLOW SOLUTIONS!

Maximize Profits with Expert  Cash Flow  Financing Strategies in Business Finance

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

Financing & Cash flow are the biggest issues facing business 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

 

 

 

Financing  Cash Flow: Unleashing Canadian Business Growth

  

 

 

  

 Introduction: Is Worrying About Business Finance Necessary?  

 

In the landscape of Canadian business finance, anxiety and concern seem commonplace. Is it justified? The answer lies in how you're financing your cash flow needs. By addressing these properly, your business is positioned for takeoff. Let's dig in!

  

The Consequence of Poor Cash Flow Management & The Impact on Business Operations  
 

The effects of insufficient cash resonate deeply with business owners and financial managers struggling with day-to-day working capital needs. The inability to purchase or upgrade assets, meet payroll, or fulfill debt obligations can create a high-pressure environment when the business is in a negative cash flow position.

 

Funding Daily Operations and Growth: A Canadian Business Perspective

A successful business in Canada treads on a dual path - maintaining operational sustainability while growing revenues and profits. If a company isn't generating cash and profits, it's more akin to a hobby,' which is far from how Canadian business owners perceive their ventures.

 

Can Traditional Financial Wisdom Assist? Textbook Definitions vs. Real-World Applications 

While textbooks offer well-defined definitions around cash flow, including net profits and depreciation, these rarely translate into practical solutions for the struggling business owner. Paper profits and cash flow ratios from accountants often fall short in the daily financial battle.

 

Challenges in Accounts Receivable Management & The Cash Crunch Created by Poor Financing

Delayed payment from clients exemplifies cash shortages and reverses positive cash flows the company may have enjoyed. Though paper profits might appear robust, actual cash generated and cash on hand/cash equivalents can be disheartening. Effective accounts receivable financing and payment management have become a critical success factors in Canadian business finance.

 

  

Let 7 Park Avenue Financial Help You With These Alternative and Traditional Financing Solutions  

A/R Financing (Accounts Receivable Financing):

What it is: A/R Financing allows businesses to obtain immediate cash by selling outstanding invoices to a finance company.
How it works: The company receives an upfront percentage of the invoices’ value, while the financier collects directly from customers and charges a fee for the service.

Inventory Loans:

What it is: Loans aimed explicitly at financing inventory purchases.
How it works: These loans provide businesses with the necessary funds to purchase inventory, with the inventory itself often serving as collateral for the loan. Inventory financing needs and accounts receivable investments can strain cash reserves. Both high growth and falling sales may intensify cash flow shortages. Banks in Canada often require detailed information, including historical financials, cash flow forecasts, collateral, and owner's details to justify borrowing via financing activities.

Access to Canadian Bank Credit:

 What it is: Canadian banks offer Various credit facilities, including loans and lines of credit.
 How it works: Businesses can apply for these credit products to finance operations, growth, or other needs, often requiring collateral and adherence to specific lending criteria around debt and interest payments. Unsecured bank business loans are a commonly sought-after option for small businesses seeking cashflow finance. These loans are attractive because they don't necessitate the use of personal or business assets as collateral in many cases, instead of relying on overall credit quality, but businesses need to demonstrate a strong financial track record and a promising outlook for their future cash flow in order to qualify for the loan.

 Non-Bank Asset-Based Line of Credit:

What it is: Credit lines provided by non-bank lenders and secured by company assets.
How it works: Businesses can draw funds as needed, using assets such as inventory or equipment on the balance sheet as collateral, often at higher interest rates than traditional banks.

SR&ED Tax Credit Financing (Scientific Research & Experimental Development):

 What it is: Financing based on anticipated SR&ED tax credits from the Canadian government.
  How it works: Businesses can borrow against expected tax credits for qualifying R&D activities, improving immediate cash flow.

 Equipment / Fixed Asset Financing / Sale Leasebacks

 What it is: Loans or leases used to purchase or lease equipment and business assets.
  How it works: Lease Financing is secured by the equipment, allowing businesses to obtain needed assets without depleting cash reserves and maintaining positive cash flow.

 Cash Flow Loans:

  What it is: Loans are provided based on a company's cash flow rather than collateral.
  How it works: Lenders assess the cash flow statement to determine the creditworthiness of a cash flow loan, providing more flexibility via cash inflows but often at higher interest rates.

 Royalty Finance Solutions:

 What it is: Financing cash flows  in exchange for a percentage of future revenue or profits.
  How it works: Investors provide capital upfront and receive ongoing payments based on revenue or profit, aligning their returns with the company's success.

 Purchase Order Financing:

  What it is: Financing to fulfill specific purchase orders from customers.
  How it works: Lenders pay suppliers directly to fulfill orders, then collect from customers, allowing businesses to generate cash and take on large orders without draining cash and increasing accounts payable.

Short-Term Working Capital Loans/Merchant Advance:

What it is: Short-term loans or cash flow loan advances to cover immediate operational expenses. These are structured as installment loans or short-term debt, unlike invoice financing which is  a monetization of receivables.
 How it works: Funds are provided quickly, often with daily or weekly repayments, to assist with short-term net cash needs. Working capital loans have a downside due to higher interest rates. When collateral is limited, lenders raise interest rates to mitigate risk. These loans frequently hinge on the business owner's personal credit, putting them accountable in case of any issues. When evaluating cash flow finance choices for small businesses, it's crucial to carefully assess the advantages and disadvantages.

