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Canadian Business Working capital financing challenges sometimes have business owners/managers feeling they're on the proverbial train to nowhere. What then are the issues and are there traditional or new innovative financing strategies available? Let's dig in.

Financing of working capital is required for a number of circumstances in business - the challenge is determining what type of  working capital financing  is best designed to meet your business goals. That might include growth opportunities or just funding day to day operating capital for business operations.

WHAT IS WORKING CAPITAL CASH FLOW AND WHY MUST IT BE ADDRESSED?

 

Your accountants will tell you that the definition of 'working capital' is simply the subtraction of current liabilities from current assets. Those great accountants though aren't necessarily the ones to address the actual challenge accessing cash to cover those shortfalls that fall in between that 'ratio calculation'. Our friends in accounting will also tell us that a ' good ' working capital ratio is 2:1 , namely two times more current assets than current liabilities. A company can of course have ' negative working capital ' further exacerbating the ' cash crunch '.

At 7 Park Avenue Financial we try and help clients instead understand the ' quality of earnings ' -namely how the financials look without accounting exercises around depreciation, etc and ensuring that true profits come from higher sales and better a/r and inventory turnover, where the real profit and cash should come from! Many business owners don't always realize they can avoid borrowing for cash simply by negotiating better terms with suppliers, thereby shortening their cash conversion cycle.


It's at this time that any commercial lender or bank will examine different types of information around your sales, credit profiles and background of owners, and the amount of financing you might require for a business capital need.



Many firms these days are taking the ' quick solution ' financing approach, which has some major benefits but comes with some level of risk also. They look toward short term working capital loans offered by many firms, including online portals ,sometimes called merchant lenders. Although rates are very high the loan formula is exceptionally simple - a loan for approximately 15-20% of your annual sales repaid on a basis that gives comfort to both the lender and the borrower on an installment basis. These loans are almost always 1 year in duration.




Most of the options above are supplied by big banks, which means that if you want to obtain a loan, you will need a good credit score and/or many years in business. Fortunately, there are alternatives for those who do not meet those qualifications. There are steps you can take to obtain business financing with low credit. For example, a merchant cash advance is one way to get the funds you need, and rather than considering your credit, lenders actually look at the amount of time you’ve been in business along with the amount of monthly credit card sales you process. If you can meet a few easy qualifications, you can get the money you need in just a few days, deposited straight into your business bank account. Repayment terms are based on a portion of your daily sales. The ability to pay off these loans from ' sales revenues ' allows many firms to qualify.




Some firms might have a business line of credit in place but need complimentary financing in addition to established facilities. Firms that rely heavily on the inventory component of their business might wish to add to inventory as well as on occasion take advantage of special pricing and supplier discounts. Other firms might have initiatives around new geographic territories or marketing initiatives.

Many early-stage companies require working capital for their investment in r&d capital. At 7 Park Avenue Financial we're big believers in FINANCING TAX CREDITS to accelerate cash flow.


Some companies are in industries that are not ' asset intensive ', but they of course still require cash and are unable to pledge large amounts of hard assets or other collateral such as real estate. Also, most business owners don't wish to have to raise additional equity which of course dilutes ownership. That is why a number of working capital solutions alleviate this problem, and at 7 Park Avenue Financial our experience tells us that companies with growth potential and experienced management who can demonstrate quality preparation of financials, or a good BUSINESS PLAN , etc will always be able to raise cash and access working capital loans.

HOW FAST CAN YOUR COMPANY GROW

The irony of the business owner's concern is, many times, that business is great. We hate getting technical with clients, but finance has a term called 'sustainable growth' - very simply put it's the growth rate your firm can achieve without increasing leverage or the amount of debt to equity in your firm. It's calculated as follows:


ROE X (1-dividends paid out)


ROE is of course return on equity, the amount of net income at the end of the year as a percentage of your firm's net worth.


Perhaps we have surprised some business owners by telling them the exact day that they will have to stop growing based on their inability or desire to borrow!


Anyway, our point is not that, it's simply that at a certain point you cannot grow your business anymore without debt. No one likes taking on too much debt.

WHAT IS AN ASSET BASED WORKING CAPITAL FACILITY ?

