Fuelling Business Growth - Guide To Commercial Business Loans

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YOU ARE LOOKING FOR A COMMERCIAL BUSINESS LOAN

UNLEASH BUSINESS POTENTIAL WITH THESE DIFFERENT TYPES OF COMMERCIAL BUSINESS LOANS

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

        Financing & Cash flow are the  biggest issues facing businesses today 

               Unaware / Dissatisfied with your financing options?

Call Now !  - Direct Line  - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs.

Email  - sprokop@7parkavenuefinancial.com

 

UNLOCKING THE POWER OF COMMERCIAL BUSINESS LOANS

 

 

 

INTRODUCTION 

 
In many cases, access to different types of commercial loans can be challenging for business owners to achieve. 

 

Certain types of funding are often much better suited to small business financing needs. There are different types of commercial business loans for funding your business. These essential types of financing help start, grow, and sustain business operations. Other qualifications apply to different kinds of business financing - Choosing the right loan for your business should be job 1! Let's dig in.

 
 

As a business owner, you want to make informed financing decisions. Some loans may offer lower interest rates but more rigid qualifications for borrowing when it comes to qualifying for traditional financial institution bank credit or a similar business credit union solution.

 

WHEN ACCESS TO CAPITAL IS TIME SENSITIVE

 

The time-sensitive borrower must weigh their options to determine which type best meets their needs and circumstances at any given point in time. Some conditions can change over time due to market fluctuations or other factors outside of one's control - whether long-term loans or short-term funding solutions for the loan type.

The good news is that several business finance solutions are more accessible than ever.  Naturally, the ' go-to ' in the minds of many owners and their financial managers is ' the bank. '  Here, capital is virtually unlimited, and the interest rate via fixed or floating rates is typically the lowest regarding the cost of funds for business borrowers.

 

TRADITIONAL FINANCING

 

Traditional loans from banks and other financial institutions are the most common type of commercial business loan. The majority of these loans require collateral,  good personal and business credit, and in some cases, a business plan.

 

The most popular financing in this area is bank term loans, government-guaranteed loans, and business lines of credit. Term loans are lump sum installment type loans for specific projects or investments in the business -  Federal guaranteed loans have less stringent qualifications as the government of Canada backs them.   Access to a business line of credit provides funding for day-to-day business operations, focusing on flexibility/access to capital.

Bank financing comes with a challenge, though - the need to provide full financial disclosure around financial statements, owner personal credit history and net worth,  collateral, personal guarantees,  and in many cases, the requirements to produce a business plan or cash flow forecast. Don't forget to take into consideration the ' timing ' factor, in that the processing time might often be weeks stretching into a month.. or more.
 

 

 

 

 

WHAT TYPES OF BUSINESS LOANS ARE OFFERED BY BANKS?

Types of business loans offered by banks :

Business lines of credit / online banking facilities

Term Loans

Equipment Loans

 

Commercial Mortgage

We can safely say that Canadian banks offer business financing options with the most flexibility, lowest interest rates,  and access to unlimited capital when a firm qualifies.

 

 

 

KEY FACTORS IN BANK LOAN APPROVAL 

 

In recent years access to  SME Commercial financing solutions has changed. Banks and credit unions have become more difficult to get traditional loans from for some businesses; fortunately, there are other options for easy access to the funding they can turn to if this is the case.

 

 

Factors such as years in business, profits, acceptable balance sheet ratios, etc., are key to bank loan approval in a bank's desire to mitigate risk.

Early-stage businesses often utilize personal financial resources to access cash, including business credit cards, loans from friends and family, etc.

 

 

 

At 7 Park Avenue Financial, we encourage clients to separate personal and business financing. Those types of resources are not often the best choice to finance a company, as business failures can significantly damage personal credit.

 

 

ASSESSING THE COST OF FINANCING VERSUS ACCESS TO CAPITAL

 

Is there a clear winner when it comes to interest rates? It turns out not necessarily. Sometimes the longer-term loan will cost you less than its short-term counterpart—even if that one has lower monthly payments and a more affordable interest rate.

 

A lower bank loan, as example, isn't always the lowest-cost loan. This can be true when comparing a long-term lower-interest-rate loan with short-term financing at a higher cost.

 

 

 

ALTERNATIVE FINANCING SOLUTIONS 

 

Alternative loans in Canada are known as non-traditional / non-bank financing for businesses that might in some cases, not qualify for traditional bank financing.  The broad category of these loans comes under the term ' Asset-based Lending'  and includes non-bank business credit lines and invoice factoring. Peer-to-peer lending and short-term working capital loans, also known as merchant cash advances,

Those firms that can't access all or even some of the funding need lender alternative financing to the rescue. Alternative lenders provide the same types of loans available from banks - and are often quicker to approve loans. This financing cost is higher, but it provides access to capital.

 

 
 SPECIALTY LOAN FINANCING  

 

Numerous types of business comes come under the category of  ' specialty finance '. This includes lender financing ( financing for lenders ), equipment and lease financing, commercial real estate financing via mortgages or bridge loans and franchise financing. Talk to the 7 Park Avenue Financial team about how these loans might help your business!

Non-bank business credit lines - focusing on the actual borrowing power of your assets. Asset-based lending is a form of commercial financing in which the company's collateral such as accounts receivable and inventory, is used to provide working capital.

Inventory Financing

A/R financing  ( aka ' factoring ' )

Short-term financing / Merchant Cash Advances /  Corporate credit cards / working capital loans - flexible payment structures to cover operational costs - transactions are approved quickly, and funding is fast compared to traditional financial institutions.

