Breaking Through Cash Flow Constraints: Unleash Your Business Potential with Purchase Order Financing

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YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!

Unlocking Growth Potential with Purchase Order Financing: A Comprehensive Guide

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?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

From Orders to Profits: The Game-Changing Power of Purchase Order Financing

 

Purchase order financing & Receivable Finance via a direct A/R funding solution  are two key ways for Canadian business owners and financial managers to maximize working capital via key financeable assets - in this case, either :

 

Accounts Receivable

Fund Purchase Orders / Contracts

 

If they can't fund these two asset categories, their firm will risk serious working capital and cash flow deficiencies.

 

 

INTRODUCTION 

 

 

Purchase Order Financing is a game changer for businesses struggling with cash flow management. It allows companies to access the necessary funds to fulfill orders without relying on their resources. This financing option is particularly beneficial for small businesses with limited access to traditional financing due to size or credit history. This article will explore the benefits, workings, and relevance of Purchase Order Financing for small businesses in today's competitive marketplace.

 

 

To paraphrase one of the most famous lines ever written - 'it's the best of times and the worst of times ... that being the case when sales and profit potential is great but owners are challenged by key issues such as :

 

- New owner equity or outside equity

- Debt (loans)

- Operational efficiencies

 

We will focus on that third area - improving operational efficiencies via proper financing of your current assets and sales. By the way, believe it or not, that’s the cheapest way to finance your firm - given the higher cost of long-term debt and the even higher cost of bringing in outside equity.

 

You can increase bottom-line profits and optimize cash flow by leveraging your current assets - typically A/R and inventory-.

 

WHY IS PO FINANCING A BUSINESS GAME-CHANGER?

 

Purchase Order Financing is a game-changing funding option that helps small businesses manage cash flow by providing access to the necessary funds for fulfilling orders. This financing method enables businesses to accept larger orders, expand operations, and overcome cash flow constraints, in particular, benefits small businesses with limited access to traditional financing options. This article will explore the benefits, workings, and role of Purchase Order Financing in helping small businesses thrive in a competitive marketplace while ensuring suppliers' costs on orders can be funded.

 

HOW DOES PURCHASE ORDER FINANCING WORK?

 

Purchase Order Financing is a funding solution designed to assist businesses in fulfilling customer orders by providing the necessary cash. The process operates as follows: when a business receives a purchase order, it is submitted to a Purchase Order Financing company. Subsequently, the company disburses funds to the business for purchasing the required raw materials or inventory. Upon completing the order and receiving payment from the customer, the business repays the Purchase Order Financing company, including any applicable fees or interest.

 

AN EXAMPLE OF A  PURCHASE ORDER  FINANCE SOLUTION 

  

 

 

If you choose a purchase order financing facility, you can take on larger contracts and generate more profits for your firm. Overall larger orders and contracts also increase your competitiveness in your industry - with typically your competitors wondering how you do it!

 

By utilizing a p.o. financing strategy, you allow the p.o. Finance firm to pay suppliers for goods and services, you need to facilitate the order.  When your product is shipped and delivered, the purchase order finance firm is paid via your bank or A/R Financing facility. 

 

Although to many, the perception is a higher cost of financing, let’s look at what has happened - you have converted inventory into A/R into cash - Payment by your customer generates profit. Without the funding for the purchase order, you often could not have fulfilled such large orders or contracts. So by sacrificing some gross margin, you have grown revenues and bottom-line profits.

 

Firms that have a significant investment in inventory can achieve similar financial success.  With an inventory financing facility, you can stock more products and generate those additional sales.

 

For firms who cannot achieve the traditional bank financing sought by most, a combination of inventory and receivable financing facilities is available via an asset-based line of credit.   Here it's all about the 'cash conversion cycle' - turning A/R and inventory into cash and profits.

 

The higher interest rates charged by asset-based lenders can easily be significantly offset by smarter volume purchasing and negotiations with key suppliers on pricing: Bottom line - you now have the cash to pay for products and services.

 

The cost of not taking discounts or being unable to make volume purchases for cash is significantly great than the financing costs you have for alternative financing facilities such as inventory financing, purchase order financing and receivable financing.

 

KEY POINT:

 

Even if purchase order, inventory, and receivable financing were equal in cost to carrying receivables and inventory on your books, it would still be a viable solution because you would have fewer sales and less competitiveness in the marketplace.

 

For example - if your firm could buy $500,000.00 of inventory on 2% net ten-day terms and you could not take the discount, the opportunity cost of not taking that discount is over 36%.

 

Our simple statement to clients is as follows: ' The cost of paying in full is usually much higher than the cost of borrowing!

 

 

BENEFITS OF PURCHASE ORDER FUNDING SOLUTIONS 

 

Purchase Order Financing offers several advantages for businesses. It enables them to accept larger orders and grow operations without worrying about cash flow limitations, benefiting small businesses with limited access to traditional financing. Additionally, it helps improve supplier relationships by ensuring timely and full payments. Another advantage is the quick and easy accessibility of Purchase Order Financing compared to traditional loans, making it ideal for seizing new opportunities or fulfilling urgent orders.

 

 

COMPARING P O FINANCING VERSUS TRADITIONAL BUSINESS LOANS 

 

Purchase Order Financing differs from traditional business loans in several ways. It is based on the purchase order rather than the business's creditworthiness, making it accessible to companies with limited credit history or poor credit scores who can't qualify for other small business loans from a traditional financial institution. Furthermore, Purchase Order Financing is typically faster and easier to obtain as the focus is on the creditworthiness of the customer placing the order rather than the business itself. Invoice factoring/invoice finance and a merchant cash advance are alternatives to po funding. Still, they do not solve the challenge of cash flow to purchase inventory/products and facilitate business growth.