A better solution? An asset based working capital facility. This type of facility adds no additional debt to your firm but gives you maximum liquidity for receivables, inventory, and even equipment you already own.


So, we promise, no more technical financial discussion lets discuss the financing you need and the challenges you have. As we stated it is ironic that many times the stress of managing working capital is related to success - you have new orders, contracts, the need to build up inventory, or perhaps you have granted special payment terms to new or existing customers.


At the same time your firm has its own obligations to suppliers and term creditors such as the bank or equipment lenders, etc.


We can say that the problem is very obvious when you have suppliers that want to get paid either upfront or in 30 days, but you have inventory buildup needs and your customers are paying you in closer to 60 days, despite your terms of 30 days.


The traditional solutions are always too obvious, Canadian chartered banks for term loans or operating facilities, or even consideration to giving up some equity in your ownership. That is why the appeal for an unsecured working capital loan is so desireable for many business owners.


Those are solutions that are either desirable by many of our clients. The reality? Financial conditions and lack of collateral prohibit in many cases traditional financing.


Therefore those non traditional, but getting less non traditional solutions look more and more attractive every day. By sacrificing one of two points of gross margin true working capital asset based lending facilities can provide you with all the cash flow you need when it comes to financing inventory at aggressive loan to value, 90% of receivables, and, as we said in some cases equipment and even purchase orders.

BENEFITS OF PROPER CAPITAL LOAN FINANCING

So what is the final effect of a true working capital facility - it's financially much better than taking on term debt or selling equity ownership, etc. We have just shown you that by maximizing a true working capital facility you have increased sales, increased profits, and have not taken on additional debt or given away any portion of your equity stake.

Many firms may choose to take advantage of working capital term loans via the crown corporation supported by the Canadian government. Their solutions are complementary to existing senior lenders and therefore are a good bridge between debt and equity. Larger transactions in this area are termed ' mezzanine financing and, in essence, are unsecured cash flow loans. Typical uses of cash flow short term or long term loans are reduction in accounts payable, or addressing the cost of additional investments in accounts receivable and employee costs including salaries, etc.

Your company might be a ' victim ' of the seasonal tendencies that occur in many industries, therefore requiring additional management focus on the proverbial cash flow credit crunch.


KEY POINT - Business owners must differentiate between long term capital needs and short term cash flow requirements. The concept of matching finance to the appropriate balance sheet asset is key.

Asset acquisitions should be financed through long term debt solutions such as EQUIPMENT FINANCING. Many firms looking to acquire owner-occupied premises should of course consider a commercial mortgage as the proper debt financing in this regard.

FACTORING / ACCOUNTS RECEIVABLE FINANCING / CONFIDENTIAL RECEIVABLE FINANCING 

 

In many instances, either a new or amended BUSINESS LINE OF CREDIT will provide the cash flow your company needs. Either a traditional bank facility or an Asset based line of credit  can provide your company with cash flow that matches sales growth and the covering off of the additional investment your firm must make to carry accounts receivable and inventories. For smaller firms a small business factoring service will often solve the problem.

Canadian businesses that cannot qualify for traditional bank credit facilities can easily access non-bank asset based lending facilities. These facilities will almost always provide more access to credit than bank margining of the balance sheet, and while more expensive, can provide your firm with the cash you need to cover the business operating cycle . 

Factoring companies  in Canada offer, under the umbrella of asset based lending, allows a company to sell receivables on an ongoing basis as soon as sales are generated. Our recommended solution in this area is Confidential A/R Finance, allowing you to bill and collect your own invoices as well as taking advantage of all the benefits of factoring.



The GOVERNMENT OF CANADA SMALL BUSINESS LOAN PROGRAM for capital loans is one of the best loans for business in Canada, and an excellent vehicle for the financing of three specific asset categories:

EQUIPMENT

LEASEHOLD IMPROVEMENTS

REAL ESTATE

Commonly called the ' SBL LOAN ' it offers attractive terms and rates and the large majority of the loan is guaranteed by the federal government of Canada, via INDUSTRY CANADA.



CONCLUSION


Canadian business turns to the working capital finance solution when cash is required to run and grow the business. Different available solutions will allow you to run and grow your company while sales are increasing and existing assets and internal resources won't fill the gap. Access to business capital is key to success and a number of specific financing solutions in alternative lending and traditional finance can offer the best business loan solution for your business.


