Working Capital Financing Cash Flow Solutions In Canada

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING & CASH FLOW SOLUTIONS FOR  GROWTH!

Navigating Working Capital Financing: A Canadian Business's Roadmap

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 

 

 

 

Expand Your Business: Exploring Working Capital Financing Cash Flow Solutions in Canada 

 

 

 

INTRODUCTION 

 

Working capital financing in Canada has undergone major changes with the emergence of various traditional and non-traditional lending options.

 

Businesses looking to navigate short-term obligations around their company's financial health now have diverse solutions to explore. Let's dive into the details to understand what might be the best fit for your enterprise.

 

Who Provides Working Capital Loans in Canada?

Traditional Lenders

Canadian banks and business-oriented credit unions have been the go-to solutions for owners seeking positive cash flow in business lines of credit and term loans. However, in the wake of recent years, the landscape has changed, with various non-bank commercial lenders stepping into the scene.

Non-Bank Alternative Lenders in Canada

 

These non-traditional lenders often cater to SME COMMERCIAL FINANCE needs and demonstrate a greater understanding and risk appetite for sales growth, receivable financing, inventory loans, PO Financing, and equipment leasing under the general heading of alternative financing.

 

 

Government Loans And Grants: Are They Suitable For Your Business? 

 

While many seek government grants, it is crucial to note that most grant-type programs might not serve the average Canadian business owner's needs related to working capital.

 

The Canada Small Business Financing Program

The two notable exceptions are the government-guaranteed Small Business Loan, or CSBFL, and the federal SR&ED program. SBL government small business loans provide beneficial rates, terms, and structures but primarily focus on equipment and leasehold loans. The SR&ED programs provide billions annually for firms investing in r&d.

 

Is Your Company Investing in Research and Development?

 

If your company invests in R&D, the SR&ED program might be suitable. SR&ED credits can also be financed, turning them into a great source of initial cash flow.

 

 Working Capital Term Loans and Mezzanine Finance 

 

The less-known cash flow loans or mezzanine loans cater to accounts payable needs, reaching up to $250k for small and medium-sized businesses. These loans are often termed short-term working capital loans, providing quick access to cash, albeit at higher rates.

 

 

Non-Bank Asset-Based Lines of Credit / Unsecured Loans

 

These large-scale loans (often over $1 Million) from non-bank sources provide working capital and are generally unsecured. The more you invest in current assets, the more financing and focus will be required for daily operating activities. For more information on non-bank asset-based lines of credit and asset-based loans, click here.

 

KEY TAKEAWAYS

 

1. Traditional Banks and Credit Unions are often the first options, but alternative lenders are becoming popular.

2. Non-Bank Alternative Lenders may provide more flexibility for SMEs and offer numerous asset-based and cash-flow solutions without requirements such as collateral and guarantees often demanded by Canadian banks.

3. Government Grants and Programs can assist in specific cases. Talk to 7 Park Avenue Financial about grant financing solutions.

4. Asset-Based and Unsecured Loans offer flexible options for increasing working capital and liquidity.

 

 CONCLUSION  

 

Seeking to overcome negative working capital?

 

Working capital may hold varying interpretations for different entrepreneurs, yet the core principle of genuine cash flow and funding current business assets stays constant.

 

True working capital financing encompasses the funding of immediate assets like accounts receivable, inventory, and purchase orders. Asset turnover and current asset management are critical to business success.  Some government initiatives could suit your needs, including term loans, leasehold enhancements, etc.

 

With these perspectives, Canadian entrepreneurs can arm themselves with the knowledge and self-assurance to explore many options in working capital management and funding. The choices, from conventional bank financing to exclusive government schemes and asset-backed lending, are diverse and extensive.

 

Make well-informed choices and drive your enterprise forward by selecting the apt working capital financing strategy tailored to your situation.

 

Working capital may signify diverse things to various business owners, but the underlying truth of real cash flow and capital management is unaltered.

 

Authentic working capital management is linked with financing short-term assets like accounts receivable, stock, and procurement orders. In the Canadian context, numerous opportunities are available, and pinpointing the right solution can substantially boost business advancement.

 

Prefer an  ‘expert ‘in business financing? Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business Financing Advisor with a track record of long-term success in helping companies with finance solutions for enhancing the growth of their products and services.

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is a cash flow loan?

A cash flow loan is a good funding tool for entrepreneurs needing financial help. These loans are helpful to new businesses or companies that want to find salespeople and invest in marketing campaigns, product research and services; they can be instrumental when an entrepreneur faces low liquidity after the decline of funds from credit lines.

 

A cash flow loan can be the perfect funding tool for many entrepreneurs. This is especially true for companies growing quickly and have significant funds invested in receivables and inventories or limited assets to offer as collateral.

 

These loans are helpful after an unforeseen liquidity shortfall has occurred, preventing growth from happening because these events cause a company's finances to become strained. Quick business decisions need to be made oftentimes without all the necessary information on hand.

 

What are the primary sources of working capital financing in Canada?

The primary sources include traditional banks and credit unions, non-bank alternative lenders, government grant programs like the Canada Small Business Financing Program, and asset-based lines of credit or unsecured loans.

 

 How do non-bank alternative lenders in Canada differ from traditional lenders?

Non-bank alternative lenders often have a greater understanding and higher risk appetite for growth areas like sales, receivable financing, and inventory loans. They offer flexibility and cater more to SMEs compared to traditional lenders.

 

Are government grants suitable for working capital needs in Canada?

 Most government grants may not serve the needs of average business owners for working capital. However, programs like the CSBFL and SR&ED offer specific grants and loans that can support business financing needs.

 

How can the SR&ED program benefit companies investing in R&D?

Canada's SR&ED program is a non-refundable grant that covers around 40% of cash spent on R&D. SR&ED credits can also be financed into an 'SRED LOAN', providing a valuable source of working capital.

 What are the benefits of non-bank asset-based lines of credit for businesses in Canada?

These loans offer flexibility in providing working capital as they are often unsecured and have higher limits. They enable financing current assets like receivables, inventory, and equipment, enhancing business growth capabilities.

 

How are working capital and cash flow related?

Cash flow and working capital are vital elements in financial analysis and business valuation, sharing similarities but also having distinct differences.

• Cash flow focuses on money movement and operational finance.
•  A Company's Working capital position assesses short-term financial health by comparing current assets to liabilities.
• Both are essential in financial analysis and business valuation, with distinct but related roles.

Cash Flow:

• Summarizes the company's cash holdings (account balances, cash and cash equivalents, cheques, etc.).
• Indicates money flowing in and out of the company and the assessment of a company's ability to meet financial obligations and helps determine how much cash or financing is needed
• Positive cash flow: income is higher than expenditure.
• Negative cash flow: expenditure is higher than income.
• Operating cash flow refers to financing day-to-day operational business, including costs, investments in new equipment, etc.
• The cash flow statement shows annual cash flow and liquidity.

