Working Capital Financing – Why Asset Based Credit Lines Work

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL

 FINANCING VIA AN ASSET-BASED LINE OF CREDIT! 

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

        Financing & Cash flow are the biggest issues facing business today

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

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

  EMAIL – sprokop@7parkavenuefinancial.com

 

LOOKING FOR WORKING CAPITAL FINANCE CREDIT LINES?

 

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

 

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

 

INTRODUCTION 

 

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

 

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

 

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

 

 

UNDERSTANDING ASSET-BASED LENDING 

 

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

 

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

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

 

WORKING CAPITAL FINANCING ASSET-BASED CREDIT LINES   

 

The Process of Asset-Based Lending  

 

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

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

 

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

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

 

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

 

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

 

ASSET-BASED LENDING BANKS IN CANADA?  

 

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

 

WHY YOUR BUSINESS NEEDS BUSINESS CREDIT

 

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

 

 

QUALIFYING FOR A BUSINESS CREDIT LINE 

 

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

 

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

 

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

 

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

 

YOUR PROBLEM?   OUR PROMISE!

 

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

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

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

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

 

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

 

BENEFITS OF THE ASSET-BASED CREDIT LINE

 

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

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

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

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

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

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

 

KEY ISSUES TO CONSIDER WHEN ASSESSING BUSINESS CREDIT LINES

 

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

 

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

 

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

 

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

 

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

 

   

 KEY TAKEAWAYS    

 

 

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

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

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

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

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

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

   

 

CONCLUSION - COMMERCIAL FINANCE FINANCING SOLUTIONS   

 

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

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

 

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

 

 

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

 

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

 

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

 

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

 

FAQ: FREQUENTLY ASKED QUESTIONS

What is asset-based finance?

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

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

 

 

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

 

1. Accounts Receivable:

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

2. Inventory:

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

3. Equipment:

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

4. Real Estate:

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

5. Intellectual Property:

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

6. Contracts:

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

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

 

 

 

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

Successful Business Funding Via Loans & Finance Options You Can Access Today !

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS LOANS AND WORKING CAPITAL FINANCING! 

COMMERCIAL LENDING SOLUTIONS  & FINANCING OPTIONS YOU CAN ACCESS TODAY

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

        Financing & Cash flow are the biggest issues facing business today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

 

 HOW FINANCING & FUNDING CHOICES PROPEL BUSINESS FORWARD FOR GROWTH AND SUCCESS

 

Business Loans & Finance Options: Funding & Financing Businesses In Canada

 

 

Business loans and financing for their company must surely make some owners/financial managers feel like there is some 'conspiracy theory' out there relative to their ability to successfully access finance options and small business loans &  funding solutions.

 

Our point of view? That doesn't have to be the case for small businesses in Canada, so when it comes to ' how to get a business loan ' and raising capital.. let's dig in!

 

INTRODUCTION

 

Business owners know that financial resources can be the driving force propelling your company's expansion and prosperity. External funding can't be overstated in the pursuit of your objectives. This article delves into distinctive financing alternatives that cater specifically to Canadian businesses, each presenting its unique benefits and pathways to acquiring the capital you need to run and grow a business and meet business expenses with relative confidence.

 

 

By the way, small businesses aren't as small as you think - for infomatiion on what Canada's government considers  ' small ' click here for that info.

 

Understanding your business's overall cash and capital needs is often the root issue in small business financing  - how to finance outstanding accounts receivable and inventory via suitable commercial loans.

 

Those are the key drivers of any working capital loan need. 

 

 

A HOLY GRAIL OF SUCCESSFUL BUSINESS FINANCING?

 

The 'holy grail' of financing and funding your business? Growing your business, reducing inventories and turning them faster, and increasing receivable collections.

 

Cash flowing your accounts receivable either via more efficient methods of collection or selling your receivables as you generate them (invoice discounting or factoring) is the most optimal way to generate working capital financing.

 

Naturally, the challenge in doing all that is to ensure you can still maintain your projected sales and profit growth!

 

If your company always has a significant inventory investment, you can obtain direct loans in Canada against that inventory. Traditionally, bank financing via bank loans is the route much larger and established businesses take when they require working capital for inventory purchases.

However, when your firm can't qualify for the full extent of financing that you need from a bank loan, then a direct inventory working capital loan is best. It's as essential to understand that you have options as alternatives to bank loans for small businesses.