Speak to a trusted, experienced, and credible business financing advisor for more information on how finance for working capital and true working capital asset based lending facilities can help your Canadian firm grow sales and profits.



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

Canadian Business Working Capital Financing

Financing A Business In Canada Here's Some Golden Rules For Working Capital and Loan Solutions

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 Alternative Lending Cash Flow Solutions And Tips For Canadian Business Financing

Financing a business in Canada. A challenge? Let's just say that's an understatement when it comes to working capital, debt, and ongoing management and recognition of financial problems and opportunities. Are there some ' Golden Rules' we could follow. We here at 7 Park Avenue Financial think so so lets cover off some loans for business in Canada.

In some cases your firm might be growing too fast, and just at the time that when you are ready to either expand or take on larger orders and contracts your operating capital and business capital needs replenishing without having the funding you need to address growth challenges. Every company, small and large eventually needs more access to capital, for small and medium firms making a financing error can lead to impaired financials and even business downfall.

Firms with poor working capital typically are poorly managed and unable to meet cash flow needs, but on the other hand a constant reliance on new working capital often has the company demonstrating that it is investing all their cash to grow the business and increase return on investment.


Here is where expert advice and right choices come in, as the wrong debt must be matched to your cash inflows, and even more challenging is the fact that uncertain economic times, pandemics included making it very difficult to find business capital.

The amount of financing you need to run a business depends on how you operate it within your industry . Finance experts call that the ' operating cycle ' and it's simple, namely the amount of time it takes for a dollar to flow through your company from order to collection of the sale via your receivables. The ability to maintain positive working capital throughout that process dictates the amount and type of financing you need.

The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating cycle, and the business owners’ goals for future growth. However, while very large businesses can get by with negative working capital because of their ability to raise funds quickly, small businesses should maintain positive working capital figures. Even issues such as seasonality of a business can greatly affect cash flow needs.



Regardless of the product name, all financing solutions consist of either debt, equity, or a hybrid combination of both. Keep in mind that there are no “good” or “bad” solutions. The best solution for you depends on your specific circumstances and requirements.


One of those golden rules of business finance is to ensure that you properly match short term debt and long term debt appropriately. Each of these two has its own benefits and potential disadvantages. Is one better than the other? Not really, it’s just that it’s a case of making adjustments and staying ' in tune ' with what needs are appropriate or required at the right time.

Working capital loans , whether they be a term loan to inject permanent working capital into the business,or alternatively a short term loan, typically 12 months in duration are used to cover off short term operating needs such as payables, financing your investment in accounts receivable, salaries and wages, etc. It is improper to use shorter term working capital facilities for long term needs such as financing fixed assets/equipment, or real estate, etc,

From an understanding point of view we don't want to go too far down the textbook route in explaining working capital but it's important to simply know that its calculated by subtracting current liabilities from current assets on your balance sheet. Let's leave it at that.

But if there is a shortfall in that number, or the ratio is really tight you need short term liquidity financing of some sort - The good news is that more and more there are some new, creative and alternative financing options available to business owners seeking SME COMMERCIAL FINANCE. That SME " small to medium enterprise " segment in Canada is one of the largest parts of the entire Canadian economic landscape.

How to Get a Working Capital Loan

Numerous traditional and alternative lenders have the financing options you probably need to run your business. In general the same fundamental criteria apply to their level of due diligence into your business - i.e. years in business, annual revenues, is the business preparing proper financial statements that accurately reflect the state of the business, etc. Businesses that are smaller should realize that their personal financial affairs and how they are managed are viewed by the lender as a reflection of how the business finances are managed. Therefore decent credit bureau/fico scores are important.

HOW IS A WORKING CAPITAL LOAN REPAID?

In selecting a financing facility for your business you and your commercial lender should have a sense of repayment ability. Short term working capital loans are widely popular these days, in many cases online portals are used to apply, and lenders use algorithms to determine the amount of loan and repayment timing. Many business owners and their financial managers don't realize that the loans may sometimes be asked to be repaid weekly, but monthly is also common.

The loan amount for these facilities often called ' merchant advances ' is based on a formula of your annual sales, typically 10-20%, as well as factoring in your time in business. Interest rates and cost of financing tend to be some of the highest in Canada for these loans. The appeal is of course speed and flexibility of approval.




