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

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

COMMERCIAL LENDING SOLUTIONS  & FINANCING OPTIONS YOU CAN ACCESS TODAY

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

        Financing & Cash flow are the biggest issues facing business today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

 

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

 

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

 

 

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

 

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

 

INTRODUCTION

 

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

 

 

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

 

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

 

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

 

 

A HOLY GRAIL OF SUCCESSFUL BUSINESS FINANCING?

 

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

 

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

 

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

 

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

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

 

 

  

TRADITIONAL FINANCING / BANK FINANCING  

 

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

 

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

 

 

THE TREMENDOUS RISE OF ASSET-BASED LENDING SOLUTIONS  IN CANADA 

 

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

 

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

 

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

 

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

 

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

 

 

Assets

Sales Revenues

 

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

 

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

 

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

 

  

GOVERNMENT FUNDING   

 

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

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

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

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

 

 

 

GOVERNMENT SMALL BUSINESS LOANS

 

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

 

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

 

  

THE SHORT RECAP ON GOVERNMENT LOANS : 

 

Attractive  rates

Nominal personal guarantees

The loan can be paid back at any time without penalty

Fluid structures and repayments re terms, etc.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

UPDATE!

 

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

Here is an updated recap of the program

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

Here are the key amendments:

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

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

 

 

 

EQUIPMENT FINANCING

 

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

 

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

 

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

 

  

 

CONCLUSION :

 

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

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

 

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

 

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

 

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

 

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

 

 FAQ: FREQUENTLY ASKED QUESTIONS 

 

Who is eligible for the Government Small Business Loan?

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

 

What is asset-based lending?

 

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

 

Do banks give loans to startups?

 

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

 

How do I qualify for a business loan?

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

 

 

How do I get financing options for my business?

 

Steps to Secure Financing for Your Business:

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

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

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

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

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

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

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

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

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

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

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

 

 

What is the most common type of business loan?

 

Summary of Key Features of Traditional Term Loans:

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

Other Financing Options to Explore:

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

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

 

 

What are the 3 main types of financing for businesses?

 

Summary of Main Types of Financing for Businesses:

1. Debt Financing:

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

2. Equity Financing:

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

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

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

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

 

 

How can an entrepreneur obtain startup financing?

 

Common Ways Entrepreneurs Can Secure Financing:

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

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

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

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

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

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

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

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

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

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

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

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

 

What is the least costly source of financing?

 

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

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

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

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

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

Limitations of Self-Financing:

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

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

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

 

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

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

 

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

HOW TO GET A BUSINESS LOAN AND GROW YOUR BUSINESS

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

Financing & Cash flow are the  biggest issues facing business today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

 

  

 

INTRODUCTION   

 

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

 

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

 

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

 

 

HOW CAN YOU TELL YOUR BUSINESS IS DOING WELL

 

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

 

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

 

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

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

 

ASK YOURSELF THESE KEY QUESTIONS

 

 

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

 

They might include:

 

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

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

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

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

 

WHAT THOSE RELATIONSHIPS!

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

 WHAT STEPS CAN THE BUSINESS OWNER TAKE 

 

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

 

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

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

 

  

PREVENTING BUSINESS FAILURE  

 

 

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

 

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

 

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

 

  

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

 

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

 

 

 

 

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

 

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

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What are the Different Types of Business Financing Options

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

 

1. Bank Loans

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

2. Canada Small Business Financing Program  Loans

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

3. Equipment Financing

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

4. Invoice Financing

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

5. Merchant Cash Advances

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

 

 

 

 

What are Factors Lenders Consider When Evaluating Business Financing Applications

 

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

 

1. Credit Score

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

2. Business Plan

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

3. Collateral

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

4. Cash Flow

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

 

 

 

 

 

What are 5 Essential Tips for Securing Business Financing

 

 

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

1. Develop a Solid Business Plan

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

 2. Maintain Good Credit

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

 3. Explore Alternative Funding Sources

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

4. Build Relationships with Lenders

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

 5. Be Prepared to Negotiate

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

 

 

What are common mistakes to avoid when seeking business financing?

 

1. Failing to Research Your Options

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

2. Applying for Too Much or Too Little Financing

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

3. Failing to Prepare a Solid Business Plan

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

 

 

 

What is the Canada Small Business Financing Program?

 

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

Eligibility

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

Financing Available

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

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

Application Process

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

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

What can be financed?

