ABL Lending And Current Asset Based Loan Rates Make Impossible Financing Possible

 

Tweet

YOUR COMPANY IS LOOKING FOR  AN ASSET BASED CREDIT FACILITY!

ASSET BASED LOANS AND LINES OF CREDIT IN CANADA

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

Financing & Cash flow are the biggest issues facing businesses today.

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

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

EMAIL - sprokop@7parkavenuefinancial.com

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

 

"Unlocking Your Business's Potential with Asset-Based Lending in Canada"

 

ABL lending means different things to different business people. So asset based loan rates differ, but in our context, we are talking about a working capital credit facility, in effect a ' business line of credit ' that is a solid alternative to traditional Canadian chartered bank facilities.  And as thousands of business owners and managers have discovered - they can often make the impossible... possible! Let's dig in.

 

 

 

WHAT IS ASSET BASED LENDING?  YOUR COLLATERAL IS CASH IN ALLOWING YOUR BUSINESS TO THRIVE!

 

ABL (' asset based lending’) credit lines secure your business's assets and turn them into a working capital and cash flow facility via comprehensive financial solutions tailored to your business needs.

 

The most common physical assets financed under ABL include inventories, accounts receivable, and fixed assets - and asset based financing may also often include real estate. Asset based lenders establish a monthly borrowing base against your assets, allowing you to draw down on funding needs for day-to-day operations.

Accounts receivable inventory lines are your most liquid assets and are the main types of funding in asset-based loans, but all assets on the balance sheet are eligible and used as collateral.

 

  (When real estate comes into lay in a business credit line, it's in effect the business version of a homeowner line of credit - the infamous ' HELOC’ that millions of Canadians borrow under.) But we digress because we're talking ' BUSINESS'! at 7 Park Avenue Financial

 

 

 

THE SMALL TO MEDIUM SIZE COMPANY WILL ALWAYS HAVE A FINANCING CHALLENGE  - WHY  ' ABL ' IS CANADA'S HIDDEN FINANCING GEM!

 

While public companies seemingly have access to more credit, Canada's SME sector often struggles with raising capital or monetizing assets. Enter ABL lending, which is a strong alternative to bank financing. The banks offer ABL lending; they're not big on TV commercials for this specific business borrowing product. The reasons for that we won’t explore today.

 

 

  

WHY BORROW UNDER ASSET BASED LOANS  

 

Why do companies consider borrowing under asset-based loan rates and facilities? While the predominant reason seems to be the bank credit alternative, it's also a solid way to increase borrowing power via business collateral value or finance a merger and acquisition or management buyout via monetizing assets. It is sometimes used to pay down other debt when that makes sense.

 

 

 ABL DELIVERS MORE BORROWING POWER  - MAXIMIZING LOAN-TO-VALUE RATIOS FOR ASSET BASED LOANS IN CANADA

 

We referenced more ' borrowing power '. That's because 99% of all ABL lending provides stronger margining of receivables via accounts receivable financing and inventory, typically 90% and anywhere from 30-80%, respectively. And when the business owner or the financial manager throws fixed assets into the borrowing mix, increased cash flow ability happens. The type of asset and the value of the asset determines your final facility line.

 

  

 LARGE CORPORATIONS USE ABL ALSO!   

 

While we reference ABL finance as predominantly used in the SME COMMERCIAL FINANCE sector, it’s also used by some of Canada's largest successful and well-known public and private corporations.  Typically large retail chains use the inventory finance component of ABL as their working capital facility, given they have no receivables as retailers are an ' all-cash ' business.

 

  

THE COST OF ASSET BASED LENDING VERSUS BANK FINANCING  

 

While Asset-based non-bank financing rates are almost always (but not all the time), higher current rates are coming down and provide even more consideration to consider this type of financing for credit approval. So while Canadian business financing needs tend to gravitate by instinct to ' the bank,’ the business owner and financial manager should not forget that bridging assets into cash is also provided by ABL lending.

The asset based lender will perform the average level of due diligence to establish lines of credit that are custom-tailored to your company and industry. The interest rates on ABL loans are higher, and the final interest rate will be based on overall credit and asset quality.

 

 

  

CONCLUSION - SECURED BUSINESS FINANCING OPTIONS IN CANADA  

 

"The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success 'permanently' is to reset your financial thermostat. But it is your choice whether you choose to change." - T. Harv Eker

 

At 7 Park Avenue Financial we think Mr. Eker had it right - it just might be time to reset your financial thermostat regarding business financing and financial success!

 

So if you want impossible financing made ' possible ' regarding business credit lines, seek out and speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with a feasible finance solution.

 

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

 

 

What is asset-based lending, and how does it work in Canada?

 

Asset-based lending is a type of business financing where companies pledge business assets as loan collateral - ABL lenders then provide term loans or lines of credit financing based on loan-to-value ratio calculations on the assets that are pledged - Asset-based lenders have formulas in place based on how liquid assets such as receivables and inventory value for borrowing purposes, - Asset-backed financing, has less focus on cash flow financing offered by banks, so financing options to access more business capital and borrowing money are much more accessible.

 

 

How does asset-based lending compare to traditional loan options in Canada?

 

When comparing Asset-based lending rates to traditional loan options from financial institutions such as banks, interest rates on ABL business financing facilities are typically higher, although not always. While traditional loans focus on financial metrics such as past credit history and financial performance, profitability, balance sheet ratios, and external collateral ABL lending solutions focus on secured lending based on sales and asset values of the business. In almost all cases, businesses borrowing money under ABL will access higher loan amounts and borrowing capacity due to higher loan-to-value ratios than an unsecured bank loan.

 

 

What are some best practices for managing pledged assets in asset-based lending agreements in Canada?

 

Borrowers accessing financing under asset-based lending agreements should ensure they have a clear understanding of the loan agreement. In general, all business assets are pledged as collateral under an ABL facility. Businesses should ensure they prepare and maintain up-to-date financial statements and agings of accounts receivable, accounts payable, and inventory lists. Equipment and fixed assets secured under the facility should be adequately maintained.

 

 

How does asset based lending work?

 

Asset-based lending works because business borrowers can secure financing based on their sales revenues and physical assets as collateral for a business loan structured as term loans or business credit lines - Typical assets under asset-based lending borrowing include accounts receivables, inventories, and fixed assets/property plan and equipment - If companies have commercial real estate that can be financed separately or under the credit line facility.  ABL lenders use different methods of valuing a  company's assets, such as market value, net orderly liquidation value, etc.

 

Why do businesses choose asset-based lending over unsecured loans?