Tax Credit Financing  ( SR&ED loans )

 

Franchise loans - Eligible costs to finance a franchise

 

 

 TALK TO THE 7 PARK AVENUE FINANCIAL TEAM ABOUT YOUR FUNDING NEEDS

Both banks and alternative finance companies provide loans for long-term business growth - These needs might include :

Commercial real estate  mortgages for owner-occupied buildings and  facilities

Mergers and Acquisitions

Franchise Financing

Leasehold Improvements -  ( leaseholds can be easily financed via the Government guaranteed business loan ) New assets can enhance the value of your business.

 

 

Thousands of businesses annually use Government guaranteed loans with competitive interest rates and limited personal guarantee. The total amount available under the program is 1 million dollars.

These types of lending for small businesses are typically longer in duration - ranging from 2-5 years - Government loans can be accessed at competitive fixed or variable rates. This is not an operating line of credit but a term loan structure. Revolving lines of credit are available from banks and alternative lenders if a company is not a start-up. Start-up business loans can be a challenge for entrepreneurs.

 

 

Export Development Canada, another crown corporation, provides purchase order financing, contract financing, and credit insurance for an existing business expanding into other markets in the U.S. and internationally.

 

Talk to  7 Park Avenue Financial about EDC/Export Development Canada and BDC crown corporation financing solutions for a growing business.

 

 
 

 CONCLUSION - TYPES OF FINANCING FOR COMMERCIAL LOANS FOR SMALL BUSINESS & CHOOSING THE RIGHT COMMERCIAL LOAN  

 

Choosing the right type of business loan will help guarantee business success. For approval, business owners and financial managers should carefully assess the financing they need, repayment terms, business loan rates and qualifications, and business loan requirements.  Canadian business financing can sometimes be a long process, so plan and be prepared to weigh the pros and cons of each type of financing that will allow you to fulfill unique business needs and growth plans.

 

Talk to the 7 Park Avenue Financial team about financing and supporting your growth needs without diluting equity. Whether your funding revolves around growing sales revenues, focusing on turnaround financing,   or accessing working capital, we've got the solutions you need. Looking to buy a business or execute a management buyout? Talk to us about our work in this area.

 

When small businesses need capital, it often looks like commercial loans. Commercial loans are different for large businesses because the scale of a loan differs in size, but small and medium-sized businesses also need to rely on access to funds to help fuel growth or fund day-to-day operations.

 

Small businesses rely on commercial loans to fuel growth and fund many day-to-day operations like large corporate entities do. Commercial loans might differ in company size, but access to capital is important for any business looking to grow or operate successfully without having a negative impact or risk financially.

 

For more information about the full potential of different types of business loans, especially if you are focused on ensuring you understand and have access to the right type of commercial loans for your company, speak to 7 Park Avenue Financial,  a trusted, credible and experienced  Canadian business financing advisor with a track record of success in solving Canadian business needs and your goals to stay competitive.

 

 

 

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

 

 

What is a commercial business loan? 

 

A commercial loan is a financing arrangement between a business and a financial institution like a bank. Loans can be used for various services and are arrangements that typically bring debt to the company's balance sheet. Commercial loans are for corporations and not consumers and generally are under a term loan structure. 

The financing provides the funds to start, grow and sustain ongoing operations. Commercial business loan solutions providers include bans, alternative lenders, commercial non-bank financing companies and business-oriented credit unions. Each provider of business loans will have different credit approval and qualification requirements and different interest rates based on transaction size, credit risk, etc.

 

What are the different types of commercial business loans?

Different types of commercial business loans include traditional bank loans, specialty loans and asset-based lending loan solutions. Conventional loans will be in the form of term loans or business loans of credit, and specialty loans are related to specific industry needs, examples include real estate financing, franchise loans, equipment purchase leasing, etc.

 

How do I choose the right commercial business loan for my business?

 

Choosing the right loan for a business should include assessing factors such as the type of financing needs, availability of flexible repayment terms, interest rate, and approval qualification requirements from the business lender. A business plan will often help identify the type of financing needed, and businesses should be prepared to provide appropriate documentation around financial statements, business plans, and the availability of collateral.

 

 

What are some forms of equity financing?

Forms of equity financing available for a business include angel investors, venture capital companies, private equity firms, and crowdfunding. These forms of financing will often require the business to be in a higher growth stage.

 

   

 What is the minimum credit score for a commercial loan from a bank?   

Commercial banks require a 650+ credit score to lend.

 

 

 What are the most common commercial loans? 

 

 

The most common commercial loans are commercial mortgages, term, government, and bridge loans/business credit lines.

Unleashing the Power of Factoring: The Ultimate Working Capital Financing Solution / Does Your Cash Flow Need Have An Identity Crisis? Here’s One Solution!

 

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING!

Working Capital Financing Made Easy: The Benefits of Confidential Receivable Financing

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

 

 

 

CASH FLOW FREEDOM - EMPOWERING YOUR WORKING CAPITAL FINANCING NEEDS 

 

Cash flow is almost always the focus of business owners and financial managers. Most realize it turns about to be a full-time job! It's relevant if only for the fact that working capital financing is all about growth in sales and hopefully profits.

 

One solution, among several available, is receivable financing and  'factoring'.

 

  

WHAT IS WORKING CAPITAL FINANCING?  

 

Working capital financing is the funding a business uses to finance day-to-day operations of the business When using accounts receivable factoring ' as a working capital solution the business finances its receivables with a third-party finance company, called a  'business factor'   The business receives immediate cash for the goods and services they have provided to their customers.

 

One popular method of factoring is Confidential Receivable financing which allows a company to maintain control over both billing and collections while at the same time receiving same-day cash for the outstanding invoices the company wishes to finance.  Financing provided by accounts receivable financing providers improves cash flow and eliminates the waiting for payments to be made from customers.

 

 

BREAKING THROUGH THE CASH FLOW BARRIER 

 

Businesses need working capital to cover expenses in the day-to-day operations of the company. But for many businesses in Canada the access to capital is limited for a number of different reasons, so ongoing healthy cash flow is not always abundant!  A/R finance helps a business overcome the cash flow gap while eliminating the financing challenges a business faces.

