Surviving a Working Capital Cash Crisis – Real World Solutions & Techniques

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Unlocking Cash Flow: Solutions Every Business Owner Must Know

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Working Capital Cash Solutions: A Comprehensive Guide for Businesses | 7 Park Avenue Financial

 

Read this article because it uncovers real-world techniques to navigate working capital challenges, ensuring your business thrives even in financial crunches.

 

  

Solutions in Sight: Overcoming Working Capital Cash Crunches  

 

The Consequence of a Working Capital Cash Crunch

 

The alternative to surviving a working capital cash crunch, temporary or permanent, is not surviving it and losing control of your business from a financial perspective.

 

Let's examine real-world (we like those the best - the academic guys are very nice, though) techniques and solutions to your company's working capital and cash flow challenges via effective working capital management.

 

In today's dynamic business environment, understanding and efficiently managing working capital can be the key to sustaining growth and navigating financial challenges.

 

Working capital, the lifeblood of every business, ensures smooth day-to-day operations, helping companies meet their short-term liabilities. However, a cash crunch can derail these processes, often leading to severe repercussions. This article delves deep into the nuances of working capital, offering real-world solutions to cash flow challenges.

 

From recognizing the underlying issues to exploring modern financing techniques, we provide comprehensive insights to empower Canadian businesses. Whether you're a seasoned entrepreneur or just starting, our guide on working capital cash solutions is essential reading to master the art of financial agility.

 

Recognizing the Problem

 

You probably know you have a working capital problem; the turnaround strategy for that problem is challenging. When you think about it your constant sufficient cash flow challenge is the most obvious sign that you need a survival plan.- Take careful note of the following:

Monitor Cash Flow Statements:

        Review cash flow statements regularly.
        Check cash conversion cycle.
        Decreasing cash inflow or increasing cash outflow could hint at potential issues.

Accounts Receivable Aging:

        Monitor if customers take longer to pay - increased DSO ( days sales outstanding)
        Increasing days of receivables outstanding suggests potential liquidity problems that impact free cash flow

Increasing Expenses:

        Watch for sudden or consistent cost increases.
        Problems arise if no corresponding revenue increase.

Declining Sales:

        Consistent sales decline is worrisome.
        Seasonal declines not planned for can cause cash shortages.

Inventory Levels:

        Excess inventory ties up funds.
        Monitor inventory turnover ratios.

Rising Debt Levels:

        Consistently increasing short term debt without revenue growth is concerning.

Decreased Gross Margins:

        The rising cost of goods sold without a sales price increase affects cash flow and requires the need to manage cash flow prudently

Unplanned Capital Expenditures:

        Unexpected large expenses and those short term operating costs can deplete cash flows, requiring more working capital funding for short term obligations.
Loan Covenant Violations:

        Violating loan terms can lead to faster repayment or extra fees.
        Impacts cash flow negatively.

Economic Indicators:

        External factors like economic downturns or new regulations affect cash flow.

Feedback from Suppliers:

        Quicker payment requests or shorter credit terms hint at perceived financial risks.

Employee Turnover:

        Increased turnover may suggest operational problems affecting finances.

 

  

Differentiating Growth, Profits, and Cash Flow  

 

Many business owners also equate growth profits and cash flow on the same terms; in reality, they are all VERY different! To be fair to the Canadian business owner, sometimes the factors affecting your working capital cash are external and out of your control. However, they still could lead you to insolvency of some sort.

 

Understanding Bank Operating Lines of Credit

 

Question - would you, as a business owner, ever consider your bank operating line of credit (assuming you have one?) as 'dangerous'?

 

More traditional bank lines give you an advance against your receivables and inventory, those two most liquid assets after cash. If you are committed to a bank facility, you have a pre-set borrowing limit; it’s as simple as that.

 

So if your business has good operating performance, is profitable, and you are expanding or growing, all that works carefully. So, how could a bank facility precipitate a working capital crisis? If your business shrinks or grows too quickly, you are locked into pre-set borrowing power. Your receivables and inventory go down or up if you're lucky enough to explode with growth, but your credit facility is still the same!

 

Solutions to the Working Capital Crunch

 

We never want to be accused of just reminding you about the crisis; we'd instead provide solutions and techniques to eliminate the working capital crunch.

