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 financing needs in Canada often leave business owners/ financial mgrs with that ' not happy ' feeling when it comes to loans or alternative finance solutions. And by the way, in today's competitive environment there are some pretty smart people out there when it comes to running and growing their firms - yet even they are searching for ' the fix '.

Small businesses, that SME sector we're always talking about at 7 Park Avenue Financial often has the biggest challenge.  It's all about alternative small business funding. Let's dig in.


When it comes to raising finance needs and acquiring business loans for your business today’s environment calls for looking far beyond the traditional solutions of the past -  that is where alternative lending and alternative financing options have grown in popularity.

More often than not that has meant ' the bank ' as the sole solution provider of business capital and the 'go-to' for funding options. The variety of alternative finance solutions offered by the alternative lender has given rise to a whole new way of financing in Canada.

Banks by their nature put heavy emphasis on historical and present cash flow, external collateral, and personal guarantees and banking covenants. Not all businesses can meet those requirements!
Business owners who are unable to raise capital from conventional lenders have found that alternative business financing solutions that have significant benefits are readily available, It is of course important also to ensure that they consider any of the risks and costs that come with any type of business financing.
f you are a small or medium business owner who has struggled with obtaining a loan in Canada in the past, or even if you want to avoid the headache and frustration associated with conventional lenders, there are several sources of alternative lending from which you can choose. Each has its own unique set of benefits and drawbacks, so be sure to consider them all carefully.

Some have called it ' debanking'! Industry stats show that a large percentage of applications by firms in the SME COMMERCIAL FINANCE sector are in fact declined by banks for a variety of reasons - the bottom line is these firms simply don't fit what the pro's call ' the credit box ' of banks and their fiduciary lending responsibilities.

But by addressing the proper cost of capital versus growth opportunity as well as the ' risk ' element associated with any form of traditional or nontraditional finance a whole new world of capital providers is out there.  Traditional bank loans for small business have traditionally been unable to satisfy entrepreneurs hoping to start, grow, or acquire a business.

HOW TO ADDRESS SEARCH FOR BUSINESS FINANCE IN THE CANADIAN LENDING INDUSTRY

What then is the best way to look at some of those alternatives, and, as importantly, what are they?!   It starts by assessing your need, which is usually in one of three categories:

Growing sales
Refinancing
‘Other’

That 'other' can cover various scenarios, one of which might mean a forced exit from your bank relationship - i.e. the dreaded ' special loans' category.

As we have said, understanding how things work, cost and risk are the key elements of a new financing strategy. That kind of thinking will often determine what's best for your business.

Looking for some key tips around alternative financing as well as new sources of business financing and capital? We've narrowed it down for you as follows:

 

SOLUTIONS TO CONSIDER FOR TRADITIONAL AND ALTERNATIVE FINANCING

Keep an open mind to new solutions available

Consider both traditional and alternative financing solutions

Understand what you need - i.e. new assets, working capital, investment

Focus on potentially a combined solution of different methods of business finance

Ensure you are in a position to present your company properly - i.e. current financial statements, a strong exec summary or business plan, etc

Be prepared to consider ' Plan B '!

Cost of financing and interest rates

BUSINESS FINANCING SOLUTIONS RECAP

Let's recap business financing solutions most typically available to your firm - they include:

SOLUTIONS OFFERED BY TRADITIONAL AND ALTERNATIVE LENDERS - WHICH ONE IS RIGHT FOR YOUR FIRM?

Bank credit lines/term loans
A/R financing / Invoice financing / Invoice factoring
Inventory loans
Equipment finance
SR&ED Tax credit bridge loans
Sale leasebacks of owned assets
Non bank business lines of credit - Advanced alternative lending facilities
Unsecured cash flow loans
Royalty finance
Business Start Up Loans - The Canada Small Business Government Guaranteed Loan

CONCLUSION

The appeal of alternative lending arises from the ease of access as compared to traditional financing norms. Even online portals offering relatively quick ease of access to short term working capital loans and other types of financing have gained a lot of popularity.

In many cases, even the banks have participated in some of these online portals in some manner, including lender finance solutions. The domination of Canada's chartered banks has definitely seen a dent put into its dominance.