 

 

The 2008-2009 world economic crisis drastically affected business liquidity. Every financial institution in Canada, i.e. Banks, trust companies, life insurance companies, third-party independent finance companies, etc. all had liquidity issues and concerns, and these were the lenders! And let us not talk about Covid and Pandemics and the worldwide  economic challenges of 2022-2023 around supply chain struggles as well as increasing interest rates after a period of low financing costs / aka ' easy money '

 

 

THE SME FINANCING CHALLENGE! 

 

Larger companies can look at equity financing, long-term permanent working capital, and other esoteric solutions the 'big boys' use.

 

But what about SME COMMERCIAL FINANCE needs? Start-up, smaller and yes even medium sized firms have to ' scramble ' to fill the void that top experts acknowledge exists in the Canadian business financing arena.

 

 

UNDERSTANDING RECEIVABLE FINANCE / FACTORING 

 

Factoring is a receivable finance cash flow strategy, allowing a business to finance their accounts receivable t commercial factoring companies in exchange for immediate cash. Traditional " old school'  factoring has the finance company then assume collection of the receivable from the business customer. The company pays a fee based on a percentage of the total invoice amount. The finance company pays the balance of that ' holdback' amount when the client pays the invoices, less a financing fee. Simple as that.

 

For businesses that can't, or do not want to!.. wait for clients to pay in 30-60 days ( or more?!) the factoring financing solution delivers immediate cash as a company generates sales - allowing the business to meet their obligations for key areas such as payroll, inventory purchases, and growth opportunities.

 

 

WHAT ARE THE DIFFERENT TYPES OF FACTORING

 

Business owners should understand that are some different types of factoring, and the industry at times makes it hard for customers to understand how basic these different solutions are

 

Recourse factoring is a/r financing with the company continuing to assume full bad debt and collection risk in terms of a potential non-payment from a client. If the company has received funding from the invoice factoring company for that now uncollectible invoice it must pay back the finance firm, or provide an invoice of equal value as payment.

Non-recourse factoring is when a company chooses to transfer the risk of bad debt to the finance company - although this method of financing is typically more expensive when collection risk is transferred to the finance firm.

 

Confidential Receivable Financing

 

Confidential receivable financing is a method of receivable factoring that allows the company to enjoy all the benefits of traditional factoring for unpaid invoices while maintaining full account control and communication with its client - The company continues its normal billing and collection process while still receiving immediate cash for sales that are generated and invoice to clients - This solution provides positive cash flow and keeps client relationships the same as they were in the past without any knowledge of how the business is financing its business.

 

Additionally,  the factoring fee in confidential a/r financing does not cost more!

 

So why factoring as a cash flow financing vehicle?  Yes, it will always have a higher cost, but... it's available, and it works. CONFIDENTIAL RECEIVABLE FACTORING even mirrors traditional bank lines - i.e. you can bill and collect and manage your own A/R without notification to any other firm, i.e. your customers.

 

IMPROVING CASH FLOW VIA FACTORING  AND A/R FINANCING

 

Factoring financing is a proven financing mechanism used by thousands of companies in Canada - providing a quick and efficient method of cash flow generation - allowing a business to operate efficiently and meet its day-to-day operational needs around cash flows.

 

What then are any challenges around factoring receivables? Although it's historically been around for almost forever it's incredibly misunderstood. Many players aren’t Canadian, (which doesn't necessarily have to be a concern) but the real truth is the way these firms operate and deliver on your financing. Also, prices and fees vary.

 

But whatever challenges come from factoring A/R it's safe to say that the ability to turn sales into 'immediate cash' is the greatest selling point to clients we talk to.

 

THE DIFFERENCE BETWEEN WORKING CAPITAL LOANS AND  RECEIVABLE FINANCING

 

At 7 Park Avenue Financial, we are often asked about the difference between working capital loans are a term loan structure, versus invoice financing .  Each method has its own benefits. While banks and other business lenders offer working capital loans for short-term ash needs these loans to have long amortizations and require regular installment payments. They can be viewed as a source of permanent working capital.

Invoice financing is the receipt of immediate cash for invoices which are the collateral for the cash - Companies receive the cash immediately and the company pays a fee on the invoice they choose to finance.

In general, receivable finance is easier to get approved versus long credit checks and due diligence performed by working capital providers.

 

  

KEY ISSUES TO UNDERSTAND IN FACTORING FOR WORKING CAPITAL NEEDS  

 

Things to both understand and consider when looking at factoring working capital financing include:

 

The requirement to finance all your A/R & Sales - Spoiler alert - you don't have to!

 

Rates/cost/fees -

 

Security arrangements - in all cases the key collateral is of course your A/R

 

Size of facility and quality of your customer base

 

Amount of financing extended against invoices - typically it should be at least 85-90%

 

THE DOWNSIDE OF TRADITIONAL FACTORING - IS THERE A SOLUTION? SPOILER ALERT !! YES, THERE IS!

 

Factor firms have very different levels of involvement in your business when you have such a facility. The factor financing can have a strong level of daily 'intrusion' into the Canadian firm's business - the invoice factoring company might insist on delivering invoices to your customer, notifying them of the financing arrangement, and yes, you guessed it, even calling the customer and collecting the receivable.

 

  

UNDERSTANDING CONFIDENTIAL RECEIVABLE FINANCING / FACTORING  

 

Naturally in a perfect world, most firms would rather perform these functions themselves as part of the overall 'customer relationship '. That's why we don't recommend that solution to our clients, instead, we prefer CONFIDENTIAL A/R FINANCE.

 

CONCLUSION - Unlock Your Business Potential with Factoring: The Working Capital Financing Strategy for Cash Flow Success

 

If you're focused on winning the working capital financing game,  call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who is focused on the cash flow and factoring solution you need to grow and survive.