 

Businesses will choose asset-based lending over an unsecured loan when they cannot access all or any business financing from traditional financial institutions such as banks - As well, more capital and additional working capital can be accessed through ABL borrowing, so companies that cannot meet traditional borrowing criteria around cash flow and profit and debt to equity ratios can access financing otherwise not available - Asset-based lending loans are typically specifically tailored to each borrower concerning repayment. ABL lending is known as ' covenant light ' with fewer financial covenants typically demanded by banks. Existing assets, such as eligible accounts receivable, will have an 80-90% borrowing value. Financing accounts receivables via factoring is a subset of asset based lending.

 

 

What type of due diligence does the asset-based lender perform?

 

 Asset-based lenders focus on the valuation and marketability of balance sheet assets that are used as borrowing collateral under credit facilities - In some cases, it will benefit both the lender and the borrower to have an asset appraised and inspected.  Traditionally financial analysis is also typically performed around financial statements and other business and industry issues. Adequate due diligence will ultimately determine the loan amount and interest rates associated with the transaction.

 

 

 

What are asset-based lending rates in Canada? Comparing asset-based loan rates in Canada to Traditional Loan Rates

 

Asset-based lending interest rates in Canada vary for a variety of factors. Some factors include the actual business assets being financed and collateralized and the borrower's overall business credit quality. Most rates under ABL lending fall between  8%  per annum to 1.25%  per month. Some banks offer asset-based lending solutions at rates slightly higher than traditional bank borrowing. The size of the transaction will also be a factor in determining rates, fees, and other miscellaneous financing costs. Asset based lenders in Canada may include foreign-owned banks and commercial finance companies. The impact of creditworthiness on asset-based loan interest rates in Canada is less significant than the type and value of assets being financed.

 

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

Funding For Business Via Working Capital Finance Solutions

Tweet

YOUR COMPANY IS LOOKING FOR BUSINESS CASH FLOW FINANCE!

WORKING CAPITAL LOANS AND FUNDING SOLUTIONS

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

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT  BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769

EMAIL - sprokop@7parkavenuefinancial.com

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

 

DON'T LET WORKING CAPITAL FINANCE CHALLENGES BE THE SCHOOL BULLY!

 

Working capital finance in Canada.  Talking to clients about working capital on some days feels like they have entered the world of Dante's Inferno, via his famous quote 'Abandon All Hope Ye Who Enter'!

 

Talk about the feeling of the entrepreneur who is unable to take advantage of critical business opportunities and growth projects leading to business success now and in the long term!

 

WHY WORKING  CAPITAL FINANCE?

 

Working capital financing is financing your business can use in addition to any business credit lines - It allows you to purchase materials and fulfill sales orders to generate sales revenues. If your business has strategies around growth initiatives which might involve launching new products into new markets or conducting research and development under Canada's SR&ED program.

 

The ability to utilize working capital solutions to improve profit and asset turnover allows a business to maintain good supplier/vendor relationships as well as being able to utilize short-term financing for new employee hires.  Businesses that are service industries and not capital intensive/asset intensive can access business financing solutions without the need for further equity injections into the business.

 

Cash flow needs  revolve around your company's everyday operations - that's the need to pay wages and salaries, supplier and vendor obligations and managing the gap in payables and receivables - the working capital cycle / cash conversion cycle. Business success is all about the knowledge around access to necessary funding to operate and grow your company.

 

 

HOW DOES YOUR COMPANY UNLOCK SALES AND ASSETS FOR FINANCING 

 

So when it comes to funding for business in Canada does it seem to you that you’ve got that 'tied up' feeling when it comes to unlocking sales and assets and turning them into cash flow?  That doesn’t have to be the case, so let's dig in on the role of working capital in ensuring business success.

 

IT'S ALL ABOUT ASSET MONETIZATION

 

The concept of assets ' tied up ' is key to understanding working capital financing solutions. Ultimately you want to monetize current assets and allow those funds to flow through your business - growing your company.

 

HOW DOES THE BUSINESS ACCESS CASH IMMEDIATELY

 

Two types of what we can call ' instant cash ' immediately come to mind.

 

The first is of course assigning your receivables to a bank via a Commercial business line of credit via revolving credit facilities.

 

If your firm qualifies rates are low and you're typically allowed to borrow 75% of month-end margined trade credit receivables. The margining formulas are simple - you can draw down on your line of credit on any accounts under 90 days old.

 

Accounts receivable over 90 days is typically viewed as 'uncollectible', as a result, your bank is reluctant to finance those specific accounts as part of a receivable working capital facility for a small business. Maintaining your working capital ratio and focusing on good asset turnover is key to the success of any business advice you may receive!

 

  

LET RECEIVABLE FINANCING GIVE YOU CASH FLOW TRACTION  

 

 

 

 

  

THE WORKING CAPITAL REVOLUTION - ARE TRADITIONAL BUSINESS FINANCING MODELS OUTDATED?

 

  

Lender approval for accounts receivable financing is one of the quickest forms of business credit approval. Invoice financing funding options are among the fastest-growing funding solutions for Canadian companies.

 

At 7 Park Avenue Financial Confidential Receivable Financing is our most recommended solution - allow firms to invoice and collect their own receivables with no third-party notifications. It is one of the best small business lending options available to firms looking to monetize growth.

  

 

HOW DOES RECEIVABLE FINANCE WORK   

 

This method of working capital finance differs from the bank solution in Canada. Instead of pledging your receivables essentially the same security agreement is used to denote the sale of your receivables on a one or ongoing basis. While this method has a different pricing model, (it’s higher!)  It allows you to borrow 90% of your A/R value, which is significantly better than bank limits.

 

It goes without saying, but we'll say it anyway! .. that proper management of current liabilities such as accounts payable as a key part of your business expenses is also a key part of your business's overall funding.

 

 

YOU CAN COMBINE ALL YOUR ASSETS INTO ONE BORROWING FACILITY - IT'S CALLED ASSET-BASED LENDING!

 

 

The A/R Discounting model can also be combined with inventory and equipment financing for any small business as well as larger more established companies, allowing you to maximize borrowing power on all your unencumbered assets. When combined in this manner it becomes what is known as an ' ABL ‘; an asset-based line of credit working capital facility. It's a solid solution for small business funding needs. Even a real estate component can be added into your facility for company-owned premises - thereby creating even more borrowing power.

 

MORE  WORKING CAPITAL FINANCING OPTIONS

 

Both receivable discounting and asset-based credit lines, or traditional bank credit allow you to reverse your ' slow growth ' policy if that’s because of a lack of working capital funding for business - and they are solid alternatives to a business loan. At 7 Park Avenue Financial, we call it ' monetizing the balance sheet.