 

 

  

TRADITIONAL FINANCING / BANK FINANCING  

 

Bank loans have traditionally been a primary funding source for small and medium-sized businesses (SMEs) in Canada.

 

These loans offer several advantages, such as allowing ownership via financing that is non-dilutive, attractive interest rates, and tax-deductible interest payments. However, getting approved for a bank loan can be difficult for some business owners, particularly those lacking a solid business plan or credit history. Enhancing your prospects of getting a desirable bank loan involves careful preparation, including maintaining current financial statements.

 

 

THE TREMENDOUS RISE OF ASSET-BASED LENDING SOLUTIONS  IN CANADA 

 

When conventional bank financing loan solutions are hard to secure, alternative financing methods can offer a solution. A/R Financing and short-term workings capital loans are notable among these options, delivering rapid approval.

 

While alternative finance solutions may involve higher charges and interest rates, they can provide a crucial financial boost for companies wrestling with cash flow troubles or navigating slow business phases, seasonality and business cyclicality challenges.

 

Because asset-based loans focus on your assets versus cash flow or profit-based lending rules, the rise of ' ABL ' has been tremendous in Canada when businesses need to retrench and sometimes restructure.

 

Using your sales  ( via accounts receivable )and assets as loan collateral appeals to many business owners when they are challenged regarding access to business capital. The form of financing is the ultimate in maximizing liquidity, allowing them to recover, even during pandemic/covid times !.. and focus on the re-growth of their company via the benefits of alternative lending compared to potentially inaccessible solutions from traditional financial institutions.

 

Our recommended working capital loan does not add debt to your balance sheet.  The business owner's ability to manage the balance of debt and equity is key to long-term success. While business loan rates are higher in alternative finance, they provide all the capital you need to succeed  if you have the following: 

 

 

Assets

Sales Revenues

 

It's a facility which margins your receivables and inventory to proper market valuations. This generates the additional cash flow and working capital you are looking for and, as significantly, doesn't add debt to the balance sheet.  Companies that can't access any or all of the operating cash need these 'Asset-based Non-Bank Lines Of Credit' - the golden solution for finance for entrepreneurs.

 

The best way to generate your working capital loan for your firm is to improve collections and delay supplier payments. The latter must be done carefully to avoid mismanaging vital supplier relationships.

 

However, it's every man and woman for themselves when it comes to business financing, so you should focus on negotiating the best payment terms with valued suppliers who usually extend solid payment terms when they see you as a viable and long-term customer.

 

  

GOVERNMENT FUNDING   

 

The Canadian government provides numerous financial support mechanisms to aid businesses in diverse sectors. Specific grant programs and tax relief initiatives are designed for different purposes.

A  benefit of government grants is the absence of repayment or equity relinquishment requirements, which strengthens your business reputation and improves possibilities for subsequent funding.

Moreover, the Canada Small Business Financing Program assists businesses in procuring loans from financial establishments through government risk-sharing loans with banks. Canada's largest

Business owners should also investigate Canada's SR&ED Program - which provides business capital for research and development.

 

 

 

GOVERNMENT SMALL BUSINESS LOANS

 

Some business folks, particularly start-up and earlier-stage companies (including franchises), should check out the Canadian Government Small Business Loan Program, which has the federal government guaranteeing the central part of your loan.

 

It's a great solution when a business borrows money for the business needs of early-stage companies in Canada. If you need a startup business loan, this option is a solid solution versus a traditional bank loan.

 

  

THE SHORT RECAP ON GOVERNMENT LOANS : 

 

Attractive  rates

Nominal personal guarantees

The loan can be paid back at any time without penalty

Fluid structures and repayments re terms, etc.

 

It's no secret that thousands of new and emerging private companies successfully access this program every year - it's also solid financing to buy a business in Canada for smaller acquisitions or franchises.

 

Financing a business is one of the most important things a company needs to succeed, but not all startups or early-stage firms have the option to work with traditional banks. That's why small business financing options that replace traditional bank solutions work!

 

The downside to the Government loan program is that many businesses are not seeking the asset or leasehold financing the Government ' SBL ' loan program provides. They're looking for cash flow and working capital sources as a commercial loan solution at a reasonable interest rate.

 

Startup business loans extensively use the ' SBL LOAN' in Canada. New business loans in traditional banking heavily emphasize the owner's personal net worth and credit score.

