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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

Business Credit Needs ? Working Capital Via Alternative Financing Sources

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Business Financing Alternatives In Canada

Business credit requirements involve securing external additional business capital for your company. That involves working capital as well as appropriate finance for a business that might come from traditional Canadian chartered bank financing or alternative lending solutions.

No secret that every business, even larger corporations, eventually finds itself in a situation where it needs to secure additional capital. It doesn’t matter if it’s a startup trying to get itself off the ground or an established company looking to cover a cash flow gap. The point is that having reliable access to working capital is crucial to your business and its success.

Solutions might come from working capital loans or for larger businesses term loans can mezzanine type cash flow loans. Another key focus for many growing companies is to monetize current assets, typically a/r and inventory, that will allow you to cash flow your sales as you grow revenues.

Entrepreneurs , Business owners and their financial mgrs looked to alternative lending sources when a traditional banking solution won't deliver on your ' cash flow gap '. That is whey alternate lenders have become increasingly popular in times of crisis or economic uncertainty.

Business credit needs are anything if not... consistent! In many cases the access to capital/ loans/ financing is one of the biggest obstacles to growth for a large section of companies constantly searching for SME COMMERCIAL FINANCE solutions. So how does the owner/mgmt ensure they access to commercial financing needed to grow the company. Let's dig in.

When new clients at 7 Park Avenue Financial discuss their financing needs they typically have three questions :



What are our financing alternatives?


Which are the best financing options


Can we finance working capital without a loan or taking on external term debt

What is working capital?

Let's discuss some potential solutions? When we're talking to clients we discuss the need first, not the solution! Thankfully those needs can be nicely broken down into several categories as follows: day to day operating capital, immediate growth needs for new opportunities, equipment and asset acquisition, hard asset refinancing.



Business Credit Lines - These facilities aren't necessary emergency facilities, they should be sought after and used by every business. Whether it's business credit cards for smaller businesses or business line of credit canada revolving facilities or non bank asset based lines of credit it's all about a day to day operating facility that works for your company. Approval lead times for these facilities are much shorter than when your firm contemplates longer-term loans from a senior lender.

In smaller companies a lot of the approval focus on these facilities hinges on the personal credit of the owner as it relates to credit scores, etc.

Receivable Financing - The ability to finance your invoices as you generate sales is a very attractive option for most SME firms in Canada, There is literally a renaissance of a/r financing solutions that allow you to cash flow sales as you generate revenue. Typical advances against your sales are in the 90% range. At 7 Park Avenue Financial we recommend Confidential Receivable Financing as the most effective solution.

Short Term Working Capital Loans - These loans have exploded onto the Canadian marketplace and are a popular borrowing option. The loans are typically in the range of 10-20% of your firm's annual sales and are repaid according to your business cash inflows, so that might be weekly or monthly as an example. These are unsecured loans with no external collateral required, although the lender might choose to register a financing statement against your business under Canada's PPSA laws. Important to note also that this type of business finance should not be considered if your firm is in a downward sales spiral .

Unsecured Cash Flow Loans / Mezzanine Financing - This funding option requires no external collateral or pledging of business assets. Naturally, your company must demonstrate it has a history of solid cash flow performance, with the loans typically tied to a 3-5 year maturity.

The common ' go to ' solution in the eyes of ownership/mgmt is to solicit chartered bank financing in Canada. If your firm has a strong balance sheet, profits, established history and additional collateral etc you'll find all the financing you need from our chartered banks who have virtually unlimited financing potential.

That's easy for us to say, but the majority of clients we meet simply can't qualify for all business credit and working capital they need to survive and grow. Typically they have some traditional financing but not enough, or, in a more severe case, do not qualify for traditional bank lending in the Canadian landscape. So what's the plan

When the going gets tough, the tough get going goes the expression, so it is a case of getting somewhat ' creative' in your search for working capital. If your firm has assets and growth prospects we firmly believe you can get most, if not all the financing you need.

Alternative Lending Solutions - Risk / Reward

Alternate financing for many firms in Canada, particularly in times of economic or industry crisis may provide the only business capital for your company. It's accessible, comes with a larger level of flexibility, and almost always comes with faster approval times when compared to traditional bank financing.

However, interest ratesand other terms should always be considered when looking for the best business financing option.

Asset based and cash flow monetization strategies can be achieved in a number of ways. This includes monetizing your current assets via a working capital facility for receivables and inventory. Properly set up you should congratulate yourself - You just negotiated unlimited working capital! The reason? These facilities allow you to borrow on an ongoing basis relative to the size of your current asset investment in accounts receivable and inventory.

We referred to the generalization of terms such as cash flow, working capital , etc - the lending we have just described is best known as asset based lending, and in many cases can cover off purchase orders and new contract financing also.

What about acquiring new assets for your business? Equipment financing and sale-leaseback financing for either new or owned/unencumbered equipment are great solutions to acquire or refinance capital acquisitions. In Canada lease financing is available for all asset and credit qualities for any amount, from small amounts to transactions in the millions of dollars.

Although the majority of clients we discuss working capital needs with are private firms your firm might be public, as a result, you might be in a position to consider an equity line of credit, with the equity questions being your stock.