 

  

THE BENEFITS OF SHORT-TERM FINANCING OPTIONS FOR BUSINESS  

 

All of these types of facilities do one thing - they reduce the time gap between building or selling something, and collecting your cash from clients. It is important to note that in all these facilities described, you are only paying what you are using, so the ability to draw down on working capital is always there.

 

 OPTIMIZING SHORTER-TERM WORKING CAPITAL FOR MAXIMUM EFFICIENCY 

 

In some cases a cash working capital loan for working capital needs might be the best solution for your firm - it might be a short-term business working capital loan that typically has 12 months to 2 months term and less stringent approval requirements ( these are an outgrowth of merchant cash advances ) - in other cases, it might be a permanent term loan based on the cash flows of the business. A solid owner credit score is typically required here.

 

These solutions have repayment schedules that are typically tailored to your funding needs and will hopefully ensure your overall capital ratio of debt to equity is maintained within reasonable guidelines for your industry.

 

Interest rates in the asset-based lending environment are typically higher - at 7 Park Avenue Financial we caution clients to focus on access to capital when considering the necessity of taking on a higher interest rate. That additional access to capital will typically help generate sales and profits.

 

While a business plan is not always required for the types of financing and small business loan we are discussing they certainly can help in many cases. Business plans prepared by 7 Park Avenue Financial meet and exceed the requirements of any bank or commercial lender and are cost-effective and delivered in a timely manner.

  

 

  

KEY TAKEAWAYS - UNDERSTANDING WORKING CAPITAL FINANCING OPTIONS

 

     

The working capital requirements of a business are all about cash flow

 

All types of business and sizes of businesses require working capital financing solutions to fund day-to-day operations

Long term asset and major investments should not be made with working capital - long-term debt should be financed by term loans and other long-term initiatives

Businesses with any level of cyclical or seasonal aspects to sales require good working capital alternatives

Small businesses accessing working capital funding must be able to demonstrate good personal credit/credit score of the business owner

 

Working capital loans help companies manage cash flow around short-term expenses

Different types of working capital funding are available

Managing working capital effectively is key to business long term growth

 

CONCLUSION - WORKING CAPITAL FINANCE FUNDING FOR BUSINESSES

 

It’s quite easy for small businesses to feel ' tied up ' when it comes to cash flow financing around your business needs for more capital and appropriate business loans.

When it comes to working capital finance funding for the business you have orders, projects, and contracts... the only thing lacking is the capital to move forward!  Get the breathing room you need in cash flow financing -

 

Call 7 Park Avenue Financial,  to a trusted, credible and experienced Canadian business financing advisor with a track record of solving funding for business success.

 

" The only place where success comes before work is in the dictionary" - Vidal Sasson

 

 

  

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

 

 

  

What are the benefits of working capital financing?

 

The benefits of working capital financing include the ability of the business to manage current liabilities such as accounts payable and fixed overhead expenses. Businesses with working capital funding in place can ensure they have funds on hand for operating capital to purchase materials and inventory required in the business. Business liquidity is a major benefit of effective working capital management and a company will pay interest only on funds borrowed or drawn under a facility.

 

What is working capital financing and why is it important for businesses?

 

 

Working capital finance is a method of financing a business that allows a company to fund day-to-day business expenses and helps a business achieve growth capital goals for business growth and business expansion.  Businesses have short-term fluctuations in cash due to the timing of cash inflows from collections and cash outflows.

Business sustainability is enhanced with effective cash management that allows a company to maintain acceptable financial ratios around debt financing and capital expenditure. Understanding the impact of inventory turns and days sales outstanding is key to the successful management of the working capital cycle in business finance.

 

What are the different types of working capital finance, and how do they differ from each other?

 

The different types of working capital finance include:

 

Working capital term loans/merchant cash advance

Business lines of credit / revolving credit facility

Invoice factoring/accounts receivable financing

Tax credit financing

Business credit cards

Sales leasebacks

PO financing

 

Each financing option has different terms of repayment and interest rates and financing costs - In some cases, some form of business collateral or personal guarantee might be required - Effective short-term debt financing solutions eliminate the need for additional equity financing by owners

 

How do businesses determine their working capital needs, and what factors influence those needs?

Businesses determine working capital needs are determined by the examination of the relations between current assets and current liabilities on the company's balance sheet.  Additionally, an effective tool for determining working capital is the ongoing preparation of cash flow and sales projections. Depending on the business model and industry factors that affect working capital loan needs and cash needs include the cyclicality of the industry, general economic conditions,  and the cash conversion cycle of a business.

 

  

What are some best practices for managing working capital, and how can businesses optimize their cash flow?

 

Best practices for managing working capital include a focus on effective credit extension and collection policies as well as ensuring maximum payment terms are negotiated with key suppliers and vendors.  The use of and granting of Trade credit is an effective business tool in reversing negative working capital situations and maximizing working capital efficiency

Business owners should also focus on the relationship between short-term working capital versus long-term capital expenditures related to long-term growth goals. The role of revolving lines of credit accessed from banks or non-bank alternative financing lenders plays a key role in successful business financing strategies,

Business owners and financial managers should monitor key financial ratios on the balance sheet and income statement which helps determine working capital loan requirements. 

 

What are the risks associated with working capital financing, and how can businesses mitigate those risks?

The risks associated with working capital financing include the financing costs and interest rates associated with business borrowing.  Businesses should be prepared to potentially provide additional capital for the financing and excessive use of financing negatively impacts key financial ratios viewed by business lenders.

 

Business owners and financial managers can mitigate financing risk by ensuring they are aware of the appropriate working capital loan solutions, and by also considering diversification of business lenders. In certain types of financing the business owner's personal credit can be negatively impacted by the overuse of small business loans.

 

 

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

 

Tweet

YOU ARE LOOKING FOR AN ASSET BASED LENDING AND A  BUSINESS CREDIT SOLUTION FOR YOUR COMPANY! 

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

Let us help your firm just like our hundreds of other satisfied clients.

        Financing & Cash flow are the biggest issues facing businesses today

   UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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

EMAIL - sprokop@7parkavenuefinancial.com  

 

ASSET BASED LENDING IN CANADA - A BUSINESS GUIDE

 

 

Asset based lending.  The only business credit tool your firm will ever need?

 

 

"The lack of money is the root of all evil." - Mark Twain  

 

At 7 Park Avenue Financial we think Mr. Twain had it right -  It's challenging when a business doesn't have the resources it needs!

 

It's possible, and we've seen it work all the time. How could one type of business financing, i.e. asset-based lending, be the only business credit tool our firm will ever need? Let's dig in.