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

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

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

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

Interest Rates

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

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

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

Registration Fee

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

Financing Terms

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

 

 

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

 

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

 

Do business loans affect personal credit in Canada?

 

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

 

What is the interest rate for small businesses in Canada?

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

 

 

Purchase Order Financing : A Canadian Business Financing Solution

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PURCHASE ORDER FINANCING COMPANIES CAN HELP YOU FINANCE LARGER ORDERS! 

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        Financing & Cash flow are the biggest issues facing business today

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Fulfilling Customer Orders Made Easy: An In-depth Look at Purchase Order Financing in Canada

 

Purchase Order Financing? Is it your solution to growth, cash flow, and working capital challenges? Canadian business owners and financial managers are always challenged when required to fulfill customer purchase orders or new contracts where prepayment of a significant amount of goods is required to complete a large order or contract ultimately.

 

INTRODUCTION

 

Within Canadian business financing, purchase order (PO) financing is a solid solution that helps businesses with the necessary working capital to execute their customer orders and contracts. This short-term capital injection proves significantly beneficial for manufacturers, wholesalers, distributors, and import/export enterprises grappling with cash flow constraints or contending with substantial, unforeseen orders.

 

WHAT IS PURCHASE ORDER FINANCING

 

Purchase order financing, alternatively termed PO funding or trade financing, is an innovative financial strategy that equips businesses with the funds required to manufacture or acquire goods that have already been sold to their customers.

 

It serves as a financial safety net for companies that attract sizable orders yet face a shortfall in immediate cash flow or lack sufficient inventory to cater to this demand.

 

Businesses can more effectively manage their cash flow by accessing funds upfront to cover the costs of fulfilling customer orders. This means companies can accept larger orders without worrying about their cash-on-hand or inventory limitations, facilitating business growth and increasing market competitiveness.

 

Moreover, purchase order financing is not a loan, so it doesn't add debt to the balance sheet regarding company liabilities and does not require them to put up collateral. Instead, the funding is secured by the purchase order itself, which means the repayment comes from the revenue of the fulfilled orders.

 

This financing solution makes PO financing an attractive option for businesses aiming to maintain a healthy balance sheet while meeting increasing customer demands.

 

 

DOES YOUR LINE OF CREDIT FACILITATE LARGE ORDERS?

 

Typically, any line of credit needs the company has in place cannot facilities larger transactions involving a large purchase from a new or existing client and may include work in process inventory timing and pressure on your cash conversion cycle.

 

P/O FINANCE IS GROWTH FINANCING!

 

A new large purchase order or contract often represents the potential start to a large relationship that can grow large revenues and profits for your Canadian firm. Is there a solution?

 

One that you might want to consider is purchasing order financing. Under this type of financing (referred to as ‘ PO Financing '), the finance firm's payment is made directly to your suppliers for your order or contract. It is a unique form of working capital financing, allowing your company to fund goods manufactured or sold by a supplier, thereby relieving the stress of cash flow shortages during your business process.

 

THE FINANCIAL BURDEN OF LARGE NEW ORDERS AND CONTRACTS

 

Many companies are financially burdened when allocating valuable cash and working capital to supplier payments. ' P/O Finance ' is a solid mechanism to finance sales when you have decent gross margins to sustain the financing cost. The PO Financing company solution works well because many transactions involve extended payment terms based on supplier delivery and your customer's final payment.

 

That can easily, in many cases, be anywhere from 60-90 days, significantly increasing your ' cash conversion cycle. ' Purchase Order financing rates are higher than most financing based on overall complexity and risk but are an effective trade finance solution and are a part of supply chain financing solutions available to Canadian business owners. Export financing can also be augmented with EDC solutions.

 

WHAT ARE THE BENEFITS OF PURCHASE ORDER FINANCING

 

Purchase order financing offers numerous advantages to small businesses, including:

 

1. Ability to Fulfill Large Orders: PO financing empowers businesses to take on and fulfill substantial orders which they might otherwise be unable to afford, preventing missed opportunities and potential revenue loss.

2. Maintenance of Positive Supplier Relationships: This type of financing ensures businesses can promptly pay their suppliers, despite any cash flow deficiencies, thereby fostering positive and reliable relationships.

3. Simplified Financing Option: PO financing is a straightforward, accessible option requiring no credit checks or extensive documentation. The process can typically be completed within a few days, streamlining the funding procedure.