 

Techniques and Solutions for Cash Flow Survival

 

So, let’s address some techniques and solutions for cash flow survival. These focus on accounts receivable and inventory. Think about it: if you have A/R and inventory, these amounts are one step away from liquidity. So, how do you monetize these assets on an ongoing basis, whether they going up or down?

Asset Based Lending

In Canada, the most logical solutions to restoring your cash flow normalcy are asset-based lending, a working capital facility, and combinations of receivable and inventory and purchase order or contract financing.

 

Actual asset-based lending facilities are typically for larger facilities of several million dollars or more - they can double, if not triple, your access to working capital. How do they do that? Simply because they margin on an ongoing basis all your A/R and inventory at very high margin rates, and the facility grows as those two asset categories grow. They are the 'best bet' for surviving a working capital crunch.

 

Working Capital Facilities for Small and Medium-sized Firms

 

Small and medium-sized firms should look toward working capital facilities that combine A/R and inventory lending, have no fixed upper limit, but usually come with higher financing and borrowing costs.

  

Financing Contracts and Inventory Programs  

 

Finally, the average business owner and financial manager may not even be aware that contracts and large 'one-offs' purchase orders  can be financed, and inventory financing programs can be implemented on a stand-alone basis.

 

Short and Long-Term Strategies

 

Surviving the working capital cash crunch comes with short-term solutions as we have noted, that provide immediate relief; as well... owners can consider long-term strategies such as working capital cash term loans and sale-leaseback of equipment or property.

 

 

Key Takeaways

Working capital is the difference between a company's current assets (cash, accounts receivable, and inventory) and current liabilities (accounts payable). It represents the funds available for daily operations and is a key indicator of a company's short-term financial health.

Significance of Cash Flow:

Cash flow refers to the inflow and outflow of money in a business. Positive cash flow ensures a business can sustain its operations, pay its obligations, and invest in growth. Conversely, cash flow challenges can lead to operational hiccups, inability to meet financial commitments or even insolvency.

Bank Operating Lines of Credit:

Banks provide This facility allowing businesses to borrow up to a specific limit to manage their working capital needs. It's based on liquid assets like accounts receivable and inventory. However, it's crucial to understand that these lines have limits and can become problematic if a business grows too quickly or faces a downturn.

Monetizing Accounts Receivable and Inventory:

These are the most liquid assets after cash. Businesses can convert these assets into cash by leveraging tools like asset-based lending. This approach provides a flexible way to address cash flow challenges by using existing assets to generate liquidity.

Asset-Based Lending & Other Financing Solutions:

Asset-based lending allows companies to borrow against their accounts receivable, inventory, and sometimes equipment or real estate. It's a way to get immediate cash based on the value of these assets. Other solutions include working capital facilities that combine A/R and inventory lending and techniques like contract financing or purchase order financing.
  

  

  

Conclusion  

 

Call  7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor, for advice and techniques for better financial performance and a working capital solution for cash flow survival.

 

  

 FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION   

 

What is the primary purpose of working capital cash solutions?

The primary purpose is to help businesses manage their short-term financial obligations, ensure smooth day-to-day operations and cash flow management, and prevent insolvency during cash flow challenges.


Why are bank operating lines of credit considered a double-edged sword?

While they provide businesses with immediate cash based on their assets, they have borrowing limits. This can be problematic if a business grows too quickly or faces a sudden downturn, restricting liquidity.

How can asset-based lending benefit my business?

Asset-based lending allows you to borrow against your most liquid assets, such as accounts receivable and inventory. It provides flexibility in accessing funds based on the value of these assets, offering immediate liquidity.

Is working capital only about cash flow?

While cash flow is a significant aspect, working capital encompasses the broader difference between current assets and liabilities, ensuring a company's short-term financial health.

Can growth lead to working capital challenges?

Yes, paradoxically, rapid growth can lead to cash flow challenges if the business needs flexible financial solutions to accommodate increased operational demands.



How does working capital differ from net working capital?

Working capital represents the difference between a company's assets and liabilities. Net working capital, on the other hand, is the actual amount of current assets remaining after current liabilities have been paid.

Are there risks involved in asset-based lending?

While asset-based lending offers immediate liquidity, there's a risk of over-leveraging, which might lead to losing control of the collateralized assets if the loan isn't repaid.