Working Capital:

• The difference between current assets and current liabilities in the financial statements creates net working capital - either positive or negative,  on the balance sheet - this calculation is known as the working capital ratio.
• The amount available to pay current liabilities.
• Positive working capital: current assets are higher than current liabilities
• Negative working capital: current liabilities are higher than current assets. How to calculate working capital movement in a business is vital to financial success.

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

Working Capital Financing – Why Asset Based Credit Lines Work

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL

 FINANCING VIA AN ASSET-BASED LINE OF CREDIT! 

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

 

LOOKING FOR WORKING CAPITAL FINANCE CREDIT LINES?

 

Does your company have healthy revenue but can't access traditional bank financing due to your company’s performance and industry?

 

7 Park Avenue Financial helps companies through their working capital challenges via asset-based credit lines.

 

INTRODUCTION 

 

In a challenging economic and financial landscape, businesses should always be actively pursuing flexible and dynamic financial options.

 

Asset-Based Lending (ABL), is a viable alternative to conventional business financing,  and it offers a compelling way to access more funds with fewer limitations in areas such as personal guarantees, covenants, outside collateral, etc!  ABL solutions' ' covenant light structure ' is a significant appeal to Canadian business borrowers.

 

For asset-rich companies, ABL presents an opportunity to secure substantial financing while enjoying unparalleled flexibility compared to traditional loans. 

 

 

UNDERSTANDING ASSET-BASED LENDING 

 

Asset-Based Lending (ABL) is a business loan that uses the company's assets as collateral. These assets can vary, including accounts receivable, real estate, intangible assets like brand names and valuable assets such as intellectual property. ABL's core concept is to leverage the inherent value of a company's physical assets / other assets to obtain essential capital. This financing solution proves particularly valuable for asset-rich companies facing inconsistent cash flows, as it offers an alternative to traditional cash-flow loans.

 

Stringent rules, restrictions, and a lengthy approval process mean that traditional financing is not always accessible for Canadian SME/SMB companies. Many small to mid-sized companies have been turned down for business lines of credit because they don’t fit the profile of the average borrower – even when they are financially capable of repaying a loan!

 

Let 7 Park Avenue Financial demonstrate a  banking alternative and business line of credit solution to achieve cash flow AND growth goals via asset-based loans. Do banks and other financial institutions not understand your business, nor care to?

 

How can Canadian business owners and financial managers secure working capital financing and cash flow financing for their businesses when it seems that access to business financing provides significant challenges?

 

  

HOW DO ASSET-BASED CREDIT LINES DIFFER FROM TRADITIONAL BUSINESS LOANS   

 

• Traditional business loans primarily assess overall creditworthiness, relying on factors like credit score, financial history, revenue projections, cash flow, and profits.

 

• This approach can be challenging for businesses with limited credit history or temporary financial difficulties.

 

• Traditional loans often have strict repayment terms and restrictions on the use of funds and credit limits

 

• Asset-based credit lines focus on the value of the assets used as collateral, such as accounts receivable, inventory, or equipment and commercial real estate if applicable.

 

• This allows businesses to secure financing, even with limited credit history or difficulties obtaining traditional loans.

 

• Asset-based credit lines provide a reliable source of working capital, supporting business growth and objectives.

 

• Unlike traditional loans, asset-based credit lines offer flexibility in borrowing against assets as needed.

 

• Businesses can use the funds to expand, manage cash flow fluctuations, or cover unexpected expenses.  In many cases, these facilities can also be a part of an acquisition financing strategy to purchase another business

 

• The flexibility of asset-based credit lines allows tailored borrowing to meet specific business needs and drive sales growth

 

  

 

WORKING CAPITAL FINANCING ASSET-BASED CREDIT LINES   

 

The Process of Asset-Based Lending  

 

When securing an Asset-Based Credit Line, an  "ABL" loan, the focus shifts from traditional cash-flow evaluation to assessing a company's assets.

Lenders prioritize the value of these assets based on market value and liquidity - Business assets will serve as collateral for the loan.

 

Critical assets, including accounts receivable, inventory, machinery, equipment, real estate, and intellectual property, undergo evaluations to determine their quality and worth. The outcome is a comprehensive understanding of eligible collateral and the loan rates that can be offered based on these assets.  

These assets become the ' borrowing base ' for the facility.

 

Asset-based lines of credit are one of the fastest-growing sources of financing for small businesses. ' ABL '  a superior way to keep your business cash flowing. However, this type of financing is also riddled with misconceptions. Let the 7 Park Avenue Financial team show you the many advantages of an asset line of credit and why every company should consider this a financing option.

 

The answer is that a potential solid solution is an ‘asset-based line of credit' or a ‘working capital facility. What is this type of financing? Is it new to Canada, and more importantly – how does it work, and what are the benefits and risks?

 

ASSET-BASED LENDING BANKS IN CANADA?  

 

Although asset-based lenders tend to be specialized independent finance firms, many business people are surprised to find that deep in a few Canadian banks; there exist small,  somewhat boutique divisions that specialize in asset-based lending. Ironically, they often compete with their peers in more traditional commercial, corporate banking.

 

WHY YOUR BUSINESS NEEDS BUSINESS CREDIT

 

The most active assets these firms finance tend to be ongoing receivables and inventory, but in many cases, by utilizing an expert advisor or partner, you can structure a facility that also includes a component of equipment and real estate.

 

 

QUALIFYING FOR A BUSINESS CREDIT LINE 

 

Generally speaking, a good way to think of an asset-based line of credit is one that, for a temporary period, typically a year or so in our experience, allows you to margin up and get higher advances on receivables and inventory. That translates into more cash flow and working capital.

 

One of the main attractions of an asset-based lending facility (insiders call it an ABL facility) is that your firm's overall credit quality doesn’t play the largest role in determining if you can get approved for this type of financing.

 

As its name suggests, financing is on your ‘assets‘ and doesn’t focus on debt-to-equity ratios, cash flow coverage, loan covenants, and outside collateral.  Business owners who borrow from Canadian chartered banks on an operating or term loan basis are, of course, very familiar with those terms - in some ways, we could call them ‘restrictions.'

 

Most lawyers and accountants will tell you that any business borrowing should be entertained only with a trusted, credible business financing advisor who can guide you through the roadblocks and pitfalls of any commercial financing arrangement.

 

YOUR PROBLEM?   OUR PROMISE!

 

Your business is growing, and you need a commercial loan or credit line, but your bank isn’t willing to lend it.

You need working capital to survive, but getting traditional financing is impossible.

Finding funds for machinery or equipment to help grow your business can be difficult, even if your cash flow is strong.

You want to grow your business, but getting a loan from traditional banks is hard because banks want to see a proven track record and collateral.