 

CONCLUSION -  THE FINANCIAL BOOST OF PURCHASE ORDER FINANCING

 

Purchase Order Financing is a game-changing solution for small businesses seeking growth opportunities. It enables companies to access the necessary cash to fulfill larger orders, overcome cash flow constraints, and strengthen supplier relationships. While there are associated fees and interest, they are typically lower compared to traditional business loans. For small business owners aiming to expand operations, considering Purchase Order Financing can be highly beneficial. Understanding its intricacies provides a competitive edge and sets the stage for success in business finance.

 

If your firm is focused on selling more efficient financing around asset turnover and proper focus on the opportunity cost of working capital - Talk to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you determine the exact working capital/cash flow strategy around your company needs.

 

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

 

What is purchase order financing, and how does it work?  

Purchase order financing gives businesses the capital to pay suppliers upfront to fulfill large orders. The process involves three key parties: the borrower (business), the lender (purchase order financing company), and the supplier. The lender evaluates the purchase order and the creditworthiness of the buyer and supplier, approves a percentage of the supplier costs, pays the supplier directly, and ensures the order is fulfilled. The financing company deducts fees and financing costs and remits the final payment to the company.

  

What are the advantages of using purchase order financing?  

The advantages of using a  po financing company for purchase order financing include the ability to fulfill large buyer orders, support for established and growing firms, and assistance in the supply chain process. Using solutions from po financing companies to accept orders they may have rejected due to cash flow constraints helps maintain customer and supplier relationships. It benefits industries with high-margin transactions such as manufacturing, retail, and import-export.

  

Are there any drawbacks or limitations to purchase order financing?  

Limitations of purchase order financing include its suitability primarily for industries dealing with physical goods and high-margin transactions. It may not be ideal for service-based businesses or those dealing with small buyers and purchase orders. Additionally, the cost-effectiveness of purchase order financing depends on the specific circumstances and profitability of the transactions involved and the length of time around when the customer pays.

 

 How can purchase order financing contribute to a business's growth potential? 

 

Purchase order financing can contribute to a business's growth potential in several ways. It enables the business owner to fulfill large orders, expand their customer base, and increase sales. By releasing working capital, businesses can invest in expansion efforts such as acquiring new assets or entering new markets. Accepting orders that would have been declined due to cash flow constraints helps build customer loyalty and strengthens relationships with buyers and suppliers, fostering long-term growth.

 

 What are the benefits of  P O FINANCE? 

 

The benefits of a  purchase order financing agreement for small businesses include access to funding that enables them to take on larger orders and grow their operations without cash flow constraints. It also helps improve supplier relationships by ensuring timely and full payments, especially for small businesses with limited purchasing power compared to larger companies. Additionally, purchase order financing is relatively fast and easier to obtain than traditional business loans, allowing small businesses to seize opportunities or fulfill urgent orders.

 

 

 What are the qualifications for Purchase Order Financing Companies? 

To qualify for purchase order financing, businesses typically need to meet specific requirements, including having a customer's purchase order for a tangible product, having a sufficient profit margin on orders to cover financing costs, and having a track record of fulfilling orders on time and in full. These qualifications help ensure the viability and reliability of the business when dealing with purchase order financing companies.

 

 

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

Navigating the World of Restaurant Franchise Loans

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YOU ARE LOOKING FOR FRANCHISE FINANCE ASSISTANCE!

Money Matters: Key Financial Insights into Restaurant Franchising

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

 

The Nuts and Bolts of Restaurant Franchise Finance

 

Franchising  Financing in Canada. Whether it’s an 'IT' franchise in the world of technology, or a restaurant in the quick service / full service / casual service industry everyone it seems wants to get on board. If they know they have the ability to finance the business...so let’s examine some creative ways in which to complete the financing of the entrepreneurial dream.

 

 

INTRODUCTION

 

According to industry experts the  expanding restaurant industry is attracting many entrepreneurs to consider franchising as their entry point. Despite this opportunity, securing financing for a restaurant franchise can be a challenging endeavor due to  loan and financing options available.

It's no secret to the potential franchisee that it's all about cash - a combination of your own and borrowed funds.  What are some of the methods that clients use to creatively, yet sensibly finance the franchise dream in Canada around your business needs?

 

DEBT AND EQUITY

 

Every business in Canada, new or existing, has two components to the capital structure. Debt... and equity. Equity is of course your portion; debt is of course that contributed by your lender or lenders. And remember, you have the upside potential in equity... your lender has only the interest income, and the hope and belief that they will be paid in full. Working capital post franchise acquisition is important also.

 

STARTUP COSTS AND FRANCHISE FEES

 

The initial capital needed to establish a restaurant franchise can be substantial. Prospective franchisees must anticipate costs related to the franchise fee, leasehold improvements, furniture, fixtures, equipment, and starting inventory. These initial expenditures form the bedrock of restaurant franchise financing, providing a springboard for all future financial transactions and considerations within the franchise operation.

 

That's one of the reasons that many franchisee 'newbies' in fact get overly enamored with the financial potential of their business when pitching a franchise finance scenario. We think they would do better often to tone it down a bit and focus more on the lender's ability to feel comfortable that cash flow will cover the loan or loan payments.

 

In talking to clients over a long period of time we've been intrigued by the manner in which customers come up with their portion of the funds, the equity.  Sometimes it's savings, other times they are leaving corporate life and utilizing their severance from the previous employer.

 

In other cases there is 'friends and family' - we see that a lot. In order to be truly creative in using funds from friends and family (it hasn’t escaped us that they are in fact your 'angel investors') you need to be sure these funds aren't documented as formal debt - otherwise your banker or lender will have to show this on your personal balance sheet as debt, which will affect some of your borrowing ratios.

 

Supplementary to this strategy is getting a minority operating or silent partner in the business. Giving up a small amount of equity, say 5-10% might induce a family member or third party to help you out.