What role does inventory management play in working capital solutions?

Efficient inventory management ensures you don't have excess stock tying up funds, thus optimizing your liquidity and working capital.

Can a positive cash flow business still face working capital challenges?

Absolutely! A business might have positive cash flow but still face short-term financial obligations that exceed its readily available resources.

Are there industries that benefit more from working capital cash solutions for the company's financial health?

While all businesses can benefit, industries with seasonal operations, long receivable cycles that impact the working capital ratio, or high inventory turnover often find working capital solutions especially valuable.

What are the benefits of sale lease-back options?

 

• • Provides immediate cash from owned assets.
  • Boosts cash flow, aiding balance sheet strength and funding growth without new debt.

• Capital Efficiency:

  • Deploy sale capital into core operations or higher-return areas.

• Off-Balance Sheet Financing:

  • Lease liability might not appear on the balance sheet.
  • Can enhance financial ratios and borrowing potential.

• Tax Benefits:

  • Lease payments can be tax-deductible.
  • Potential to avoid some property taxes by not owning the asset.

• Fixed Payments:

  • Leaseback agreements typically have predictable costs.
  • Assists in accurate budgeting and forecasting.

• Preserve Business Operations:

  • Continuity in operations as businesses retain asset access.

• Potential for Profit:

  • Asset appreciation can lead to profit when sold and leased back at market rate.

• Flexibility:

  • Lease terms can be tailored to the seller's needs.
  • Negotiable lease duration and payment structure.

• Avoidance of Ownership Risks:

  • Avoids risks like property depreciation.
  • Maintenance and repairs may be the new owner's responsibility.

• Improved Return on Assets:

  • Selling non-essential assets boosts the return on assets ratio.

 

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

Business Credit Needs? Working Capital Via Alternative Financing Sources

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YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT FOR WORKING CAPITAL FINANCING! 

Unlocking the Power of Business Credit and Working Capital!

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 

 

Mastering Business Credit & Working Capital Solutions for Growth | 7 Park Avenue Financial

 

 

 

Bridging the Cash Flow Gap: Business Credit Strategies Revealed!

 

 

Read on to navigate the complexities of business credit because understanding these strategies is pivotal to bridging your cash flow gaps effectively

 

 
The Importance of Business Credit Requirements

 

Business credit requirements involve securing external additional business capital for your company. That involves a  working capital type loan,  as well as appropriate finance for a business that might come from traditional Canadian chartered bank financing line of credit, or alternative lending solutions.

 

  
The Importance of Cash Flow:

  

Cash flow represents the net amount of cash being transferred in and out of a business. Positive cash flow means a company is adding to its cash reserves, allowing it to reinvest in the business, pay off debt, return money to shareholders, or save for future challenges. Consistent cash flow is essential to meet payroll, pay rent, purchase inventory, and essentially keep the business operational.

 

Business credit needs are anything if not... consistent! In many cases the access to capital/ loans/ financing is one of the biggest obstacles to growth for a large section of companies constantly searching for SME COMMERCIAL FINANCE solutions. So how does the owner/manager ensure they have access to commercial financing needed to grow the company? Let's dig in.

 

No secret that every business, even larger corporations, eventually finds itself in a situation where it needs to secure additional capital. It doesn’t matter if it’s a startup trying to get itself off the ground or an established company looking to cover a cash-flow gap. The point is that having reliable access to working capital is crucial to your business and its success.

Traditional vs. Alternative Lending Solutions

Solutions might come from working capital loans or for larger businesses term loans can mezzanine type cash flow loans. Another key focus for many growing companies is to monetize current assets, typically A/R and inventory, that will allow you to cash flow your sales as you grow revenues.

Entrepreneurs, Business Owners and their financial managers looked to alternate lending sources when a traditional banking solution won't deliver on your 'cash flow gap'. That is whey alternate lenders have become increasingly popular in times of crisis or economic uncertainty.

 

Understanding the Different Financing Options

 

Thankfully business needs can be nicely broken down into several categories as follows: day to day operating capital, immediate growth needs for new opportunities, equipment and asset acquisition, hard asset refinancing via business credit.