We have mentioned the need to separate short term borrowing for long term investments in your business. So for acquiring fixed assets equipment leasing and commercial mortgages are proven options to acquire assets/real estate. In some cases a firm might be looking to invest in leasehold improvements.

On' catch-all ' for financing assets, leasehold improvements, or real estate is the Government of Canada Small Business loan program, providing up to a $1,000,000.00 of financing with a government guarantee behind the majority of the loan. Seek out the services of an experienced Canadian business financing advisor who can help you acquire this loan. Key benefits are attractive interest rates, repayment flexibility, nominal personal guarantee, and financing for investments such as leaseholds that are typically harder to finance as they are intangible assets.

It is the perfect loan solution for building acquisition or modernization via leasehold improvements, as well as covering the purchase of new and used equipment. Since the largest portion of your loan is guaranteed by the Canadian government through this Industry Canada program that allows banks to lend to businesses that might not otherwise qualify for the funding they need.

So in financing a business it is really about what the finance experts call ' sources and uses ' of funds and what type of financing suits your firms specific company or industry needs.

Canadian Bank Financing

Often seen as the ' go to ' solution for general working capital, operating loan, and other financing needs the Canadian banks offer unlimited funding and flexibility for firms that qualify. The attractiveness of a bank revolving line of credit is that it is low cost and can be used only when you need to draw done funds. The banks are very focused on repayment !; so you must be able to demonstrate historical and present cash flow generation. Loans are structured to meet your business needs but borrowers quickly become aware of the more stringent credit qualification and criteria for firms to access bank financing. Those criteria include established businesses for the most part, and focus on the size of the business, quality of the balance sheet, debt to equity ratios, and personal covenants and outside collateral requirements.

The vast majority of businesses in Canada can qualify for both Factoring, as well as the related type of facility, Purchase Order Financing. Factoring financing is probably the fastest growing type of working capital financing when it comes to how to finance a business in Canada. While some call it a receivables loan it is in fact just monetizing your a/r for cash flow.


Since cash flow problems often stem out of a company's inability to collect it's receivables in a timely fashion any commercial or government-related receivable can be financed for immediate cash. At 7 Park Avenue Financial our recommend factor finance solution is ' Confidential Receivable Financing ', allowing you to bill and collect your own receivables without any intrusion by a third party.

If your firm had very good gross margins and can sustain the 1.5-2% fee associated with the financing your firm can become an ATM machine, generating cash as fast as you generate sales revenues. The flexibility and faster access to cash are the great appeal of receivables finance.

Another type of specialty finance related to your ability to take on larger orders and contracts is purchase order financing. This type of financing pays your supplier directly, allowing you to fulfill orders and contracts that might otherwise be lost to competitors for lack of working capital. Similar to factoring finance P O Financing has a higher cost but if your firm has good gross margins it allows your company to grow substantially larger without owners having to put up more equity. Alternative lending in Canada via solutions such as we have described is very much on the rise .

It certainly hasn’t escaped us that not only is it difficult when it comes to financing a business in Canada to manage internally, you of course have to stay in tune with what’s happening in the economy, your industry, and dare we say, politics! Talk about a full-time job.



A lot of your financing for loan capital of any type will probably come from external financial solutions. They might include a line of credit, bank debt, working capital term loans, receivable finance, inventory finance, equipment leasing, and monetization of tax credits. Those tax credits typically are covered under Canada's SR&ED program and if you have refundable tax credits they can be easily monetized under a SR&ED Loan facility. That accelerates the refund of your valuable investment in r&d capital.




However, you also generate cash internally, and you need to know how to measure that.



When you assess working capital or debt needs you need to be in a position to focus on cost, risk, and what that financing does to your balance sheet? All of those must be taken into consideration.



Also consider your current capital and debt structure and how your balance sheet will look after financing is completed. As an example, something to think about is that working capital and cash flow can be generated through monetization of assets - this doesn't really bring debt to the balance sheet, so you've achieved your goal without increasing debt.



On occasion it’s important to discuss any taxation impact on your financials with your accountant, as there are both positive and negative aspects to debt and tax.