 

Find out why 7 Park Avenue Financial is your best choice for a business financing partner for financing solutions tailored to your firm's needs. Use our industry experience and reputation to ensure you have access to the best business finance solutions.

 

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

 

Does factoring decrease working capital?

No factoring does not decrease working capital -  it allows a business to improve cash flows and to have the ability to run and grow a business. Factoring monetizes accounts receivable into cash.

 

 

Is there a drawback in factoring in receivables? 

While factoring receivables improves cash flow for a company cost is often seen as a potential drawback as it is a higher cost of financing in the majority, but not all cases. Companies who choose traditional factoring versus confidential a/r finance might view this method of financing as a negative to their reputation which is not really the case.

 

What are the benefits of working capital financing? 

Working capital financing provides businesses with numerous benefits, including:

 1. Ability to be  cash flow positive

2. Providing flexibility in cash flow management

3. Improved chances to access growth opportunities in areas of expansion staffing, technology access, etc

4. Minimizing credit and collection risk and management while providing positive working capital to the business

 

 Why do companies utilize factoring as a working capital solution? 

 

Factoring allows a business to meet the obligations of the business as is a popular financing tool in many industries - Businesses can have ongoing positive cash balances and cash control around different aspects of the business.
Businesses should focus on the tradeoffs in financing costs versus their ability to generate a positive return on capital in their business operations.

 

Traditional factoring solutions provide credit information on new clients, manage risk on approved non-recourse accounts, a well as providing a collection process without the need for additional staffing investment in managing an accounts receivable investment.

 

How does  The Factoring Process Work

The factoring process is a basic financial transaction around the initial setting up of the account facility as well as the ongoing financing of receivables.

Initial approval requires a business to submit a standard business application as well as a detailed account receivable  aging and sample client invoices - Typical other requirements include copies of several months' bank statements and info on business owners  and incorporation details,

Once the facility is established and a facility limit is approved factoring companies send out a notice of assignment to customers of the business - Companies submit invoices for financing and funds are remitted to the company, usually on the same day. Typical advances are in the 90% range and when the customer pays the company receives the balance of funds on the invoice, less a financing cost.

 

What are 5 Important Terms In Factoring Financing That Business Owners Should Understand  In Working Capital Factoring

Reserve Account - This is the amount that is held back on each invoice  in the factoring account until the client pays, typically in the 10% range

Spot Factoring - Spot factoring allows a company to finance a single invoice when required - it is often a more expensive solution for financing specific accounts receivables.

Advance rate - This is the amount the factoring company advances on each invoice,

Monthly minimums - clients must determine whether they will finance all of their invoices or only some of them at their choice

Discount rate - This is the financing fee for factoring - typically between 8% per annum up to 1.25% per month, depending on a number of factors such as size, overall risk profile and credit worthiness, trends in customer payments, type of industry, etc.

Many different industries are frequent users of accounts receivable factoring, such as commission advances, medical receivables, government receivables, construction, trucking,  staffing, etc. - Many factoring providers specialize in certain industries where asset-based lending solutions are a solid alternative to traditional financial institutions who would provide a line of credit.

 

 

 

 

Understanding Working Capital: Key to Successful Business Financing

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YOU ARE LOOKING FOR WORKING CAPITAL AND BUSINESS FINANCING!

Business Financing 101: How to Manage Your Working Capital

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

   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

Or Email us with any questions on Canadian Business Financing

EMAIL - sprokop@7parkavenuefinancial.com

 

 

Unlocking Your Working Capital Potential: Innovative Business Financing Solutions

 

If you're like most of us Mom never really gave us a lot of advice on working capital!

 

That's why for such an important business financing subject we recently read an older article in Canadian Business magazine that covered a total of 15 - yes that’s 15! - ways to finance your business. Perhaps these were the secrets of the Holy Grail that Mom never taught us, we thought. Turns out some were, but most were not! So let's dig in and get serious on the subject of cash flow financing your business needs.

 

CASH FLOW FINANCING SOLUTIONS

 

Cash flow financing is a business finance option for businesses that are growing and require either business loans or upfront investment to generate further revenue as well as to fund ongoing operations.

 

That ability to fulfill existing debt obligations and to have the financial capacity to grow the business requires solid cash flow forecasting and short-term financing strategies for funding cash flow to run and grow the business.

 

Cash flow loans can include working capital term loans, business lines of credit,  receivable financing strategies and other innovative traditional and alternative finance solutions. Financing your business properly enhances the chances of business growth with proper working capital efficiency!

 

"In business, the rearview mirror is always clearer than the windshield." - Warren Buffett

 

  

WHAT IS A WORKING CAPITAL LOAN?  

 

A working capital loan is a type of financing in a term loan structure that allows a business to fund ongoing day-to-day business expenses such as accounts payable,  rent, purchasing of inventory, and other miscellaneous overheads.

 

This method of financing covers short-term gaps in cash flow and provides businesses with essential capital to run a business smoothly.

 

The majority of working capital loans are unsecured and require no collateral - loans are ' backstopped' by the cash flows of this business - as well as the guarantees of business owners- Loan amounts and repayments are structured based on the type and amount of financing - so amortization is on an installment basis and may be short term or several years in duration.

 

Working capital loan financing is provided by banks, business credit unions,  online lenders, and other alternative financing providers. Typical information required to process such a loan includes the financial statements of the companies, tax returns and other basic business information on the business - in some cases, a business plan will benefit the chances of approval.  Cash flow projections will typically be provided by the borrower to show the overall stability of the business as well as repayment capability.

 

 

DO YOU UNDERSTAND YOUR CASH CONVERSION CYCLE?

 

The cash conversion cycle,  aka  (CCC)  is a financing measurement tool that allows a business to assess its working capital needs and uses - that allows the business to assess the cash needs of day-to-day operations. The cash conversion cycle calculation measures the amount of time it takes for a company to both meet obligations as well as factor in cash inflows from collections - A shorter timeframe is generally accepted as a better number.