 

The 7 Park Avenue Financial promise? Business Lines of Credit and Working Capital for companies that can’t achieve traditional financing.

 

BENEFITS OF THE ASSET-BASED CREDIT LINE

 

A business line of credit for companies that can't achieve traditional financing options.
 

Businesses will have greater access to funds and therefore be able to focus on their core business activities.

Able to use existing assets as collateral, reducing the chance of running out of cash

Get your business the working capital or line of credit you need for rapid and profitable growth.

Commercial Lines of Credit can assist you with working capital needs and seasonal fluctuations in sales and operational expenses, allow you to acquire property and facilities, expand and grow your business, and improve technology and equipment.

Missteps in business financing can lead to long-term adverse effects around such issues as being locked into a facility, giving up too much collateral, or being locked into pricing that isn’t commensurate with your overall asset and credit quality.

 

KEY ISSUES TO CONSIDER WHEN ASSESSING BUSINESS CREDIT LINES

 

What are the key issues you should consider when considering different types of asset-based financing? Primarily they are:

 

- Advances rates on each asset category (Accounts receivable and inventory/equipment) - An ongoing borrowing base is established monthly as your sales grow, providing short-term cash needs

 

- How is pricing defined (asset-based lines of credit and ABL lending, in general, is more generous in overall facility size, but you should ensure you are only paying for what you use

 

- Contractual obligation - in a perfect world (we know it's not!), you should be focusing on the ability to payout at any time, or a minimum with some form of nominal breakage fee

 

- Ensure that the asset-based lending facility, which generally costs more, will allow you to remain or focus on profitability; we spend a significant amount of time with clients on how that can defer the additional costs of ABL facilities by several different strategies

 

   

 KEY TAKEAWAYS    

 

 

1. Asset-based lending is less restrictive: ABL offers borrowers more freedom than cash-flow lending, as it does not come with burdensome covenants related to debt service coverage and leverage levels on the balance sheet.

2. Asset Safety Net: ABL uses your business's assets as collateral, reducing the lender's concerns about defaults and minimizing the need for rigid financial covenants imposed by traditional financial institutions such as Canadian banks

3. Ideal for Asset-Rich Companies: Companies with substantial assets but varying cash flow can benefit from ABL to access significant capital for their operations and growth.

4. Dealing with Cyclical Demands: Businesses experiencing cyclical demands, such as manufacturing or distribution companies, can utilize ABL to ensure operational continuity despite cash flow fluctuations in times of seasonality in their business or industry.

5. Resilience for Retailers: Retailers with sizeable inventory and potential earnings volatility can use ABL to navigate unforeseen disruptions, such as economic downturns or pandemics like COVID-19.

6. Flexibility in Credit Line Access: A key advantage of ABL is the freedom to access your credit line without seeking lender permission, allowing for rapid responses to dynamic business needs. Asset-based lending solutions in areas such as a line of credit will enable a business to increase financing when sales and assets grow automatically.

   

 

CONCLUSION - COMMERCIAL FINANCE FINANCING SOLUTIONS   

 

Asset-Based Lending (ABL) emerges as a practical financing option for businesses in diverse sectors of Canadian industry.

With the ability to offer significant funding based on a company's assets and the added advantage of being less restricted than traditional loans, ABL becomes an appealing choice for businesses looking to utilize their assets for growth financing. To fully grasp the potential of ABL, businesses should engage with financial advisors such as 7 Park Avenue Financial to determine how they can fulfill their capital requirements effectively.

 

ABL is more than just a financial product; it is a strategic financial approach. For asset-rich businesses, ABL has the potential to unlock growth opportunities and enhance financial flexibility significantly.

 

 

Business credit lines exist to help a business with its day-to-day cash flow. These are often more flexible than term loans that bring debt to the balance sheet.

 

So what's the bottom line? Let the 7 Park Avenue Financial team help your business grow faster by providing asset-based, short-term financing backed by accounts receivable, inventory, equipment, and real estate at advance rates and loan-to-value borrowing that maximizes capital.

 

7 Park Avenue Financial specializes in asset-based loan solutions,  solving the problems faced by companies that can’t get financing from traditional sources such as banks or business credit unions. Our business lines of credit and working capital loans are customized to meet your unique needs. Our goal?   Letting you get on with running your company!

 

As always, it’s simple – consider asset-based financing and an ABL facility as a solid alternative for financing your business. Work with a trusted advisor as this financing type is generally understood or not well known in Canada. Be selective in structuring your facility around issues that work best for your firm re benefits derived. That’s solid business financing sense.

 

FAQ: FREQUENTLY ASKED QUESTIONS

What is asset-based finance?

Asset-based finance is a specialized method of providing companies with working capital and term loans that use accounts receivable, inventories, fixed assets /equipment or real estate as collateral. It is essentially any loan to a company that is secured by one of those assets.

 

 What types of assets can be used for an asset-based credit line?

 In an asset-based credit line, various types of assets can be utilized as collateral. These typically include accounts receivable, inventory, machinery, equipment, and real estate. Even intangible assets such as brand names and intellectual property can be used. It's the inherent value in these business assets that makes them suitable for securing necessary capital.

 

How does an asset-based credit line differ from traditional business financing?

 

Traditional business financing via unsecured loans, etc. primarily focuses on a company's cash flow for existing line approval and renewal, while an asset-based credit line leverages the value of the company's assets to determine the maximum credit limit. This type of credit facility provides financial flexibility, especially to asset-rich companies, allowing them to access significant financing without the strict covenants and financial ratios associated with cash-flow lending from a traditional lender for a revolving line of credit.

 

How is the value of assets determined for an asset-based credit line?

 

Asset value for an asset-based credit line is determined through a detailed process that includes field examinations and, in some cases, third-party appraisals to substantiate secured loans. This rigorous process assesses the quality and financial value of assets, thereby determining the eligible collateral and the rates that can be advanced against them.

 

What type of business could benefit from an asset-based credit line? Who should consider an asset based line of credit?

 

Companies that have significant assets and face variations in cash flow can significantly benefit from an asset-based credit line. Manufacturing companies, distribution businesses, and retailers, especially those with significant inventory but earnings volatility, often find ABL a useful tool to maintain operational continuity and navigate through market fluctuations when they need additional working capital

Is your company in turnaround? Taking out unsecured credit can be an unsatisfactory solution in a turnaround situation. Companies risk to reverting to covenants unless they are fully prepared to deal with them. Financing sales via a/r financing and abl lending generally have more ease of qualification and lighter covenant requirements.

 

What are the potential risks associated with asset-based credit lines?

 

Like any financial instrument, asset-based credit lines come with a set of risks. These include the potential for over-leveraging, reliance on asset valuations which may fluctuate, and the possibility of restrictive covenants imposed by lenders. It's crucial for businesses to consider these factors and consult with financial advisors to ensure that an asset-based credit line aligns with their financial strategy and risk profile. Interest rates are generally, but not always, higher in asset-based financing.