If your firm is mature and operating efficiently you’re in a position to access all sorts of traditional financing. The other side of that is alternative finance, which works just as well but might be more costly on occasion - not always, but sometimes.





It's hard enough to access financing but choosing the right partner is a struggle in itself sometimes, ensuring that the funding source will be with you in tight markets and good times. Apparently, those two fluctuate over time. The 2008 worldwide debacle caused many finance firms to disappear or implode, causing havoc among thousands of businesses in Canada, whether you were a start-up or large corporation!



One solid Golden rule of business finance is to be proactive when it comes to access to debt solutions and working capital. You might even have to make the tough decision around diluting equity when there is too much debt on your balance sheet. That’s a costly one.



Another of those Golden rules is to have a solid sense or understanding of how outside forces, pandemics included, can affect your company's financial viability! If market conditions are continually volatile you clearly need to focus on longer term stable financial solutions.

WHAT ARE YOUR BUSINESS GOALS ?

Constantly stay on top of your cash flow planning, and consider the need for a proper business plan that accurately reflects the true growth and profit potential of your company. You might be focusing solely on growing sales, in other cases you might be going into new product lines or geographies, or investing in r&d. If you want to more clearly understand what business financing solutions are available for financing a business in Canada speak to a trusted, credible and experienced Canadian business financing advisor.



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

Working Capital Finance Solutions & Bank Alternatives !

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Benefits Of  Financing Alternatives Vs. Traditional Bank Loans

What Is Working Capital? How To Find Alternatives To Bank Financing

Canadian business owners and financial managers seeking working capital finance by banks or other sources are generally experiencing growth in sales and profits. That's the good news, which is of course offset by the fact that this type of success requires additional working capital and newer ways to finance your business. Putting working capital to work enhances your firms value when return on capital is higher than your cost of financing!


Liquidity has become the name of the game and ' cash is king' even today never seems like a worn cliché.  Past studies by the Conference Board of Canada indicated that the key worries of business owners were working capital cash flow. (Also referenced were ' regulatory issues and competition'). The bottom line is: business owners and their financial managers want options


So you have sales and assets... but can those assets generate working capital finance by banks or other alternatives?

The ability to secure funding at critical times is always challenging for entrepreneurs, even in established companies. That one of the biggest reasons that alternative funding has risen to so much prominence. A wide variety of finance solutions is now available to the Canadian business owner - solutions that involve cash flow financing via the monetizing of current assets such as inventory and receivables, monetizing future sales ( merchant advance/short term working capital loans), equipment financing and sale-leasebacks, and traditional cash flow term loans, also known as ' mezzanine financing '.


Somewhat remarkably many businesses have even turned to online borrowing solutions in Canada. Canadian chartered banks have also participated in the online borrowing industry, although reviews of customer experiences in business journals such as the GLOBE &  MAIL and NATIONAL POST have met with some lacklustre customer experience. Although approvals are relatively fast interest rates and borrowing costs and terms of repayment have left many customers wanting better solutions.

In online borrowing models, including peer-to-peer loans significant emphasis is based on owner personal credit history. Alternative funding options are continually changing in the digital space and borrowers are well advised to speak to a business financing consultant in this area. It is safe to say that business owners can't be expected to call and interview all the different online lenders as it relates to loan info, cost of financing, and loan criteria.

The main appeal of short term working capital loans is the emphasis on fast approval, no requirement for additional collateral, and less emphasis on personal credit scores and net worth.


The bottom line is that businesses who choose to grow and that require external funding want to deal with reputable lenders/financing partners. Unfortunately many Canadian firms can't meet the criteria under traditional bank lending policies , even though financing needs are critical to their business.



For working capital purposes it's all about ' current assets ' which include typically receivables and inventory. As you invest in those two assets to generate sales your working capital needs go up, and your ability to manage and turn over those assets plays a key role in the sourcing of working capital by banks, and non-bank institutions.


You should not be afraid to enter into traditional or alternative working capital solutions if you have properly managed current assets - you are simply monetizing for liquidity, and that's rarely a bad thing.  Business owners know cash goes down when you are expanding sales as you invest in assets and resources.


So are Canadian chartered banks the solutions to your working capital needs. Probably, possibly, maybe is our answer, meaning that if your firm is capable of meeting bank criteria for a revolving line of credit your needs typically can be met. Of more and more concern to our clients is their ability to not be able to generate sufficient financing for the sister of receivables, aka inventory!