 

Typically the collapsing of registered savings plans is viewed by most as not, we repeat, not the best way to finance a franchise. Two reasons here actually, one is the huge tax bite involved in such a move; the other is simply that you have put your savings at risk, which clearly is not optimal.

 

Other creative ways to complement franchise financing in Canada are to consider supplementary forms of financing such as equipment lessors for certain assets, or merchant receivable firms for ongoing cash flow. They are complementary to your overall finance strategy.

  

GOVERNMENT BUSINESS LOANS - FEDERALLY GUARANTEED SMALL BUSINESS LOANS TO ACQUIRE A FRANCHISE!  

 

Is there one way to really move along quickly in franchise finance in Canada? How about a co-signer, and boy do we have one for you. It's the Government of Canada, via Industry Canada’s BIL program, with the government in effect guaranteeing a huge portion of your loan in the franchising Canada environment.

 

Prospective small business owners should not overlook this one !  SBL loans are structured as long term loans with competitive financing costs /interest rates allowing you greater control around fixed or variable rate choices.

 

So, a service franchise, such as in the IT (information technology) industry, or a restaurant... it’s your call when it comes to selecting and finalizing the franchise dream. Just make sure you have considered all options, traditional and alternative when it comes to 'creative‘.

 

 

 

CONCLUSION -  UNDERSTANDING THE FINANCIAL LANDSCAPE IN  FINANCING A FRANCHISE

 

Embarking on a restaurant franchise venture is an exciting endeavor, but it requires a solid understanding of restaurant franchise finance. Knowing the costs involved, the potential profitability, the financing options, and the risks can greatly aid entrepreneurs in making informed decisions and ensuring the financial health of their franchise.

 

Call  7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor for franchise finance advice that gets you to the goal line of success. Talk to the 7 Park Avenue Financial  finance team about your  restaurant finance  franchise finance financing needs. We'll work with you with a collaborative approach to your business needs.

 

FAQ:FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What are types of Franchise Loans In Canada

 

1. Canada Small Business Loan Program : Provided by participating lenders and partially guaranteed by the Government Of Canada  -These loans are popular due to their lower interest rates and extended repayment terms. If the borrower defaults, the government  covers a part of the lender's losses.

2. Traditional Bank Loans: These are offered by banks and other financial institutions and usually require collateral. Interest rates and repayment terms can differ greatly based on the lender and the borrower's credit score.

3. Equipment Financing: This loan type, specifically for purchasing equipment and machinery needed for the restaurant franchise, is usually secured by the equipment itself. These loans generally have shorter repayment terms.

4. Alternative Financing: With options like online lenders and peer-to-peer lending platforms, alternative financing has grown in popularity recently. While they offer more flexible terms and faster approval times, they might also have higher interest rates and fees.

 

 

 How do you qualify for a franchise loan?   

Key factors that lenders evaluate while considering loan applications include:

1. Credit Score: Lenders typically require borrowers to have a good credit score, indicating financial responsibility and a track record of timely debt repayments.

2. Business Plan: Applicants need a robust business plan encompassing detailed financial projections, a marketing strategy, and a comprehensive description of the franchise and its operations.

3. Collateral: The franchise agreement often serves as collateral for the loan. Lenders evaluate the value and potential profitability of the franchise to determine the loan amount and repayment terms.

4. Experience: Borrowers' experience in the restaurant industry is also considered. Prior experience in managing a restaurant or working in the industry can convince lenders of the borrower's ability to successfully operate a franchise.

 

 

What are common mistakes in applying for restaurant franchise loans

Common mistakes entrepreneurs should avoid when applying for a restaurant franchise loan:

1. Not Researching Lenders: Neglecting to research lenders and their loan products could lead to higher interest rates, unfavorable terms, and a complicated loan application process.

2. Overestimating Revenue Projections: Overestimation can lead to requesting unrealistic loan amounts and consequently, a higher risk of loan default.

3. Failing to Prepare a Solid Business Plan: A comprehensive business plan is crucial for a restaurant franchise loan application. Insufficient planning and details can lead to loan application denial.

 

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

Working Capital Financing : Study Finds .... Your Business Needs It!

 

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING! 

WORKING CAPITAL FINANCING  BUSINESS LOAN SOLUTIONS IN CANADA

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

 

 

The Secret Sauce of Successful Businesses: Understanding Working Capital Financing 

 

Working capital financing alternatives are necessary to finance your growth... or if you're not growth-obsessed, just your survival. As our 'study' says - your business needs it. Let's dig in on all you need to know about the types of working capital financing!

 

 

 

INTRODUCTION  

 

Every business owner knows cash flow is the lifeblood of a company - but as business grows cash gaps occur  between sales and cash - Working capital finance solutions fund short term expenses and help prevent financial failure - Ensuing you understand the mechanics and value of tradition and alternative financing solutions is key.

 

HOW DO YOU DETERMINE YOUR WORKING CAPITAL NEEDS

 

 

Understanding  how much funding you actually depends on factors such as current cash position, short term needs, and long term investment goal - The working capital ratio ' formula '  simple -  On the balance sheet subtract current liabilities from current assets - this shows how much working capital is available - but business owners should ensure they take into account asset turnover in accounts receivable and inventory , as well as seasonality  and unexpected expenses.

That's where maintaining cash flow projections around sales and collections is critical - as well as monitoring your  cash conversion cycle, DSO , etc.

 

  

WHY IS WORKING CAPITAL IMPORTANT  

 

Ensuring  you have enough cash allows your business to meet short term obligations around liquidity and operating expenses . This sustains overall viability  and avoids financial strain and operating difficulties. The ability to bridge the gap between outgoing expenses such as payables against income receivables helps a business manage better on a day to day basis , while also considering business growth .

 

 

 

Expansion of your business via increased sales, new orders, contracts, etc., always demands more cash in the funding of your day-to-day activities. There are traditional and non-traditional ways for you to achieve business financing success. 