 

 

WHY CANADIAN BUSINESS IS TURNING TO ASSET-BASED LENDING FOR CANADIAN BUSINESS FINANCING SOLUTIONS 

 

Asset based lending solutions, also known as ' ABL ' are a type of financing that secures financing for a business using the ' assets ' of the business as collateral. This method of financing a business is popular with businesses who cannot access all the bank unsecured financing and who have sales and assets to collateralize. 

 

It is an increasingly popular method of accessing needed capital that is ' non-dilutive '; allowing business owners to retain their equity ownership while obtaining needed funding.

 

  

FROM INVENTORY FINANCING TO HARD ASSETS AND SALES- WHY ABL IS REVOLUTIONIZING CANADIAN BUSINESS FINANCE

 

  

Many of our clients want to discuss non-bank alternatives to cash flow and working capital challenges. In most cases, one type of Canadian business financing is not necessarily going to do the entire job you need - Except..! Except when it’s an Asset-based lending solution for business credit.

 

  

BEYOND BANKS - THE RISE OF ALTERNATIVE FINANCING / ASSET BASED FINANCING IN CANADA  

 

The 'ABL'  asset based loan is sort of the new kid on the block - it’s vastly popular in the U.S. and rapidly taking off in Canada, some say in fits and starts, which is partially due to the entry and departure of various firms that dominate the market.

 

ABL, which is our acronym for the solution can be tailored very specifically to be the total one-stop financing solution your firm needs.  The two greatest dynamics of ABL are that it offers your business more credit availability (isn’t that what it’s all about) and at the same time can be customized to your industry and specifically, your company!

 

 BRIDGING THE GAP - WHY ASSET BACKED LENDING CLOSES THE CANADIAN FINANCIAL DIVIDE FOR YOUR BUSINESS 

 

In its purest form is simply putting in a customized loan facility to allow you to draw daily against the value of your receivables, inventory, and in many cases fixed assets and real estate. It’s kind of the business version of a home equity line of credit we like to explain to clients!

  

  

THE BENEFIT OF ASSET BASED LENDING VERSUS TRADITIONAL LENDING IN CANADA    

 

But wait a minute, clients say, isn’t it exactly what a bank does? Well, yes, and absolutely no! Conceptually it is still the same, but the asset-based lending business credit facility focuses solely on the assets, so you will rarely if ever hear terms such as rations, covenants, outside collateral, personal guarantees, etc in the context of an ABL solution.

 

  

IS ABL RIGHT FOR YOUR BUSINESS?  

 

So is it the right financing tool for your firm - we'll let you be the judge of that. But if your firm required working capital and cash flow revolver in excess of 250k and you have some financial challenges you are immediately a candidate. Oh and by the way, you absolutely need to have receivables, inventory and fixed assets to get this type of facility, that’s really the main premise.

 

Typical candidates we work with all the time have margin pressures, they don’t have the business financing in place to support sales growth and new orders, or they have some real business and balance sheet issues revolving around restructuring, turning around, coming off a bad year, receiving a mega-contract, etc.

 

If that sounds like you we can assure you that you're a candidate for asset based lending business credit.

 

WHY ASSET BASED LENDING WORKS - COLLATERAL / CASH FLOW / BUSINESS CREDIT

 

  

The majority of businesses in Canada need business credit lines to fund day-to-day operations and meet the cash flow demands around their current liabilities and obligations. Using business assets as collateral to access that needed cash flow is what ABL lines of credit and business loans are all about.

 

Lenders place specific values on the business collateral, with balance sheet assets such as accounts receivable and inventory receiving a  high level of margin financing. Physical assets are sometimes subject to appraisal or valuation but can be a key component of the borrowing facility.  Interest rates and borrowing costs are generally higher in ABL lending but provide more access to business capital than unsecured loans.  

 

The benefits? Greater cash flow, no covenants or ratio maintenance, and the ability to take advantage of opportunities otherwise not available. Not having to consider dilutive equity financing allows business owners to retain ownership while accessing cash flows needed in the business based on a higher borrowing for the face value of any asset. In many situations financing needed is ' time sensitive ' and ABL solutions are more readily obtained compared to the timelines of obtaining financing from traditional financial institutions.

 

KEY TAKEAWAYS -

 

Asset based lending is the financing of a borrower's assets as collateral for lines of credit/term loans

Each asset category has an assigned amount of borrowing capacity - liquidity

Asset based non-bank credit lines are strong alternatives to bank credit and allow a company to cover short-term cash flow demands with greater credit availability by virtue of higher advance rates,  as well as the ability to access growth opportunities

 

  

CONCLUSION - UNLOCKING THE POWER OF ASSET BASED LENDING  

 

So is it the be-all and end-all financing solution? Only you as a Canadian business owner and financial manager can decide - Call 7 Park Avenue Financial,  a trusted credible and experienced business financing advisor to see if this type of business credit is for your firm and your business needs.

 

 

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

 

What is asset-based lending? How does it work in Canada?

 

Asset-based lending is a  business credit solution that allows a company to use the assets of the business as the sole collateral for securing financing. Typical assets financed by the ABL lender are working capital assets such as accounts receivable, inventories, and also fixed assets/property plant and equipment. This method of financing focuses on ' assets ' versus traditional banking solutions which place a high emphasis on balance sheet ratios, profitability, and cash flow generation - as well as often requiring personal guarantees and external collateral.

 

How does asset-based lending differ from traditional lending in Canada?

 

Traditional lending in  Canada focuses on business credit history and financial covenants and ratios in the regulatory environment of Canadian banking, while asset-based lending provides more flexible financing based solely on the sales and the company's assets of the business. ABL business credit solutions can also provide equipment financing and sale-leasebacks, as well as bridge loans on company-owned commercial real estate. This method of alternative financing focuses less on cash flow and traditional measures of creditworthiness and is a newer known form of financing in the Canadian lending market. The regulatory environment of Canadian banks precludes them from lending to many businesses that without ABL solutions would not be able to access credit.

 

What types of businesses in Canada can benefit from asset-based lending?

 

Asset-based lending provides more financing because the alternative lending market has created a more competitive landscape for business borrowers to access capital. Almost every industry has uses for asset-based lending institutions - Manufacturers, major retailers, and even some service industries are high users of asset backed lending.

 

Inventory financing is also best suited to an ABL solution- and any business experiencing seasonality or cyclicality can benefit from asset-backed financing/underwriting revolving around credit or term facilities. Understanding loan covenants is key to the benefits and use of ABL lending as little or no emphasis is placed on loan covenants.

 

 

What are the risks associated with asset-based lending in Canada?