That then takes us into an alternative for bank financing, which is the fast growing area of asset based financing, in particular asset based lines of credit. These facilities cost more, but give you total margining of the market value of your receivables, inventory, and , guess what, we'll throw in equipment and real estate if you want to temporarily margin them for working capital. And remember, your balance sheet is not taking on debt when you enter into either a bank or alternative asset based line of credit, you're simply monetizing your financials for cash flow.

The reality is that alternative methods of financing are growing more popular - yes they are more expensive, but if your firm generates sufficient margins and return on equity your ability to tap into virtually unlimited working capital can prove to be a very positive experience.

The reality of working capital finance by banks or alternative methods is always the same - you need to determine your asset turnover, there will always be times when you need a bulge in inventory and A/R to fund your growth.

Solutions for alternative working capital cash flow include:

Non bank asset based lines of credit  - These facilities help to smooth out what the pro's call the 'operating cycle ' of your business , assisting those times where cash inflows don't match outflows based on a/r and inventory turns. As you invest in current asset categories of receivables and inventory you experience a decline in cash reserves. Businesses with seasonality or ' bulges' of sales activity require solid business credit lines. 'ABL' ( Asset Based Lending ) lending is true collateralized lending.




The operating cycle may cause businesses to experience shortfalls for a specific period. There are numerous reasons why this can happen, but one underlying reason is that a business may extend credit to its customers to attract more business. The more credit a business extends, the less cash is available during that time. That’s why a line of credit can help these businesses with their cash flow management.

A/R Financing/ factoring (We recommend Confidential Receivable Financing) - 

Accounts receivable finance is one of the most highly utilized and successful forms of non bank working capital financing. This type of financing allows you to, in effect , sell your invoices to generate cash flow. Many business people don't understand this type of funding is not a loan, in effect its a transfer and cash flowing of your asset - A/R! 

So pricing is not an interest rate per se, but a discount to the total value of your invoice, typically in the 1-1.5% range.  We recommend confidential a/r financing, allowing you to bill and collect your own accounts with no intrusion of any finance firm into your customer relationship.



Sr & ed Tax Credit Bridge Loans

Sale leaseback solutions

Inventory & Purchase Order Financing

Loans for professional practices ( Doctors/Dentists/Lawyer/Accountants, etc )  - These loans may involve financing needs around equipment, marketing,  or in some cases acquiring another practice. Expansion for business real estate is also a common need in this area.




Short Term Working Capital Loans ( aka ' Merchant Advances ) - As we have discussed to a certain degree these online/peer-to-peer solutions became ultra-popular after the 2008 recession and became a strong competitor to invoice discounting finance. Loans are typically based on a percentage of annual sales, typically between 10-20%. Although readily accessible we consult to clients around the pros and cons of this financing, one issue being higher interest rates.

It is important to understand the financial concept of matching when it comes to working capital finance solutions. These sources of capital should be used for day to day operating needs.  Serious mistakes occur when these types of solutions are used for long term need such as investments in equipment, r&d,  marketing, etc.

At 7 Park Avenue Financial we find that many new clients are confused around some of the terminology around the ' working capital loan '. Also noted is that certain loans in this category are secured, others are not.

Is Alternative Financing Right For Your Firm?

Business financing is a challenge, so owners must invest their own time, or work with a trusted advisor to evaluate options. Companies with good sales revenues, profits and clean balance sheets will have more options, but we have demonstrated that commercial lenders providing alternative finance options are plentiful and offer numerous cash flow solutions to your short term needs. If your firm has sales, and or assets you have non bank funding options.


Liquidity, that's what it's all about. Speak to a trusted, experienced and credible Canadian business financing advisor in order to ensure your traditional and alternative business financing options are first, clear, and second, available!





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.









Stan Prokop
7 Park Avenue Financial/Copyright/2020

Financing A Business And Solving Working Capital & Funding Needs

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When  Is  A  Working Capital Loan is Right for Your Company! Financing A Business For Your  Working Capital And Funding Needs

 

Many business owners turn to working capital loans any time they need to get their hands on some quick cash. The truth is that this type of loan is better used when you need to stay afloat, cover general operating expenses, and pay bills with invoice financing. These products essentially buy you some time so you can come up with new ways to generate revenue based on your existing assets and resources.