Part of the growth in alternative lending stems simply from the fact of a new and continue awareness of financing options - When it comes to asset based loans the ability to financing the balance sheet is at the top of the list in Canadian alternative finance.
It is interesting to note that a large portion of alternative finance solutions is in fact American owned firms who have chosen to enter the Canadian market.

So when it comes to alternative lending  and getting a loan in Canada , and if your firm needs finance ' fix ' seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your loan and cash flow needs for capital lending in Canada.





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

Fixing Business Financing In Canada: Accessing Bank & Alternative Finance Loans

Business Financing: Maximizing Cash Flow Via Alternative Loans & Tax Credits

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Business Financing: Maximizing Cash Flow Via Alternative Loans & Tax Credits

The Hidden Gems Of Canadian Business Financing

Business Financing Loans And Financing Tax Credits For Cash Flow

Business financing success in Canada might well come from finding some of what we call the ' hidden gems ' of loans and other financing options. Even the govt via tax credits under the SR&ED program or gov't guaranteed loans might well become your best friend when it comes to business finance success. Let's dig in.

 

TWO GOVERNMENT SPONSORED BUSINESS FINANCE PROGRAMS YOU NEED TO KNOW ABOUT

Two of Canada’s government-sponsored business finance assistance programs are the farthest thing from handouts you can imagine. Canada's SR ED Tax Credit program for R&D is a solid tool for recovering your R&D capital via refundable tax credit financing.In many cases anywhere from 30-40% of your entire research budget can be recaptured via a refundable tax credit for a loan amount your require.

CAN THE REFUNDABLE SR ED TAX CREDIT CLAIM BE FINANCED?

 Even better news is that this tax credit can be financed via a bridge loan while you wait for your refund to be approved and arrive. It’s no secret that many of the thousands of firms who received billions in refunds every year take advantage of SR&ED loan financing.

THE ' SBL ' GOVERNMENT LOAN PROGRAM

 One other ' hidden gem ' for start-up and early growth companies requiring SME COMMERCIAL FINANCE solutions is the govt sponsored Guaranteed Small Business Loan. It's very accessible and is geared toward financing 3 asset categories - equipment, leasehold improvements, and finally real estate. While not often used to finance real estate thousands of firms do in fact finance their fixed asset and leasehold needs via this program. One of the main ' users' of the program is entrepreneurs wishing to start or purchase a franchise business.

The Govt small business loan is NOT a handout. It's not a grant. But what it is provides a flexible term loan with great interest rates and flexible terms and amortizations. It even can be repaid without penalty - which even other traditional financing methods don’t allow.

What are the approval criteria for SR&ED loans and the Government SBL loan that we've described? In the case of the SR ED tax  program, you simply need to file your claim with your yearend financials. Claims are typically 'written up ' via SRED consultants who specialize in maximizing your claim under the program. Naturally, your R&D capital investment spend under the program must be well documented when it comes to actual expenditures and monies paid/spent.

As far as the Govt SBL loan is concerned very typical lending criteria apply. Business owners must have reasonable personal credit and be able to provide a business plan and cash flow that assumes some realistic repayment of your loan. Invoices or quotes from suppliers on leaseholds and equipment you intend to finance also helps. The interest rate on the program is very attractive and competitive and comparable to main street financing rates given the nature of the program.

ARE THERE OTHER SOURCES OF ALTERNATIVE FINANCING FOR CANADIAN BUSINESS?

Our two ' hidden gems’ , the SR&ED program and Canada Govt Guaranteed business loans can be complemented with numerous other finance solutions. Those include financing under:

ALTERNATIVE FINANCING SOLUTIONS

A/R financing
Inventory Loans
Equipment Leasing
Non bank asset based credit lines
P O financing
etc.!

Business Financing  Loans Cash Flow Tax Credits: If you're focused on understanding all the finance solutions and business credit available to your company seek out and speak to a trusted, credible and experienced Canadian business financing advisor.


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


Stan Prokop 7 Park Avenue Financial/Copyright/2020

business financing cash flow loans

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SME Finance, (that’s ' small to medium enterprise ‘), aka ' small business finance ' , in Canada no doubt requires a fix (or fixes?) of some sort. Getting a tailor-made business financing solution for the loans and cash flow solutions you need is not easy, but where there's a will there's a way. Let's dig in.