 

Although asset-based lending solutions provide access to business credit and capital this method of financing comes at a higher cost/interest rate versus a bank unsecured loan - And as well borrowers must realize that the business lender can take possession  ( if a borrower defaults ) of a pledged asset or assets under a defaulted business loan within an asset based facility.

 

 

How can Canadian businesses find a reputable asset-based lender? 

 

In order to find reputable asset-based lending in  Canada business borrowers should perform a proper level of due diligence based our the lender's experience in their industry as well as the terms and conditions in lending agreements.  The two types of asset based loans offered by ABL asset based lenders include business lines of credit securing a/r, inventories and fixed assets, as well as term loans around specific assets such as commercial real estate owned by the business.

 

 

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

How Not Knowing Sr&ed Tax Credit Financing Makes You a Rookie ! The True Tragedy Of SR&ED Claims Is Waiting! Until Now

 

YOUR COMPANY IS LOOKING FOR  SR&ED FINANCING!

MAXIMIZE YOUR SR&ED TAX CREDIT BY FINANCING THE R&D INCENTIVE PROGRAM REFUNDABLE TAX CREDIT - GROWTH FUNDING 101!

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

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

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

EMAIL - sprokop@7parkavenuefinancial.com

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

 

YOUR GUIDE TO SR&ED FINANCING - ACCESSING CAPITAL AND ACCELERATING CASH FLOW!

 

SRED tax credit finance loans eliminate the pain of... waiting... for your refundable tax credit under Canada's Scientific Research & Experimental Research program.

 

AVOID THE PITFALL OF  GOVERNMENT R&D FUNDING ... WAITING!

 

SR ED financing can quickly and efficiently complete the cycle in your firm's R&D strategy. Let's dig in on an essential sr&ed guide.

 

WHAT IS THE SR&ED PROGRAM? YOUR SR&ED GUIDE

 

The Canadian SR&ED program (SR&ED Scientific Research and Experimental Development )  is categorically one of the most solid initiatives in helping the private sector finance economic growth.  Given that in recent years the program has been scaled back a bit (less % credits = less refund cheque), the ability to maximize and monetize the total benefit of the program is key to better r&d cash management.

 

SRED IS A COMBINATION OF FEDERAL AND PROVINCIAL FUNDS

 

Remember also that the program is a combination of cooperation from both federal and provincial governments, depending on which province your firm originates. SR ED financing, by the way, finances both parts of the claim at the same time - federal and provincial.

 

WHAT IS A ' SR&ED CONSULTANT?

 

It goes without saying that your claim's actual quality is key in both initial approvals under the program and one consideration in financing approval. While the smallest percentage of firms still prepare their own claims (and in many cases are successful), the vast majority of refund claims are prepared by qualified independent SR& ED consultants. They may be associated with the large C.A. / Accounting firms for sr&ed credits accounting treatment, or are simply independent contractors in many cases. 

 

While in the past, these consultants were ' behind the scenes, 'they are now clearly upfront, including being identified on your claim, as well as having to state their remuneration on claims preparation.  (The majority of SR ED consultants prepare the sr ed  claim  on ' contingency '  - at their expense and time, choosing to take a % of the successful claim as their ' fee.' Their work in documenting your ' scientific or technological uncertainty ' is invaluable to businesses performing r&d for the investment tax credit sr ed refund.

 

 

LET 7 PARK AVENUE FINANCIAL  DEMONSTRATE THE POWER OF CASH FLOW FINANCING YOUR SRED CLAIM 

 

Since SRED Tax Credit Finance Loans are in effect short-term bridge loans, it makes total sense for business owners/managers to ensure their claim has taken advantage of govt offerings such as ' per claim ' approval. Naturally, any claim of good quality that doesn't even necessitate an audit is a good thing.  Suffice to say; the govt is on record as saying that claims they consider ' high risk ' will be audited and scrutinized with more vigour.

 

Let's get back to basics - i.e. the financing of your claim. It's possible to receive financing approval in a matter of days based on a simple application process that identifies your firm, its business, a copy of your claim, and details on who prepared it.

 

YOU CAN PRE-FUND NEXT YEARS CLAIM FOR YOUR CRA TAX CREDITS

 

Business owners/managers always seem open to some good news - in the case of SR ED financing, it's good to know that claims can be financed even before final filing... and if that wasn't enough, next year's claim financing could commence almost immediately. That’s cash flow acceleration 101 under the sr ed claim process!

 

SR&ED LOANS ARE SHORT-TERM AND HAVE NO SET REPAYMENT

 

SR&ED loans are structured as short-term bridge loans - your company makes no payments for the loan duration. Loan advances are typically 75% of the total amount of your combined federal and provincial claim.

 

KEY TAKEAWAY - SR&ED FINANCING

 

Canadian businesses performing r&d can leverage financing that is non-dilutive in nature for refunds for refundable tax credits as well as grants.

Funding for an sr ed loan is fast and efficient and funding can be on completion and filing of a claim, or on a pre-filing advance funding basis. This helps smooth out the ' cash flow lumpiness ' in many early-stage and pre-revenue businesses engaging in r&d.

Funding sr&ed does not dilute owner equity and is cheaper than almost all other forms of alternative financing.

 

 

CONCLUSION - LET SR&ED FINANCING ALLOW YOU TO CAPITALIZE ON THE INVESTMENT  TAX PROGRAM FOR YOUR R&D 

 

Tax credits for research and development spending are a valuable part of any business that invests in r&d. If you're looking to eliminate a true business tragedy (waiting for a govt refund chq ! ), seek out and speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with your r&d tax credit finance request. Let us make the SR&ED funding process easy and accessible for all  Canadian companies.

 

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

 

   

What is SRED financing?   

 

SR&ED tax credit financing is a financing solution that allows a company to access funding for the r&d sr&ed credit when the claim is filed with the Canada Revenue Agency/CRA, or, if the company chooses, in advance of filing the claim as the company accrues and documents its r&d  under the sr&ed program offered by the federal and provincial government. Sr&ed L loans are short-term bridge loans, a type of ' innovation funding ', collateralized by the actual sred refund - Financing options include advance funding for claims not yet filed but accrued. The loan application process is very quick and usually takes only a few weeks from initial submission to funding.  

 

  

 

What are the SR&ED tax incentives?

 

SR&ED tax incentives are government investment tax credits under a refundable tax credit which allows a company to conduct research and development in Canada -  The tax incentive is in the form of a tax credit via a cash refund or in some cases a deduction against income. R&D Tax credits can be claimed by privately owned corporations or individuals.

 

 

What can be claimed on SRED? 