 

REVOLUTIONIZE BUSINESS OPERATIONS WITH WORKING CAPITAL CASH FLOW FINANCING

 

 

At 7 Park Avenue Financial more and more of our  clients realize that many non-traditional forms of working capital are become very traditional based on new alternatives available to finance your business and address short term funding needs around accounts payable and other short-term obligations.

 

Cash flow and working capital needs are being achieved more and more today by financing strategies for small businesses that were either unheard of, non-existent, or frowned upon in previous years regarding other business loans and finance solutions.

 

WORKING CAPITAL BUSINESS LOANS IN CANADA

 

Let's recap some of those traditional and non-traditional sources of financing. Suppose you feel you need assistance to understand the wide variety of solutions available for your firm. In that case, we strongly recommend that you talk to 7 Park Avenue Financial, an experienced, trusted, and credible business financing advisor to ensure you have choices.

 

 SMALL BUSINESS FUNDING 

 

Those alternatives for working capital finance funding options:

 

A/R financing - accounts receivable financing solutions - invoice financing that mirrors the credit line solution for funding business needs - Same business day funding for your sales/outstanding invoices - daily sales can be funded via the accounts receivable factoring solution.

 

SR&ED tax credit bridge loans - financing for your r&d costs in the development of new products and services

 

PO / Contract financing

 

Non-bank full business line of credit facilities -  abl business line of credit

 

Merchant cash advances/short term working capital loans - Financing  based on monthly sales - good credit score of owners required! These facilities can be accessed in a relatively short period with flexible repayment terms structured to your sales and cash inflows - these loans are on shorter terms, typically 12 months with monthly or weekly payments based on sales history.Many online lenders offer this financing option.

 

Equipment Leasing - address your needs for new equipment or technology via leasing companies or term loans for asset acquisition from traditional banks.

 

 

Bottom line? Therefore creativity and access to capital become a priority for the business owner to get working capital and avoid a negative working capital situation.

 

We're told that banks are lending again. If you believe that (sometimes we're not quite sure!), focusing on business bankers actively and aggressively looking for your business is essential.

 

 TRADITIONAL FINANCING OPTIONS 

 

For companies that qualify for bank traditional financing options solutions for cash flow include working capital term loans,  business lines of credit, business credit cards - etc.

 

Bank financing is one of the least expensive financing areas, but of course, it comes with loan covenants, ratios, and personal guarantees. Those very issues are why many Canadian business owners prefer to consider non-bank and independent finance company options.

 

GOVERNMENT LOANS / THE CANADA SMALL BUSINESS FINANCING PROGRAM

 

When it comes to banks, we'll also mention not to forget the CSBF loan, which in our opinion, is, bar none, the best business financing in Canada for companies with revenues less than 10 Million dollars. (Also called the Government Small Business Guaranteed Loan program). The program services a very specific need for early-stage businesses, franchises, etc.

 

 Real estate can also be financed under the program, and no personal assets are taken as security! Repayment terms are typically  2-5 year term loans with fixed installments. Interest rates are attractive under the program and a solid business plan is required, outlining your needs in the 3 financeable asset categories of equipment, real estate, and leasehold improvements. A minimal personal guarantee is required by borrowers.

 

In 2022 major changes to the SBL  program added numerous cash flow/working capital/line of credit financing to the program.

 

The term loan structure is the only alternative under SBL loans, the program is not a line of credit or lump sum cash loan. The total amount available is 350k, which is 1 Million dollars if real estate is financed. It's an excellent way to take advantage of attractive long term financing for your need to cover specific asset requirements or financing of leaseholds.

 

As a business owner, you can also consider putting new permanent capital into your firm via your own saving or a partnership with an associate or strategic partner - i.e. getting a supplier to provide financing via extended terms.

 

We also wish to point out that business working capital is somewhat generic and means many things to many people. The textbook tells us that you have the magic' working capital' number if you take your current assets and subtract your current liabilities.

 

That's great, but the actual number of ratios you get has no real meaning. The solution is simply analyzing your receivable and inventory turnover in conjunction with your accounts payable demands.

 

The textbook calls this your cash conversion cycle - but it brings real meaning to your day-to-day financing needs as it will show you how long it takes for one dollar to flow through your company from order to cash. Measuring those asset turns helps uncover the need for working capital loans.

 

 

 

  

CONCLUSION - WORKING CAPITAL FINANCING FOR THE ENTREPRENEUR  

 

Funding working capital properly is a business tool for managing  cash flows of your business - Understanding what types of traditional and alternative lending solutions work for your business is critical - allowing the company to cover expenses and grow sales revenues  - Different types of solutions are available based on the financial health of your business and its operational needs in your industry.

 

Small business owners are keenly aware of the importance of good cash flow. At that point, you can consider various strategies to improve cash flow based on your operating cycle of collections, inventory on hand, and supplier payment terms.

 

Working capital - it's essential; it's available to address your business growth and potential for new markets and customers  -  for more information, talk to the  7 Park Avenue Financial team  about our business financing services to understand your cash flow options to allow you to meet your financial obligations via solutions from traditional lenders and the new world of alternative business financing to address your particular business credit profile.

 

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

 

What is the role of working capital in business operations?

 

The role of working capital, also known as net working capital, in business operations is to finance day-to-day expenses. This includes paying for utilities, rent, salaries, and inventory. It essentially fuels the everyday operational functions of a business, ensuring that it can meet its short-term obligations.

 

How does a working capital loan differ from a regular loan?

 

A working capital loan is specifically designed to finance the daily operations of a company. Unlike a standard business loan, which can be used to invest in long-term assets or other large capital expenses, working capital loans are intended to provide short-term liquidity. They help businesses cover routine expenditures such as accounts payable and wages.

 

What are some common sources of working capital funding?