The calculations used in the measurement include asset turnover ratios such as inventory, receivables, and payables - All information is based on information in the financial statements such as cost of goods, dso, sales, and ending payables.

 

WHAT ARE SOME COMMON USES OF WORKING CAPITAL FINANCING

 

Working capital financing has a wide range of uses such as the ability to invest in inventory and other required materials.

Many businesses are seasonal or cyclical in nature and will often require upfront capital to meet requirements during off-peak periods - Also in the business many short-term opportunities arise such as purchasing material or inventory at better prices /costs.

Staffing and labour costs can also be met by working capital finance solutions.

 

WHAT IS MEZZANINE DEBT?

 

Mezzanine debt is an unsecured cash flow loan provided by private finance firms. In almost all cases, it focuses solely on cash flow as the repayment vehicle. The bad news on mezzanine debt is that it typically is available for larger transactions in excess of several million dollars, which certainly doesn’t work for most small and medium business owners. For the record mezzanine financing rates are higher, and often in the low to mid-teens.

 

  

DOES YOUR BUSINESS QUALIFY FOR VENTURE CAPITAL FINANCING ( SPOILER ALERT- PROBABLY NOT!)  

VC money is often bandied about and sought by many corporations. Venture capital in Canada is struggling in the 2023  environment, any fundings seem to be going to firms that have been previously funded and are getting additional capital (to stay alive?). 

 

Any Venture capital firm expects a high rate of return relative to the risk they are taking in financing your firm on an equity basis - in fact traditionally, as the article stated, the venture capitalists are looking for a 5 times return.  Unfortunately for many Canadian business owners, these types of funding go to the sexier industry segments such as biotechnology, high tech, etc.

 

 

CONCLUSION -  WORKING CAPITAL IS THE FOUNDATION OF BUSINESS FINANCING

 

The common types of cash flow and working capital financing for SME businesses will include term loans, business credit lines, invoice financing such as factoring, and short-term working capital loans known as a ' merchant cash advance '. Small business loans under the Canada small business financing program now include working capital facilities based on changes to the program that Industry Canada made in 2022.

 

Many businesses use business credit cards to cover small operational costs,  while term loan structures for cash flow are for more established companies that can prove positive cash flow for repayment. Line of  Credit facilities are useful for any business requiring the need to address cash flow gaps around the investment a company makes in a/r and inventory and the company will pay interest only on funds drawn under the facility.

 

Short-term merchant advances are smaller installment loans geared to a formula around company sales and the business owner's personal credit scores and are readily accessible but come with higher interest rates.

 

Call 7 Park Avenue Financial, a trusted, credible and experienced business financing advisor who can provide you with an up-to-date realistic alternative to business funding and business loan needs.

 

 

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

 

 

How do you calculate working capital?

Working capital is calculated by subtracting current liabilities on the balance sheet from the company's current assets also listed on a balance sheet 

 

 Why is working capital important? 

Working capital is important because it represents the funding that the company has available to service day-to-day operations. Positive working capital that includes good asset turnover in balance sheet accounts will ensure the ability of the company to pay bills and invest in growth opportunities. When working capital turnover is poor businesses struggle and may be perceived as having credit risk to business lenders who focus on calculations around the working capital cycle and debt service coverage ratios.

 

What is a good working capital ratio?

 

A good working capital ratio is in the 2 range if asset turnover is reasonable - If the working capital ratio, also known as the current ratio, is negative then the company may be breaching loan covenants and may be considered insolvent.  - When the ratio is exceedingly higher than 2 it suggests asset turnover around days sales outstanding, inventory turns, and payables are poor.

 

Can working capital be negative?

Working capital can be negative in certain circumstances,  It is not always cause for concern as many businesses and business models such as retailers selling on a  cash basis can operate with negative working capital efficiency ratios.

 

 Is  SR&ED Financing A Source of Working Capital 

The sr&ed program provides billions of dollars of capital for any firm in Canada that qualifies for research spending and adheres to the program guidelines. SRED claims can also be financed, similar to a receivable, as soon as they are filed, which supercharges the program even more from a working capital business financing perspective.

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

Guide To Business Funding Sources Of Capital In 2023 In Canada

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BUSINESSES

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Financing & Cash flow are the  biggest issues facing businesses today

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Email = sprokop@7parkavenuefinancial.com

 

TIPS AND STRATEGIES TO SECURE BUSINESS FUNDING

 

Business funding sources in Canada often have business owners/financial managers looking for the right ' connection' they need when looking for capital and financing solutions.  When it comes to entrepreneurship finance, often the situation seems clear as mud... or molasses?

 

Let's dig in for those sources of funds for business and funding programs that will work for your business. Whether you are looking for startup  business funding or growth financing & business lending to continue your business success, we have the necessary solutions.

 

Financing solutions for your business might revolve around business loans from banks or commercial financing companies as well as asset-based lenders - It's essential to focus on eligibility criteria and the information required in the application process - in some cases government funding solutions might be an alternative to bank loans and other forms of equity capital.

 

 

Molasses? We're referring to the Great Molasses Flood of 1919 in Boston - where a large molasses tank burst, streets were flooded, and 21 folks lost their lives!  That isn't the same anxiety that business people experience around finance choices, but it often sure feels like it.

 

IDENTIFYING SOURCES OF FINANCING / SMALL BUSINESS FUNDING OPTIONS

 

How then does the owner/mgr, particularly in the  SME  (small to medium enterprise) space make those right ' connections'  relative to sources of funds for business,  and, as importantly, what can they expect? It's critical to know what any source of capital delivers on. That changes with the current financial profile of your company and the perceived risk that lending sources associate with your business... or industry as you search for sources of funds.