Securitization:

What it is: Securitization is turning assets like loans or receivables that the company generates into tradable securities.
 How it works: Assets are pooled and sold to investors, providing immediate liquidity to the originator while spreading risk among investors.

These financial solutions offer diverse options for Canadian businesses to access needed capital and support various operational needs, growth initiatives, and strategic goals.

Conclusion: Finding the Right Business Finance Solutions in Canada & Identifying and Addressing Cash Flow Gaps

Determining the amount and timing of financing by identifying key gaps in future business cash flow is essential. Addressing these gaps with appropriate finance solutions sets the stage for success.

Call 7 Park Avenue Financial,  your Trusted Canadian Business Financing Advisor for business loans that make sense for your business.

Don't let business financing concerns hold you back. It's essential to understand the ability to calculate cash flow needs. We provide tailor-made solutions to help your business take off in Canada.

 

 FAQ 

 

What is financing cash flow, and why is it essential for my business?

 

Financing cash flow refers to the money generated or spent in obtaining or repaying a business's capital. This includes loans, equity, and other financial instruments. It is essential for your business as it helps maintain liquidity, supports growth initiatives, and allows for better financial planning and stability.

 

What are the different sources of financing cash flow available to my business? 

 

Various sources of debt financing and equity financing solutions for financing cash flow include bank loans, venture capital, angel investors, crowdfunding, and self-financing. The right source for your business depends on factors such as the stage of your company, industry, financial health, and specific growth objectives. Consulting with a financial professional can help you tailor the best solution.

 

How can I evaluate the best financing option for my specific business needs? 

 

Evaluating the best financing option involves understanding your business's financial situation, growth goals, and risk tolerance. Analyzing interest rates, repayment terms, and lender requirements will help you choose the right option. Working with financial advisors or utilizing financial planning tools around cash flow statements can provide a more detailed analysis tailored to your circumstances.

 

What are the potential risks and challenges involved in financing cash flow, and how can I mitigate them? 

Financing cash flow/cash flow lending can present risks such as over-leveraging (borrowing too much), committing to unfavourable terms, or choosing the wrong financing source, which causes negative cash flows. These risks can lead to financial instability or limit growth potential. A well-defined business plan, a thorough understanding of financing options, professional consultation, and continuous cash flow and obligations monitoring are essential to mitigate these risks.

 

How can I improve my business's financial health to make it more appealing to lenders or investors?

 

Improving your business's financial health involves building strong cash reserves, maintaining a good credit score, reducing unnecessary expenses, and demonstrating steady revenue growth. Transparency in financial reporting and solid business plans with financial projections indicating how much cash is needed and for what purpose can also increase trust and appeal to lenders or investors. Collaborating with financial professionals to ensure your financial statements accurately represent your business is a valuable step in this process.

 

What is positive cash flow?

 

A company has a positive cash flow when the liquid assets such as cash on hand or accounts receivable generated from operating cash flows exceed cash spent in the company. Financing cash flow business finance solutions can aid in the needs of the business.

 

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

Small Business Borrowing In Canada : Your Self Driving Solutions To Cash Flow & Capital Financing

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YOUR COMPANY IS LOOKING FOR SMALL  BUSINESS BORROWING & FINANCING SOLUTIONS!

Against the Odds: Small Business Financing and Cash Flow Solutions in 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

 

SMALL BUSINESS LOAN SOLUTIONS IN CANADA

 

Small business borrowing in Canada forces business owners and financial managers to recognize the need for cash flow and capital, but these two key areas are challenging in many cases.

What solutions are, in fact, available via business lending, and do they need to be temporary, current, or permanent? Is a ‘self-driving ‘  business loan solution available for your business goals.?! Let’s dig in.

 

INTRODUCTION

 

In today's business environment, acquiring funds is vital for businesses that aim to profit and expand. Yet, the complexity of understanding the borrowing options and their prerequisites can be overwhelming.

 

Small and medium-sized enterprises (SMEs), which form the backbone of the Canadian economy, often encounter difficulties in accessing capital and are often unable to raise equity financing.

 

Although conventional bank lending has bounced back since the major downturn in 2008 as well as the Covid pandemic,  smaller businesses frequently find the path to securing funds challenging. However, aside from conventional bank loans, Canadian SMEs have a variety of alternative lending solutions at their disposal.

 

 

WHAT TYPES OF FUNDING OPTIONS ARE AVAILABLE FOR SMALL AND MEDIUM-SIZED BUSINESSES IN CANADA

 

Securing funding for your small business involves considering various alternatives.

 

The traditional bank loan, via banks and business-oriented credit unions, requires an extensive application process. Government of Canada  Small Business Loans, which come with a federal guarantee to the bank,  are another option. These are government-backed loans specially crafted for small businesses, frequently offering more attractive terms and lower interest rates.

 

Other options include alternative lenders like online platforms known for their flexibility in requirements and quicker approval times. Factoring solutions such as  Invoice financing and short-term working capital loans are also worth considering, enabling you to leverage your unpaid invoices or projected future sales.