 

The credit history of small business owners is always key when applying for traditional financing. Unsecured business loans don't collateralize specific assets but are guaranteed to lenders through personal guarantees and blanket security agreements.

 

Believe it or not, working capital loans are available from what people consider traditional sources. One of the Crown Corporations within the Canadian government focuses very significantly on cash working capital loans. These loans are structured as term loans, not as a business line of credit, and have fairly competitive rates and repayment terms of 5 to 6 years. They are also unsecured, which means they rank behind any senior lender or security you might have in place.

 

A business plan is both recommended and almost always required for the govt ' SBL business loan '  - Business plans prepared by 7 Park Avenue Financial are focused on conservative financial projections and are laser-focused on loan approval.

 

Businesses often consider ' government loans' cumbersome and challenging to apply for - At 7 Park Avenue Financial; we're here to guide you through those programs and ensure you are working with the right financial institution.

 

The only commitment to repay is the company's guarantee as a promise to pay and a full or partial guarantee by the owners personally. We point out that the majority of business loans and financing in Canada does in effect, require some level of guarantees from the owner and a generally positive personal financial history of the owner(s).

 

To apply for a business loan is often daunting and time-consuming for business owners - let the 7 Park Avenue Financial team walk you through the loan process - we also prepare, when required, business plans that are focused on funding approval based on conservative and realistic financial projections and strong business and industry overviews.

 

UPDATE!

 

Significant changes came to the program in 2022 -  Types of financing available under the program were enhanced, and loan limits increased! 

Here is an updated recap of the program

The Canada Small Business Financing Regulations and Act were updated on July 4, 2022. These changes provide businesses and lenders with enhanced financing options, lower administrative burdens, and improved loan conditions. The program is now much closer to the U.S. equivalent under the U.S. Small Business Administration -

Here are the key amendments:

 

1. Increased loan amounts: Borrowing limit increased from $1 million to $1.15 million, including:

   • $1 million for term loans, a max of $500,000 for equipment and leasehold improvements (up from $350,000), and $150,000 for intangible assets and working capital.
   • Additional $150,000 for lines of credit for working capital.

2. New financing classes: Term loans can now finance intangible assets and working capital costs.

3. Extended loan terms: Loans for property, leasehold improvements, equipment, intangible assets, and working capital payments can be made for up to a term of 15 years.

4. Expanded eligible expenditures: The time frame to finance expenditures or commitments increased from 180 days to 365 days.

5. Adjusted appraisal timing: Appraisal timing has changed from 180 days before loan approval to 365 days before loan disbursement.

6. More extended registration period: Term loans can be registered within six months from the date of the first loan disbursement.

7. Updated security requirements: Lenders must take security in any assets of the small business for leasehold improvement, software, website, intangible assets, and working capital costs.

8. Simplified default process: Upon default, lenders only need to demand repayment, not provide a notice of default.

9. Adjusted claim documentation requirements: Documentation supporting cost and proof of payment reduced from 100% to 75% of the principal amount outstanding on the loan.

10. Line of credit introduction: Lines of credit for working capital costs can be made, with maximum term of 5 years.

11. Line of credit renewal options: Renew the line of credit for a new 5-year period, convert to a term loan, or repay with a conventional loan.

12. Updated line of credit security: Lenders must take security in any small business assets for the authorized amount of the line of credit.

13. Line of credit default process: Similar to term loans, lenders only need to demand repayment upon default.

14. Line of credit claim process: Lenders are not required to substantiate the cost and proof of payment for expenditures on the line of credit.

 

The program can also be used to purchase an existing business/franchise.

 

These changes are designed to improve the financing landscape for Canadian businesses, providing them with greater access to capital and increased flexibility in managing their financial needs.

 

 

 

EQUIPMENT FINANCING

 

If your business is looking to procure crucial machinery or equipment, or technology, equipment financing can be an excellent strategy. By distributing expenses over the lifespan of the assets, this form of financing helps to minimize the impact of substantial initial investments, thereby allowing entrepreneurs to reserve capital for other business-related necessities.

 

Whether the requirement is for updating assets or upgrading technology, or obtaining rolling stock, equipment financing allows businesses to maintain competitiveness and stimulate expansion.

 

For more information from 7 Park Avenue Financial equipment financing solutions, please  click HERE

 

  

 

CONCLUSION :

 

In Canada, entrepreneurs have various financing options, including traditional bank loans, alternative financing, equipment financing, government loans and grants.

