Unlocking The Benefits Of Receivable Financing & Invoice Factoring In Canada Invoice To Cash - Your Guide To Factoring & A/R Financing In Canada

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YOUR COMPANY IS LOOKING FOR RECEIVABLE FINANCE!

 

HOW INVOICE FACTORING COMPANIES ( CANADA ) WORK

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

 

 

ACCOUNTS RECEIVABLE FACTORING & FINANCING IN CANADA - YOUR GUIDE TO HOW IT WORKS AND WHAT IT COSTS 

 

 

Considering Receivable Financing in Canada? If you are, your thoughts and answers on two questions should help you out quite a bit when it comes to invoice factoring in Canada.

 

HOW CAN  MY BUSINESS IMPROVE CASH FLOW?

 

One of our favourite business writers recently focused on cash flow management and asked the following 2 questions -

 

1. Does your firm need cash right now?

2. Do you know what your cash balance needs will be a half year from now?

 

The fact that you are even considering an invoice factoring company/factoring fund in Canada suggests your business might be facing cash flow challenges or perhaps that you're smart enough to address a future problem now!

 

 

WHAT IS FACTORING 

 

The basics of factoring finance are easy to understand - setting up a factoring facility allows you to, at your choice, sell invoices to an invoice factoring company, reducing your receivables and adding immediate cash flow to your balance sheet.

 

The ' sale ' is made via a ' fee, 'not an interest rate. It is typically  .75%-1.25% / mo - the fee varies via several factors, including the size of your facility, overall quality and collectibility of the receivables, industry credit risk, etc. - For example, construction industry factoring might be viewed as having more industry risk.

 

Although some business owners consider the whole process as ' factoring loans, ' the reality is that you are simply accelerating a collected account receivable's cash flow benefits. That ' invoice purchasing ' allows you to turn your company into a cash flow machine at your option.

 

 

WHAT IS THE DIFFERENCE BETWEEN INVOICE FACTORING VERSUS ACCOUNTS RECEIVABLE FINANCING?

 

Invoice factoring agreements stipulate the actual sale of outstanding receivables to factoring companies, which are usually independent non-bank commercial finance companies - On the other hand receivable financing as working capital and cash flow management solution use the accounts receivables of a business as collateral to obtain financing.

 

Banks offer unsecured loans via receivable financing solutions, and they typically register a general security agreement on the business's assets. So the receivables are assigned to the bank under this arrangement. Both factoring and a/r financing provide valuable business funding, and each method of small business financing has its advantages and disadvantages.

 

HOW DOES INVOICE FACTORING / ACCOUNTS RECEIVABLE FACTORING WORK IN CANADA? 

In Canada the invoice factoring company has a credit agreement with the customer to purchase invoices at a pre-agreed discount - In traditional ' old school ' factoring many factoring companies also assume the collection role in the funding process. When a client pays the company for the invoice the factoring company charges a fee on the invoice value and sends the company the funds less a fee for financing the invoice when the customer pays -

 

The benefit is that companies can receive cash flow immediately on generating sales of products and services to their customer.  Many factoring companies use invoice tracking and automation systems to fund client transactions.

 

  

 

IS INVOICE FACTORING AND RECEIVABLE FINANCING A GOOD OPTION FOR YOUR BUSINESS?  

 

Both invoice factoring and accounts receivable financing are solid credit risk management and cash flow solutions for small business financing in Canada. Businesses can improve cash flow and focus on collections management while obtaining cash advances for invoices before payment by the end user customer. 

 

However, business owners must weigh the benefits and drawbacks of these financing methods while considering issues around fees, interest rates, and credit risk.  Working with banks and reliable factoring companies is vital in assessing this method of Canadian business financing.

 

THE DIFFERENCE BETWEEN FACTORING AND  OTHER RECEIVABLE FINANCING

 

It's more of a technical issue that shouldn't concern business owners. Still, the paperwork around ' factoring' invoices an agreement to ' sell receivables ' - whereas using a bank credit line as an example, the bank holds security against the receivables because you ' assign ' your a/r to the bank under a traditional business loan arrangement - Somewhat much ado about nothing.

 

 

IMPORTANCE OF CASH CONVERSION CYCLE / OPERATING CYCLE

 

A/R finance allows you to address what's going on with your firm’s working capital rapidly. And by the way, it puts you in control, which you might not be feeling now regarding your firm's overall cash/ business cycle. When we meet and talk to clients quite often, it’s clear they don't necessarily feel in control of their finances.

 

When you can exert control over your cash with a receivable financing strategy, all of a sudden, the uses of cash seem a lot clearer. You can now make or take on new lease payments or reduce debt in other areas such as accounts payable. Keeping those suppliers and preferred vendors on the side is important, pretty well all the time!