 

WHAT ARE THE MAIN SOURCES OF BUSINESS FUNDING FOR YOUR COMPANY?

 

Ultimately your company has only three main choices of finance solutions regarding how to fund a business  - internal cash flow,  taking on debt, or equity injection.

 

When owners/managers start the financing process and are looking for sources of funding a business and the right connection to the capital, they are often most concerned about the cost of that capital.  These days, depending on the risk profile your company generates, that rate can be 2.5% per month or 2.5% per annum. Most clients we meet want the latter!

 

 

WHAT ARE THE KEY FACTORS THAT AFFECT BUSINESS FUNDING APPROVAL?

 

Size of your company

 

Stage of Growth - i.e. start-up, early stage, growing, mature, etc

 

Assets on the balance sheet

 

Cash flow generation potential

 

Industry and your reputation

 

 

"Capital isn't scarce; vision is." - Sam Walton

 

 

GOVERNMENT FUNDING FOR SMALL BUSINESS ( THE BEST FUNDING FOR A SMALL BUSINESS STARTUP?)

 

CANADIAN GOVERNMENT FUNDING PROGRAMS

 

Looking for Startup & Entrepreneur Funding?  Needless to say, funding for business startup scenarios is also challenging

 

 

THE CANADA SMALL BUSINESS FINANCING PROGRAM

 

At 7 Park Avenue Financial, we often recommend a Government of Canada Small Business Loan, which provides a significant amount of capital and a guarantee on your loan by the federal government of Canada for economic development initiatives to support businesses and general economic stimulus. The loan can also be used to buy an existing business or franchise.

 

Start-up business funding is always a challenge in traditional and alternative finance. Thousands of firms utilize the Government Guaranteed Business Loan yearly to get the required capital.

 

All small business owners should look into government programs when available as personal investment is limited based on similar requirements by banks and other traditional lenders / financial institutions.

 

Talk to the 7 Park Avenue Financial team to learn more about how federal funding works for a business owner via  the CSBFL small business loan.

 

  

CANADIAN GOVERNMENT GRANT AND FUNDING PROGRAMS  

 

Some entrepreneurs look into Canadian government grants, which can be a long process with no guarantee of results around your business development - although numerous  Canadian government funding programs  & grants exist , including minority business grants.

 

While many entrepreneurs explore small business grant funding/government loans, this is a long and tedious process without guaranteeing that your grant loan will be approved. The majority of government grants for small businesses are reserved for established SMEs (i.e. 3+ years incorporated, 5+ payroll employees, $500,000+ annual revenue)

 

GRANT  PROS AND CONS

 

Entrepreneurs should ensure they understand the pros and cons of grants - while they provide much-needed money that is not repayable, achieving grant financing is challenging and can take a significant amount of time when applying for industry-specific grants

 

Many owners/financial managers we meet are often incorrectly focused on the type of business funding solutions & financing they need. They don't even understand the wide level of choices they have in cash flow financing and debt financing.

 

 

A  BUSINESS PLAN WILL HELP TO SECURE FUNDING 

 

Always ensure you have a business plan and cash flow projection that positions your company properly with a bank or commercial lender. No personal assets are required to be pledged under the SBL Loan program.

 

At 7 Park Avenue Financial business plans, we prepare for clients are all about financing, not marketing! We focus on financial statements and cash flow projections.

 

Always ensure you have a business plan and cash flow projection that positions your company properly with a bank or commercial lender. No personal assets are required to be pledged under the government SBL Loan program.

 

SOURCES OF BUSINESS FINANCING - TRADITIONAL AND ALTERNATIVE FINANCING OPTIONS

 

Funding A Business and funding a small business is challenging, but here at 7 Park Avenue Financial, you'd be amazed at the choices we can deliver on funding businesses.

 

Canadian  chartered banks

Receivable and Inventory Finance providers

Asset-based lenders - financing both assets and credit lines

Leasing companies  - equipment purchase financing for small and medium-sized businesses

Sale-leaseback specialists

Mezzanine finance

Royalty finance solutions

PO / Contract finance

Merchant cash flow advances

Commercial real estate financing

Funding SR&ED tax credits  for r&d funding opportunities around the refundable tax credit

 

A NOTE ON VENTURE CAPITAL FINANCING

 

Many firms spend too much time looking for VC financing, angel investors, etc., - only the smallest percentage of firms in Canada qualify for VC funding with venture capitalists or an angel investor and they typically seem to be in areas such as software, digital media, biotechnology, telecom, etc. We caution clients on pursuing this road to funding if they are not prepared and cannot demonstrate huge revenue growth and demonstrable traction in the early stages of revenue.

 

Naturally, some solutions and sources of finance are shorter-term focused and provide a temporary fix. In contrast, other solutions can bring working capital and cash flow finance in the millions and could be considered long-term financial strategies.

 

Safe to say it's essential to know whether you need a temporary ' fix ' or a long-term capital solution. That allows you to position your company and negotiate from a level of strength with a funding company or bank.

 

"The best time to plant a tree was 20 years ago. The second best time is now." - Chinese Proverb.

 

 

CONCLUSION - BUSINESS FUNDING OPTIONS

 

Most business owners are unaware of the many financing options available to their firms and the business financial planning required to access funding for Canadian businesses.

 

If you're looking to avoid that ' clear as molasses' feeling we described in sources of funding business, speak to 7 Park Avenue Financial for advisory services expertise -   a trusted, credible and experienced Canadian business financing advisor who can assist you with financing and capital needs for small businesses ( and large ) in Canada.

Regarding how to get funding for a business, we're on your side and here to help with traditional bank financing,  financial support from government business funding, and alternative finance solutions. For more information on other types of financing your business needs, talk to us here at 7 Park Avenue Financial.

 

 

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

 

What are three sources of capital?