Business owners must weigh the advantages and disadvantages of each funding option to identify the one that best aligns with their business's requirements and financial standing.

 

 

  

GEARING UP FOR GROWTH  

 

We can't count the number of clients we meet who want to gear up for growth but can't due to business financing constraints -

 

Recent studies indicate 87% of small to medium-sized businesses want to invest more in their company - and the 7 Park Avenue Financial team can demonstrate several ways in which that can be achieved.

 

  

TRADITIONAL LENDERS VERSUS ALTERNATIVE LENDERS   

 

Traditional financial institutions like banks and credit unions have historically been the preferred choice for small business loans due to their competitive interest rates and solid reputations.

 

However, their loan application process can be quite extensive and requires thorough documentation. They often have strict credit criteria, making it hard for small businesses with limited credit history to obtain financing.

 

Alternative lending has gained popularity for thousands of businesses in Canada.  Alternative lenders offer a simplified application process with faster approvals and show more leniency towards credit requirements, making them accessible to a broader spectrum of businesses.  While financing costs and interest rates tend to be higher, they are reflective of greater risk to the lender.

 

Securing a bank loan can be a tough task due to stringent requirements like good personal credit scores, collateral, and a proven business track record.

 

Term loans, often provided by banks, have a definite duration or term and are ideal for long-term business investments and expansion. They're repaid through regular monthly installments, with interest rates dependent on the current index rate, creditworthiness, and loan term.

 

The Business Development Bank of Canada (BDC), a federal development bank and a government crown corporation also plays a role in aiding Canadian SMEs. It provides specific financing, growth and transition capital, venture capital, and advisory services. Talk to the 7 Park Avenue Financial team about BDC programs and qualifications.

 

 

HAVE YOU CONSIDERED ALTERNATIVE FINANCING? 

 

Currently, alternative financing is so popular due to its access to credit and flexibility as opposed to a business loan from the bank. Bank loans for businesses are often typical to qualify for when it comes to new or growing companies needing assets and cash flow solutions.

 

Business owners don't want to run their company on business credit cards !! - They want access to business capital.

 

ACQUIRING NEW ASSETS OR TECHNOLOGY/COMPUTERS/SOFTWARE?

 

Even hiring new people needs cash!  We always remind clients that Equipment leasing is the most solid method of investing in new equipment/technology, software, etc. In many cases, it's a permanent solution required when it comes to business loans, which necessitates a good understanding of your growth and capital needs.

 

The best way to grow sales and profits is to ensure you have the right working capital solution for your needs. A typical need we encounter with many of our clients is their ability to have enough working capital to buy inventory and fulfill new contracts and orders.

 

 

 

FINANCING CURRENT ASSETS - ACCOUNTS RECEIVABLE AND INVENTORY FINANCING 

 

You have a working capital challenge if you carry the additional inventory and receivables that come with that growth. Therein lies the challenge - what type of solution do you need, and how do you find it.  Naturally, you want a facility that meets your needs, can grow with your firm and is structured under the right terms and rates from small business lenders that want to support your business.

 

If you have a proper working capital facility or line of credit, that should generally require no permanent additional working capital funds.

 

Many business owners don't know or understand where that cash flow comes from. It comes from two areas, your ability to maximize your current assets, i.e. receivables, inventory, and purchase orders, or new debt that you are willing to take on in the form of a cash flow working capital loan.

 

Regarding the former solution, Canadian chartered banks offer the best rates, terms, and structure to maximize working capital when applying for a business loan. The challenge is that you cannot always get the money and capital you need to grow in the Canadian chartered banking environment without taking on personal risk. Also, when it comes to bank loans for small businesses, the bank places significant emphasis on the personal guarantee aspect of financing approval.

 

The key to understanding your needs is your ability as a Canadian business owner or financial manager to understand your working capital cycle - i.e. how fast do you collect your receivables, how does your inventory turn, and what are your payment terms or pressures from suppliers?

 

GOVERNMENT LOANS FOR SMALL BUSINESSES - THE SBL LOAN!

 

The Canada Small Business Financing Program is a solid business credit alternative that finances purchasing and financing of equipment, property / real estate, and leasehold improvements and is used by thousands of firms each year. In a way, it's a type of bank loan for business but sponsored by the government.

A company is eligible if it has less than 10 Million dollars in gross annual revenues. Canadian-based business solutions from the federal government should always be explored as an alternative. Interest rates under the program are very competitive and attractive from a  business bank or participating credit union. The interest rate is pegged to Canada's prime rate, and a typical maximum credit amount is in the 350k range, and business banking is maintained at your chosen branch.

 

The maximum loan amount under federal government loans is 1 Million, but that loan cap relates to real estate only - access to funds for equipment and leaseholds is typically the 350k amount.

 

You can facilitate a government loan in a financial institution such as a bank or credit. Let 7 Park Avenue Financial teamwork you quickly through the application process. No personal assets are taken as security for the Government Small Business Loan.

 

The program is a term loan structure, not a line of credit. The loan typically has monthly payments over a 2 to 5-year term. A good credit score and the owner's personal credit history are required to get flexible financing tailored to your needs. Any company or proprietorship may apply.