Each option addresses different business needs. To obtain the necessary capital for growth and prosperity, Canadian businesses must carefully assess the advantages and drawbacks of each method and plan accordingly. 

 

Talk to the 7 Park Avenue Financial team about choosing the right financing option to realize your business ambitions and secure prosperous growth financing.

 

Bottom Line? Whether you are starting a business or already established and focused on high growth and those options from angel investors/family and friends have dried up, and venture capital funding that was never in reach is gone, the type of financing you need is available if you understand different choices in traditional and alternative lending. Choose the right financing for your business via finance tailored to your needs.

 

Whether you are looking for short-term financing or long-term viable business finance strategies, business owners should understand that ' Real-world ' accessible financing is no conspiracy theory.

 

Speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor in financing for small businesses who can assist you with your funding and financing success needs in term loans, asset-based loans, and cash flow/working capital business needs - Let's achieve the growth potential you're capable of with business advice you can trust.

 

 FAQ: FREQUENTLY ASKED QUESTIONS 

 

Who is eligible for the Government Small Business Loan?

Businesses applying for the govt small business loan should have under 10 million dollars in revenue. Owners should be able to demonstrate a positive credit history and be legally allowed to borrow in Canada via either citizenship or landed immigrant status as a key business loan requirement.

 

What is asset-based lending?

 

Asset-based lending is secured lending when loans are focused on your first assets. Asset-based business lenders' loans are based on the current value of your sales and assets - the most common asset categories are accounts receivable, inventory, equipment, and even real estate. The focus on collateral versus cash flow liquidity provides much more borrowing power for business borrowing.

 

Do banks give loans to startups?

 

Banks will lend to startups unsecured because business owners can provide an acceptable personal guarantee and demonstrate sufficient net worth and good personal credit history. Banks will secure these loans via a personal guarantee and a blanket security agreement over the entire business. Interest rates will be determined by the type of financing the bank provides.

 

How do I qualify for a business loan?

Businesses should have good overall credit quality, and owners must have good personal credit scores and credit history. Knowing the types of financing available through traditional and alternative sources is essential, as is understanding requirements. A good loan package application should include a strong business plan.

 

 

How do I get financing options for my business?

 

Steps to Secure Financing for Your Business:

1. Assess Your Financing Needs: Determine the amount of capital required and the purpose of the funds.

2. Review Your Credit and Financial Health: Check your credit score and gather financial documents for evaluation by lenders.

3. Explore Traditional Financing Options: Approach banks and credit unions with a comprehensive business plan and loan proposal.

4. Research Alternative Financing: Consider online lenders, peer-to-peer platforms, or venture capital firms if traditional loans don't meet your requirements.

5. Look into Government Funding and Grants: Check for available government programs or grants specific to your industry or business type.

6. Explore Angel Investors and Venture Capital: Present a compelling business plan and pitch to potential investors for equity funding.

7. Network and Seek Recommendations: Seek advice and referrals from your professional network and experienced entrepreneurs.

8. Prepare a Strong Loan Application: Organize all required documents and clearly explain fund usage and repayment plans.

9. Be Open to Negotiation: Be flexible during negotiations with lenders or investors for mutually beneficial terms.

10. Exercise Caution: Research potential lenders to avoid scams or predatory practices.

Remember to be patient and persistent during the process, as securing financing may take time. Careful planning and preparation will increase your chances of finding the right financing option for your business needs and goals.

 

 

What is the most common type of business loan?

 

Summary of Key Features of Traditional Term Loans:

• Offered by banks and financial institutions.
• Repaid over a fixed term with regular monthly installments.
• Comes with a predetermined interest rate for predictable payments.
• Involves a fixed loan amount given to the borrower.
• Collateral may be required to secure the loan.
• Credit history and financial health are considered during the approval process.
• Borrowers need to provide a detailed business plan and financial statements.

Other Financing Options to Explore:

• Lines of credit
• SBL loans under a defined credit limit under the CSBF program
• Equipment Financing
• Invoice financing

Business owners should consider various financing options to find the best fit for their needs and circumstances.

 

 

What are the 3 main types of financing for businesses?