 

 

Allowable expenditures for sr&ed in Canada include salaries and wages incurred under the research, as well as eligible deductions for materials and applicable overhead and third-party payments to contractors relative to the research - Companies must supply copies of supporting information that backs up the expenditures - Many businesses utilize third-party sr&ed consultants specializing in the preparation of valid claims which helps with risk mitigation around the success of a claim submission as well as potential help under an audit defence.

 

 

What are the SRED categories? 

 

 

The categories  for sr&ed  tax credit calculation include 3 areas of focus under Canada's Scientific Research and Experimental Development program  - basic research , applied research and experimental development.

 

What is the SR&ED program?

Canada's  Scientific Research and Experimental Development (SR&ED) program is a government program that provides federal tax incentives to companies in Canada that assist a business in conducting r&d.

 
How can financing and loans help with SR&ED tax credits? 

 

Financing sr&ed tax credits via short-term sr&ed bridge loans / sr ed loan  helps a company fund r&d activities while helping the business maximize research efforts in scientific or technological advancement  by providing a tax credit for certain eligible expenditures under this tax credit program.

 
What types of financing options are available for SR&ED? 

Traditional financing options are typically not available for financing sr&ed tax credit claims - Canadian banks on balance do not fund these claims although the sr&ed credit is a government receivable. Firms that do not utilize sr&ed finance solutions are often forced to consider either additional equity options that are dilutive in nature as it relates to relinquishing additional ownership - Other forms of financing such as short-term working capital loans or merchant advance loans are very expensive - SR&ED loans allow a business to access funds that allow for additional funding at a very competitive cost/interest rate.

 
 What are the eligibility criteria for SR&ED tax credits and loans? 

SR&ED tax credit eligibility criteria for obtaining SR&ED tax credits include businesses being able to document eligible r&d activities around documenting their claim and adhering to reporting and filing requirements. Funding for sr&ed tax credits and loans is a very simple process which requires the company to supply basic information on the business, as well as a copy of the sred claim or accrued work to date.

  
How can I ensure that my company is taking full advantage of the SR&ED program and its financing options?  

In order to maximize sr&ed claims and approval for the refundable tax credit canadian controlled private corporations must ensure they meet  sr ed eligibility criteria as well as being able to document r&d work - typically this is more successful with the use of a third party sr&ed industry consultant specializing in claims and approval.  Financing of a claim is handled with the use of a third-party finance professional such as 7 Park Avenue Financial.

 

It is important for claimants to realize the refunds are provided for qualified sr ed projects regarless of the final success and outcome of the r&d.
 

Asset Based Line Of Credit Solution : The Future Of Business Credit Lines? Unlocking The Power Of Your Business Assets

 

 

YOUR COMPANY IS LOOKING FOR A CANADIAN ASSET-BASED LINE OF CREDIT FINANCING!

UNDERSTANDING ASSET-BASED LOANS / UNSECURED LOANS  IN CANADA

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

        Financing & Cash flow are the  biggest issues facing businesses today 

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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

EMAIL - sprokop@7parkavenuefinancial.com

 

 

ASSET BASED LOAN SOLUTIONS IN CANADA

 

Money is like gasoline during a road trip . You don't want to run out of gas on your trip, but you're not doing a tour of gas stations - Tim O'Reily

 

Asset based loans and the asset based lines of credit are solid solutions for Canadian business financing needs when it comes to a line of credit.

 It might just be the future of business credit lines. Common asset-based borrowers come from every industry in Canadian business when it comes to the decision or needs to borrow money -

 

Let's dig in on how asset-based business credit lines via asset based lending can help businesses grow while maximizing working capital potential.

 

WHAT IS AN ASSET-BASED BUSINESS LINE OF CREDIT - HOW DOES IT WORK?

 

 An asset-based business line of credit is a method of financing employed by many businesses which allows the business to borrow against the value of business assets in the company - Typical assets financed are accounts receivable, inventories, and fixed assets/equipment. Asset-based business lenders evaluate the value of each asset category and create an ongoing borrowing base which allows the company to draw down on the facility as cash is needed. The business borrower only pays interest on the amount utilized under the facility.

 

  

ASSET-BASED LENDING IS THE BANK ALTERNATIVE!  ASSET BASED LENDING SOLUTIONS VERSUS TRADITIONAL BANK LOANS  

 

It's an alternative to a Chartered bank line of Credit that offers minimal financial covenants with a focus on the company's assets  - (in some cases the banks themselves even offer this unique financing as a subset of their services!) Typically banks prefer more highly liquid collateral /  liquid assets. At 7 Park Avenue Financial we're unabashed supporters of ' ABL ' ... so... let's dig in.

 

 

 

 

HOW ASSET BASED LENDING WORKS

 

Asset based lending should not be confused with 'loans' or 'term debt'. It’s a working capital or line of credit facility that is tied to your firm's inventory, receivables, and in some cases, physical assets such as equipment and commercial real estate can be added - allowing a company to fund payroll expenses and to cover day to day and short term needs around funding operations.

 

Fun fact?  Some of Canada’s largest corporations in Canada are now utilizing this type of financing. So if some of Canada's largest corporations have abandoned traditional bank financing to obtain lines of credit should your firm at least consider and learn more about this type of facility. The benefits are worth investigating.

 

 

  

 

 

 

UNDERSTANDING THE COST OF ASSET-BASED FINANCING / INTEREST  RATES

  

 

 

Rates on ABL facilities in Canada vary, and you can pretty well guess the parameters of why they vary - which is simply:

 

1. Deal size of the facility ( there is no maximum loan amount )

 

2  Your firm's overall credit quality, and some component of assessing what industry you are in with respect to borrower defaults

 

3. How your industry functions vis-a-vis profitability, seasonality, and other industry dynamics.

 

4 . We can say in general that rates on ABL facilities in Canada go from 7-9% per annum to 1 ½% per month depending on most of the factors we listed above.

 

Overall credit quality challenges should not deter you from looking into a Canadian asset based lending solution - for the simple reason that this type of financing focuses on assets, not overall balance sheet and income statement quality. Simply put, your company might be currently losing money or experiencing a unique challenge, but you might find you still qualify for a very significant facility.

 

HOW CAN I BENEFIT FROM ABL?

 

On a day-to-day basis  the most significant feature of an asset based line of credit is the ability for you to bridge cash flow that you have tied up in inventory and receivables via a higher loan-to-value ratio for your assets compared to traditional commercial banking and financing.

 

 Your asset-based line of credit will fluctuate based on the key elements of the ABL security, namely the accounts receivable and inventory.  A/R and inventory are typically a company's most liquid collateral based on sound management and asset turnover. The good news is that as your receivables and inventory grow you can draw down on more funds - unlike a bank facility which might have certain caps on how much exposure the bank will take with your firm on an operating line basis.