 

Small businesses and start-up firms will always require special expertise and assistance accessing capital and understanding costs. Here, it's important to differentiate between what type of investment you need (assets? overdrafts? cash flow?) to demonstrate the right level of owner commitment and expertise.

 

Sometimes, a detailed business plan is either required or helpful - 7 Park Avenue Financial prepares business plans that meet and exceed the requirements of banks and commercial lenders.

 

 KEY TAKEAWAYS 

 

1. Small and medium-sized enterprises (SMEs) in Canada have a range of funding options beyond traditional bank loans, despite the challenges they often face with conventional lending.

2. Traditional bank loans offer competitive interest rates but come with a complex application process and stringent credit criteria which may exclude some businesses.

3. Alternative lenders have emerged as a viable solution for businesses unable to qualify for traditional bank loans. They offer simpler application processes, quicker approvals, and are less strict with credit criteria. However, they usually charge higher interest rates to compensate for the greater lending risk.

4. The Canada Small Business Financing Program provides government-backed loans for businesses with gross annual revenues of less than $10 million, making them a practical option for SMEs.

5. Factoring solutions, such as invoice financing, offer another alternative, allowing businesses to leverage unpaid invoices or projected future sales for financing.

6. SMEs need to thoroughly understand their fiscal conditions and long-term goals to select the most suitable funding option.

7. There are tailored options like Business Development Bank of Canada (BDC) financing, traditional bank loans, and asset-based lending solutions that can be explored based on specific business needs and circumstances.

 

  

CONCLUSION

 

Navigating the complexities of securing funding for your small business can be challenging for the business owner. However, with proper knowledge and planning, business owners and financial managers can successfully overcome the hurdles of the borrowing process and secure the necessary funds for your business to prosper.

 

It's crucial to thoroughly examine different funding options, taking into account elements like interest rates, repayment plans, and associated fees. Opt for a solution that most closely matches your business's fiscal conditions, business needs,  and long-term goals.

Investigate non-traditional funding sources such as government loans. These can serve as supplementary channels of support and finance for your business.

 

Despite the obstacles Canadian small businesses may encounter in capital acquisition, there are numerous borrowing options beyond traditional banks. SMEs can look into bank loans, BDC financing, or asset based lending solutions, depending on their particular needs and circumstances.

 

If you're looking for that 'self-driving solution to business funding, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your small/medium business borrowing business needs and real-world business advice for small business financing solutions for your next step to business growth. Whether it's bank small business loans or alternative funding solutions, we've got your back on the challenges you're facing!

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is small business borrowing?

Loans are a great way for businesses to grow, but not all loans have the same terms. A term loan is one of those varieties of funding that gives business owners access to funds with a monthly payment and interest rates as lenders offer.

Small business owners often need a monetary boost for their projects and growth. Term loans can be given to them by banks, including real estate or equipment purchases as well as restaurant expansions.

 

What is the Canada Small Business Financing Program?

 

The Canada Small Business Financing Program can help small businesses in need of funding by providing loans for various purposes. 

The program can help small businesses get funding from financial institutions. Loans are available for up to $1,000,000 with a shared risk between the borrower and lender. The CSBFP offers loans that may be used to purchase equipment or lease improvements on fixtures such as new machinery, tools, etc.

 

• The Canada Small Business Financing Program (CSBFP) facilitates loans for small businesses by sharing the risk with financial institutions.
• In the past decade, over 53,000 CSBFP loans amounting to $10 billion have been granted to small businesses.
• Eligibility includes small businesses or start-ups in Canada with gross annual revenues under $10 million. Farming businesses are not eligible.
• The maximum loan amount per borrower is $1.15 million, subdivided into $1 million for term loans (with specific limitations) and $150,000 for lines of credit.
• To apply, a business must approach a financial institution (bank, caisse populaire, or credit union) in Canada. These institutions have the sole responsibility for loan approval. A good personal credit score and a business bank account is required.
• Term loans can finance costs related to commercial property, equipment, leasehold improvements, intangible assets, and working capital. Examples include financing commercial vehicles, hospitality equipment, software, production equipment, and franchise costs.
• Lines of credit can be used to cover day-to-day operational expenses.
• Interest rates vary. For term loans, the maximum is the lender's prime lending rate plus 3% for floating rates or the lender's residential mortgage rate plus 3% for fixed rates. For lines of credit, the maximum chargeable is the prime lending rate plus 5%. Interest payments can be tailored to business needs
• A 2% registration fee is applied to the total loan amount under the program, which can be financed.
• Lenders have the option of requiring an unsecured personal guarantee. Security must be taken on the assets financed or other business assets, depending on the type of financing.
• Buying existing businesses such as franchises can be funded  under the program

ChatGPT

 

 What are the factors to consider when choosing a lending option?

 

1. Interest Rate: This is a crucial factor in determining your overall borrowing costs. A lower rate can significantly reduce these costs and make loan repayment easier. However, rates can vary based on the lender, loan type, and creditworthiness.