Financing a business always seems to come back to that tried and true (cliché?) term of cash flow to finance the daily needs of your business. So when it comes to loans for businesses in Canada it is no surprise that cash flow is often called the lifeblood of your company day to day operations.

What Is A Working Capital Loan Used For?

It's all about your day to day operations, not long term financial commitments such as leases for equipment financing, term debt, etc. The most common day to day cash needs include payables, the financing of accounts receivable, salaries, and fixed costs such as rent, utilities, etc.



No matter how overused the term might be most business owners and financial mgrs would not dispute the need for the right amount, and type of business funding . That involves taking a hard look at your balance sheet and reviewing the relationship of the current ratio items, namely your short term assets such as a/r and inventory, as well as obligations such as payables, loan payments, etc. That current ratio drives your working capital and cash flow loan needs.



The downside of not having, or being able to arrange cash flow and working capital financing is simply that you have a lesser ability to grow sales, maximize profits and take advantage of new opportunities.

So what in fact are the working capital and financing issues that are raised on an ongoing basis for your business?

Factors To Consider When Financing A Business

Key is understanding how your receivables, inventory, and other assets come together to drive working capital and cash flow. And, to our point, how do you finance those assets and those needs?



What are the real drivers in funding need - typically it's growing revenues, expanding, and in some cases buying or merging with another business.



Although most business owners/financial mgrs can't imagine having too much capital for their business that overabundance would actually mean you are not using capital properly! The bottom line, as experienced by most business folks, is that financing a business is actually a balancing act when business capital is sought.



One of the main things you should focus on is your ability to pay your current debt - On the balance sheet, your accountant shows that as ' current portion of long term debt ' - You always want to be in a position to meet these obligations as failure to do that means you are bordering on insolvency. All of that snowballs into major issues with your bank, your suppliers, and other creditors such as leasing or finance firms.



So as we have said, you need to be able to calculate, or measure working capital, and then address how you will satisfy the need that comes out of those numbers. There are some easy calculations you can perform in measuring your overall cash flow - it's really simply understanding your inventory and A/R turns, as well as having a handle on your accounts payable days outstanding.



If it was a perfect world you could raise all the working capital you need internally. How would that work?! Well, using an extreme example if you collected your receivables in 45 days, and turned your inventory in 45 days, and were able to pay your payables every 90 days you would be very self-financing.



Sounds great, except you can hear your suppliers and creditors now I bet... Also, the profits that you generate out of your business obviously become a new additional part of the working capital component and would even further benefit your overall position.



But let's get back to the real world, which states that if you have more current assets than current liabilities you 99% of the time need external working capital.



Canadian business owners achieve that additional working capital in a number of ways - the most beneficial is bank lines of credit, or in some cases, if your firm meets the criteria, a cash flow working capital loan. If you are unable to meet bank criteria and are still in a challenged or growing position then we advise clients to consider a non bank working capital or asset based lending facility.

How To Get A Working Capital Loan

Numerous new solutions in financing a business have emerged in Canada. That includes cash advance merchant lenders as well as common subsets of what is known as alternative financing. Those subsets, actual real world solutions include a/r financing, working capital term loans, tax credit financing, inventory finance, and mezzanine cash flow loans for more established firms.

When it comes to the merchant advance lenders the focus is on typical business credit optics such as how long your company has been in business, what your annual revenues are, and the overall turnover of current asset categories such as receivables and inventory.

Depending on the size of the transaction the personal credit history of the owner/owners is also a subject point in the overall decision. As far as ' working capital loan repayment ' works the formula is actually quite simple - a short term loan based on approx 10-20% of your annual sales that is repaid monthly, or sometimes weekly based on a review of your cash inflows.



If those receivables we discussed tend to be your main current asset than a factoring or invoice discounting facility makes the most sense. Most Canadian business owners don't fully understand how factoring in Canada works, and are often confused by the costs and process. At 7 Park Avenue Financial our recommended funding solution in this area is Confidential Receivable Financing. This is not a receivables loan but a true sales based cash flow financing facility.