 

The one aspect that you should consider in such a financing solution is additional reporting, but if you can properly account and report on receivables, inventory, etc. you should not be concerned.

 

Many clients tell us that some of the additional 'reporting' that comes with an asset based credit line actually has helped them understand their business better!

 

KEY TAKEAWAYS - ASSET-BASED CREDIT LINES

 

Asset-based lending solutions are the loaning of funds utilizing the assets of  a business as collateral versus a bank unsecured loan credit approval

The more liquid collateral such as accounts receivables and inventories provide a higher borrowing margin versus physical assets such as equipment

Businesses utilize  Asset-backed loans / eligible  collateral to cover shortfalls in day-to-day cash flow demands and their business needs which in some cases might revolve around the seasonality or cyclicality of the business

 

CONCLUSION - GETTING CASH FLOWING SMOOTHLY WITHOUT TRADITIONAL LENDING BARRIERS

 

Looking for liquidity, working capital and cash flow and a solution that is non-bank in nature?

 

Talk to 7 Park Avenue Financial, an expert in the area, determine if this financing meets your needs for credit availability, and ensure, with the help of a trusted credible and experienced Canadian business financing advisor, that you can access the type of facility that provides you with working capital and growth opportunities into domestic and global markets in a manner that suits your company's cash cycle. Obtaining comprehensive financial solutions  for your business needs is our focus.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  / MORE INFORMATION

  

 

What is asset based lending?

 

Asset-based lending is a type of financing that uses the borrower's value of the assets as collateral - and they are an alternative to term loans. Non-bank commercial lenders can approve flexible financing loans by providing higher advance rates using the physical assets of a company as collateral if they don't have enough cash assets - This type of financing is for businesses, not consumers - and provides operational flexibility to funding needs.

Small, midsized businesses and large corporations utilize asset-based lending. A lender may loan up to 90% of the face value of a security if it is highly marketable, such as eligible accounts receivable,  and only 60% for other less liquid assets such as real estate.  Advances vary based on the type of asset - ABL has a ' covenant light structure ' as opposed to a focus on only historical and present cash flows. The maximum loan for a physical asset is less than the book value of the assets.

 

 

What are the benefits of using an asset-based business line of credit over traditional bank loans? 

 

The main benefit of the asset-based business line of credit is that qualification for approval is easier than l lending via financial institutions such as traditional bank loans - Also if a business does not have the credit history required by bank underwriting policies the asset-backed credit line is more flexible financing with fewer restrictions than those of banks which will often insist on personal guarantees,  external collateral, high business and personal credit scores, etc. There is also typically no restriction on how funds are used with an asset-based credit line. The ability of a business to access more working capital for business operations and growth opportunities provides alternative financing options that historically were not available to the business borrower.

 

How do I qualify for an asset-based business line of credit?

To qualify for an asset-based business line of credit a company should be prepared to provide proper financial statements that reflect the assets of the business on the balance sheet, such as receivables, inventory and property plant and equipment. Business lenders will evaluate the  pledged asset/assets and lend on the ability of the company to generate sales with proper asset turnover so as to meet repayment terms/fluctuations under the revolving line of credit

  What are the risks of using an asset-based business line of credit?

 

One of the main risks of using an asset-based business line of credit is that if a business defaults on the credit facility and is unable to repay the facility on a lender's demand that assets are sold by the lender to recover the loan or line of credit.  Asset-based lending solutions are always higher, ( but not always ) when it comes to interest rates and financing costs.

  

  
How can I decide if an asset-based business line of credit is right for my business?  

  

To decide if asset-based business lines of credit are the right financing solution for a business the business owner should evaluate the business's cash flow and financing requirements - When the amount f  business capital needed is not available from traditional lenders such as banks the benefits of ABL solutions will typically outweigh the alternative to self-financing despite higher costs of borrowing. Business owners should speak to a reputable business financing advisor to help with due diligence and ensure proper business finance decisions and optimal finance structure is attained.

 

 

 

 

 

 

Secure Working Capital Financing For Your Business Today ! Cross The Threshold and Check Out Confidential Accounts Receivable Financing Today

Tweet

 

YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING!

ALTERNATIVE WORKING CAPITAL FINANCING OPTIONS FOR BUSINESSES

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

        Financing & Cash flow are the biggest issues facing businesses today 

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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

EMAIL - sprokop@7parkavenuefinancial.com

 

                                                                      

GUIDE TO WORKING CAPITAL FINANCE SOLUTIONS - WHAT YOU NEED TO KNOW

 

 

"Working capital management is a discipline that requires daily attention and continuous improvement." - Unknown 

 

 

Accounts receivable financing is becoming more and more popular as an alternative financing and working capital financing solution for Canadian business owners and financial managers.

 

 

WHAT IS WORKING CAPITAL FINANCING? 

 

Working capital finance is the funding of your business's day-to-day operations that provides cash flow to cover short terms expenses of the business. Typical expenses include salaries and payroll, short-term liabilities such as rent, and the purchase of inventory. To run a business successfully cash flow is needed to operate and grow the business and a number of solutions / business loans are available.

 

There are a number of sources of working capital loan financing - working capital loans, revolving credit facilities via a business line of credit, supplier financing, and a/r financing- aka ' factoring ' receivables for business customers.

 

 

WHAT IS FACTORING? 

 

Factoring A/R is a true form of an asset financing arrangement. Your company uses its receivables - ' AR ' as collateral in a financing arrangement. The financing can be on one receivable, all your receivables, and, more commonly, some or all of your receivables on an ongoing basis.

 

The industry tends to refer to the term 'factoring' as the day to day description of accounts receivable financing.

 

"Poor cash flow is the biggest killer of small businesses." - Robert Kiyosaki

 

 

THE ROLE OF A/R FINANCING FOR BUSINESS GROWTH AND EXPANSION

 

Factoring or receivable financing allows Canadian business owners to receive immediately, on billing, cash for the receivable. A portion of the invoice is always held back, representing a traditional 'holdback' plus some of the lender's financing fee. We would point out that the holdback is always paid back to your firm as soon as your customer pays the invoice.

 

The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables has a large effect on the amount a company will receive. The older the receivables, the less the company can expect - Generally speaking, invoices over 90 days cannot be sold - therefore no cash flow will result in those items.