 

Summary of Main Types of Financing for Businesses:

1. Debt Financing:

• Borrowing money from external sources with an agreement to repay with interest over a specific period.
• Examples: term loans,  business lines of credit, equipment financing, merchant cash advances via a term loan monthly installment credit limit solution - The application process is very quick for most lenders in fintech

2. Equity Financing:

• Raising capital by selling ownership shares to investors or a venture capitalist
• Investors share in profits and losses; no repayment is required.
• Commonly used by startups and high-growth companies.

3. Self-Financing / Personal funds (Bootstrapping):

• Using personal savings, assets, or business profits to fund operations versus taking on debt under startup loans
• Retains full control and avoids debt or equity obligations.
• May limit growth for capital-intensive ventures.
•  

Businesses often use a combination of these financing methods based on their stage of development, financial health, growth objectives, and risk tolerance of the business owner.

 

 

How can an entrepreneur obtain startup financing?

 

Common Ways Entrepreneurs Can Secure Financing:

1. Self-Financing (Bootstrapping): Using personal savings, assets, or business profits to fund the venture.

2. Traditional Bank Loans: Borrowing a lump sum from banks with fixed repayment periods and interest rates.

3. Online Lenders: Utilizing online platforms for faster approval and flexible criteria.

4. SBL Loans Via the Canada Small Business Financing Program: Government-guaranteed loans with favourable terms and flexible

5. Angel Investors: Getting funding from affluent individuals in exchange for equity.

6. Venture Capitalists: Securing funding from investment firms for high-growth startups.

7. Crowdfunding: Raising funds from many individuals contributing small amounts.

8. Family and Friends: Seeking financial support from close contacts for the business's success

9. Government Grants and Subsidies: Exploring non-repayable funding from governmental programs versus personal loan financing solutions

10. Accelerators and Incubators: Joining programs that offer funding, mentorship, and resources.

11. Business Competitions: Participating in competitions for cash prizes or investments.

To succeed in obtaining financing, entrepreneurs should have a well-prepared business plan, understand their funding needs, and demonstrate growth potential and profitability. Building relationships with investors and actively seeking funding opportunities can increase their chances of success.

 

What is the least costly source of financing?

 

Advantages of Self-Financing - Also known as "bootstrapping."

1. No Interest Payments: No borrowing means no interest expenses, reducing overall financing costs.

2. No Equity Dilution: Entrepreneurs retain full ownership and control without sharing profits or decision-making.

3. No Debt Obligations: No regular loan payments, beneficial for businesses with limited cash flow who cannot pay interest on the debt  - Interest rates and other business lender requirements tend to be higher for startups.

4. Flexibility and Autonomy: Entrepreneurs can make decisions without external pressures.

Limitations of Self-Financing:

• Limited Capital: The amount available to borrow money may restrict business scale and speed of growth.

• Not Suitable for Capital-Intensive Ventures: This may not suffice for businesses with high financial needs.

• Growth Constraints: Rapidly expanding businesses may require additional external financing.

 

Entrepreneurs often explore a mix of financing sources as their business evolves and funding needs increase to align with their goals and financial capabilities.

Canadian Business Financing Advice And Solutions - Not Always Just About Cash

 

YOUR COMPANY IS LOOKING FOR  CANADIAN BUSINESS FINANCING SOLUTIONS AND ADVICE!

HOW TO GET A BUSINESS LOAN AND GROW YOUR BUSINESS

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

Financing & Cash flow are the  biggest issues facing business today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

 

  

 

INTRODUCTION   

 

Financing is a key goal for business owners looking to finance growth and success.

 

Business loans and new capital can fuel various ventures, from starting new projects and purchasing equipment to scaling operations. However, securing financing can seem intimidating, particularly for those unsure and inexperienced.

 

Let the 7 Park Avenue Financial team increase your approval odds for business financing. These steps span from drafting a robust business plan to establishing a credible credit profile. So, whether you're a budding early-stage company or a thriving established business, let our guide equip you with key insights to secure the necessary financing to propel your business forward.

 

 

HOW CAN YOU TELL YOUR BUSINESS IS DOING WELL

 

Business owners and managers that are ‘non-financial’ in their backgrounds often need to know how to ‘‘scorecard’ their business. They want to know how to make intelligent decisions about running and moving their business forward.  The owner/manager wants to know they are managing their assets properly, allowing them to grow and profit.

 

Acquiring financing is critical for any business seeking to scale, branch out, or seize fresh opportunities. Proper financing can unlock avenues for hiring, marketing enhancement, equipment acquisition, financing and purchasing leasehold improvements,  and more.