2. Repayment Term: Shorter repayment terms generally mean higher monthly payments but lower total interest costs, while longer terms can result in lower monthly payments but increased total interest costs. Consider your business's cash flow and financial projections to select the most appropriate term.

3. Associated Fees: Be aware of any fees tied to the loan, such as origination fees, prepayment penalties, or late payment fees. Over time, these can contribute significantly to the total cost of borrowing.

4. Lender's Reputation and Customer Service: Assess the lender's reputation and quality of customer service. Look for reviews and testimonials from other small business owners to evaluate their experiences with the lender. Choosing a reputable lender with exceptional customer service can offer valuable assistance throughout the borrowing process.

 

 

How Can a business improve its chances of securing funding?

 

1. Maintain Strong Creditworthiness: One key factor lenders evaluate is your credit history. Ensure timely bill payments, maintain low credit card balances, and avoid excessive debt to boost your creditworthiness and increase your chances of securing funds.

2. Prepare a Solid Business Plan: A comprehensive business plan demonstrates your understanding of your market, industry, and financial management capabilities. It should encompass detailed financial projections, market analysis, and a clear growth strategy.

3. Build Relationships with Lenders: Consider connecting with potential lenders through networking events or industry associations. Establishing trust and rapport can improve your chances of loan approval when you need financing.

4. Provide Necessary Documentation Promptly: Be prepared to furnish all required documents like financial statements, tax returns, bank statements, and other pertinent documents. Displaying organization and responsiveness throughout the application process can reflect positively on lenders.

 

What are government grants for a business?

 

Federal and provincial grants and programs bolster small businesses, with funds allocated for diverse purposes like research and development, expansion, or job creation. Moreover, they frequently provide low-interest loans or loan guarantee schemes to stimulate small business lending. Canada's SR&ED program and the Government SBL Loan program are the 2 most widely used programs.

To capitalize on these government grants and programs, you need to research the options in your locality and scrutinize the eligibility criteria. Since these grants usually come with specific prerequisites and deadlines, forward planning and comprehensive applications are key. Many grant programs have ' matching ' criteria.

Exploring unconventional funding avenues and government loans and grants can uncover new funding opportunities for your small business. These sources can offer access to funds that might be unreachable via traditional lenders. It's beneficial to evaluate these alongside traditional loans to discover the ideal solution for your business's requirements.

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

Confused About Canadian Working Capital Finance? Cash Flow Financing Techniques That Work

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You Are Looking for Working Capital Finance Assistance! 

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

Mastering Working Capital Finance: Financing Cash Flow Solutions

        Financing & Cash flow are the biggest issues facing businesses today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

 

Email - sprokop@7parkavenuefinancial.com 

 

Boost Your Business's Cash Flow with Smart Working Capital Finance Tactics

 

Clear answers... no, even better, clear real-world solutions. That’s what Canadian business is looking for in working capital finance. And that type of financing and cash flow solution has been tough to come by over the last several years.

 

 

INTRODUCTION 

 

Working capital finance solutions are necessary for the money a business needs to fund day-to-day operations. It typically covers business expenses such as wages, rents, inventory purchases, and variable expenses. 

 

Small and large companies need effective working capital finance

 

Let's dig in on key issues the business owner needs to know -

What is working capital finance and what is it made up of

What are  financing options from traditional financial institutions such as banks

What alternative finance options are available for companies not able to access traditional financing

What is effective working capital management and what best practices should a business use

How can a business choose the right financing options based on cash flow forecast business needs

 

  

  

WHAT IS THE DIFFERENCE BETWEEN CASH FLOW AND WORKING CAPITAL?   

 

 

Cash flow is in effect a summary of the cash holdings of the business and indicates the inflows and outflows of cash over time - Companies with good income and profit with good asset turnover will have positive cash flow.  The  ' cash flow statement ' that is part of a business financial statement will show how much cash was used during the year and will reflect overall liquidity. Operating cash flow and cash flow from financing activities are also key parts of those financial statements.

 

Working capital is a measurement of the relationship of the difference between current assets and current liabilities on the balance sheet  - It can be positive and a company can also have negative working capital  - If the current assets of the business are higher than the current liabilities working capital is positive.

 

 

WHAT ARE THE COMPONENTS OF WORKING CAPTIAL? 

 

 

Let’s examine why your understanding of working capital and your ability to measure the need and the solution is as critical as ever in the competitive environment you fight every day.

 

Current assets on balance sheets are those assets convertible into cash within a year - Most common assets include accounts receivable and inventory. Current liabilities such as accounts payable are obligations the company has that are payable within the current year. 

 

Payables, Receivables and Inventory are the main components of the working capital.

 

  

Efficient Cash Flow Management Via Working Capital Finance  

 

Let's focus on some of the hard facts first. If you don’t have working capital key issues such as payrolls, loan and lease payments, inventory purchases, etc. can become big issues pretty quickly!

 

So how can you change assets and sales into the financing of cash flow? It's a one-word answer - monetization! You need to use a razor-sharp focus on monetizing (i.e. changing!) receivables, inventory, and sales into working capital to address those key issues we just mentioned above.

 

The better you do this you will find the better the patient's health will be and that patient is of course your company.

