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Little Known Factors That Affect Inventory Finance Solutions
Inventory finance lenders in Canada provide the solution to ongoing working capital challenges encountered by Canadian business owners and their financial mgrs. Inventory is often a key component in the current asset part of many balance sheets , particularly those in industries such as manufacturing . There are some critical factors in an inventory financing loan that need to be understood . Let's dig in !
Inventory financing is of course the collateralizing of your inventory for cash flow purposes . Where it gets tricky is that it has to work for yourself and the lender , and can also get a little tricky if you have existing financing in place as a part of your overall business strategy.
Most working capital solutions revolve around inventory and receivables - if your sales are growing and you have business accounts receivable and are turning your inventory you are a candidate for more working capital - especially as these two asset categories grow!
The key to facilitating a solid inventory financing, or purchase order financing in Canada is to help your lender get the feeling they will never have to realize on that inventory to collect their loan or financing proceeds! You want to be able to demonstrate that your inventory is marketable, and that you have the ability to control and count the inventory. A perpetual inventory accounting systems helps a lot in that process , so investigate that with your accountant.
In some cases a purchase order financing solution or an a/r financing facility might be very complementary to the inventory financing loan. This is especially true for firms that take on much larger contracts or clients / orders.
When clients ask us what can go wrong in an inventory financing scenario we often simply state that you must be in a position to be able to turn inventory over and demonstrate your products are marketable in a worst case scenario .
We mentioned earlier about the challenge of managing through an inventory financing facility based on your current borrowing arrangements. In a perfect world (we know it’s not a perfect world!) you secure both inventory and A/R financing via a chartered bank. The alternative to this is an asset based lending facility, or what is known as an ABL line of credit. This facility margins inventory and receivables to the maximum value, which great increases your ability to draw down on cash flow needs.
In a working capital or asset based line of credit situation you will usually have a larger draw down on receivable, but a proper inventory financing scenario can easily secure 60-80% of your overall inventory values and that is a lot of additional cash flow if you need to draw down on it.
BENEFITS OF A PROPERLY STRUCTURED INVENTORY FINANCING LOAN
The key benefits of a properly structured inventory financing facility are that it supplements your overall working capital needs. The facility should revolve, and you should only be paying for what you use. You should also have defined borrowing limits on inventory, and the ability to repay, or draw more financing at your option.
Your best inventory financing ability will ultimately come from your ability, as we said, for you to demonstrate proper accounting and reporting of inventory, as well as information on customer prospects, contracts, etc.
Pricing on inventory and purchase order financing varies with the size of the facility, lenders interpretation of the marketability of your product, and your ability to turnover inventory at equal to or better than industry standards based on your own business model. Focus on demonstrating clearly how inventory financing will grow your sales and profits, that’s a win win situation for you and your inventory lender.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your inventory finance needs.
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 area 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.
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