It is critical to ensure that you are matching your business financing needs against either a long term or short term solution. When your company needs new equipment, real estate, etc the business owner and financial manager must explore options such as equipment loans or commercial mortgages where payments are fixed and amortized over longer terms.

When it comes to an ' operating loan ' solutions for your company include a traditional bank revolving credit facility or in some cases an alternative lending solution such as a non bank asset based lending facility.



The Canada Small Business Loan financing program, unfortunately, does not cover working capital needs, although the government's crown corporation non bricks and morter entity does offer long term working capital loans that come with prerequisites of profits and a reasonable balance sheet.



Export Development Corporation ( EDC Direct Lending ) and the somewhat related financing of refundable tax credits are solutions, but these facilities take a significant amount of time to set up. When exploring government loans or related financings it is strongly recommended that you use the services of a business financing consultant with expertise in this area.

Alternative lending Canada based solutions are continuing to dominate Canadian business financing needs and compete regularly with traditional business offerings provided by Canadian chartered banks and are truly an advanced alternative lending solution when traditional financing doesn't solve your business capital needs.

So what’s our bottom line recap - it’s simple!

Understand how much financing you need - that means ' measuring' your needs, as well as what type of funding suits that need. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a financing track record of success.






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.









Stan Prokop

Funding Business Cash Flow Needs In Canada

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Working Capital Loans & Asset Based Lending & Merchant Cash Advance Solutions Do The Trick

Information on Funding Options For Business Cash Flow Needs Via Alternative Finance Solutions

How Does A Business fund it's cash flow needs ? There isn't a day these days when we don’t meet or talk to a small business client who is having cash flow funding challenges. Several solutions in the alternative finance area are becoming increasingly popular . These include short term working capital loans, long term loans of the same nature, merchant cash advances , and asset based lines of credit .

With the right partner firm we have found this type of financing to be a solid interim solution for cash flow financing and working capital. Let’s look at how this type of financing helps our clients achieve working capital success and why it might be right for your firm.

Short Term Working Capital Loans

You can call it non traditional or alternative, but quite frankly its becoming more popular everyday and thousands of businesses are taking advantage of this type of business cash flow funding . The success of short term working capital advances finance always seems to come back to the issue of your business not being able to secure working capital financing from what we call our traditional sources, i.e. banks, finance firms.

And the reality around this type of financing is that it is quick and easy, and , more remarkably, often unsecured , depending solely on your ability to generate sales based on historical performance and projected profits . Even though the government continues to encourage banks to pay more attention to small business financing the reality is that traditional financing is 99.9% of the time secured via collateral, personal net worth’s, strong personal credit scores of the owners, and generally stable financial performance from a historical perspective.

The above is all well and good, but tends to eliminate the hundreds of clients we meet who have real business challenges and can’t meet some or all of the aforementioned lending criteria.

So how does this type of financing work. You may have heard of the business financing known as factoring. This, in a nutshell, is the financing of your receivables as you generate them. - I.e. same day cash for sales you make. However, thousands of firms, perhaps yours, have a major revenue component made up of cash and credit card sales, and you still need financing for the same reasons: purchasing inventory, reducing payables, making loan payments, etc.

That’s where short term working capital loans come in - in essence you receive cash today for future credit and cash sales , but the formula is based on your historical and current sales revenues.

Isn’t this risky for the lender, asks our clients? That may or may not be... but the reality is that if your firm, as an example , can demonstrate via bank statements or credit card sale stats that you have solid sales then the working capital lender is prepared to advance you funds today for a percentage of those future sales . A quick example is that you could receive , again, as an example, an $80,000 cash flow loan today and repay it, by agreement, with , for example, 20% of all future cash or credit sales . You are receiving cash today, allowing you to fuel further growth in sales and profits.

These loans typically are 1-2 years in length . Longer terms are available, with better rates, for businesses with fairly decent financials and who can evidence current positive cash flow.

Working capital via asset based lines of credit are a more robust solution for firms that have assets . These non bank credit lines margin your inventory, receivables and equipment into one borrowing line that fluctuates with your needs and cash flow .

If you are looking for the right way to fund short term or longer term cash flow and working capital needs speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of business finance success. Find out how your company can benefit from innovative and valuable cash flow financing.


7 Park Acvenue 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


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.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.



Stan Prokop