 

Canadian business owners and financial managers know that their balance sheets and income statement are related. Today we're focusing mostly on the balance sheet - The amount and relationships between those current assets such as accounts receivables, inventory, and payables can let you zero in real quickly on what some of the problems might be. (We won't forget to tell you about those solutions also!).

 

Working Capital  Mastery: The  Solution for Financing Cash Flow

 

Yes, you do need positive working capital to 'stay healthy' from a working capital and cash flow perspective.  And talk about a balancing act, if you are growing too quickly your investment in A/R and inventory hinders cash flow, and if sales are shrinking then your receivables shrinks also.

 

So, we've done the usual pretty good job (we think) of telling you what your problems are. But that’s not why you came here, right? Let’s address solutions.

 

Are there in fact real solutions that allow you to fix today’s financing of cash flow challenges, and at the same time address these issues in a long-term manner? Here's the good news. There are!

 

 

TRADITIONAL FINANCE OPTIONS 

 

Traditional financing options for working capital include:

Bank loans,

Business lines of credit

Business credit cards

Bank loans are typically long-term in nature with longer amortizations and they are repaid over a period of years. Lines of credit are short-term financing solutions that are used to cover short-term cash flow needs. Credit cards are another option for financing cash flow, but they typically come with high-interest rates and are often used for incidental emergency purchases.

 

 ALTERNATIVE FINANCING OPTIONS 

Alternative financing options for funding cash flow include:

 

Invoice financing / Factoring

Supply chain finance

Asset-based non-bank line of credit

SR&ED tax credit financing

Purchase Order Financing

Sale leasebacks

Short Term working capital loans/merchant cash advances

 

Almost all of these solutions are non-bank independent finance company solutions! We bet you did not know that.

 

All of these solutions have different levels of criteria for approval and success. Some are size-based, and some are viewed as alternatives, but boy do they work! Pricing is a factor also, and each of those solutions brings a different level of financing cost to the table.

 

WHAT ARE BEST PRACTICES FOR EFFECTING WORKING CAPITAL FINANCE MANAGEMENT

 

Good asset turnover is key to effective cash management - Inventory turnover, and a focus on days sales outstanding are solid methods of optimizing cash flows.

 

Common pitfalls to avoid include overtrading ( expanding too quickly ) poor management of inventories,  and lack of a credit and collection policy. All of these can lead to a situation where it is difficult for a company to meet business obligations.

 

 

KEY TAKEAWAYS 

 

Working Capital relates to money a business needs for financing day-to-day business operations

A/R, Inventory and payables are key components of working capital

A business can access short-term working capital or permanent working capital

 

  

 CONCLUSION     

 

Effective cash management practices are key for all businesses. Understanding what makes up working capital and the business financing options available allows a company to be well-informed about cash flow management strategies.

 

Regularly review the business working capital finance situation and adjuting to ensure adequate fund area available allows a business to operate in a smooth manner, Talk to the 7 Park Avenue Financial team to help address issues and solutions to cash flow needs.

 

Businesses that are proactive in focusing on healthy finances will always have a solid advantage over the competition as they achieve financial stability and a focus on long-term business success. 

 

If you want to investigate any of our proposed solutions to both immediately and from a long-term perspective fix your financing and cash flow issues call 7 Park Avenue Financial, a trusted, credible and experienced business financing advisor.  Those cash flow working capital solutions are just around the corner.

 

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

 

 What Are The Types of Working Capital Finance 

There are two types of working capital finance: permanent working capital and temporary working capital. Permanent working capital is the minimum amount of working capital that a company needs to operate on a day-to-day basis and meet financial obligations via the company's liquidity. Temporary working capital is the company's working capital required to finance its seasonal or cyclical activities and maintain a company's financial health around the company's ability to succeed and grow.

 

 

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

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Unlocking Business Cash Flow Financing

Business cash flow financing often requires some ' straight talk ‘. The ability to finance your company with the right loan / loans properly is one of the most powerful success forces in Canadian business. But how does the business owner/financial mgr determine where new cash flow and working capital will come from, and where it went? Let's dig in.

Working capital type loans have a multitude of purposes; in some cases it might be long term growth planning in typical business initiatives such as traditional marketing or even digital marketing initiatives, r&d capital spending, or a more robust ' feet on the street ' salesforce.

In other cases new influxes of working capital and cash flow might be required for current facilities which may be ' maxed out ' due to the constant replenishing requirement of working capital as you invest in inventory, receivables, and the purchase of new assets. It's important to note that new assets that have a longer useful economic life should never be financed with short term credit facilities.

That's a cardinal rule of business financing that many business owners / financial managers realize a little too late! Equipment leasing and financing as well as standard equipment loans are best suited for the purchase of assets. The majority of companies in North America (industry statistics say 80% )utilize lease financing. A subset of the lease finance option is ' sale leaseback ' finance, allowing your firm to keep the asset, refinance it for additional cash flow, and regain ownership of the asset at the end of the term. Commercial real estate can also be addressed as part of the leaseback process.

The new paradigm in business today is often tied to a firms investments in technology. Technology finance and tech funding needs can require a major investment of business capital. The good news is that ' IT ' (information technology ) needs can easily be accommodated in the world of lease financing. Also, it is hopefully no surprise that software, albeit an ' intangible ', can be financed, and companies can also raise working capital/cash via financing their ' SAS ' ( software as a service ) contracts.