Common sources of working capital funding can be categorized into internal and external sources. Internal sources include retained profits and reducing current liabilities. External sources range from short-term loans, trade credit, merchant cash advance,  factoring, and invoice discounting. Businesses may also use bank overdrafts or establish a business line of credit. Lines of credit allow the business to pay interest on only funds drawn under the revolving credit  facility which can be unsecured or secured depending on the lender.

 

What are some benefits and risks associated with the aggressive approach to working capital financing?

The aggressive approach to addressing the  working capital ration in finance  entails keeping a lower level of current assets compared to current liabilities on a company's balance sheet. This strategy can potentially lead to higher profitability due to a lower cash-to-cash cycle time and higher asset turnover. However, it also carries a higher risk of liquidity problems. If the company cannot convert its assets into cash quickly enough, it may face difficulties meeting its obligations.

 

How does invoice financing work as a form of working capital finance?

Invoice factoring is a popular short term financing  method allowing  businesses to borrow money against unpaid invoices /  amounts due from customers.  It is not a small business loan per se, but a monetization of receivables on the balance sheet.Companies sell their accounts receivable (invoices) to a third-party company at a discount. This provides businesses with immediate cash, which can be used to cover operational expenses, thus improving their cash flow. It is particularly useful for businesses that have longer payment terms or those that struggle with late payments, or companies that don't qualify for a business revolving line of credit.

 

 What are three working capital strategies for a business? 

Three Working Capital Financing Strategies

1. Conservative Approach: This approach involves maintaining a higher ratio of current assets to current liabilities around short term business financing needs Although safer, this method can potentially yield lower profitability.

2. Aggressive Approach: Here, the business maintains a lower level of current assets to current liabilities. It may lead to higher profitability, but it also brings about a higher risk of liquidity problems.

3. Moderate Approach: This strategy strikes a balance between the conservative and aggressive approaches, maintaining a moderate level of current assets to current liabilities.

 

 

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

Unlocking the Power Of Business Financing Cash Flow: Discover Cutting-Edge Business Financing Solutions and Finance Alternatives

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YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!

Beyond Traditional Loans: Exploring Innovative Finance Options for Your Business

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

Financing & Cash flow are the biggest issues facing  the business owner today

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

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

 

BUSINESS FINANCING ALTERNATIVES IN CANADA 

 

 

Business financing ensures small business owners have the 'fuel' to operate and grow their companies.  But do some owners/financial managers sometimes fool themselves by thinking their current cash flow and finance alternatives work? We believe that might be the case regarding bank loans, cash flow lenders, and business finance.  Many options In cash flow based lending might be a good choice for your company. Let's dig in.

 

 

INTRODUCTION  - CASH FLOW BUSINESS FINANCING ALTERNATIVES IN CANADA

 

Whether you are bootstrapping your business for cash flow, every business owner knows that cash flows are vital to long term success - Understanding your alternatives that can help your business run smoothly and knowing what is available is key.

 

Companies with different types of assets require a complete understanding of how those assets can be liquidated, acquired, or monetized.  Sometimes, traditional bank loan lending might give your firm the lending solution you need. That's up to the bank and other lenders, for the most part, based on the overall financial condition of your business. In the long run, you might find that your financing is best suited to a non-bank alternative lender.

 

WHY ALTERNATIVE FINANCING? ALTERNATIVE BUSINESS FINANCING VS TRADITIONAL FINANCING

 

Business owners view banks as the go-to solution for secured and unsecured loans. However, banks will often require collateral to secure financing at the low rates provided by banks. However, banks typically only lend to companies with solid credit history, profits, and cash flows for repayment. Business owners also know that accessing approval on bank financing is very time-consuming.

 

Traditional business financing includes term loans and lines of credit from a bank or credit union. Commercial banking approval rates from banks are lower than those of alternative lenders. Approvals from banks may take a longer time.

 

Alternative lenders charge a higher premium if they offer funds to underfunded businesses. These lending methods are easier to apply for online. A business loan from a bank usually has a lower interest rate and a longer repayment term than alternative lending. You typically need at least two years in business to get a bank loan.

 

For those that can't access all (or any?!) of the finances, they need a revolving line of credit from an asset-based lender that will allow your firm to secure the type of cash flow/working capital you need.  It should also never be forgotten that simply managing payables and maximizing supplier credit is a key to overall cash flow management.  Companies with the potential to secure new large orders/contracts should also consider export guarantees or PO financing as an alternative to a small business loan.

 

There are some more esoteric and not always-considered options that, in the past, have been more exclusive and reserved for larger companies. These include 'securitizing' your sales or considering a convertible debt solution. That's another example of how alternative lenders provide business finance solutions to capital and cash flow needs.

 

A more commonly accessed type of funding for a cash flow loan is mezzanine finance, essentially unsecured cash flow loans. They are often reviewed as a 'bridge'; between debt finance and the dreaded 'equity' dilution that is not desired by owners wishing to retain full ownership and control.

 

 

 

HOW TO INCREASE CASH FLOW WITH ALTERNATIVE FUNDING  - ALTERNATIVE  SMALL BUSINESS LOANS 101!

 

Some individual and unique 'subsets' of asset-based alternative loan  strategies include:

 

Confidential Receivable Financing / Invoice financing for outstanding invoices/accounts receivable- this financing method is one of the most popular and accessible business funding solutions in Canada and a solid alternative to lines of credit for business.

 

It's a financing option that is paid back based on sales growth and helps to build business credit  - no debt is added to your balance sheet. Significantly less time in applying and approval is a big plus, unlike bank loans, which might take several months for many common types of bank financing.

 

The amount of money you can borrow under this funding method is unlimited and related to your sales growth and asset turnover in accounts receivables. Factoring is a practical solution for businesses with unpaid invoices - allowing the company to gain immediate cash flow. Invoice discounting/invoice factoring is Canada's most popular accounts receivable financing method.