If your firm has revenues under 5 Million dollars and is privately owned you should consider the best financing available in Canada - it's the government BIL/CSBF loan that is underwritten by our good friends in Ottawa., Industry Canada. This program is the Canadian equivalent of the U.S. ' SBA' loan program.

Note that these Government loans are available for hard assets such as equipment, leaseholds, real estate, etc. You can even be a start-up and qualify. The financing rate is incredibly attractive, guarantees are limited, and terms and structure flexible. This program is one of the great secrets in Canadian business financing.

It’s always about the bottom line, so what’s our bottom line today? Focus on what type of financing you need, determine if you qualify for traditional financing and if you don't get creative with a multitude of solutions available in alternative business solutions for business credit and working capital.

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

Working Capital Financing & Most Effective Business Finance Solutions

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And Now For Something Completely Different - Solutions for SME Business Finance

What is Working Capital Financing ?

Working Capital Financing – Canadian business owners want to maximize the utilization of their receivables, inventory and incoming orders and contracts to leverage working capital.

The goals are very clear, grow business revenues and profit with the right combination of internal growth, borrowing from banks and others, and achieving the best blend of working capital and cash flow by leverage those current assets.

Long term debt or additional new equity is not often the business owner’s choice in arranging more working capital and cash flow for the business.

We meet with many business owners who tell us they have the opportunity to significantly increase sales. They are looking for a financial strategy to grow those profits and equity while at the same time minimizing loan interest and any other external financing costs.


When a business gets its hand on a proper working capital loan solution it has the potential to reduce or minimize debt, and increase bottom line equity or value in the business. It is all about achieving the optimal working capital ratio which quite often is industry specific as the cash conversion cycle for many industries is vastly different


Our point is simply that if your business can absorb a reduction in your gross margin – (the cost of working capital associated with receivable, inventory and PO financing) then you can avoid debt and equity scenarios and still grow your business.

Looking For An Example Of Working Capital Loan Types

It is cash flow solutions such as factoring, invoice financing, and our recommended favourite -' Confidential Receivable Financing ' that are most often associated with cash flow financing, It is important to note that inventory financing, a subset of asset based lending also can provide substantial day to day operating capital.

True asset based lending facilities that encompass the finance of inventory, receivables, equipment, and even allow borrowing power against owner real estate provide a real, shall we call it ' holistic' approach to Canadian business finance. Even purchase orders can be financed as a subset of asset based financed.

The Canadian business owner and financial manager's challenge is to grow the business and understand the cost of growing the business under various financing methods.

Clients are often surprised to learn how much their business can change by a simple analysis of their working capital financing choices.

Using factoring or inventory financing as a cash flow supercharger is many times the best strategy for working capital enhancement. Most non financial business owners do not appreciate that power that working capital turnover and are focused on repayment meaning.

There are all sorts of tools that your business can very easily use to monitor your working capital needs. One is simple - you need to monitor your working capital to sales ratio.

What Is Working Capital?

How do we calculate the working capital to sales ratio? It’s easy. Working capital is essentially your current assets minus your current liabilities. Take that number form the balance sheet and divide it by sales. If you have a low ration then your ability to generate cash flow is stronger.

The solution for Canadian business owners is to maximize the turnover of those current assets such as receivables and inventory via working capital facilities. If those facilities can’t be arranged with a bank then you have the option of working capital lines of credit and asset based lines of credit that will cover receivables, inventory and even under many circumstances bulges for new contracts and purchase orders

Working capital facilities via asset based lending business credit lines, factoring or inventory financing or purchase order financing maximizes your cash flow – they also cost more and many Canadian businesses simply focus on the cost.

But they fail to measure the cost of carrying those receivables and the cost of not turning over that inventory efficiently. These two costs alone have the ability to completely in some cases erase your cost of financing under a working capital and cash flow facility.

How does a business compute its cost of credit? The formula relates to your firm not taking credit and payment terms extended by suppliers. Your supplier gives you terms that specify a payment date the amount of the discount if you pay early, and of course the due date. The cost of NOT taking that discount is huge! Most owners don’t realize that. If your firm can negotiate better prices by utilizing working capital financing strategies such as factoring and inventory financing and purchase order financing you have just become the best comparison shopper in business!

In summary, the cost of not taking trade credit discounts is very significant when your business has the ability to take those discounts via aggressively financing your receivables and inventory. Utilize great working capital strategies, you will find that the cost of paying in full is higher than the cost of a working capital facility to cash flow those receivables and inventory!

What is The Cost Associated with Working Capital Finance Solutions?

Non bank, non regulated commercial finance companies that offer cash flow solutions in Canada have traditionally been somewhat cumbersome for the Canadian borrower and often mirror the Canadian chartered bank borrowing experience.

The banks focus on long term loans is often not what the client is looking for. That is changing rapidly with the rise of online finance/peer to peer lending. The types of working capital provided by banks often involve lengthy application processes and solutions such as long term loans. That forces the business owner to assess the difference between working capital loan vs. line of credit. Online providers utilize slick software solutions that are focused on speedy approvals, albeit at much higher costs.


We recommend utilizing a business finance expert to determine which online solution, if any, is recommended for your firm. Also, it's important to note that typically working capital provides have no geographic boundaries, and operates throughout Canada.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance experience who can assist you with loan and cash flow needs.






7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms , specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
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