4. Flexible Payment Terms: Providers of PO financing often offer adaptable payment terms, enabling businesses to manage their cash flow and financial planning better.

 

 

WHY WOULD YOUR COMPANY CHOOSE A  PURCHASE ORDER FINANCING COMPANY 

 

Companies taking on larger purchase orders and contracts often have a significant overhead attached to the sale/project/contract. That issue, coupled with the extended payments, we have already referred to drains operating cash flow for your day-to-day operations. This allows you to complete the order, generate receivables from the PO Finance  Order, and collect from your customer. The financing charge is typically in the 3=5% range, so there needs to be a clear indication that your firm has the gross margins to support an additional cost in that range.

 

Firms with higher gross margins are great candidates for purchase order contract financing, and they are less so if they are in a low-margin commodity-type business. It’s all about the gross margin!

 

REASONS WHY YOUR FIRM MIGHT NEED TO ACCESS ORDER/CONTRACT FUNDING :

 

It is not hard to imagine why suppliers are asking for upfront payment. The typical reasons that we hear from our customers are:

 

1. They have reached their credit limits with suppliers of their bank

 

2. Many suppliers are overseas these days and do not want to commit capital to companies in other countries

 

3. Your firm is not mature, is in early-stage or start-up mode, and does not have the capital resources to commit to larger revenue opportunities via order financing. Therefore the simple financing process around paying your supplier via a letter of credit from the P O lender and then monitoring for delivery and acceptance, and payment to your firm is an attractive potential financing solution.

 

 

 

KEY POINT - As a technical point related to Purchase Order financing, business owners /financial managers should note that payments made by the P O Funding source do not include any taxes that may be charged to your order or deposits you have already received from buyers.

 

 

PREREQUISITES FOR A SUCCESSFUL PURCHASE ORDER TRANSACTION:  

 

Transactions are based on the reselling of manufactured products and finished goods.

 

  

HOW DOES PURCHASE ORDER FINANCING WORK?  

 

Your firm can generate reasonable profit after financing costs Suppliers are bona fide, and legitimately verifiable end-user client has a good commercial credit history.

The actual purchase Order must be non-cancellable

 

 WHAT IS PURCHASE ORDER FACTORING? 

It means that the customer promises to pay after the products are delivered. Because this arrangement creates a contract, the purchase order is valuable to companies, known as factors. A factor can fund a company's purchase order and give them the cash to produce and fulfill it. It is a structured finance solution that works.

 

At 7 Park Avenue Financial, many new clients enquire about P O's that require financing for less than 100k.

 

While this is possible, it is generally accepted in the marketplace that orders over this amount are somewhat more financeable and benefit all parties to the transaction regarding profits, deal size, etc. Remember also that your firm has what we call that 'cash conversion cycle' (every firm has one).

 

IMPLICATIONS OF FINANCING ON YOUR OPERATING CYCLE

There is a large number, often 2-3 months from when you receive orders, build and ship inventory or product, and then wait 30 days (or longer!) to collect from your customer. Purchase order financing is a solid solution to your cash conversion cycle. At 7 Park Avenue Financial, when we put together a purchase order financing facility, we stress to clients that this is very much an alternative financing scenario. Still, it offers you a solution that traditional Canadian banking or lending would not provide.

 

Therefore, your firm should ensure that you can demonstrate your customer's viability and fulfill the order or contract via this alternative financing method. One of the other advantages of supplier financing/purchase order financing is that from start to finish. It can be set up in approximately 14-21 business days, assuming your full cooperation on application forms, backup info, etc. Most Canadian business people recognize that financing of a certain size in a traditional banking or term lending environment might take significantly longer to complete.

 

 

BENEFITS OF PURCHASE ORDER FINANCING: HOW DO PURCHASE ORDERS WORK IN LOCAL / EXPORT FINANCING?

 

Utilizing this alternative funding method for certain sales allows you to take on orders and contracts, even in other geographics that otherwise might not be able to be considered as part of your growth strategy. Many opportunities are ' seasonal ' and must be seized confidently to avoid losing the sale or client relationship. Fostering good relations with suppliers re your payment history is key in any business relationship.

 

Because of the ' specialty finance ' nature of P O Funding, you benefit from lender expertise in this niche part of Canadian business financing, including flexibility around customized situations that might be unique to your order/contract.