Note also that an unused loan/credit line facility is not a cash equivalent, as the facility is a liability on the balance sheet when drawn down.

 

 

What are Some Types Of Types of Assets Used in A Broad Range Of  Asset-Based Credit Loans:

 

1. Accounts Receivable:

   • Businesses with outstanding invoices leverage highly liquid assets such as accounts receivable to access working capital.
   • Lenders evaluate the quality and collectability of the accounts receivable to determine financing.

2. Inventory:

   • Businesses with substantial inventory value use it as collateral to secure financing.
   • Lenders assess the marketability and market value of inventory to determine financing.

3. Equipment:

   • Valuable equipment, such as machinery or vehicles, can be used as collateral for financing.
   • Lenders evaluate equipment condition and market value to determine financing.

4. Real Estate:

   • Some asset-based credit lines use real estate as collateral for businesses that own property.
   • Lenders assess the value and marketability of the real estate to determine financing.

5. Intellectual Property:

   • Businesses with valuable intellectual property can leverage it to secure financing.
   • Lenders evaluate the worth and market potential of the intellectual property.

6. Contracts:

   • Some ABL financing  asset-based credit lines consider contractual agreements as collateral for the company's ability to pay future drawdowns
   • Most Lenders assess the contractual terms and value for determining financing.
   •  

Note: The types of assets that can be used in asset-based credit lines may vary depending on the lender and the specific industry of the business. It is crucial for businesses to work with a firm such as 7 Park Avenue Financial which understands their industry and is capable of providing financing based on their unique assets and the ability to choose asset-based lending in multiple forms of financing as the right working capital solution for their business.

 

 

 

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

Business Lenders In Canada : The Hunt Is On For Your Working Capital Financing & Loan Solutions

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING SOLUTIONS! 

BUSINESS LENDERS ( CANADA )

Unleashing Business  Potential: Overcoming Financing Hurdles for SMEs 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?

Contact us!

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

 

 

YOUR GUIDE TO BUSINESS LOANS IN CANADA

 

Working capital financing and the right business loan/loans for their company have many Canadian business owners looking to either leave or search for new business lenders that meet their financial needs.  The hunt is on for small business lending. Let's dig in.

 

 

 

INTRODUCTION 

 

Capital access is key to growth and success in our rapidly competitive business world. Business owners and entrepreneurs frequently encounter the hurdle of securing the necessary funding to elevate their ventures.

 

Business lenders, experts in creating lending solutions, play a crucial role in this process. These entities can provide financial assistance for expansion, equipment purchase, or staffing. However, selecting a lender who comprehends your unique aims and challenges is crucial.

 

 

For Canadian businesses to flourish and reach growth goals, business lending access is essential. Still, small and medium-sized enterprises (SMEs) often face obstacles in securing traditional capital.

 

Fortunately, alternative finance options serve as a beacon for those struggling with bank financing. This article examines business lending's significance, SMEs' challenges in securing capital, and the abundance of alternative finance choices available.

 

 

 

WHAT IS THE ROLE OF BUSINESS LENDERS IN PROVIDING GROWTH CAPITAL  

 

Business lenders are key in driving your business growth, recognizing that capital is essential for entrepreneurs to expand, innovate, and hire. They supply the necessary funds enabling businesses to seize growth prospects and achieve objectives. Besides, lenders often possess sector-specific knowledge, offering valuable advice to help firms tackle difficulties and make wise choices.

 

Lenders offer various financing options, such as term loans, lines of credit, and equipment financing, tailored to businesses' unique needs.

 

These avenues allow firms to acquire funds for various conditions, including expansion, inventory management, working capital, or tech investment. Furthermore, recognizing the unique situations of businesses, lenders may provide flexible repayment options, offering solutions that align with your cash flow and ensuring loans serve as growth catalysts rather than burdens.

 

Collaborating with a business lender also offers non-monetary benefits. Unlike traditional banks, these lenders usually have a profound understanding of entrepreneurs and small business owners' challenges.

 

They are more inclined to take calculated risks and back businesses with potential, nurturing a trust-based, mutually beneficial relationship. Acting as valuable advisors, lenders can provide financial management, cash flow optimization, and growth strategy insights. This expertise helps businesses make more informed decisions, maximizing their success probability.

 

 

  

  

THE SME CHALLENGE IN CANADA   

 

Difficulties Faced by SMEs in Securing Traditional Capital: Regrettably, SMEs face multiple hurdles when attempting to obtain traditional bank financing.

 

Strict qualifying requirements often demand that businesses possess significant collateral and a solid credit history, which can be tough for emerging or small companies.

 

Besides, the bank approval process can be protracted and full of red tape, impeding firms from capitalizing on time-sensitive opportunities. Traditional lenders are also risk-averse, favouring loans to bigger, more established companies. These difficulties present a formidable obstacle for SMEs, limiting their access to necessary funds for growth and expansion. 

 

 

  

FINANCING A BUSINESS IN CANADA  

 

A  report in Canada's Globe & Mail indicated massive dissatisfaction with financial institutions regarding lending for small businesses  - referencing a 40% amount as the number of borrowing companies that are ' likely '  to leave their current business lender. Of great interest is that the main perspective of business owners/financial managers is that their bank or credit union does not understand their business when it comes to a small business loan, indicating a lack of confidence in the expertise of their lender.

 

The other harsh reality is that firms looking for SME COMMERCIAL FINANCE and loans don't have the option that major corporations do - that's for both short-term operating needs and long-term growth financing. Of course, those 'big boys' can tap into public and private equity as an example.

 

 CHOOSE THE RIGHT FINANCING & FUNDING FOR YOUR BUSINESS 

 

What are realistic options for small and medium-sized businesses in Canada for generating working capital and cash flow?  The lack of proper business financing prevents your firm from accepting larger orders or new contracts. That also entails waiting for 30, 60 or sometimes even 90 days for A/R to be collected.

 

 

The right working capital financing in place assists your firm in meeting its daily requirements and allows you to grow the business. It also allows your firm to extend credit on favourable terms to your customers.

 

Solution? There are several solutions to consider. If all firms had the same size and problems, we might have some easier decisions. However, when we meet with clients to outline working capital solutions, each company is in a different industry. They have other business models, and their funding needs vary by size and nature.

  

 

TYPES OF BUSINESS LENDERS  

 

 

Business lenders come in various forms, each with unique characteristics and advantages.

 

1. Traditional Banks: Offer various lending products like term loans, lines of credit, and commercial mortgages. They usually have rigid lending criteria, potentially requiring collateral or personal guarantees. Though they might provide competitive interest rates, their application process can be time-consuming and complex.