 

The three main sources of financing capital in Canada are personal / owner equity, debt financing,  and specialty finance solutions in alternative finance. These funding sources influence the final decision to finance the business potential for a business venture. The challenges of finding a first investor for equity are significant when start-ups are concerned.

 

What are the types of financing?

 

All types of financing are related to either equity or debt financing - they allow businesses to fund ongoing business needs, finalize purchases and make investments in the business. Equity financing is the most expensive type of finance but brings no debt to the balance sheet.

 

What is commercial business funding?

Commercial business funding is financing from financial institutions such as chartered banks, business credit unions, and equity capital via angel investors or venture capital firms. Funding is in the form f loans or equity investments in the business.

 

 How can I qualify for commercial business funding? 

To qualify for commercial business financing, borrowers should be able to provide a business plan and demonstrate to lenders the business credit history and owners' personal credit history. The ability to establish sales revenue growth and profit potential is essential. A business lender will also review factors such as the type of industry the company is in.

 

  

What are some common types of commercial business funding?  

Common types of commercial business funding include traditional bank loans, business credit lines, invoice financing/factoring, equipment leasing and merchant cash advances/short-term working capital loans.

 

 What are government loans for business funding? 

Government loans for business funding via private and public sector financing are business loans provided by the government or, in some cases, guaranteed by the government that help SMEs succeed in economic development activities to access capital and commercial loans at competitive interest rates with longer amortizations.

 

  

How can I qualify for government loans for business funding?  

To qualify for government loans for business funding purposes, borrowers must meet the eligibility criteria of the loan program, with typical criteria for loan guarantees being sales revenues and profit potential. The borrower should be prepared to provide a detailed business plan for the company - The business development bank / 'bdc'  is a crown corporation focused on loans to entrepreneurs with programs to support underrepresented entrepreneurs such as aboriginal businesses/  and indigenous entrepreneurs / aboriginal entrepreneurs, as well as women-owned businesses - bdc offers small business financing money via working capital loans, real estate loans, and consulting services for business support.

 

 What are government grants for business funding? 

 

Government business grants for business funding are financing from government agencies that do not require repayment and are typically awarded to businesses that are developing products, services, or a business idea and technology that contribute to economic development. Many grant programs are  ' matching programs' that require capital investment from the business grant recipient. Grants typically require companies to meet eligibility criteria in their area of research and development, and often, detailed budgets and proposals are required. Some firms hire ' grant writers' familiar with the grant funding process.

 

IRAP - The industrial research assistance program is one of the most popular and accessible grants for government financing programs. Tax breaks and wage subsidies are very accessible in Canada for businesses willing to review the types of grants they might be eligible for. Some programs, such as Community Futures, are tied explicitly to regional economic growth.

5 Things You ( Probably ) Didn’t Know About Canadian Business Receivable Finance & Advantages Of Receivable Financing For Business

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YOUR COMPANY IS LOOKING FOR  BUSINESS RECEIVABLE FINANCE!

CHOOSING THE RIGHT RECEIVABLE FINANCING OPTION FOR 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

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Cash Flow Financing Via Factoring Clarified!

 

Cash flow financing for Canadian business owners and financial managers is about knowing what options are available when external finance solutions are being evaluated. Looking for one solution that's incredibly misunderstood in the Canadian business financing landscape. We've found it. Business A/R Finance!  We've got your questions, as well as the answers! Let's dig in.

 

 

WHAT IS BUSINESS RECEIVABLE FINANCE 

 

Business receivable financing ( aka receivables financing ) is a method of business financing that allows a business to transform accounts receivables via a financing facility via a bank or commercial finance company. Funding is for invoices issued to customers for products and services provided to clients with payment not yet made - allowing for the financing of structural cash flow gaps in the company business model.

 

 

TRANSFORMING RECEIVABLES INTO CASH! 

 

Accounts receivables will often be the most significant balance on the balance sheet under the category of current assets - those current assets will also include inventories.  These are short-term assets representing liquidity in the business.

 

Receivables financing is a benefit to businesses that sell on credit terms to customers, which becomes a cash flow gap in the business as payments are not received while inventory purchases and other short-term liabilities, such as accounts payable, must be paid; when a company extends longer payment terms to clients, the situations are exacerbated as those regular ongoing sales create cash flow gaps that widen further as the business sells more.

Funding solutions for startups and new businesses are also accessible.

 

Many businesses operate in seasonal or cyclical industries that create large increases in cash outflows during peak periods, creating potential cash flow crunches as collections have not yet been made.

 

Receivables finance may be a challenge if a business is experiencing unusually high bad debt volume or who have sales that are disputed by clients around issues such as service, damage, quality, etc - Also, businesses with fast turnovers, such as e-commerce clients of some retailers who have short payment term cycles are not the best candidates for A/R finance.

 

Business lenders in receivable finance will focus on the general creditworthiness of the customers, and funds are drawn down on outstanding invoices. Factoring companies that are non-bank in nature fund receivables immediately as sales are generated and charge a discount fee for the financing service.

 

Businesses need to understand the benefits of receivable financing and the potential drawbacks when they commit to a bank or factoring facility.

 
5 EXAMPLES OF RECEIVABLE FINANCING 
 

What amount of funding can you expect to receive from your A/R base? 

 

Typical advance rates for most facilities revolve around the 90% mark... which assumes you are dealing with the right commercial financier - More on that later. That additional 10% is in effect a holdback of sorts. We would point out that Canadian chartered banks only margin A/R at 75%, so commercial business receivable finance offers more liquidity. One other key point on funding is that your access to capital is virtually 'unlimited' as long as you have sales and legitimately earned receivables.

 

 

How does a firm set up a receivable facility?  

 

We generally advise that it takes approx 2-3 weeks to set up a proper facility - that is a general guideline. You will know, by the way, very early on in the process if you are approved. After that, it's simply a question of documentation. Legal documentation and the paperwork process are very similar to bank financing and full-fledged A/R facilities are secured in the same manner as banks, typically a General Security Agreement.