 

KEY POINT - Business owners should be proactive in planning their financing around any significant addition in new business - this avoids the proverbial cash crunch and allows you to prevent reactive processes that, to say the lease, can be stressful for the business owner. Use the services of an expert or advisor to determine if PO Finance works for your transaction.

 

In certain cases, instead of a business line of credit, a combination of receivable factoring and Purchase order finance might be best suited to finance the transaction in combination with each other, given that a receivable is created out of your order and the factoring fund method of non-bank financing is less expensive than purchase order funding.

 

 

CONCLUSION - PURCHASE ORDER FINANCING CANADA

 

Purchase order financing is critical for numerous Canadian businesses, answering cash flow predicaments and facilitating expansion. Like any financial commitment, fully comprehending the terms, expenses, and consequences involved is crucial. Whether purchasing order financing or other funding alternatives, selecting the appropriate financial strategy can catapult your business to unprecedented success.

 

Let the 7 Park Avenue Financial team know how a purchase order financing company works and alleviates the cash flow challenges small businesses face in Canada. In summary, a purchase order loan/financing agreement is a unique niche within business financing and an effective means of financing working capital.

If you are new or not knowledgeable about this type of financing, speak to 7 Park Avenue Financial,  a credible and experienced and trusted business advisor who will guide you through key areas of Purchase Order Financing, including such things as minimum amounts that can be financed, credit application information, and the standard industry fees/rates. Short-term financing for larger orders managed successfully, will help your company achieve its growth goals while utilizing effective supplier financing arrangements.

 

  

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

 

What is Purchase Order Financing?

 

Purchase order financing, or PO funding or trade financing, is a financial instrument that empowers businesses to shoulder the expenses associated with manufacturing or procuring goods already sold to their clients. It is a financial safety net for firms that attract large orders but grapple with immediate cash flow or inventory constraints until the customer pays

Consider securing a significant order from a client, but present cash assets or inventory are inadequate to fulfill the order. With purchase order financing, this business opportunity need not be lost. A PO financing provider pays your suppliers directly, ensuring the order can be completed. Subsequently, you bill your client, who settles the payment now with the financing provider. The financing company deducts its fee and transfers the remaining balance to your account.

 

What are the Costs Associated with Purchase Order Financing?

 

A purchase order financing agreement has several benefits, but weighing its costs is crucial. Generally, charges for purchase order financing oscillate between 2-5%  of the monthly PO value. Although this may appear minuscule, it can translate to an annual percentage rate (APR) surpassing 40% when converted, making PO financing a considerable investment for businesses.

 

What are the  Pros and Cons of Purchase Order Financing?

Purchase order financing carries many unique benefits and potential downsides for businesses. On the positive side, it's accessible to growing companies and startups, doesn't overly depend on your credit rating, and offers quicker funding than traditional bank loans. The customer pays the financing company directly.

Nonetheless, it also has certain constraints. The company must cover the remaining balance if the financing company approves a business for a smaller percentage of the funding of supplier costs. In many cases, a personal guarantee may be required.

What are Other Options Besides PO Financing?

 

In some cases, PO Financing won't match business needs. If that is the case, several alternative funding mechanisms exist to explore, including:

Invoice financing, invoice factoring

Merchant cash advances from online financing companies

Business lines of credit

Term loans / Small business loans

Government SBL loans. Government loans offer versatility for varying business types of financing, and requirements vary compared po financing companies.

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Asset Based Financing Loans In Canada : How To Achieve The Right Mix Of Business Credit

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YOUR COMPANY IS LOOKING FOR CANADIAN ASSET-BASED LOANS FINANCING! 

Say Goodbye to Business Credit Cash Flow Challenges: Exploring Asset-Based Financing in Canada

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

        Financing & Cash flow are the biggest issues facing businesses today 

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

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

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Unlock Financial Flexibility: Discover the Advantages of Asset-Based Financing Business Credit Loans

 

Asset based financing is a unique part of the business finance landscape in Canada, providing flexible financing to businesses of all sizes and industries. Let's dig in!

 

INTRODUCTION

 

Maintaining a robust cash flow is a cornerstone of any business's success in today's swiftly changing Canadian business financing environment. However, accessing conventional financing can pose a hurdle for many firms for many different reasons.

 

Here, asset-backed lending presents a solid solution. Asset-backed lending utilizes a unique methodology to address liquidity issues by using a firm's physical assets like inventory, machinery, and accounts receivable as collateral. This flexible funding solution provides firms with the necessary capital to cater to immediate liquidity requirements, finance growth strategies, and capitalize on new market prospects.