 

However, securing financing can be difficult, especially for small enterprises or startups.

Notwithstanding these obstacles, obtaining necessary funding remains a cornerstone for business prosperity. A lack of sufficient financing can inhibit growth or threaten your business's existence by dedicating time to comprehending your financing options and formulating a business financing strategy.

 

ASK YOURSELF THESE KEY QUESTIONS

 

 

It might seem improper to answer a question with questions but at the end of the day, the business person needs to have a solid handle on some key basics.

 

They might include:

 

Are we financing our current assets (A/R and inventory) properly? Can commercial property be acquired?

Can we take on more debt, or would bringing new ownership equity be necessary?

Do we have proper operating efficiencies when collecting our accounts or turning inventory over?

If the owner/manager understands the relevance of those questions and where to seek answers, they are on the right track to doing well in their business in the Canadian economy.

 

WHAT THOSE RELATIONSHIPS!

 

A key secret to doing well is in what we have termed ‘relationships ‘. Many call them ratios – but if you understand the relationships between just some key numbers in your financial statements that revolve around profit, efficiency and solvency, you are on the right track to doing well.

 

Here is a quick example. Let’s focus on ‘profit ‘. Take your total profit for the year and divide it by the assets in your business. It’s a simple arithmetic calculation—no financial degrees are required. 

 

It measures how you use your business’s assets relative to the profit it generates. All industries have different results based on capital intensiveness, etc. So if you think you’re different, you are! But not when compared to others in your industry. Most lenders and investors will look at this simple comparison to justify loans or new equity.

 

One final point on doing well. The numbers in your financials don’t always provide answers – but they can offer some great questions you need to address!

 

WHAT ARE THE SIGNS OF A BUSINESS THAT IS DOING POORLY?

 

While many people use sales /revenue as a yardstick of success, we are too financially oriented to focus on that. Solvency is therefore important. When you can’t pay bills or suppliers, a lot of business distress starts.

 

That’s when it's time to focus on a ‘back to the basics ‘strategy, including improving liquidity by refinancing. Many companies are doing poorly because they simply have too much debt relative to their asset base. 

 

Lenders such as banks have some basic ‘yardstick ‘measurements regarding cash flow and the amount you can borrow. If you don’t meet those yardsticks, lending is curtailed, and your company has the risk of entering into the ‘death spiral ‘that we read overtakes many firms.

If your client base is drifting away and owners and shareholders are dissatisfied, it’s time for the business owner to assess the problems.

 

 WHAT STEPS CAN THE BUSINESS OWNER TAKE 

 

Business owners need access to good data when the company is perceived internally or externally as not doing well.

 

Key focus on sales, financial controls and availability of financing become key. At this point, objectives must be realistic, allowing the business to handle the challenges of not doing well because of general economics or operations.

It’s all about understanding your financial position and using that data to address your challenges.   We return to  ‘relationships ‘ again; that could be focusing on cash flow strategies, analyzing cash outflows, looking at inventory controls, and rationalizing headcount.

 

  

PREVENTING BUSINESS FAILURE  

 

 

There’s, of course, no guarantee regarding business failure. One factor that we see often is that many businesses equate sales and profits as ‘cash flow ‘.

 

That kind of thinking has led to some of the greatest financial debacles in business history – so we always encourage clients to have a solid handle on that difference – and it’s a large one.

 

We can jokingly say that to avoid all future cash flow problems, we encourage owners and executives to compensate sales staff on collections – but that has never done well!

 

  

TALK TO THE 7 PARK AVENUE FINANCIAL TEAM ABOUT GETTING YOUR BUSINESS ON TRACK!

 

Small businesses are crucial to Canada's prosperity as a whole. Across all industries, small businesses represent roughly 98%. However, the importance of Small Businesses varies from bank to bank. Statistics Canada estimates that nearly half of small companies fail within ten years of operation. Because of these risks, it is tough to find funding!

 

 

 

 

While you can pay turnaround experts and consulting firms large amounts to get your company in turnaround mode, the reality is that in many cases, the business owner and manager have access to a lot of quality information in their networks of accountants, lawyers,  peers, bankers, etc.

