Business Credit Facility Agreement : What You Wanted To Hear On Revolving Loan Needs

Don’t Settle For Business Credit Lines That Don’t Suit Your Needs


OVERVIEW – Information on the benefits and requirement for a business credit facility agreement . A revolving loan from a bank or commercial finance company assists in the financing of A/R and Inventory

A business credit facility agreement is often a necessity for any emerging and growing company. What are the qualifications for a revolving loan of this type, and are there choices in types of facilities? Or alternatives? Let's dig in.

In its simplest form a business credit line is a secured arrangement with a bank or commercial finance company to finance cash flow and working capital needs with Accounts Receivable and Inventory as an example. A facility works best for all parties when it constantly ' revolves '.

Your ability to manage such as facility as a borrower relates directly to your turnover of receivables and inventory. Those are key drivers in the approval for the amount and type of your facility.

In Canada business credit lines are offered both by Canadian chartered banks

as well as commercial finance firms, some of whom are called ' ABL ' lenders. That’s because those firms offer non bank asset based lines of credit.

What determines then your ability to get approved for the type and amount of financing you require? When it comes to a bank facility it’s the various components of what we call your ' risk profile '. They include quality of financials, size of current assets (A/R / inventory) and management depth and personal credit of business owners.

When you business can't achieve true bank financing, or, in some cases the amount of bank financing you need commercial finance firms can readily address your needs. Here the total focus and emphasis changes to basically only size and quality of those same busines assets.

While more costly business owners and managers we introduce this type of lending to are happy to hear that borrowing margins are much more generous. Typically that’s 90% of A/R and anywhere from 30-70% of inventory. And want another kicker - your facility can be significantly more increased if you choose to have other unencumbered fixed asset to be including into your borrowing base. That a true cash flow super charger!

You will be typically required to provide regular reporting capability vis a vis financials and aged inventory and a/r reports. For a bank this might only be one a year, sometimes more regularly. But when it comes to reporting on Asset based non bank credit facilities expect to report monthly all the time, and sometimes weekly. Various industries have different risk profiles associated with their inventories and receivables.

As a business owner or financial manager you should never have to settle for less when it comes to what you need for credit facility and loan needs. If your firm is not ' bankable ' in the amount of cash flow and working capital financing you really need seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success to ensure access to a proper business credit facility agreement.





Stan Prokop - 7 Park Avenue Financial :

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 in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS CREDIT LINE EXPERTISE





Have A Question /Comment On Our Blog Or Canadian Business Financing Alternatives ?

CONTACT:

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653



Email = sprokop@7parkavenuefinancial.com


' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop

The Revolving Loan In Canada. Here’s How A Business Line Of Credit REALLY Works!

One You Might Not Have Heard Of When It Comes To Business Credit

OVERVIEW – Information on the business line of credit in Canada. Who offers it ( not just who you think ) , how it works, and how you qualify



The revolving loan for business in Canada. More commonly called the ' business line of credit ' by the Canadian business owner. Are you sure you really understand how they work, and more importantly, is this the only game in town?

(SPOILER ALERT - It's not) Let's dig in.








A good place to start on our subject is to define what business lines of credit are NOT! They are not term loans with defined payments and interest rates, Also they are not covered under the Government SBL loan which only finances equipment, leaseholds and real estate under very favorable terms.

You would never use your business line of credit to purchase capital assets. That typically is done via equipment financing via a lease or loan. The reason for that is simple, but often misunderstood by the Canadian business owner and financial manager. The reason is simply that you want to be able to ' match ' your financing properly. By that we mean you don’t want to you short term credit borrowing to financing long term capital needs. If you do we can guarantee you that your business will run out of working capital and daily cash flow... quickly.

So think of business credit lines as you daily operating facilities, similar to your personal chequing account that we run our consumer lives on.

A credit line in business is of course essentially an ' overdraft ' facility. It allows you to draw funds when your operating capital is tied up in inventory, receivables and prepaid obligations. Simple as that.

A key word in business lines of credit, whether they apply to Canadian chartered bank facilities or non bank facilities (more about those later) is in fact the word ' REVOLVING ‘. Banks like it when facilities revolve. In general if you have a business line of credit in Canada and you are always at the very top of it there is a safe assumption that two things are happening:

Your asset turnover in A/R and inventory is not happening as quickly as it should

You need a higher business credit line to meet your growth and operating needs (We’re assuming your business is growing - if its not there are other issues to be discussed on another day)

Bank credit lines are structured from a collateral perspective as ' DEMAND LOANS'. The simple explanation to that term is that the bank can ask for all the money back at any give time. And we repeat ‘ALL ' the money back. At that point your loan is termed ' called' and the scramble ensues!

Your revolving loans will not be called if your business is performing fairly well and you show solid fluctuations in the facility. When we look at a client’s financials we often ask for 3 months of bank statements to see those inflows and outflows.

We have hinted at another solution to revolving loans in Canada. They exist, and are called ABL'S or asset based lines of credit. They are non bank in nature, and they monetize your A/R, inventory and equipment into one business line of credit that you draw against daily as you need it. While typically ( but not always ) more expensive they provide much more liquidity than commercial bank lines and have easier credit qualification when it comes to ratios, covenants, collateral , and the dreaded personal guarantee.

If you want to ' plug in' to alternatives and solutions around the business line of credit seek out and speak to a trusted, credible and experienced Canadian business financing advisorwho can assist you in your operating finance needs.


Stan Prokop - founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


7 Park Avenue Financial = Business Credit Line Expertise



CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com


























Stan Prokop