In many cases cash flow financing makes sense because your company might not be ' asset rich ' which is certainly the case in the new economy of service-based industries that are less capital intensive. That of course means they don't have that ' hard collateral ' that typically Canadian banks are looking for.

Often the case is that your firm requires a permanent working capital injection, typically best satisfied by a working capital term loan. Here the focus is on the cash flow of the business and the ability to satisfy monthly payments which are usually over a 3-5 year term. Here the key requirement for your company is to present a defendable cash flow projection which is usually included as part of an updated business plan.

In any working capital loan or asset refinancing considerable discussion should be generated around the flexibility of repayment


There is in fact a very harsh and simple reality around your business cash flows. The answer? You've simple bought assets, or generated new assets such as receivables and inventory via monies spent.


There is a natural flow in business - it's all about paying down your debt, keeping taxes up to date, building working capital assets, and generating and taking profits


How does the owner/mgr make the right choices in raising funding for your business and keeping your financials understandable - i.e. understanding where the cash in your business is ' flowing '.


Many firms are challenged by low owner equity, which compounds the owner's ability to take cash out of the company.


Is there a simple secret to managing and financing your cash flow? The pros call this whole process ' operating cash flow ' it’s simply your profit or loss for the month plus or minus your changes in working capital accounts - we’re back to those receivables and inventories again.


External financing for your business will come from either term debt of business credit lines. By the way those business revolving credit facilities will come from either a bank or alternately a commercial finance company offering asset based credit line facilities.


When it comes to business credit lines the facilities that are most manageable are those when the credit line fluctuates significantly. Banks or finance firms will always look more favorably on your ability to constantly draw done and replenish the facility via your receivable and inventory turnovers.


Assets that need to be financing in your business might include plant and equipment assets, vehicles, as well as technology / software etc. Here a term debt options such as lease financing will almost always make the most sense.


What's the bottom line in accessing outside funding and managing your balance sheet properly. We summarize as follows:


- Develop a strong sense of how cash flows in your business- a good cash flow forecast based on your historical inflows and outflows helps


- Ensure your provincial and federal taxes are paid on time- If you have tax arrears they can often be consolidated into a new re-financing of your business


- Determine your business line of credit needs - this is a critical area of business cash flow financing. Remember that Canadian chartered banks are NOT the only credit line providers


- Finance those long term assets with long term leases or loans


- Focus on building equity in your business via good gross margins and profits

The overall quality of your ability to generate cash flow will be a dominant focus for any commercial lender. The a/r turnover and types of customers you sell to will also be a factor, and in general your accounts payable turnover should be consistent with your 'DSO ' (days sales outstanding ) performance. Taking a holistic approach to these points via what the pros call ' the cash conversion cycle ' will determine your loan success. Other ' soft factors' such as the lenders impression of your mgmt team and experience as well as personal credit histories etc should never be overlooked as a component of any loan submission.

In any commercial loan proposal there are always some key documents and information that should never be overlooked or omitted. A business plan and cash flow are key, and it should cover your requirement and use of funds, management overview, company background, as well as historical financial statements. At 7 Park Avenue Financial we prepare that document for clients with a focus on financials, not ' marketing ' or an infomercial on the company that is high on promises and short on financial delivery!


Firms with positive cash flow will always have a better chance of obtaining the required amount and type of loan they need. Every firm at certain times in its history experiences the ' cash flow crunch ' and growing too fast is not the worst problem to have, if you have the right financing solutions in place to address that situation. The ability to access funds to take on larger contracts, obtain preferred pricing from suppliers is a positive need for cash flow financing.

That growth in business often leads to a larger investment in receivables, sometimes augmented by slow-paying customers. In that instance solutions such as a/r financing, factoring, asset-based lines of credit, or Confidential Receivable Financing, the latter being our most recommended solution at 7 Park Avenue Financial. This type of facility takes away the 'notification' issue found in standard ' factoring' offerings and allows you to bill and collect your own a/r which at the same time achieving all the benefits of a bank type line of credit, ie the ' revolving credit facility '.

The Difference Between Cash Flow Loans & Asset Based Financing

KEY POINT: It is important to understand the difference between business cash flow term loans versus monetizing your assets across the multitude of solutions in the Asset Based Lending universe.

While both types of loans are ' secured ' monetizing your assets does not bring additional debt to the balance sheet. Each type of these two loans offers different benefits and risks. In each case your ' collateral ' is, in the case of the working capital loan the cash flow, while in an asset based loan it is the underlying collateral.

Working capital cash flows are always ' credit quality ' based, so the criteria we have talked about already such as historical cash flow, profit, type of industry, etc are key drivers in the approval process. Companies will typically want to be able to demonstrate good profit margins and a relatively clean balance sheet with acceptable debt/equity ratios.

UNSECURED CASH FLOW LOANS

Unsecured short term cash flow loans are all the rage these days - they come with higher rates by virtue of their unsecured status, but at the same time are much more easily accessible. A good rule of thumb is that your company can achieve loan approval for 10-15% of your annual sales volume. The popularity of these loans arose out of the Merchant Advance Loan industry in the U.S. which grew out of providing loans to retailers based on .. future sales and credit card receipts !.