Alternative financing solutions for small business lending are a new and appealing part of the Canadian business landscape.

 These solutions are of course available to any firm, both public and private, but we're quite sure the majority of firms that use these solutions are privately held.

At a certain point in time, business owners come to that turning point where equity no longer works and debt or cash flow solution decisions around a company loan must be made. Now ' leverage ' seems to make a lot more sense than equity dilution.

Monetizing assets for cash flow, as well as securing working capital allows your firm to consider growth projects to enhance both sales and profits. In some cases you might be making investments in new marketing strategies, in other cases your company might be investing in research and development.  ( Don't forget to check out the Canadian Governments SR&ED Program - and by the way, you can finance those SRED Tax credit refunds !)


Many businesses find themselves in unexpected situations where they have maxed out on the liquidity available to them from current lending sources. That is the time to consider either cash flow or asset monetization solution. Cash flow solutions are best suited to firms that are unable to offer up additional collateral to lenders. They also place much less emphasis on the proverbial ' personal guarantee ' required by almost all lenders when it comes to borrowing in Canada. 


Working capital loans come in two flavours - short term loans that typically are repaid in one year, and of course longer-term loans that typically have a maturity of  3-5 years, and sometimes longer. These short term loans have become very popular with thousands of firms, and are a spin-off of the ' merchant advance ' industry which flowered in the United States and then moved into the Canadian domain.


Whether its a short term loan or one that matures several years out a good lender will work with you to tailor repayments based on your current cash flow inflows.
The danger in working capital type loans comes from how these funds are deployed - typically shorter-term loans should be used to augment your day to day working capital, and they should not be invested in asset procurement/capital asset purchases.


Working capital loans make sense if you have good sales; many firms use this financing simply because they are growing too fast and traditional chartered bank financing is not available. In certain cases, companies may wish to capitalize on short term opportunities that have arisen around inventory volume discounts, or large orders received from new or existing clients.


All businesses that sell on credit carry receivables, and there is a cost to that, as the buildup of both a/r as well as inventory places pressure on the investments you carry in receivables and inventory as sales grow. That's why it is important to focus management on good inventory turnover as well as the prompt collection of receivables, leading to a better ' days sales outstanding - DSO '.

Alternative finance for a small business capital loan and asset monetization from financial institutions is almost always more expensive than bank debt. But from the owner/entrepreneurs point of view working capital and cash flow cost far outweigh equity /ownership dilution - especially for growing firms with promise.

Let us not forget also that even established firms with relatively good financials often can't ' tap ' the financing they need. And going the VC/Private Equity route makes sense only for the smallest % of Canadian business

WHAT COUNTS AS COLLATERAL FOR A BUSINESS LOAN?

Typical collateral for a business loan in Canada revolves around accounts receivable, inventory, and fixed assets. When dealing with a senior lender for business capital they will typically collateralize these assets for securing the loan/financing.

So what are in fact some of those ' tailor-made' solutions that might be highly applicable to your business finance needs when it comes to small business loans  and business lending Canada

 

What types of business cash flow loans can a business use to finance their business?

Factoring

Confidential Receivable Financing

Inventory loans

Bridge loans

ABL loans (non-bank asset-based business lines of credit)

Equipment leases/sale-leasebacks

Unsecured cash flow loans - cash flow based lending

Govt Guaranteed Small Business Loans -  Business loan new business

Sales Royalty Finance

SR&ED Tax credit financing

WHAT IS CASH FLOW FINANCING

Important Point: Owners/ financial managers should understand the following about loans for small business

1. In some cases, these alternative finance solutions can be combined or added on to one another - example: term loan and cash flow facilities

2. In some cases it's possible to have traditional bank financing in place as well as an alternative financing vehicle backstopping your bank facility

3. While the majority of these solutions are almost always used to finance operations and growth it's important to note that they can also be used to acquire a company or to finance management or leveraged buyout

If you're looking for the right ' fix' or a ' tailor-made' solution for your business financing needs in Canada seek out and speak to a trusted, credible and experienced Canadian business financing expert to fully understand the requirements and benefits.