 

Non-Bank Asset-Based Lines of Credit - Asset-based lines of credit via asset based lending is another popular non-bank option - providing revolving credit facilities and allowing the business to pay interest only on funds borrowed, given that the credit line fluctuates and replenishes with cash inflows. Asset-based lines of credit are secured by business assets such as receivables, inventories, fixed assets and commercial real estate - unlike a bank business line of credit which is typically unsecured.

 

Purchase Order Finance - Purchase order financing allows businesses to access capital when they receive large purchase orders or contracts - Business lenders provide funds required to fulfill orders, and lenders are repaid when customers pay. Supply chain financing and purchase order funding / Order fulfillment loans are creative ways to fund growth.

 

Inventory  Financing  - Financing inventories allows a business to leverage inventory to secure business funding - inventory financing for stock-based loans is often combined with receivables in a line of credit facility.

 

Revenue Based Financing - Revenue-based financing is a flexible approach to capital - Funding is based on a percentage of future revenues, giving a business a revenue-sharing financing approach without taking on debt on the balance sheet. Revenue-driven loans are prevalent in the ' software as a service industry.

 

Equipment Financing - The best acquisition tool for financing long-term assets for the small business owner - the most common leases are capital ' lease to own' options or operating leases signifying more of a short-term rental situation.

 

Royalty finance

 

Merchant Cash Advances  / Short Term Working Capital Loans for Small Businesses are a solid alternative to traditional loans with long amortizations - Poor credit history/credit score of owners can derail this type of funding -

These loans are lump sum loans typically repaid from sales or credit card sales over a 12-24 month period while covering business expenses - Small loans in the 25-150k range are typical under the merchant cash advance. These future ' sales-based loans ' evolved from retail merchant funding around credit card and debit card sales and are popular and accessible online. They provide a quick injection of funds for a percentage of future daily sales. A minimum personal credit score of the business owner is required.

 

Business Credit Card -  credit card financing is a convenient short-term solution to finance small business expenses under a revolving credit concept with predetermined credit limits, along with offering various awards

 

ALTERNATIVE FINANCING FOR SMALL BUSINESSES

 

Big Canadian banks approve only a portion of loans for small businesses, so it is prudent for business owners to explore financing solutions and funding alternatives.

Alternative lenders approved a large share of SMB loan applications. Alternative fintech lenders grew despite dwindling customer interest in traditional banking.
 

It should always be remembered that higher interest rates on alternative funding solutions are always more costly but provide access to capital.

 

Funding for startups can often be accessed through the Government Of Canada Small Business Loan program. Industry Canada delivers and sponsors. This solid program which is somewhat similar to a traditional bank loan. This program was modelled around the Small Business Administration ' SBA ' loan. Excellent credit, i.e. typically, a credit score of 650 is required by the

 

Interest rates/interest payments under the program are very competitive. Many entrepreneurs use the program for startup funding in the early stages of their business idea /project. Talk to the  7 Park Avenue Financial team to determine whether your local bank or credit union participates in the government-guaranteed loan and how to identify potential ' bad credit ' issues.

 

Grants and Subsidies: 

 

Governments and some other organizations often provide grants and subsidy programs to support businesses in specific industries or promote innovation. These non-repayable funds can be a valuable source of financing, allowing companies to fuel their growth, develop new products, or engage in research and development. Canada's Sr&ed program is a popular government funding program, and sr&ed refunds can also be financed.

 

Let the  7 Park Avenue Financial team help you with a winning business plan that meets and exceeds the requirements of banks and other commercial lenders.

 

These solutions distinguish themselves for many business owners because they provide billions of dollars of capital for SME COMMERCIAL FINANCE needs in... are you ready???... A very short period!

 

It's all about quick access to cash as far as most firms are concerned. At least, that's what business folks tell us. They hate it when financing stifles their ability to 'seize the moment' regarding new sales opportunities.

 

THE PERSONAL GUARANTEE ISSUE FOR SMALL BUSINESSES 

While personal owner guarantees are required for traditional bank loans and in almost all Canadian business financing for private firms, there is less emphasis on these guarantees regarding various alternative finance solutions. But for the most part, it's all about 'timelines' and the ability to access cash.

 

 

BENEFITS OF ALTERNATIVE FINANCING  

 

Alternative financing options offer several benefits, including more flexible borrowing requirements and faster approval. Many companies that can't access the financing they need from traditional financial institutions have access to numerous funding options in the alternative lending landscape in Canada. While many forms of alternative funding have higher rates, they can provide the capital access a company needs to fund day to day operations and access growth opportunities.

 

 

CONCLUSION - SOLVING YOUR CASH FLOW & BUSINESS GROWTH  

 

Boosting your cash flow is essential to the success of your business. Whether you choose a traditional or alternative financing option, evaluating each option carefully and considering the pros and cons is necessary.

If you're unsure which financing option is right for your business, consider speaking with an experienced Canadian business financing such as 7 Park Avenue Financial.

Managing cash flow is crucial for the survival and success of any business. By exploring cash flow financing solutions and finance alternatives, companies can optimize their cash flow, overcome financial hurdles, and position themselves for long-term growth.

 

Canada's business owners have several ways to secure business financing.  There are plenty of different options in terms of financing. Therefore your research on this will help determine the best solution for you. The good news is you never need only a traditional bank to get the funding for your business. Venture capital, peer-to-peer marketplace lending, and a crowdfunding platform are out of reach for ' raising money ' credit options.  They probably are!

 

Even traditional business loans are often not attainable for many firms. Funding small businesses in Canada can often be challenging - If your company is looking for some cash flow 'fuel' from forms of finance that will help you grow and run your business and for more information, speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you in taking your business to the next level. Stop pretending that newer financing options for business aren't for you!

 

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  

What is alternative lending?

Alternate lending describes loans that occur not within a conventional financial institution. Alternative loans are more flexible and often have a fast application turnaround. Alternative lenders often offer loans in smaller amounts than banks which often specify minimum loan terms that are too high for a small business.