2. Online Lenders: These lenders are a popular alternative to traditional banks, using technology to simplify the lending process and grant quick capital access. They often have more flexible lending criteria and may fund businesses with less established credit histories. However, their interest rates might be higher than traditional banks.

3. Alternative Lenders: These include a broad spectrum of non-bank financial institutions, such as private equity firms, venture capital firms, and asset-based lenders. Specializing in specific industries or sectors, they can offer customized financing solutions that cater to businesses' unique needs.

 

 

 

 

 

  

CANADIAN BUSINESS FINANCING SOLUTIONS / FINANCING COMPANIES IN CANADA 

 

Let's recap some of the solutions available in Canadian business lending:

 

 

A/R financing/factoring / Confidential Receivable Finance / ABL Non-bank line of credit

 

Inventory loans

 

Bridge Loans

 

Sale Leasebacks

 

Non-bank asset-based lines of credit (these facilities combine your A/R, inventory and equipment assets into one borrowing facility that is margined much higher than bank facilities).  These facilities are often the best solution to overall operating financing needs - This type of borrowing does not put debt on your balance sheet - it monetizes / cash flows your assets!

 

Tax Credit Loans (SR&ED, etc.)

 

Royalty Financing

 

Equipment Financing / Leasing

 

 P O / Contract financing

 

Short-term working capital loan / Merchant Cash advances ( Good  credit scores for business owner's personal credit score are required  ) - parts of these programs allow you to apply online ( a typical loan term is one year )

 

Business credit cards - supplementing business lines of credit

 

 

While some firms in the SME sector will always consider angel investors, going public options, etc., these solutions are often not practical or realistic for the business owner.

 

  

SMALL BUSINESS BANK LOAN QUALIFICATIONS  

 

Canadian chartered banks offer several programs, but you should ensure you meet bank requirements. Some of those requirements are that you have been established and the business owners have a good reputation and reasonably solid credit history.

 

THE CANADA BUSINESS LOAN PROGRAM ( SBL LOANS CANADA )

 

The Government of Canada offers a Small Business Loan program which is one of the best programs in Canada for Canadian businesses. An attractive interest rate comes with the program and flexible repayment terms around monthly payments. Previously this program only covered::

 

Equipment

Leaseholds

Real estate

 

Important - In 2022, the program was significantly upgraded to include a higher loan amount available and provide access to working capital and a business line of credit.

 

To ensure these programs meet your exact needs, let the 7 Park Avenue Financial team help you with your loan applications, as many feel that when you apply for a loan from the government, there is some paperwork involved.

One other government entity on the federal side offers working capital term loans; these are cash term loans and are generally unsecured, with only the promise to pay your company and yourself as owner. Rates are excellent for what you are getting.

 

  

WHAT ARE THE BENEFITS OF WORKING WITH THE RIGHT BUSINESS LENDERS  

Working with business lenders offers several benefits for entrepreneurs and business owners. Let's explore some of the key advantages:

 

1. Capital Access: Business lenders supply crucial capital to boost growth, catering to needs like expansion, inventory management, or tech investment. They comprehend businesses' unique funding requirements and propose bespoke financing solutions accordingly.

2. Flexible Financing: Business lenders typically offer more flexible lending criteria and repayment terms than traditional banks. They provide customized solutions in line with your business's cash flow and growth path, ensuring loans facilitate success rather than hinder it.

3. Industry-specific Guidance: Lenders have sector-specific expertise, offering valuable advice on financial management, cash flow optimization, and growth strategies. They understand entrepreneurs' challenges and can provide insights for more informed decision-making.

4. Partnership Approach: Lenders are more open to calculated risks and backing potential-rich businesses. They partner in your success, dedicated to helping you reach your objectives. This approach fosters a trust-based relationship promoting long-term success.

5. Efficiency and Affordability: Compared to traditional banks, business lenders often have more streamlined application procedures and faster decision-making, saving time and enabling you to capitalize on growth opportunities promptly. Furthermore, these lenders can offer competitive rates and fees, making their services cost-effective.

6. Networking Opportunities: Lenders often possess extensive networks, potentially connecting you with resources such as industry experts, potential clients, or strategic partners. These connections can unlock new opportunities and further propel your growth.

 

 

   

 CONCLUSION     

 

Business lending access is vital for Canadian SMEs to thrive and grow. Nonetheless, obstacles in securing traditional capital have triggered the emergence of alternative finance options.

 

These provide a crucial support system for businesses unable to secure bank financing. Peer-to-peer lending and government-supported loans offer accessible, versatile, customized funding for diverse business needs. By adopting these alternative financing strategies, SMEs can unleash their growth capabilities, stimulate economic growth, and flourish in the ever-evolving business environment.

 

If you're  'on the hunt' for business lenders that make sense for your operating and capital needs, speak to  7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with your small business loan options and other financing needs.

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is Invoice Factoring?

Companies that need quick cash will benefit from invoice factoring. The company offers a percentage of the invoices to be paid now in exchange for funds upfront, and then they receive payments when their clients pay them back. One example is staffing companies that already have an employee's wages but are waiting until later during the month or year before getting paid by their client, so they can't survive without access to capital. Invoice Factoring allows companies to avoid negative working capital positions and stay financially afloat to meet business needs and debt payments.

 

How do you prepare for a business loan application?

 

You should be able to produce financial statements and demonstrate that your receivables and inventory are turning. It's great to have a forecast or a business plan, which also assists you as a good planning tool.

 

Smaller firms should try and avoid credit cards, merchant advances, or friend and family loans when business lines of credit from banks are not accessible  - they all work and are readily accessible but often are not the best alternative for financing costs and interest rates.

 

Preparing for a business loan application is crucial to increase your chances of approval and secure favourable terms. Here are some steps to help you get ready:

 

1. Assess Financials: Examine financial statements like balance sheets, income statements, and cash flow statements. Understand your income sources, costs, and financial ratios to comprehensively view your business's financial standing and identify the loan amount needed.

2. Verify Credit Score: Your personal and business credit scores significantly influence the loan application. Request your credit reports for accuracy, and work on improving your credit score by settling outstanding debts or resolving disputes, if required.

3. Formulate Business Plan: A well-drafted business plan showcasing your industry knowledge, market, and competition is vital. Include growth strategies, target market, and financial forecasts. Highlight how the loan will boost growth and your repayment strategy.

4. Organize Supporting Documents: Lenders require various documents like tax returns, bank statements, financial statements, legal documents (such as articles of incorporation), and business licenses to evaluate your eligibility. Ensure these documents are organized and easily accessible and meet loan details required by business lenders.

5. Foster Relationships: Cultivate relationships with potential lenders before applying. Engage in networking events, join industry groups, and interact with lenders on social media. Building a good rapport and understanding their lending criteria could enhance your chances of loan approval.