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

SME Finance Loans Cash Flow Business Financing Solutions

Business Financing Interest Rates & Loans In Canada The Not So Secret Way To Understand Cost Of Business Finance

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What Is The Interest Rate On A Business Loan? Is There An Average Small Business Loan Interest Rate

 

   

Clients at 7 Park Avenue Financial who come to discuss their CANADIAN BUSINESS FINANCING needs are looking to compare business loans / rates and understand the rationale and qualifications around achieving best business loan rates. Small business loan rates in Canada and financing costs are certainly one key factor in understanding your financing costs to run your business, whether you are a small business or a larger corporation, and yes, even a start-up for new business financing.

Qualifications vary for different types of financing and there are numerous other key factors in the business loan decision. There also can be miscellaneous costs associated with any one type of business finance solution, and those must be considered also. Some entrepreneurs and commercial borrowers look to alternative sources of private financing such as friends and family, angel investor networks that offer rates vastly different from banks and commercial financing companies -although many of these types of borrowings tend to be ' equity ' related.

ADDITIONAL POINTS TO CONSIDER IN THE BUSINESS LOAN / INTEREST RATE DECISION

In certain types of financing the issues of down payment come into focus. Those down payment scenarios are common in several types of business finance including equipment financing, acquiring rolling stock, and of course, commercial mortgages that require owner equity. One other factor to consider, and it's always a big one in discussion with our clients is the necessity of personal guarantees on business loan transactions.

Those ' PG's ' not only affect the approval of the small business loan but can alter the interest rate as well depending on the personal credit history and net worth of the guarantor. Canadian chartered banks place a large reliance on personal guarantors. In certain cases both approval and rate might also be determined via the personal guarantee of another related or non-related party. One other key factor in the rate determination of the bank or non-bank commercial lender is the term of the loan, which might be a multi-year amortization, or, at the other end of the spectrum a short term bridge loan.

Fundamentally it's all about your risk profile but don't forget also there are a variety of both traditional and alternative lenders in Canada- all of whom have different lending guidelines and structures. Companies who qualify for bank financing in Canada (Spoiler alert - not everyone does!); Bank loans for small business  tend to focus on amortized life of loans and the fixed/variable conundrum. The current low rate environment is a boon for those who qualify for bank financing.

Covenants, ratios and documentation required should always be a part of any commercial borrower’s consideration. Whether it's a bank or a commercial finance company we've certainly observed that the majority of borrowers tend to prefer to deal with a lender with a local presence. Is size everything? Quite frankly when it comes to the interest rate for a small business loan in Canada or cash flow finance solutions ' size ' does play an important role in both rate and approval.

Interest rate pricing will vary based on credit facility/loan size as well as the amount and type of debt you have on your balance sheet. It's important to understand that different types of financing in Canada support different goals - that might be one of the combinations of growth, working capital, expansion, and even acquisition.

In many cases firms opt for a complete refinancing of existing facilities. What then are different types of small  business loan  financing that support your firm’s goals? Note also they all have different rates and structures that will determine rates for small business loans.

SME COMMERCIAL FINANCE

The small to medium-size enterprise makes up the largest part of the overall economy in Canada, with well over a million businesses participating in the business landscape. At 7 Park Avenue Financial we deal with many firms who are in start-up or early phases of their growth - it's this segment that is the most challenged when it comes to finding the right finance solution as well as costs around the financing. Whether its day to day operation funding or exploration of growth opportunities cash remains .. king!

Canadian banks of course offer unlimited financing solutions coupled with the lowest costs. Unfortunately, when it comes to bank loans for small businesses thousands of firms find themselves unable to meet the requirements of a traditional lender - those requirements being clean balance sheets, profits, cash flow generation, and quality personal guarantees and external collateral. For that reason the rise of alternative finance Canada has been somewhat meteoric!

 

BUSINESS FINANCING SOLUTIONS

A/R Financing

Inventory loans 

Sale Leasebacks

Equipment financing

SR&ED Tax credit financing

Commercial mortgages

Non-bank asset based lines of credit

Bank credit lines/term loans

Royalty financing

  

 Unsecured Cash flow loans 

 

 

      

  

   KEY POINT :    

Institutions such as banks and other commercial finance companies will calculate financing around variable rates based on the prime rate - these rates are of course set around the general market and economic conditions - companies with good commercial credit history and financials will have a smaller markup to those benchmark rates. 