 

 MAXIMIZE CASH FLOW VIA FAST FUNDING OF YOUR SALES REVENUES 

 

Let's cover some basics regarding invoice factoring in Canada, also known as invoice discounting. First, it’s a business-to-business financial strategy, so it doesn't really work in a Business to Consumer environment. (By the way, if you are selling into a retail environment, then a merchant cash strategy which finances future retail sales might work for your firm, but we digress...!)

 

WHAT DOES INVOICE FACTORING COST

 

The costs of receivable financing in Canada vary greatly, and it’s probably our most significant discussion point when we explain to clients the benefits and costs of an A/R finance strategy. 

 

What is important here is that you understand that the cost factor around receivable finance, in fact, is the costs you are bearing now, except that now you're winning, and using this financial solution allows you to win.

 

Business owners and financial managers must understand that  overall financing costs take into account a variety of key factors - Some of those factors include:

 

Overall creditworthiness of your client base

The size and the monthly volume of invoices to clients

In some cases, certain industries are major users of factoring - i.e. trucking/staffing companies, distributors, etc

 

 

Factoring costs are expressed as fees, not interest rates, and some factoring companies charge miscellaneous fees around applications, funds transfers, etc

 

On-balance factoring is more expensive than traditional bank accounts receivable financing but provides access to unlimited cash flow that otherwise might not be available from Canadian banks.  Startups in the Canadian economy can also access this method of financing, and firms can benefit from credit insurance and non-recourse financing programs.

 

The cost of receivable financing has to be benchmarked against two or three critical points you might not be considering. One is that you are already in the banking business, whether you like it or not because you are carrying your customers 30, 60, or 90 days already.  Congratulations on doing a great job in growing your client's cash flow - although that’s probably not your goal, right?

 

  

USE THE POWER OF RECEIVABLES FINANCING TO TAKE ADVANTAGE OF GROWTH FINANCING OPPORTUNITIES  

 

Secondly, you are potentially missing the opportunity to grow your business because of the cash flow constraint that invoice factoring in Canada solves under the challenge of carrying a company's accounts receivable investment.

 

At 7 Park Avenue Financial, we work with our factoring clients to ensure they understand the fees and cost of a/r financing and how they can benefit from this type of financing; focusing on a prompt collection of your invoices always reduces your costs of financing  - and we are not big fans of misc fees, set up costs, and locked-in contracts.

 

Our most recommended and successful a/r finance solution is  CONFIDENTIAL RECEIVABLE FINANCING, which allows you to bill and collect your own invoices and receive all the benefits of traditional, dare we call it  ' old school '  Canadian factoring companies.

 

If you want to learn more about invoice financing, how it works, what it costs, and the best facility out there when it comes to being 'in control,' then seek and speak to a business financing expert today.

 

You'll then see clear answers to those two nagging questions: Do you have enough cash today, and will you be able to address your cash needs a half year from now?

 

  

CONCLUSION

Invoice factoring allows your company to fund outstanding invoices via a third-party financing company in exchange for immediate cash, less a feel  Companies accessing receivable financing post their invoices as collateral for an invoice factoring loan/line of credit facility. Managing working capital and accessing business capital are key benefits of these methods of financing sales.

 

Factoring invoices is a solid solution to the cash flow problems of small and medium-sized businesses -  using financing companies in Canada for working capital increases cash, and as cash is added to the balance sheet, no debt is taken on by your company - you are simply monetizing your 2nd most liquid current asset - accounts receivable ( Cash is your most liquid asset !!  ) - In most cases, receivable financing is complementary with other lenders your firm utilizes for banking, loans, leases, etc.

 

Factoring receivables via a factored invoice program in Canada should not be confusing for your cash flow needs. Speak to 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your cash flow needs.

 

 

  

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

 

 

How does a business qualify for accounts receivable factoring? 

 

To qualify for accounts receivable factoring, a business must be able to meet specific lending criteria in the invoice discounting/factoring process -

1. Factoring is based on the general creditworthiness of  the customer of the businesses, so clients must generally be stable and have reasonable payment track records

2. Factoring is on a B2B basis and factoring does not apply to individuals - Government Receivables qualify for financing

3. Unpaid Invoices eligible for financing must be less than 90 days old -  invoices older than 90 days are generally deemed uncollectible by the accounts receivable financing company

4. Certain factoring companies may require a minimum of monthly or annual sales to ensure factoring makes sense for the factoring company from a cost and time perspective

5. Receivables  must not be encumbered by liens or other financing arrangements with other bank financing or a business loan from other  business lenders

6. Companies must acknowledge in the factoring agreement with the invoice financing company  the advance rates and fees under invoice financing for small business

 

 

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

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

 

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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

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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

 

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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.