These loans, unsecured for the most part, often fix a cash flow gap/cash crunch. They can fix the seasonality of many small to medium-sized businesses and can address those unplanned for emergencies that befall any business. Loans are often based on a one year term and payments can be made weekly or monthly at the discretion of the lender. Short term opportunities in buying product at an advantageous price.

ASSET BASED LENDING

The required amount of financing you need can often easily be acquired via the ' Asset Based Lending' process. These facilities mirror a bank line of credit, and allow you to margin and borrow against, on an ongoing basis your receivables, inventory and equipment/fixed assets. These are the ' collateral' components of the loan and historical cash flow is really a secondary factor in the approval process.


Asset lenders typically focus on larger deals and typical candidates are asset rich firms that might have profit and cash flow challenges. This is one way in which the non cash rich company can grow its business. Typical borrowing amounts are receivables at 90%, inventory at 30-50%, and the value of appraised assets. Companies requiring SME COMMERCIAL FINANCE needs can quickly see this type of financing will provide significantly more financing they could ever achieve via a bank. Customers are required to report, usually monthly at a minimum, on their a/r, inventories and payables. Your firm is a good candidate for asset based lending if you can report properly on your financial performance and are prepared to cooperate in the due diligence process leading towards an offer to finance.


Borrowing does not have to be a negative process - in many cases it allows your company to capitalize and seize on new market opportunities to grow your business. Most borrows can often easily find they can generate a solid return on investment for every dollar borrowed. A recent survey by a leading business capital provider in the U.S. stated that small businesses can achieve a 5x return on every dollar borrowed based on their planned use and turnover of capital borrowed.


If you’re focused on accessing the right finance solutions for your business seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your long term funding and working capital 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 Cash Flow Financing In Canada: Improving & Understanding Access To Loans

Business Financing Cash Flow On Auto Pilot ?

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What Is Cash Flow Financing?

Business cash flow financing for many firms in the SME sector involves the necessity to turn receivables into liquidity for the company, in effect we're talking about ' invoice cash ' , that is the sort of financing that clients here at 7 Park Avenue Financial are looking for - i.e. cash flow lending That term is synonymous with cash flow challenges that hit many firms all the time. How then does the use of an AR finance company assist in meeting that challenge?

Sooner, rather than later is the need for business owners who want cash flow to support their company requirements. In many cases certain industries demand a lot more cash for companies that participate in the sector. That might mean more focus on capital assets or even research into new products and services.

What happens though when you can't get the credit financing you need from traditional banks / business-oriented credit unions, etc? That's where an AR Finance company comes in.
Your ability to quickly and efficiently set up a receivable discounting facility allows you to immediately remove the problem of waiting 30, 60 or even 90 days for receipt of client funds for your goods and services.

To receive full funding for your receivables from a Canadian charted bank there is of course an extensive loan and business application, with a lot of emphasis spent on historical cash flow analysis, balance sheet analysis, income statement and operating ratios, etc! Invoice cash services eliminate 90-95% of that type of waiting and negotiation.

So why then does ' factoring ‘, the more technical name for invoice cash work and in fact showing more popularity every day when it comes to  ' cash lending ' solutions. The answer is simple, an immediate flow of funds based on your sales revenues. That becomes most of the solution to what the pros call your ' working capital cycle '. That cycle, simply speaking, is the amount of time it takes a dollar to journey through your company and makes it back onto the balance sheet as cash.

When you finance through an invoice cashing - also called invoice discounting facility, you are not borrowing funds on a long term basis. Your balance sheet does not accumulate debt; you are simply liquidating current assets in a more efficient manner.

Is there one type of facility in the area of ' invoice cash ' that works better than others? We're glad you asked! We constantly recommend Confidential Receivable Financing, it's the 'non-notification' part of this solution, allowing you to bill and collect your own accounts, bank your own funds, and choose how much financing you need on an ongoing basis. It's classic ' pay for what you use ' financing when you're working with the right partner.

What Is A Cash Flow Loan? What Are My Firm's Options Financing Cash Flow?

A/R Finance is not always the ' only ' way to fund cash flow needs. Other strategies might include:

Working capital short term loans

Sale-leaseback strategies

Inventory finance

Tax credit finance ( sr&ed refunds are financeable)

Mezzanine Financing - (Unsecured cash flow loans)


Long term solutions of course involve scenarios such as new equity.




To receive full funding for your receivables from a Canadian charted bank there is of course an extensive loan and business application, with a lot of emphasis spent on historical cash flow analysis, balance sheet analysis, income statement and operating ratios, etc! Invoice cash services eliminate 90-95% of that type of waiting and negotiation.


Long term financing activities of course might involve scenarios such as new equity by owners.


So let's recap: Your business requires additional cash flow. You either have facilities in place and they aren't working, or you are self-financing and need cash flow to pay suppliers, employees, etc. Seek out and speak to a trusted, credible and experienced Canadian business financing expert who can deliver on invoice cash for your firms need.



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

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 more than 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.
Before 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