 

Through asset-backed lending, enterprises can monetize the worth of their assets, enhance their financial adaptability, and confidently maneuver through liquidity challenges in their business.

 

Business owners and financial managers want to know how they can utilize these types of loans as a great solution for cash flow and working capital purposes to fund their business.

 

UNDERSTANDING ASSET BASED FINANCING

 

Asset-backed lending is a financial solution enabling companies to obtain loans or credit lines by pledging their assets as security.

 

Unlike conventional funding methods that heavily depend on a firm's credit score, asset-backed lending considers the company's asset value. Businesses can exploit assets like inventory, machinery, and accounts receivable to generate capital to overcome liquidity problems and spur expansion.

 

This method of financing proves especially advantageous for entities that fail to meet the rigid standards set by traditional financiers. These include newly established enterprises, companies with minimal business credit history, or those operating in sectors subject to seasonal variances.

 

By collateralizing tangible assets, asset-backed lending offers an alternate financing route that bridges liquidity shortfalls and sustains business activities during difficult periods.

 

  

WHAT DOES ASSET BASED LENDING MEAN FOR YOUR BUSINESS  

 

The reality is that asset-based lending means different things to different business folks. The truth is that it's part of the nontraditional method of financing a business in Canada that might be temporary or in some cases, more permanently challenging.

 

Although the owner/manager might think their need is somewhat unique, financing needs typically revolve around sales growth or key balance sheet issues that need a fix. We've never missed the true irony around how fast-growing or even explosive sales can become a huge financial and operational challenge, as many have experienced.

 

Fixed assets are often a key part of an ABL lending solution for additional liquidity. The equipment your company requires or has can be in a broad range of asset categories. Owners/financial managers are looking to acquire new or used equipment or refinance existing assets via better high leverage  - That 'refinancing' can often be part of a 'sale leaseback', a key category in asset-based lending. That strategy allows owners to 'free up' equity in assets and harness that equity via new cash flow and working capital.

 

How does that sale-leaseback strategy work for certain physical assets?  It's quite simple. Although business owners often have a strong sense of what a company's assets are worth, that is not what counts. It all usually comes down to an appraisal being done on the equipment, and when the appraisal comes back, a loan-to-value ratio decision is made against the appraised value.

 

For example, a lender may grant for a specific asset up to 90% of the face value for a security, 75% for residential real estate, or 60% if it is commercial. Real estate ABL is often a term loan structure with various options available, such as interest-only, annual renewals, prepayment conditions, etc

 

Usually, business owners can expect to receive a fairly high percentage of the liquidation value of the equipment and achieve the maximum loan amount. Still, this amount tends to be less than the asset's fair market value. It is essential to understand that the asset has to be free and clear of any liens or charges. In cases where a small amount might be owed to another lender, that amount can be paid out and bundled into the new loan transaction.

 

A key point in equipment refinancing is that the commercial lender will emphasize both the asset value and your firm’s ability to prove cash flow for repayment.

 

 There is a huge difference in how an asset-based lender looks at your asset and advances funds against it, versus a Canadian chartered bank.

 

There is technically no limit on the amount that can be advanced against equipment, although most transactions we see in the marketplace are less than 5M dollars.

 

In summary, asset-based financing means different things to different people. One of the key context areas of this type of financing is equipment financing -  yet numerous other forms of key categories in asset-based lending play a key part in solutions your firm might require and have access to.

 

 

TYPES OF ASSET-BASED FINANCING AVAILABLE TO CANADIAN BUSINESSES FOR OPTIMAL WORKING CAPITAL 

 

Accounts Receivable Financing solutions:  Factoring, Confidential Receivable Finance Via factoring companies

 

Inventory Financing Loans

 

Tax Credit Financing (Primarily SR&ED)

 

Cash flow loans

 

Equipment Leasing

 

Royalty Financing

 

Bridge Loans

 

 

HOW ASSET-BASED FINANCE SOLUTIONS HELP OVERCOME THE CASH FLOW CHALLENGE

 

Asset-backed lending can be a lifesaver for firms grappling with liquidity problems. By using assets like stock, machinery, and accounts receivable, companies can acquire the necessary capital to balance their payable and receivable accounts, ensuring seamless business operations.

 

A principal advantage of asset-backed lending is its adaptability. Unlike traditional funding options, asset-backed lending is not restricted to a particular purpose.