It is very safe to say that overall business financial history, quality of the personal guarantee, and the type of collateral held are the key determinants in business financing.

GOVERNMENT OF CANADA SMALL BUSINESS LOAN - The FEDERAL BUSINESS LOAN

 

Borrowers in the SME COMMERCIAL FINANCE sector might well find that the most accessible traditional bank type financing that comes with a low cost of funds are government-guaranteed loans with the facility offered by INDUSTRY CANADA, an arm of the federal government. This is a loan support program that is used by close to ten thousand businesses every year for firms that are primarily starting up or in earlier stages of growth.

Statistics from the government available for recent years show almost 1 Billion dollars of loan financing generated annually under the program. The program is a solid way to reduce long term capital investments with financing that matches the useful economic life of assets required by the business.

KEY FACTORS TO CONSIDER IN THE CANADA SMALL BUSINESS LOAN GOVERNMENT GUARANTEED FINANCING PROGRAM

 

Numerous attributes of the loan include the fact that the majority of the loan is guaranteed to the banks by the federal government. Typically any assets you have purchased within the last 6 months, as well as of course new assets can be refinanced or financed if new. Rates are based on a floating rate over prime and monthly payments are made on a blended basis of principal and interest. Term of the loan can be anywhere from 2-7 years - at 7 Park Avenue Financial the majority of our clients opt for a 5-year term.

Confusion around the program can sometimes revolve around the fact that only assets, leaseholds, and real estate qualify for financing under the program. Here it is important to know that Canada's non-bricks and mortar entrepreneur bank can offer cash flow and working capital loans. When you are considering either of the two government-based loan programs experts advise that you should work with a qualified Canadian business financing advisor who can assist you with your government loan needs and who has experience in the area.

The ability to submit a quality loan package utilizing the experience of an advisor helps in guaranteeing loan approval and rates commensurate with the two government offerings.

SHORT TERM WORKING CAPITAL LOANS

Cash flow/working capital financing loans are currently extremely popular in Canada. They are easily accessible, often require little or no collateral guarantee, and are usually repaid over a 1 or 2 year period. While the annual percentage rates are high on these loans thousands of small business owners have found these types of loans as cash flow lifesavers. Firms that have any sort of reasonable credit and sales history can easily qualify for these loans, on which loan amount is typically based around a maximum of 15-20% of your annual sales.

In some circles, these loans are commonly known as business merchant advance loans, and came up to Canada via a business model originating in the U.S. Your company’s track record and financials will play a key role in obtaining any commercial financing Note also that you firm might have a ' Senior lender ' - typically a bank or commercial finance company, as well as utilizing the financing services of other ' niche ' based lenders, some of whom are profiled above in our list.

While some may view alternative finance solutions as ' expensive' remember also that they will always be cheaper than surrendering equity ownership? Alternative financing solutions can help firms who are challenged or on the verge of distress, which obviously is a key factor in higher rates It's always about the ' risk ' undertaken by our traditional or alternative lender.

Our bottom line is that there is no one single interest rate on any type of business loan, but diligent borrowers, combined with advice from qualified advisors can help you achieve the most reasonable rate from any traditional or alternative lender.

WHAT'S MY RATE?! 

SUMMARY OF KEY ISSUES AROUND THE BUSINESS LOAN INTEREST RATE

1.Rates on business loans will vary from very low bank rates to higher rates offered by non-bank commercial lenders.

2. In general, each financing rate will be competitive within the loan type and lender in Canada.

3. A number of key factors will ultimately determine overall loan cost around a debt finance solution

4. There is no one 'average loan rate ' due to competing traditional and alternative lending solutions

5. The way in which a lender expresses/calculates the rate can be confusing to the commercial borrower

6. Understanding loan type and lender type will help the business owner and financial management to assess rate

7. Traditional rates by banks and insurance companies, etc will almost always be lower than alternative financing

8.When it comes to ' alternative financing access to capital and speed of funding increases as well as does the rate

If you want to better understand the not so secret truth about a Canadian small business loan and business finance interest rates, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the best loans and finance solutions that match your firm’s needs.

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

Stan Prokop 7 Park Avenue Financial/Copyright/2020

Business Financing Interest Rates & Loans In Canada

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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