Business Credit Lines

Business Credit Lines - These facilities aren't necessary emergency facilities, they should be sought after and used by every business. Whether it's business credit cards for smaller businesses or bank credit line revolving facilities or non-bank asset based lines of credit it's all about a day to day operating facility that works for your company. Approval lead times for these facilities are much shorter than when your firm contemplates longer-term loans from a senior lender.

Receivable Financing

Receivable Financing - The ability to finance your invoices as you generate sales is a very attractive option for most SME firms in Canada. There is literally a renaissance of A/R financing solutions that allow you to cash flow sales as you generate revenue. Typical advances against your sales are in the 90% range. At 7 Park Avenue Financial, we recommend Confidential Receivable Financing as the most effective solution.

Short Term Working Capital Loans

Short Term Working Capital Loans - These loans have exploded onto the Canadian marketplace and are a popular borrowing option. The loans are typically in the range of 10-20% of your firm's annual sales and are repaid according to your business cash inflows, so that might be weekly or monthly as an example. These are unsecured loans with no external collateral required, although the lender might choose to register a financing statement against your business under Canada's PPSA laws. Important to note also that this type of business finance should not be considered if your firm is in a downward sales spiral.

Unsecured Cash Flow Loans / Mezzanine Financing

Unsecured Cash Flow Loans / Mezzanine Financing - This funding option requires no external collateral or pledging of business assets. Naturally, your company must demonstrate it has a history of solid cash flow performance, with the loans typically tied to a 3-5-year maturity.

Other Financing Alternatives

The common 'go-to' solution in the eyes of owners/managers is to solicit chartered bank financing in Canada. If your firm has a strong balance sheet, profits, established history additional collateral etc. you'll find all the financing you need from our chartered banks who have virtually unlimited financing potential.

Navigating Through Financial Challenges

When the going gets tough, the tough get going goes the expression, so it is a case of getting somewhat 'creative' in your search for working capital. If your firm has assets and growth prospects we firmly believe you can get most, if not all the financing you need.

 

Key Takeaways

 

Working capital is the difference between a company's current assets (like cash, accounts receivable, and inventory) and its current liabilities (like accounts payable). It represents the short-term available resources a company has to run its day-to-day operations. A positive working capital indicates that a company can pay off its short-term liabilities with its short-term assets.

Business Credit Importance:

Business credit is the ability of a company to obtain borrowed money. It can be in the form of bank loans, credit lines, or other financial instruments. A strong business credit profile allows a company to secure financing under favourable terms, which can be crucial for growth, managing cash flow, or handling unexpected expenses.


Sources of Working Capital Financing:

Businesses can leverage multiple sources for working capital business loans, including:
Traditional bank loans/business loan or lines of credit.

Asset-based financing uses assets like accounts receivable or inventory as collateral.

Short-term loans/merchant cash advances often with higher interest rates but quicker approval processes. A good credit score for owners is often required as well as info on the business owner's personal credit - This financing is structured as a lump sum installment loan with monthly payments

Alternate lenders or non-banking financial institutions versus a traditional bank loan

Receivable Financing (Factoring):

This is a method where businesses sell their accounts receivable (invoices) to a third party (a factor) at a discount. It allows businesses to get immediate cash without waiting for customers to pay their invoices, and when comparing working capital loans a/r financing brings no debt to the balance sheet

 

 

Conclusion:

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs.

 

 

FAQ

What is the role of trade credit in working capital management?

Trade credit is an agreement where a supplier allows a business to purchase goods or services and pay for them later, typically within 30, 60, or 90 days. It's a form of short-term financing that can help businesses manage their cash flow by extending the time they have to pay for inventory, thus preserving working capital and minimizing debt payments

How can a business improve its working capital ratio?

The working capital ratio, calculated as current assets divided by current liabilities, indicates a company's short-term financial health. To improve this ratio, a business can increase its current assets (e.g., by collecting accounts receivable faster or managing inventory efficiently) or decrease its current liabilities (e.g., by negotiating longer payment terms with suppliers).

What are the risks associated with working capital loans?

While working capital loans can provide quick cash for short-term needs, they may come with higher interest rates compared to long-term financing. There's also the risk of over-reliance when you get a working capital loan or merchant cash advance, where a business continually borrows for daily operations rather than improving cash flow from operations. If not managed carefully, this could lead to unsustainable debt levels. The ability of small business owners  to provide business bank statements is vital

Can startups with no business credit history secure working capital financing?