 

Companies can utilize the funds obtained through asset-backed lending for diverse objectives, like acquiring stock, covering payroll expenses, investing in new machinery, or financing promotional campaigns. This flexibility enables companies to meet immediate liquidity needs while supporting long-term growth plans.

 

Furthermore, asset-backed lending can aid companies in bolstering their financial stance. By capitalizing on the value of their assets, companies can liberate otherwise occupied capital. This enhanced financial flexibility can be used to negotiate more favourable terms with suppliers, capitalize on early payment discounts, or invest in strategic initiatives that improve profitability.

 

CASE STUDIES : 

 

Case Study 1: Manufacturer

A manufacturing firm confronted a severe liquidity crunch resulting from delayed client payments and the necessity to procure new machinery to satisfy escalating demand. The firm opted for asset-based financing, employing their accounts receivable and machinery as security. This decision facilitated them in acquiring a significant credit line, enabling them to purchase the needed equipment and bridge the liquidity gap. Thus, they could fulfill orders, augment their production capacity, and ultimately expand their operations, demonstrating how asset-based financing solutions can aid in overcoming financial hurdles and fostering business growth.

 

Case Study 2: Retailer

During a seasonal downturn, a retail outlet encountered liquidity issues. They held a large stock but suffered from limited cash flow due to declining sales. The retail outlet addressed its financial needs via asset-based financing, using its inventory as collateral.

 

The capital obtained allowed them to sustain their operations, settle supplier invoices promptly, and initiate marketing strategies to stimulate sales during the slow season. Asset-based financing's financial flexibility allowed the retail outlet to successfully steer through the liquidity obstacles and prepare for expansion, highlighting its effectiveness as a financing solution during challenging times.

 

 SUMMARY OF BENEFITS OF ASSET BASED  ' ABL ' FINANCING 

 

Asset-backed financing provides numerous advantages for businesses dealing with liquidity issues:

1. Access to Capital: Unlike traditional financing options involving protracted approval procedures, asset-based financing enables firms to leverage their existing assets to procure funding rapidly. This becomes particularly beneficial when urgent liquidity needs crop up, or firms aim to capture new market opportunities.

2. Enhanced Financial Flexibility: Asset-based financing doesn't rely solely on a company's creditworthiness. Instead, it focuses on the value of a pledged asset as collateral. Liquid assets such as accounts receivable are a large part of asset-based credit lines. This gives firms with imperfect credit histories or limited creditworthiness a chance to access funding based on their assets' strength. It also provides a pathway for businesses to realize the value of their assets and free up capital that could otherwise be locked up and underused.

3. Support for Business Growth: An asset-based loan can facilitate business expansion compared to traditional bank loan financing or an unsecured loan/business credit line / revolving line of credit. By offering access to capital, firms can invest in growth strategies, such as enlarging operations, introducing new products or services, or penetrating new markets. This ability to finance growth initiatives is vital for businesses striving to stay competitive and seize market opportunities.

 

CONCLUSION

 

Companies often confront liquidity issues in the present economic environment and might find conventional financing avenues inadequate. Here, asset-backed lending provides an intelligent resolution. By collateralizing tangible assets, companies can obtain the necessary capital to alleviate liquidity problems, finance growth strategies, and navigate uncertain periods.

 

Asset-backed lending has numerous advantages, including rapid capital access, enhanced financial adaptability, and backing for business expansion. Companies can make enlightened decisions about their funding requirements by comprehending the range of assets that can be collateralized, the procedure to secure asset-backed financing, and the considerations when selecting a financier.

 

Although asset-backed lending can transform many companies' financial situations, exploring alternative funding options and considering what best aligns with your company's distinct needs and objectives is crucial. By diligently scrutinizing your choices and collaborating with the appropriate finance partner, you can surmount liquidity problems and set your company up for enduring success in the current market.

 

 

Whether your firm is growing quickly, has restructuring issues, or other unique situations, you will benefit from call to  7 Park Avenue Financial,   a trusted, credible, and experienced Canadian business financing advisor with a track record of success to help with your growth opportunities via asset-based lenders in Canada.

 

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION

 

What is asset based finance?

The asset-based lending industry provides commercial finance  & financing via revolving lines of credit and term loans to small and mid-sized companies and larger corporations by using their collateral as security for short-term needs and day-to-day operations funding.