 

By the way, stop us if you’ve heard us say this before. Still, you should consider CONFIDENTIAL RECEIVABLE FINANCE, allowing you to bill and collect your own accounts with no notification to suppliers, customers, etc. Want to be the talk of the town? You will be among your competitors as this type of NON-NOTIFICATION financing will have competitors wondering how you can finance your business so successfully.

Talk to the 7 Park Avenue Financial team about how confidential non-notification a/r financing can benefit your firm.

 

What's the cost of receivable financing /factoring?

 

 Fees and costs. Various factors come into play here, the credit quality of your firm in general (it does not have to be as solid as you think), the size of your facility, the nature of your industry, etc. On balance, a solid business receivable finance fee in Canada is .75-1.15%% if you're billing and collecting on a 30-day term.

If your company can absorb a 1 or 2% decrease in gross margins to in effect obtain all the cash flow/working capital you need, that in effect, should be your consideration.

 

  

 What receivables can be financed?   

 

The key point here is that only ' business’, i.e. B2B a/r can be financed in Canada, so those companies with a consumer A/R base cannot take advantage of cash flow financing. Retailers typically look to other forms of finance for finance options in the consumer marketplace - i.e. Working capital loans, inventory loans, Merchant Cash Advances, etc.

 

Any North American receivable can be financed, and if your firm has overseas receivables, a credit insurance policy can assist in the financing of those receivables.

 

  

Age of receivables that can be financed   

 

As a pretty general rule, only A/R that is under 90 days in age can be financed via this method of Canadian business financing. One can safely assume of course, that if you haven’t collected your accounts by that time there is an element of uncollectibility or bad debt in your A/R portfolio. There are potential exceptions to the rule but your ability to turn over receivables based on your published selling terms is critical to successful ' factoring ' finance.

 

 CONCLUSION  - CASH FLOW FINANCING FOR GROWING COMPANIES

 

Has confusion gone away? We hope so. The bottom line?  When considering working capital finance via business receivable financing ensure you've got the right information at hand to make an informed decision.

Call  7 Park Avenue Financial,  a trusted, credible, and experienced Canadian business financing advisor for your ability to get on track with cash flow finance with business loan solutions tailored to your business needs.

 

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

 

What is business receivable finance?

 

Business receivable finance is also known as accounts receivable financing or invoice financing and ' factoring ' . Using this type of financing allows businesses to generate cash flow based on the use of outstanding invoices the collateral for the financing facility.

 

  

What is cash flow financing?  

Cash flow financing is any type of financing that helps a business access funding based on the anticipated cash inflows of the business. Solutions for cash flow finance include receivable financing via banks, factoring invoices via non-bank commercial finance companies and business lines of credit from asset-based lenders.

 

 How can business receivable finance help my business? 

Business receivable finance helps a business by providing access to working capital that can b used to fund daily operations and allowing the business to manage growth and expansion plans - Funding is based on sales revenues and helps companies with cash flow management.

 

  

What are the benefits of cash flow financing?  

 

The benefits of cash flow financing solutions included better liquidity and the flexibility to access working capital when needed when cash flow gaps occur in the business's cash flow cycle. Financing receivables speeds up the cash flow cycle of a business and reduces  DSO ( days sales outstanding )

 

Receivables financing is a solid cash solution for small businesses that are growing faster than the borrowing capacity of the business. Companies can accept larger orders and fund seasonal peaks in the business using cash flow techniques in a/r finance management.

 

  

How do I know if business receivable finance or cash flow financing is right for my business?  

If a business is selling on trade credit terms and has cash flow gaps in the business based on the investment the company makes in carrying receivables, receivable financing can assist in funding working capital.

 

 What are 4 forms of receivable financing 

 

Four common types of receivable financing include :

Invoice factoring

Invoice Discounting

Asset-based lending credit lines

Supply chain financing

 

Invoice factoring allows a business to ' sell ' an invoice to a third-party finance company, known as a business factor. The company receives immediate cash for the money owed, and traditional factoring firms will collect the receivable and keep a percentage of the invoice in exchange for the company receiving the cash upfront. Typical advances from factoring companies are in the 90 percent range, much higher than bank advances on accounts receivable.

 

Invoice discounting is similar to factoring as commercial finance companies/factoring company advances a percentage of the invoice value on invoicing by the company so it cans receive early payment on the sale of products and services.

 

Asset-based lenders use receivables to collateralize lines of credit or loans. Funding for an accounts receivable loan is made on a pre-agreed advance rate and as payments are collected by the company the loan facility is reduced. Asset-based credit lines for receivable loans often combine inventory and equipment assets on the company's balance sheet into one credit facility.

 

Supply chain financing/purchase order financing allows suppliers to receive payment earlier than typical trade credit terms which can help small businesses.

 

 

What is the difference between accounts receivable financing and invoice financing?

 

Both accounts receivable financing and invoice financing/factoring are similar in that they both fund outstanding invoices, which are the collateral for the financing. The main difference between the two methods is the ownership of the invoices in the financing agreement/financing facility.

 

Under invoice financing /factoring, the finance agreement specifies the sales of invoices to the financing company, and the finance company typically assumes collection- In receivable financing, using banks as an example, the business retains ownership of the invoices, which are used as collateral.

 

In certain types of non-recourse invoice financing, the finance company assumes bad debt and collection risk. In contrast, receivable finance solutions specify the client is responsible for collection and non-payment. Businesses also have the option to purchase accounts receivable insurance/credit insurance in a commercial relationship with the finance firm.

 

Invoice financing and factoring are typically more costly than account receivable financing, but advances in factoring and invoice finance are higher, providing higher loan-to-value funding.

 

Invoice financing is the transfer of control of the collection process, while typical bank receivable financing is the company still responsible for collecting payment and client interaction.