 

 

 

 

 

  

^{WHAT'S THE BEST RECEIVABLE FINANCING FACILITY AND HOW DOES IT WORK?}

 

  

  

 

 

At 7 Park Avenue Financial, we recommend Confidential Receivable Financing as our recommended solution for clients with monthly receivable portfolios in excess of 250k. There is virtually no upper dollar limit on this type of facility. Under this type of non-notification financing your firm bills and collects its own receivables, with no notice to any clients, or suppliers,. etc. Your company receives all the benefits of a/r financing and factoring with none of the pain!

 

Another related alternative to your a/r financing needs is Purchase Order Financing, which facilitates the funding of your large orders or contracts if financing can't be arranged for that type of order. The solution pays your suppliers and allows you to take on large orders and contracts to propel business growth and profits.

 

  

NON-RECOURSE VERSUS RECOURSE FINANCING - HOW IT WORKS  

 

Factoring, or accounts receivable financing helps companies unlock capital that is invested in accounts receivables. Accounts receivable financing on some occasions transfer the default risk associated with the accounts receivables to the financing company; this type of facility is set up as a non-recourse facility, meaning the lender or finance firm that is doing your factoring in fact accepts the credit risk associated with the ultimate collection of your accounts receivable.

 

How does the lender do that - quite frankly the receivable portfolio originated on your customers in effect is 'insured' by the lender. We will let you guess who pays for that and if it is included in your cost of financing. Yes, you are right, you pay. Typically the cost of such insurance adds at least a percentage or two to your cost of financing.

 

The Canadian marketplace is dominated by a variety of firms that will factor accounts receivable. These firms are either divisions or subsidiaries of large U.S. or other foreign countries, or they are smaller Canadian-owned, operated and funded firms. Typically the latter type of firm, the Canadian single entity, has difficulty in accessing all the funding it typically might need for a large number of transactions. The factoring business requires a significant amount of capital.

 

When a Canadian business originates an account receivable financing it is prudent for the company to ensure they understand the overall profile, reputation, and capabilities of the firm that will be financing your accounts receivable.

 

Unless the business owner negotiates a very special type of facility the accounts receivable financing firm generally has a good amount of customer contact with your customer base; they will want to validate your invoices, confirm customer acceptance of your invoice and products and services, and in most cases follow up directly with your customer for payment.

 

In summary, Canadian firms can increase cash flow by the use of the alternative financing method known as 'accounts receivable financing', commonly called factoring. Cash is secured for your receivables soon that your customer actually paying for it - As we have pointed out that comes at a cost in both financing cost as well as some level of customer intrusion.

 

  

THE BENEFITS OF EFFECTIVE WORKING CAPITAL FINANCING  

 

  

Effective working capital solutions such as factoring and other types of  a/r financing provide numerous benefits for a business via surplus capital - Those benefits include :

 

The ability of the company to  cover temporary gaps in  cash flow to fund payment obligations - along with effective accounts payable management  a business can maintain liquidity

 

Working capital solutions typically bring no debt to the balance sheet and do not require additional collateral as well as a limited emphasis on personal guarantees

 

Short-term working capital and accounts receivable financing solutions are faster to obtain and are often tailored with a strong level of flexibility for the borrower - Traditional lending financial institutions such as banks are known for longer credit approval timelines as well as often demanding additional collateral

 

Effective working capital financing and management improve asset turnover in key areas of the business such as accounts receivable and accounts payable and leads to greater profitability and return on assets. Additionally, these types of financing are 'non-dilutive' and do not require any equity transaction or ownership change.

Typically these financings increase as sales and business assets grow!

 

  

 KEY TAKEAWAYS - WORKING CAPITAL MANAGEMENT 

 

" Don't ignore working capital " Thats from a great Harvard Business Review article

 

 

Businesses use working capital finance solutions to fund everyday operations

Short-term financing solutions around working capital needs should not be used for the purchase of long-term assets or investments in long-term operations

Businesses that experience seasonality or cyclicality in their business model or industry are prime candidates for short-term financing

Depending on the size and creditworthiness of the company good business and personal credit scores are required

 

CONCLUSION - UNDERSTANDING BUSINESS WORKING CAPITAL NEEDS AND CASH FLOW

 

Canadian business owners should dutifully look into who they are dealing with, their capabilities and their procedures.

 

Speak to 7 Park Avenue Financial, a trusted and credible expert with a track record of business finance success to determine their best receivable finance/working capital and business loan solution.

 

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

What is working capital financing?

 

Working capital financing is a borrowing arrangement to fund the daily operations of a business when a firm does not have consistent cash flow.  Proper business financing solutions allow a business to achieve optimal business growth via business financing solutions such as short-term loans, lines of credit and overdrafts, and accounts receivable financing. Steady cash flow allows a company to sustain its growth objectives.

 

Businesses of all sizes and in every industry will typically require working capital finance to expand sales and operations. The majority of small businesses in Canada utilize these solutions to bridge cash flow gaps and ' lumpiness' in cash inflows

 

  

Why is working capital financing important?  

Working capital financing is important   as it allows a business to maintain funds to continue the daily operations of a business - without access to a sufficient amount of working capital a company may not be able to meet short-term obligations or maximize growth opportunities in sales revenues,

 

  
What are the different types of working capital financing?   

 

Different types of working capital finance include short-term working capital loans, lines of credit /  a revolving credit facility, business credit cards,  invoice factoring via trade credit receivable financing, and sr&ed financing solutions for refundable tax credits - Other ' venture debt ' type solutions include purchase order financing, MMR lines of credit, and merchant cash advances. Different needs and circumstances make every possible financing solution unique to a business based on sales and the company's balance sheet and businesses will only pay interest on amounts borrowed and used in any facility.

  
How does a business determine how much working capital financing the business needs?  

 

Determining working capital financing needs are determined by examining the working capital ratio and operating cycle and asset turnover of a business in key current assets and current liability accounts such as accounts receivable, inventory, and accounts payable.

 

What factors should I consider when choosing a working capital financing provider?

In choosing a working capital financing provider for small business financing a company should consider factors such as interest rates on the facility, miscellaneous fees, as well as repayment term flexibility offered in the financing solution. Businesses should align themselves with reputable lending institutions and established financing providers who can meet the specific funding needs of the business.

 

SOURCES/CITATION

"What You Can Do About Excess Working Capital" by Michael C. Mankins and Lori Sherer, published in the July-August 2016 issue.

1. "A Smarter Way to Improve Cash Flow" by Richard V. Hays and Frank V. Cespedes, published in the May 2014 issue.

2. "The Most Neglected Fact About Cash Flow" by Philip Campbell, published in the May 2017 issue.

3. "The Case for Behavioral Strategy" by Dan Lovallo and Olivier Sibony, published in the March 2010 issue (which includes a section on working capital management).

 

 

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