 

Accounts receivable, inventory, equipment, and real estate are collateral to back the loan for a line of credit or other business loan structure - this provides greater credit availability for companies that might not meet the credit history requirement of traditional financial institutions such as banks that offer unsecured loans. Lower interest rates for asset-based loans are commensurate with overall credit quality.

 

What are Common Challenges Faced by Businesses When Accessing Financing

 

In today's commercial landscape, companies encounter several hurdles that can affect their liquidity:

1. Unpredictable Customer Payment Cycles: Late or deferred customer payments can disrupt a firm's cash flow and make meeting financial obligations difficult. Additionally, companies operating in seasonal industries may face periods of booming demand followed by slower times, which can strain liquidity.

2. Limited Traditional Financing Options for SMEs: Small and medium-sized enterprises often struggle to access bank loans due to their limited credit history or lack of collateral. This can make securing essential funding to address liquidity issues or finance growth strategies challenging.

3. Economic Uncertainties and Market Volatilities: Changes in market conditions, alterations in consumer behaviour, or supply chain disruptions can all bear significant financial implications for businesses.

 

What Are Types of Assets That Can Be Used for Financing

 

Asset-backed financing can be obtained using a variety of physical assets owned by a company. The most frequently used types of assets for this kind of financing include:

1. Inventory: Firms can employ their stock as collateral to secure financing. This is particularly advantageous for companies with substantial inventory volumes or seasonal inventory fluctuations.

2. Equipment: Financing that uses machinery, vehicles, or other apparatus as collateral is known as equipment financing. This is especially beneficial for sectors that heavily depend on specialized equipment.

3. Accounts Receivable: Also referred to as invoice financing, accounts receivable financing allows firms to use their outstanding invoices as collateral. This enables businesses to access funds quickly rather than waiting for their customers to settle invoices.

4. Real Estate: Firms that possess commercial properties or real estate assets can leverage them as collateral to obtain asset-based financing. Real estate collateral can grant businesses access to larger financing amounts.

 

The specific assets eligible for collateral may vary based on the financier and the industry in which the firm operates. Businesses must comprehend the particular prerequisites and constraints of different asset-backed financing alternatives.

 

 

 

What Is The Process of Obtaining Asset Based Financing

 

The procedure for acquiring asset-based financing generally involves several crucial stages. While specifics can fluctuate based on the financier, the overall process can be broadly outlined as:

1. Application: The firm applies for asset-based financing by applying a financier. The application usually comprises details about the company, its financial status, and the assets designated as collateral.

2. Asset Evaluation: The financier evaluates the worth and quality of the assets employed as collateral. This assessment aids in determining the maximum sum that can be procured.

3. Due Diligence: The financier performs due diligence on the company, reviewing its financial statements, credit history, and industry prospects. This step assists the financier in assessing the comprehensive risk associated with extending financing to the company.

4. Proposal: Based on the assessment and due diligence, the financier offers a proposal detailing the terms and conditions of the asset-based financing. This includes the loan amount, interest rate, repayment terms, and miscellaneous fees.

5. Closing: If the firm consents to the proposed terms, the financier and the firm complete the required paperwork to formalize the financing agreement. This could involve legal documentation, security agreements, and other contractual duties.

6. Funding: Once the closing process is finalized, the financier disburses the approved funds to the firm. The firm can utilize the funds to address liquidity issues, finance growth strategies, or fulfill other financial responsibilities.

 

 

Alternatives to Asset-Based Financing

 

While asset-based financing can provide numerous advantages, exploring other financing alternatives that may be more aligned with your business needs is crucial. These alternatives could include:

1. Traditional Bank Loans: For businesses with robust credit histories and solid banking relationships, traditional bank loans can offer access to funds at competitive rates. However, these loans often demand collateral and may entail a more comprehensive approval process.

2. Business Credit Cards: These can serve as a short-term financing solution to address urgent liquidity needs. While they provide convenience and adaptability, they usually carry higher interest rates than other financing options.

3. Trade Credit: This involves negotiating extended payment durations with suppliers. It can assist businesses in managing cash flow by permitting them to delay payments until goods have been sold or services delivered.

4. Invoice Factoring: This entails selling your outstanding invoices to a third-party company at a discounted rate in exchange for immediate cash. It can be an effective method to enhance cash flow and evade the wait for customer payments.

 

Each financing option has its unique benefits and considerations. Hence, businesses must evaluate their particular needs, financial circumstances, and growth targets to identify the most appropriate financing solution.

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