 

Getting credible advice from trusted, experienced parties never have to be expensive or time-consuming. While our firm, 7 Park Avenue Financial, focuses solely on business financing, we have spent countless hours helping clients achieve overall business success through referrals, advice, etc. Count on 7 Park Avenue Financial to be a trusted partner with business advice and financing solutions for Canadian small businesses, offering advice and solutions for the best small business loans.

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What are the Different Types of Business Financing Options

When it comes to securing financing for your business, a variety of options are available. Each option has pros and cons, and the best choice for your business depends on your specific needs and circumstances. Here are some of the most common types of business financing options:

 

1. Bank Loans

   • Among the most common forms of business financing for assets financed
   • Often have lower interest rates and longer repayment terms.
   • Ideal for financing long-term projects or investments.
   • Qualification may be challenging, especially for startups or businesses with less-than-stellar credit.

2. Canada Small Business Financing Program  Loans

   • Government-backed loans tailored for small businesses.
   • Offer advantageous terms and interest rates, providing affordable financing.
   • The application process can be prolonged and intricate, making qualification potentially difficult.

3. Equipment Financing

   • Specific loan type for the purchase of equipment or machinery.
   • The procured equipment usually serves as collateral, making it suitable for businesses needing expensive equipment or machinery.

4. Invoice Financing

   • Financing type permitting businesses to borrow against their outstanding invoices.
   • Beneficial for businesses with elongated payment cycles or cash flow issues, as it enables access to capital without immediate payment requirements.

5. Merchant Cash Advances

   • A financing option that allows businesses to borrow against future sales.
   • Generally quick and straightforward to secure, but it can be costly due to high-interest rates and fees.

 

 

 

 

What are Factors Lenders Consider When Evaluating Business Financing Applications

 

When evaluating business financing applications, lenders will consider a variety of factors. These factors will vary depending on the type of financing you're applying for, but some common factors include:

 

1. Credit Score

   • A significant factor that lenders evaluate during loan application reviews.
   • A higher credit score enhances approval odds and can lead to more favourable loan terms and interest rates.

2. Business Plan

   • An essential component for securing financing.
   • The plan should encompass business goals, strategies, and financial forecasts, demonstrating a comprehensive understanding of your business and its potential success.

3. Collateral

   • Required for many financing types, typically equipment or property, to secure the loan.
   • The collateral's value and type may differ based on the lender and the specific financing sought.

4. Cash Flow

   • Lenders assess a business's cash flow to gauge its loan repayment capacity.
   • Cash flow should exhibit a consistent and positive income stream, with adequate revenue to manage expenses and debt payments.

 

 

 

 

 

What are 5 Essential Tips for Securing Business Financing

 

 

Now that you understand the importance of securing financing and the different types of funding available, let's look at some essential tips for increasing your chances of getting approved.

1. Develop a Solid Business Plan

A solid business plan is essential for securing financing. Your plan should outline your goals, strategies, and financial projections and demonstrate that you have a clear understanding of your business and its potential for success. Your plan should also include a detailed budget and cash flow projections, explaining your plan for repaying the loan.

 2. Maintain Good Credit

Your credit score is one of the most important factors lenders consider when evaluating your application. To increase your chances of approval, it's important to maintain good credit. This means paying your bills on time, keeping your credit utilization low, and monitoring your credit report for errors or fraudulent activity.

 3. Explore Alternative Funding Sources

Traditional financing options, such as bank loans and Government SBL  loans, may not best fit every business. It's important to explore alternative funding sources, such as crowdfunding, angel investors, or grants, to find the best fit for your business.

4. Build Relationships with Lenders

Building relationships with lenders can help increase your chances of approval. Take the time to research potential lenders and develop a relationship with them before applying for financing. This can help you better understand their requirements and preferences and demonstrate your commitment to your business.

 5. Be Prepared to Negotiate

When applying for financing, it's important to be prepared to negotiate. This means understanding the terms and conditions of the loan and being willing to negotiate for more favourable terms. It's also important to be prepared to walk away if the terms are unfavourable or the lender is not a good fit for your business.

 

 

What are common mistakes to avoid when seeking business financing?

 

1. Failing to Research Your Options

   • Important to research and understand financing options' terms and requirements.
   • Not doing so may lead to unfavourable terms or unsuitable loans.

2. Applying for Too Much or Too Little Financing

   • Both can be problematic. Too much can lead to unfavourable terms or inability to repay, while too little might not provide the necessary funding.