 

Alternative lenders also offer unconventional lending options that enable businesses to leverage the assets like the account receivable or the sale of credit cards instead of borrowing on credit. Many types of alternative loans are available. Hence there will likely be an alternative loan out there that matches your situation, and many types of alternatives are available to banks and traditional lenders.

What are the benefits of alternative lending?

Every business needs working capital to flourish. With poor funding options, startup enterprises will likely be forced into a slowdown quickly. Avoiding traditional bank loan routes may seem impossible, but there is a whole range of small business financing options accessible for entrepreneurs. Understanding the most competitive financing options will increase a  company's longevity and chances of survival. Have the right analysis that helps you get the proper credit options to suit your business needs.

  

What exactly is cash flow business financing?

  

Cash flow business financing refers to various strategies and methods businesses use to manage and optimize their cash flow. It involves accessing funds to cover operational expenses, invest in growth opportunities, and ensure smooth day-to-day operations from the business bank account.

 

 Why is cash flow financing important for businesses? 

 

Cash flow financing is crucial for businesses because it helps ensure a steady inflow and outflow of funds. It allows businesses to meet their financial obligations, manage working capital, seize growth opportunities, and maintain a healthy financial position in the business's cash flow.

 

 What are some common finance alternatives to traditional bank loans for businesses? 

 

 Finance alternatives include invoice financing or factoring, non-bank business line of credit, merchant cash advances, crowdfunding, angel investors and venture capital, peer-to-peer lending, grants and subsidies, and bootstrapping. These alternatives provide businesses different avenues to secure funds based on their specific needs and circumstances.

 

 How can cash flow financing solutions help businesses in challenging times? 

 

Cash flow financing solutions versus a traditional business loan can provide businesses quick access to funds during challenging times, such as economic downturns or unexpected expenses. They offer flexibility, speed, and tailored approaches to address immediate cash flow needs, helping businesses weather financial uncertainties and maintain stability.

 

What factors should businesses consider when choosing between different finance alternatives?

 

Businesses should consider factors such as their specific funding requirements, repayment terms, interest rates or fees, eligibility criteria, long-term implications, and the alignment of the financing option with their growth plans. It's crucial to assess the pros and cons of each alternative and determine which option best fits their unique situation and goals.
 

 What are some Alternative options for financing?

Alternative financing options for small businesses include cash flow lending solutions such as peer-to-peer lending, business credit cards, crowdfunding, microloans, invoice financing, and merchant cash advances. These options are becoming increasingly popular, especially for businesses not qualifying for traditional financing.

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

Factoring and Invoice Cash Can Boost Your Business

 

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Unlocking the Benefits of Factoring and Invoice Cash: A Comprehensive Guide

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        Financing & Cash flow are the biggest issues facing businesses today

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SOLVING THE CHALLENGES OF BUSINESS CASH FLOW

 

 

INTRODUCTION 

 

Businesses often face  numerous challenges when it comes to managing their cash flows and the ability to maintaining a steady cash flow is vital for any business to stay afloat.  With often limited resources, many businesses may struggle to secure loans or lines of credit from traditional financial institutions.

That is when invoice financing / factoring comes in as a viable solution - allowing a business to cash flow their receivables / unpaid invoices , thereby improving cash flow without the need to take on any balance sheet debt .

 

  

WHAT IS  INVOICE FACTORING AND HOW DOES IT WORK?  

 

Invoice cash - can a factoring or working capital facility actually reduce your financial expenses and allow your business to grow at any rate profitably?  Invoice factoring involves 3 parties - the company , the customer, and the factoring company.

Factoring is a business financing solution that allows business to finance accounts receivable in exchange for immediate cash . Under traditional ( we can call them old school ) invoice factoring companies can also assume responsibility for payments to the company -  At 7 Park Avenue Financial our recommended solution for factoring finance is Confidential Receivable Financing, allowing a company to bill and collect  its own invoices, with no notification to clients.

Businesses that have good quality receivables can receive approx 90% of the invoice value as invoices are generated - ie the factoring company pays same day! The balance of 10% is returned to the company when the client pays, less financing factoring cost.

 

 

 

TRADITIONAL FINANCING OPTIONS FOR BUSINESS  

 

Traditional financing options for businesses / small business owners in Canada  include term  loans, lines of credit, business credit cards, etc.However, these options may not be suitable for all  businesses and  bank loans require collateral and a strong business  credit history as well as a good personal credit history from owners . Some traditional finance options take on additional debt to the balance sheet which can add an additional layer of risk for the business.

 

 

 FACTORING / FINANCING ACCOUNTS RECEIVABLE A GREAT SOLUTION  FOR BUSINESS CASH FLOW?

 

When is comes to  understanding the challenges of business cash flow it often becomes an issue of being unable to predict  sales revenue and cash inflows. 

 

Businesses will experience fluctuations in sales revenue for a variety of factors - Some of those factors include:

 

Seasonality or Cyclical trends in the business and industry

General economic downturns in the economy

Unexpected expenses

Inability to access  working capital loans or business lines of credit from traditional financial institutions due to their limited financial history or lack of collateral.

This can make it difficult for small businesses to access the capital they need to grow and expand their operations.

 

FACTORING FINANCING IS A GROWING TREND IN A BUSINESS FINANCING STRATEGY

 

Canadian business owners and financial managers keep hearing about firms that 'factor' their accounts receivables, their 'invoices. ‘  This is a growing trend in Canada that has caught on to a financing strategy that has been successful in the U.S. for several years. Any company with outstanding invoices and  good receivables can qualify for invoice factoring , aka invoice discounting and can use invoice factoring profitably.

 

WHAT DOES  INVOICE FACTORING  COST?