6. Evaluate Collateral: Collateral might be required depending on the lender and loan amount. Assess your assets and decide what you can offer as collateral. This could include real estate, equipment, inventory, or accounts receivable. Understand the associated risks and ensure you can meet the repayment obligations.

 

What is revenue-based financing?

 Revenue-based financing is a financing method that involves businesses obtaining capital in return for a share of their upcoming revenue. The repayment aligns with the business's performance, offering flexibility for companies with variable cash flows. Typically, startups or enterprises with consistent revenue models utilize this financing type.

Working Capital Financing : Study Finds .... Your Business Needs It!

 

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING! 

WORKING CAPITAL FINANCING  BUSINESS LOAN SOLUTIONS IN CANADA

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

        Financing & Cash flow are the biggest issues facing business today 

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The Secret Sauce of Successful Businesses: Understanding Working Capital Financing 

 

Working capital financing alternatives are necessary to finance your growth... or if you're not growth-obsessed, just your survival. As our 'study' says - your business needs it. Let's dig in on all you need to know about the types of working capital financing!

 

 

 

INTRODUCTION  

 

Every business owner knows cash flow is the lifeblood of a company - but as business grows cash gaps occur  between sales and cash - Working capital finance solutions fund short term expenses and help prevent financial failure - Ensuing you understand the mechanics and value of tradition and alternative financing solutions is key.

 

HOW DO YOU DETERMINE YOUR WORKING CAPITAL NEEDS

 

 

Understanding  how much funding you actually depends on factors such as current cash position, short term needs, and long term investment goal - The working capital ratio ' formula '  simple -  On the balance sheet subtract current liabilities from current assets - this shows how much working capital is available - but business owners should ensure they take into account asset turnover in accounts receivable and inventory , as well as seasonality  and unexpected expenses.

That's where maintaining cash flow projections around sales and collections is critical - as well as monitoring your  cash conversion cycle, DSO , etc.

 

  

WHY IS WORKING CAPITAL IMPORTANT  

 

Ensuring  you have enough cash allows your business to meet short term obligations around liquidity and operating expenses . This sustains overall viability  and avoids financial strain and operating difficulties. The ability to bridge the gap between outgoing expenses such as payables against income receivables helps a business manage better on a day to day basis , while also considering business growth .

 

 

 

Expansion of your business via increased sales, new orders, contracts, etc., always demands more cash in the funding of your day-to-day activities. There are traditional and non-traditional ways for you to achieve business financing success. 

 

REVOLUTIONIZE BUSINESS OPERATIONS WITH WORKING CAPITAL CASH FLOW FINANCING

 

 

At 7 Park Avenue Financial more and more of our  clients realize that many non-traditional forms of working capital are become very traditional based on new alternatives available to finance your business and address short term funding needs around accounts payable and other short-term obligations.

 

Cash flow and working capital needs are being achieved more and more today by financing strategies for small businesses that were either unheard of, non-existent, or frowned upon in previous years regarding other business loans and finance solutions.

 

WORKING CAPITAL BUSINESS LOANS IN CANADA

 

Let's recap some of those traditional and non-traditional sources of financing. Suppose you feel you need assistance to understand the wide variety of solutions available for your firm. In that case, we strongly recommend that you talk to 7 Park Avenue Financial, an experienced, trusted, and credible business financing advisor to ensure you have choices.

 

 SMALL BUSINESS FUNDING 

 

Those alternatives for working capital finance funding options:

 

A/R financing - accounts receivable financing solutions - invoice financing that mirrors the credit line solution for funding business needs - Same business day funding for your sales/outstanding invoices - daily sales can be funded via the accounts receivable factoring solution.

 

SR&ED tax credit bridge loans - financing for your r&d costs in the development of new products and services

 

PO / Contract financing

 

Non-bank full business line of credit facilities -  abl business line of credit

 

Merchant cash advances/short term working capital loans - Financing  based on monthly sales - good credit score of owners required! These facilities can be accessed in a relatively short period with flexible repayment terms structured to your sales and cash inflows - these loans are on shorter terms, typically 12 months with monthly or weekly payments based on sales history.Many online lenders offer this financing option.

 

Equipment Leasing - address your needs for new equipment or technology via leasing companies or term loans for asset acquisition from traditional banks.

 

 

Bottom line? Therefore creativity and access to capital become a priority for the business owner to get working capital and avoid a negative working capital situation.

 

We're told that banks are lending again. If you believe that (sometimes we're not quite sure!), focusing on business bankers actively and aggressively looking for your business is essential.

 

 TRADITIONAL FINANCING OPTIONS 

 

For companies that qualify for bank traditional financing options solutions for cash flow include working capital term loans,  business lines of credit, business credit cards - etc.

 

Bank financing is one of the least expensive financing areas, but of course, it comes with loan covenants, ratios, and personal guarantees. Those very issues are why many Canadian business owners prefer to consider non-bank and independent finance company options.

 

GOVERNMENT LOANS / THE CANADA SMALL BUSINESS FINANCING PROGRAM

 

When it comes to banks, we'll also mention not to forget the CSBF loan, which in our opinion, is, bar none, the best business financing in Canada for companies with revenues less than 10 Million dollars. (Also called the Government Small Business Guaranteed Loan program). The program services a very specific need for early-stage businesses, franchises, etc.

 

 Real estate can also be financed under the program, and no personal assets are taken as security! Repayment terms are typically  2-5 year term loans with fixed installments. Interest rates are attractive under the program and a solid business plan is required, outlining your needs in the 3 financeable asset categories of equipment, real estate, and leasehold improvements. A minimal personal guarantee is required by borrowers.

 

In 2022 major changes to the SBL  program added numerous cash flow/working capital/line of credit financing to the program.

 

The term loan structure is the only alternative under SBL loans, the program is not a line of credit or lump sum cash loan. The total amount available is 350k, which is 1 Million dollars if real estate is financed. It's an excellent way to take advantage of attractive long term financing for your need to cover specific asset requirements or financing of leaseholds.

 

As a business owner, you can also consider putting new permanent capital into your firm via your own saving or a partnership with an associate or strategic partner - i.e. getting a supplier to provide financing via extended terms.

 

We also wish to point out that business working capital is somewhat generic and means many things to many people. The textbook tells us that you have the magic' working capital' number if you take your current assets and subtract your current liabilities.

 

That's great, but the actual number of ratios you get has no real meaning. The solution is simply analyzing your receivable and inventory turnover in conjunction with your accounts payable demands.

 

The textbook calls this your cash conversion cycle - but it brings real meaning to your day-to-day financing needs as it will show you how long it takes for one dollar to flow through your company from order to cash. Measuring those asset turns helps uncover the need for working capital loans.

 

 

 

  

CONCLUSION - WORKING CAPITAL FINANCING FOR THE ENTREPRENEUR  

 

Funding working capital properly is a business tool for managing  cash flows of your business - Understanding what types of traditional and alternative lending solutions work for your business is critical - allowing the company to cover expenses and grow sales revenues  - Different types of solutions are available based on the financial health of your business and its operational needs in your industry.