3. Failing to Prepare a Solid Business Plan

   • A well-prepared business plan demonstrating eligibility criteria is crucial for securing financing and a proper loan term.
   • Lack of a plan could result in an unsuitable loan or inability to repay.

 

 

 

What is the Canada Small Business Financing Program?

 

The Canada Small Business Financing Program (CSBFP) eases the process for small businesses to secure loans from financial institutions by distributing the risk with the lenders. The program has recently been updated to offer a participating bank or credit union to offer small businesses more financing products, a new class of loans, higher loan limits and terms, improved loan conditions, and reduced administrative effort.

Eligibility

Small businesses or start-ups operating in Canada with gross annual revenues of $10 million or less of gross revenue are eligible. The personal credit score of the owner must be satisfactory. Farming businesses are excluded from this program but can check out the Canadian Agricultural Loans Act Program for similar benefits and a competitive interest rate offered by banks and some credit unions.

Financing Available

The program caps the maximum loan amount for a borrower at $1.15 million for guaranteed small business loans.

• Term loans: Up to $1,000,000 per borrower, of which a maximum of $500,000 can be used for buying leasehold improvements or improving leased property and buying or enhancing new or used equipment. Of this amount, a maximum of $150,000 can be allocated for intangible assets and working capital costs.
• Lines of credit: Up to a maximum of $150,000 at a fixed rate or variable rate

Application Process

Financial institutions handle the program and are responsible for approving the loan for both new and established businesses.

You can discuss your business needs with a financial officer at any Canadian bank to secure funds, caisse populaire, or credit union sources. They will review your business proposal and decide on your loan application. After approving the financing, the financial institution will distribute the funds and register the loan with Innovation, Science and Economic Development Canada (ISED). Charitable and religious organizations are also now eligible for SBL loans.

What can be financed?

Term loans can be used to finance costs related to the following:

• Purchasing or improving commercial land or buildings
• Buying or upgrading new or used equipment via an equipment loan structure
• Acquiring new or existing leasehold improvements
• Intangible assets and working capital costs

Examples of term loan usage include financing commercial vehicles, hotel or restaurant equipment, computer or telecommunication equipment and software, production equipment, or the costs to purchase a franchise.

Lines of credit can be used to cover the business's day-to-day operating expenses under a revolving repayment schedule.

Interest Rates

Your financial institution sets interest rates for term loans which may be floating or fixed.

• Floating: The maximum chargeable is the lender's prime lending rate plus 3%.
• Fixed: The maximum chargeable is the lender's single-family residential mortgage rate for the term of the loan plus 3%.

For lines of credit, the maximum chargeable is the lender's prime lending rate plus 5%.

Registration Fee

A 2% registration fee applies to term loans and lines of credit based on the total amount loaned or authorized. The borrower must pay these fees to the lender, and they can be financed.

Financing Terms

Lenders can request an unsecured personal guarantee - Also, personal credit history is important to most, if not all lenders and must be satisfactory - typically, a credit bureau score in the 600+ range is required. For real property and equipment, the lender must secure the financed assets. For leasehold improvements, intangible assets, working capital costs, and when financing a line of credit, the lender must secure other business assets. How much financing can be achieved under the program is up to each participating lender.

 

 

What is the most common form of financing for a small business?

 

The most common form of financing for small businesses varies depending on the specific needs and circumstances of the company. However, typically, the most common forms include bank loans, small business loans, and lines of credit. Many small businesses also rely on personal savings or funds from friends and family. Venture capital or angel investment is common for startups and high-growth companies. Acquisition loans for a purchase and sale agreement of a business are also popular via bank and non-bank lenders.

 

Do business loans affect personal credit in Canada?

 

Business loans can potentially impact personal credit in Canada, especially if the loan requires a personal guarantee from the business owner. The owner is responsible for the debt if the business defaults on the loan. In such cases, any missed or late payments could be reported to the credit bureaus and impact the individual's personal credit score. Business owners must ensure they are viewed as financially responsible. However, if the business loan is solely in the business's name and does not require a personal guarantee, it should not impact the owner's personal credit.

 

What is the interest rate for small businesses in Canada?

The interest rate for small businesses in Canada can vary widely depending on the lender, the loan type, the borrower's creditworthiness, and other factors. For instance, small business loans offered by banks could have interest rates anywhere from around 3% to 6% or more. Loans from alternative lenders may have higher rates, potentially up to 1-2% / month or more.