Yes, startups can obtain certain types of working capital financing, but it might be more challenging to take advantage of financing without an established credit history for a business line of credit. Lenders may look at other factors, such as the personal credit of the business owner, the business plan, projected revenues, or even to make sure to understand the industry the startup is in. Some alternative lenders or crowdfunding platforms might also be more open to working with startups with the business owner

 

What is a working capital line of credit for business?

 

A working capital line of credit is a financing solution available to businesses, allowing them to access funds to meet short-term operational needs. Unlike a traditional term loan, which provides a lump sum of money upfront that is repaid over time, a line of credit offers flexibility in borrowing and repayment. Here's a breakdown:

1. Purpose: The primary use for a working capital line of credit is to finance the day-to-day operational costs of a business. This can include purchasing inventory, covering payroll, addressing seasonality cash flow challenges, handling unexpected expenses, or taking advantage of sudden opportunities.

2. Flexible Access: With a working capital line of credit, businesses can draw funds as needed, up to the credit limit. This is particularly useful for businesses with fluctuating cash flow needs.

3. Interest: Interest is typically charged only on the amount drawn, not on the entire credit line. For instance, if a business has a $100,000 line of credit but only draws $20,000, they will pay interest only on that $20,000.

4. Revolving Credit: It's "revolving," meaning that as the business repays the borrowed amount, that portion becomes available again for future use. Think of it like a credit card: if you pay off a part of what you owe, your available credit increases by that amount.

5. Secured vs. Unsecured: Some lines of credit may be secured, meaning they require collateral (like real estate, equipment, or inventory) to back the borrowed amount. Others might be unsecured, which typically means higher interest rates because the lender is taking on more risk.

6. Qualification: To qualify for a working capital line of credit, lenders typically look at a business's credit history, cash flow patterns, the overall financial health of the company, and sometimes the personal credit history of the business owners.

7. Benefits: A working capital line of credit provides businesses with flexibility, allowing them to manage cash flow gaps without taking on long-term debt. It also provides a safety net for unforeseen expenses or opportunities.

In essence, a working capital line of credit provides businesses with a cushion, allowing them to continue operations smoothly even during periods when cash inflows might be unpredictable or inconsistent.

 

What is working capital credit?


"Working capital credit" typically refers to a credit facility or financing arrangement that provides funds to cover a business's short-term operational needs, which is synonymous with the concept of the working capital line of credit I mentioned earlier.

However, to understand this concept more broadly, it's essential to first understand "working capital."

Working Capital: It's the difference between a company's current assets (like cash, accounts receivable, and inventory) and its current liabilities (like accounts payable). In simple terms, working capital measures the short-term liquidity of a business, representing the funds available to cover day-to-day operations.

Working Capital Credit: It can be any form of short-term financing designed to boost or support a business's working capital. Types include:

    Working Capital Line of Credit: As previously described, this is a revolving credit facility that businesses can draw from and repay as needed, based on their operational requirements.

    Short-term Loans: These are lump-sum loans with short maturity periods (typically 12 months or less) that businesses must repay, often with interest, by a specific date.

    Trade Credit: This is a form of short-term financing where suppliers allow businesses to purchase goods or services and pay for them at a later date, effectively extending credit terms.

    Invoice Factoring or Discounting: This involves selling accounts receivable at a discount to a third party (the "factor"). The business receives immediate cash, and the factor assumes the responsibility for collecting the invoice payment.

    Overdraft Arrangements: Businesses can overdraw their bank accounts up to a certain limit, providing a buffer for short-term liquidity needs.

The key takeaway is that working capital credit refers to various financial tools and arrangements that support a business's short-term operational needs. The choice of which type of working capital credit to utilize depends on the specific requirements, financial health, and strategic objectives of the business.


 

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

Financing A Franchise? - Here's How Franchise Finance Works in Canada

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YOU WANT FRANCHISE FINANCE HELP! LET'S WORK TOGETHER TO GET YOU THE FRANCHISE FINANCING YOU NEED!