 

Small business owners are keenly aware of the importance of good cash flow. At that point, you can consider various strategies to improve cash flow based on your operating cycle of collections, inventory on hand, and supplier payment terms.

 

Working capital - it's essential; it's available to address your business growth and potential for new markets and customers  -  for more information, talk to the  7 Park Avenue Financial team  about our business financing services to understand your cash flow options to allow you to meet your financial obligations via solutions from traditional lenders and the new world of alternative business financing to address your particular business credit profile.

 

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

 

What is the role of working capital in business operations?

 

The role of working capital, also known as net working capital, in business operations is to finance day-to-day expenses. This includes paying for utilities, rent, salaries, and inventory. It essentially fuels the everyday operational functions of a business, ensuring that it can meet its short-term obligations.

 

How does a working capital loan differ from a regular loan?

 

A working capital loan is specifically designed to finance the daily operations of a company. Unlike a standard business loan, which can be used to invest in long-term assets or other large capital expenses, working capital loans are intended to provide short-term liquidity. They help businesses cover routine expenditures such as accounts payable and wages.

 

What are some common sources of working capital funding?

Common sources of working capital funding can be categorized into internal and external sources. Internal sources include retained profits and reducing current liabilities. External sources range from short-term loans, trade credit, merchant cash advance,  factoring, and invoice discounting. Businesses may also use bank overdrafts or establish a business line of credit. Lines of credit allow the business to pay interest on only funds drawn under the revolving credit  facility which can be unsecured or secured depending on the lender.

 

What are some benefits and risks associated with the aggressive approach to working capital financing?

The aggressive approach to addressing the  working capital ration in finance  entails keeping a lower level of current assets compared to current liabilities on a company's balance sheet. This strategy can potentially lead to higher profitability due to a lower cash-to-cash cycle time and higher asset turnover. However, it also carries a higher risk of liquidity problems. If the company cannot convert its assets into cash quickly enough, it may face difficulties meeting its obligations.

 

How does invoice financing work as a form of working capital finance?

Invoice factoring is a popular short term financing  method allowing  businesses to borrow money against unpaid invoices /  amounts due from customers.  It is not a small business loan per se, but a monetization of receivables on the balance sheet.Companies sell their accounts receivable (invoices) to a third-party company at a discount. This provides businesses with immediate cash, which can be used to cover operational expenses, thus improving their cash flow. It is particularly useful for businesses that have longer payment terms or those that struggle with late payments, or companies that don't qualify for a business revolving line of credit.

 

 What are three working capital strategies for a business? 

Three Working Capital Financing Strategies

1. Conservative Approach: This approach involves maintaining a higher ratio of current assets to current liabilities around short term business financing needs Although safer, this method can potentially yield lower profitability.

2. Aggressive Approach: Here, the business maintains a lower level of current assets to current liabilities. It may lead to higher profitability, but it also brings about a higher risk of liquidity problems.

3. Moderate Approach: This strategy strikes a balance between the conservative and aggressive approaches, maintaining a moderate level of current assets to current liabilities.

 

 

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

Unleashing the Power of Factoring: The Ultimate Working Capital Financing Solution / Does Your Cash Flow Need Have An Identity Crisis? Here’s One Solution!

 

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING!

Working Capital Financing Made Easy: The Benefits of Confidential Receivable Financing

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

 

 

 

CASH FLOW FREEDOM - EMPOWERING YOUR WORKING CAPITAL FINANCING NEEDS 

 

Cash flow is almost always the focus of business owners and financial managers. Most realize it turns about to be a full-time job! It's relevant if only for the fact that working capital financing is all about growth in sales and hopefully profits.

 

One solution, among several available, is receivable financing and  'factoring'.

 

  

WHAT IS WORKING CAPITAL FINANCING?  

 

Working capital financing is the funding a business uses to finance day-to-day operations of the business When using accounts receivable factoring ' as a working capital solution the business finances its receivables with a third-party finance company, called a  'business factor'   The business receives immediate cash for the goods and services they have provided to their customers.

 

One popular method of factoring is Confidential Receivable financing which allows a company to maintain control over both billing and collections while at the same time receiving same-day cash for the outstanding invoices the company wishes to finance.  Financing provided by accounts receivable financing providers improves cash flow and eliminates the waiting for payments to be made from customers.

 

 

BREAKING THROUGH THE CASH FLOW BARRIER 

 

Businesses need working capital to cover expenses in the day-to-day operations of the company. But for many businesses in Canada the access to capital is limited for a number of different reasons, so ongoing healthy cash flow is not always abundant!  A/R finance helps a business overcome the cash flow gap while eliminating the financing challenges a business faces.

 

 

The 2008-2009 world economic crisis drastically affected business liquidity. Every financial institution in Canada, i.e. Banks, trust companies, life insurance companies, third-party independent finance companies, etc. all had liquidity issues and concerns, and these were the lenders! And let us not talk about Covid and Pandemics and the worldwide  economic challenges of 2022-2023 around supply chain struggles as well as increasing interest rates after a period of low financing costs / aka ' easy money '

 

 

THE SME FINANCING CHALLENGE! 

 

Larger companies can look at equity financing, long-term permanent working capital, and other esoteric solutions the 'big boys' use.

 

But what about SME COMMERCIAL FINANCE needs? Start-up, smaller and yes even medium sized firms have to ' scramble ' to fill the void that top experts acknowledge exists in the Canadian business financing arena.

 

 

UNDERSTANDING RECEIVABLE FINANCE / FACTORING 

 

Factoring is a receivable finance cash flow strategy, allowing a business to finance their accounts receivable t commercial factoring companies in exchange for immediate cash. Traditional " old school'  factoring has the finance company then assume collection of the receivable from the business customer. The company pays a fee based on a percentage of the total invoice amount. The finance company pays the balance of that ' holdback' amount when the client pays the invoices, less a financing fee. Simple as that.

 

For businesses that can't, or do not want to!.. wait for clients to pay in 30-60 days ( or more?!) the factoring financing solution delivers immediate cash as a company generates sales - allowing the business to meet their obligations for key areas such as payroll, inventory purchases, and growth opportunities.

 

 

WHAT ARE THE DIFFERENT TYPES OF FACTORING

 

Business owners should understand that are some different types of factoring, and the industry at times makes it hard for customers to understand how basic these different solutions are

 

Recourse factoring is a/r financing with the company continuing to assume full bad debt and collection risk in terms of a potential non-payment from a client. If the company has received funding from the invoice factoring company for that now uncollectible invoice it must pay back the finance firm, or provide an invoice of equal value as payment.