 

Is there a ' perfect ' financing solution for your firm that provides you with unlimited working capital and is actually cheaper than bank financing when you realize that you are carrying receivables 30, 60, and 90 days on your balance sheet? 

 

While we might agree there is no 'perfect' financing solution for all Canadian firms everywhere, we strongly feel that we can very EASILY demonstrate that invoice cash, known as factoring or receivable discounting, will take your firm to the next level of sales and profits.

 

IS FACTORING A CHEAPER ALTERNATIVE TO BANK FINANCING? YOU DECIDE

 

Let’s get back to our statement of how you can reduce your financial expenses and grow your sales at any growth rate. We will even add that you can 'profit' from this financing strategy.

 

HOW FACTORING CAN REDUCE FINANCE EXPENSES AND GROW SALES REVENUE AT ANY RATE PROFITABLY

 

We have to get a little technical here, but bear with us! --

 

AN EXAMPLE OF A FACTORING  TRANSACTION

 

Let’s say your firm has sales of 1 Million dollars, you have 40% gross margins, and you have operating costs of 38%, leaving you a 2% net income on your sales. Included in those costs are your bank financing costs from, for example, a Canadian chartered bank. We would point out that your bank credit line has a limit, and at a certain point, your customers are paying you in 30, 60, and 90 days. You are fully utilizing your line of credit.  Are you able to take new orders and contracts without new external financing - we don’t think so!

 

DOUBLED SALES / NO EXTERNAL FINANCING / INCREASED PROFITS

 

So what's the solution?! We have one for Canadian business owners or their financial managers. Let us set up a working capital factoring facility for you. The kind that we prefer is 100% non-intrusive - that is to say, you will continue to bill and collect your own accounts receivable.

 

We call it non-notification. Ask any other firm if they like how their factoring facility works. If they don’t have a non-notification facility, they will tell you they don’t necessarily like it for several reasons, mainly customer intrusion, etc.

 

So we have our facility set up. You take on new orders and contracts and double your sales to 2 Million dollars.

 

 Your competitors start talking about you!

 

Using the factoring or invoice cash facility, you get paid the same day that you invoice clients.. At the end of the year, your sales are 2 million, they have doubled! Your net profit would be 130k, not 20k; you would have paid 70k in factoring and financing costs and still have made a lot more profit - in our example 110k more profit.

 

  

THE CASH CONVERSION CYCLE - FACTORING AND ASSET TURNOVER IMPROVE RETURN ON ASSET / RETURN ON EQUITY AND NET PROFIT !

 

  

Again, we realize we're getting a little technical and accounting oriented in our example and explanation - so what is the layperson's bottom-line explanation of what just happened - It is as follows -

 

You doubled your sales, you had no concerns about external financing or taking on new debt, and your profits went up a lot!

 

Technically what happened is what KPMG calls on their website the ' Cash conversion cycle ' - you have turned over assets much quicker. Therefore you have a greatly improved return on assets, return on equity, and net profit.

  

BENEFITS OF FACTORING FOR  A BUSINESS FINANCE SOLUTION  

 

Benefits of factoring for business include

 

Improved working capital  - companies can meet short term obligations and avoid temporary cash flow shortages

No additional debt or financial obligations - Factor Finance does not add debt to the balance sheet

Access to capital - companies unable to access traditional financing can secure business capital to grow and expand

Reduced administrative burden -  Businesses who utilize notification type factoring  can transfer credit and collection responsibility to the factoring finance company

 

 

 CONCLUSION - 

 

Factoring offers several benefits -  including improved business  cash flow, access to capital, and reduced administrative expenses around the credit and collection cycle . Factoring is not a loan per se , so small businesses do not take on additional debt or financial obligations. Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. Factoring can be a viable solution for small businesses that are experiencing working capital shortages or need access to capital to grow their operations.

 

In summary, invoice cash, factoring, receivable discounting, or whatever you want to call it (at our firm, we call it a working capital facility) works. It can work for you.

 

Call  7 Park Avenue Financial,  a trusted, credible, and expert business financing advisor, and run the numbers. You will find you just got off the cash flow merry-go-round, and that’s a good thing.

 

 

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

 

 What are Common misconceptions about factoring 

There are several common misconceptions about factoring - so it is important to understand how to use this financial tool -

Factoring  business receivables is expensive -

Factoring fees can vary depending on the size of the accounts receivable and the creditworthiness of the customers as well as the size of the credit facility However, factoring fees are typically lower than the interest rates charged by traditional financing options such as long term loans - In some cases factoring can be less expensive than bank financing

Factoring will damage customer relationships -

Factoring companies are experienced in handling customer relationships and will work to maintain positive relationships with the customers. Additionally many companies have the option of considering non-notification factoring financing solutions - allow them to bill and collect their own invoices -  factoring can allow a  business to offer more flexible payment terms to their customers, which can improve customer satisfaction and increase sales Slow paying customers can also be financed, as long as the  unpaid invoice is less than 90 days old.

Factoring is only for businesses with poor credit -

Factoring is used by companies of all size, including large corporations - Factor finance is based on the creditworthiness of the accounts receivable base , so any company with good customers can benefit from receivable finance.

 

 How do business owners  choose the right factoring company for a business?

Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. When choosing a factoring company, small businesses should consider the following:

 Fees - financing costs  vary, so small a company considering a/r finance  should compare fees from different lenders  to ensure they are getting a competitive rate.

Customer service  - Businesses should choose a factoring company that offers excellent customer service, including prompt  same day payment and efficient collection of accounts receivable.

Industry experience

Some factoring companies specialize in certain niche industries, for example trucking and staffing agencies - Businesses should choose an invoice  factoring company that has experience working with businesses in their industry and is properly geographically located

Companies should carefully review the contract terms offered by the factoring company, including the length of the contract, the termination clause, advance rates,  and any miscellaneous  fees that occur when comparing invoice factoring vs other types of working capital financing or bank loan financing.

 

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