Non-recourse factoring is when a company chooses to transfer the risk of bad debt to the finance company - although this method of financing is typically more expensive when collection risk is transferred to the finance firm.

 

Confidential Receivable Financing

 

Confidential receivable financing is a method of receivable factoring that allows the company to enjoy all the benefits of traditional factoring for unpaid invoices while maintaining full account control and communication with its client - The company continues its normal billing and collection process while still receiving immediate cash for sales that are generated and invoice to clients - This solution provides positive cash flow and keeps client relationships the same as they were in the past without any knowledge of how the business is financing its business.

 

Additionally,  the factoring fee in confidential a/r financing does not cost more!

 

So why factoring as a cash flow financing vehicle?  Yes, it will always have a higher cost, but... it's available, and it works. CONFIDENTIAL RECEIVABLE FACTORING even mirrors traditional bank lines - i.e. you can bill and collect and manage your own A/R without notification to any other firm, i.e. your customers.

 

IMPROVING CASH FLOW VIA FACTORING  AND A/R FINANCING

 

Factoring financing is a proven financing mechanism used by thousands of companies in Canada - providing a quick and efficient method of cash flow generation - allowing a business to operate efficiently and meet its day-to-day operational needs around cash flows.

 

What then are any challenges around factoring receivables? Although it's historically been around for almost forever it's incredibly misunderstood. Many players aren’t Canadian, (which doesn't necessarily have to be a concern) but the real truth is the way these firms operate and deliver on your financing. Also, prices and fees vary.

 

But whatever challenges come from factoring A/R it's safe to say that the ability to turn sales into 'immediate cash' is the greatest selling point to clients we talk to.

 

THE DIFFERENCE BETWEEN WORKING CAPITAL LOANS AND  RECEIVABLE FINANCING

 

At 7 Park Avenue Financial, we are often asked about the difference between working capital loans are a term loan structure, versus invoice financing .  Each method has its own benefits. While banks and other business lenders offer working capital loans for short-term ash needs these loans to have long amortizations and require regular installment payments. They can be viewed as a source of permanent working capital.

Invoice financing is the receipt of immediate cash for invoices which are the collateral for the cash - Companies receive the cash immediately and the company pays a fee on the invoice they choose to finance.

In general, receivable finance is easier to get approved versus long credit checks and due diligence performed by working capital providers.

 

  

KEY ISSUES TO UNDERSTAND IN FACTORING FOR WORKING CAPITAL NEEDS  

 

Things to both understand and consider when looking at factoring working capital financing include:

 

The requirement to finance all your A/R & Sales - Spoiler alert - you don't have to!

 

Rates/cost/fees -

 

Security arrangements - in all cases the key collateral is of course your A/R

 

Size of facility and quality of your customer base

 

Amount of financing extended against invoices - typically it should be at least 85-90%

 

THE DOWNSIDE OF TRADITIONAL FACTORING - IS THERE A SOLUTION? SPOILER ALERT !! YES, THERE IS!

 

Factor firms have very different levels of involvement in your business when you have such a facility. The factor financing can have a strong level of daily 'intrusion' into the Canadian firm's business - the invoice factoring company might insist on delivering invoices to your customer, notifying them of the financing arrangement, and yes, you guessed it, even calling the customer and collecting the receivable.

 

  

UNDERSTANDING CONFIDENTIAL RECEIVABLE FINANCING / FACTORING  

 

Naturally in a perfect world, most firms would rather perform these functions themselves as part of the overall 'customer relationship '. That's why we don't recommend that solution to our clients, instead, we prefer CONFIDENTIAL A/R FINANCE.

 

CONCLUSION - Unlock Your Business Potential with Factoring: The Working Capital Financing Strategy for Cash Flow Success

 

If you're focused on winning the working capital financing game,  call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who is focused on the cash flow and factoring solution you need to grow and survive.

 

Find out why 7 Park Avenue Financial is your best choice for a business financing partner for financing solutions tailored to your firm's needs. Use our industry experience and reputation to ensure you have access to the best business finance solutions.

 

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

 

Does factoring decrease working capital?

No factoring does not decrease working capital -  it allows a business to improve cash flows and to have the ability to run and grow a business. Factoring monetizes accounts receivable into cash.

 

 

Is there a drawback in factoring in receivables? 

While factoring receivables improves cash flow for a company cost is often seen as a potential drawback as it is a higher cost of financing in the majority, but not all cases. Companies who choose traditional factoring versus confidential a/r finance might view this method of financing as a negative to their reputation which is not really the case.

 

What are the benefits of working capital financing? 

Working capital financing provides businesses with numerous benefits, including:

 1. Ability to be  cash flow positive

2. Providing flexibility in cash flow management

3. Improved chances to access growth opportunities in areas of expansion staffing, technology access, etc

4. Minimizing credit and collection risk and management while providing positive working capital to the business

 

 Why do companies utilize factoring as a working capital solution? 

 

Factoring allows a business to meet the obligations of the business as is a popular financing tool in many industries - Businesses can have ongoing positive cash balances and cash control around different aspects of the business.
Businesses should focus on the tradeoffs in financing costs versus their ability to generate a positive return on capital in their business operations.

 

Traditional factoring solutions provide credit information on new clients, manage risk on approved non-recourse accounts, a well as providing a collection process without the need for additional staffing investment in managing an accounts receivable investment.

 

How does  The Factoring Process Work

The factoring process is a basic financial transaction around the initial setting up of the account facility as well as the ongoing financing of receivables.

Initial approval requires a business to submit a standard business application as well as a detailed account receivable  aging and sample client invoices - Typical other requirements include copies of several months' bank statements and info on business owners  and incorporation details,

Once the facility is established and a facility limit is approved factoring companies send out a notice of assignment to customers of the business - Companies submit invoices for financing and funds are remitted to the company, usually on the same day. Typical advances are in the 90% range and when the customer pays the company receives the balance of funds on the invoice, less a financing cost.

 

What are 5 Important Terms In Factoring Financing That Business Owners Should Understand  In Working Capital Factoring

Reserve Account - This is the amount that is held back on each invoice  in the factoring account until the client pays, typically in the 10% range

Spot Factoring - Spot factoring allows a company to finance a single invoice when required - it is often a more expensive solution for financing specific accounts receivables.

Advance rate - This is the amount the factoring company advances on each invoice,

Monthly minimums - clients must determine whether they will finance all of their invoices or only some of them at their choice

Discount rate - This is the financing fee for factoring - typically between 8% per annum up to 1.25% per month, depending on a number of factors such as size, overall risk profile and credit worthiness, trends in customer payments, type of industry, etc.

Many different industries are frequent users of accounts receivable factoring, such as commission advances, medical receivables, government receivables, construction, trucking,  staffing, etc. - Many factoring providers specialize in certain industries where asset-based lending solutions are a solid alternative to traditional financial institutions who would provide a line of credit.