Franchise Business Financing in Canada: Your Blueprint to Success

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

Or Email us with any question on Canadian Business Financing

EMAIL - sprokop@7parkavenuefinancial.com

 

Mastering the Landscape of Franchise Financing in Canada | 7 Park Avenue Financial 

 

 

Canadian Entrepreneurs: Your Key to Franchise Financing Success

 

 

Introduction

 

Canadian entrepreneurs and prospective business owners aspiring to invest in a franchise face the quintessential dilemma of obtaining suitable financing for a business loan to buy a franchise. While the journey towards owning a franchise is exhilarating, ensuring a stable financial foundation is crucial. Let's dive into the intricacies of business cash flow financing and working capital solutions tailored for the Canadian business landscape.

 

 

Navigating the Waters of Franchise Financing in Canada 

 

Canada is ripe with franchise opportunities, but securing the right financing to support these ventures can be a daunting task. Being prepared and informed is your greatest asset.

 

The Myth of Traditional Financing

 

A common misconception among franchisees, especially those without a financial background, is that mainstream banks and credit unions will readily finance their franchise dreams. The truth is somewhat mixed. While no Canadian bank typically offers a specialized term loan for total franchise financing (unless backed by hefty collateral, spotless credit, etc.), many provide financing through a specific avenue—the CSBF/BIL program.

 

 

The CSBF/BIL Program: Your First Financing Stop

 

This program should be at the forefront of your financing strategy. But here's the catch: the program has limitations on what parts of the business it can finance. This means entrepreneurs need to independently finance certain segments, such as ongoing working capital or the franchise fee. Expert guidance can navigate you through these murky waters.

 

 

The Power of Brand Association 

 

Choosing a franchise with a robust brand identity and market presence can simplify your financing journey. The stronger the brand, the more comfortable lenders might feel in trusting your venture.

 

  

Deciding on  Buying New vs. Established Franchises  

 

 

Are you buying into a new franchise or taking over an existing one? Both options have their merits and challenges. For instance, financing an existing franchise might sometimes be more straightforward due to tangible assets, cash flow, and evident profitability.

 

  

  
 

Key Takeaways in Canadian Franchise Financing  

 

1. Owner Equity: Your personal investment plays a pivotal role in the financing equation.
2. BIL Program: A lifeline for many franchisees, but with specific coverage limits.
3. Asset & Working Capital Financing: Balancing asset-specific financing with a working capital loan or operating facility can lead you to success.

 

Franchise Financing Landscape in Canada:  

 

• Canadian Specificity: Canada has its own unique landscape of franchise opportunities and financing solutions.
• Mainstream Banks vs. Specialized Programs: While traditional banks are not always the primary go-to for entire franchise financing, they play a significant role via specialized programs, particularly the CSBF/BIL program.
•  

The CSBF/BIL Program:

• Core Financing Mechanism: This government-backed program is the backbone for many franchisees seeking financing in Canada. It provides support for asset-based requirements of a franchise.
• Limitations: While being a major player in franchise financing, it doesn’t cover all costs, like ongoing working capital or the franchise fee.

 

 Owner Equity & Personal Investment: 

• Significance: Your personal stake or investment in the franchise plays a pivotal role in securing additional financing. Lenders want to see that you have skin in the game.

 

Brand Strength & Market Presence:

• Lender Confidence: The reputation and market position of the franchise you’re looking to invest in can make a significant difference in obtaining financing. Strong brands tend to inspire more confidence in lenders.

 

  

Asset & Working Capital Financing:  

• Balanced Financing: Beyond the initial purchase, managing day-to-day operations requires a blend of asset financing and working capital solutions. These can be achieved through a combination of term loans and operating facilities.

 

 Conclusion 

 

Choosing the right franchise is just half the battle; obtaining the necessary financing completes the journey. Call 7 Park Avenue Financial, a trusted, credible and experienced  Canadian business financing advisor can streamline this process, ensuring that you have a financial package tailored to your acquisition and growth requirements. Remember, in the realm of franchise financing, preparation and knowledge reign supreme.

 

  

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

 

  

What are the typical prerequisites for obtaining franchise financing in Canada?

To secure franchise financing in Canada, lenders usually look for:

• A comprehensive business plan outlining your vision and strategies.
• A credit history review to assess reliability.
• Details about the chosen franchise, including its market position and profitability.
• Personal investment or owner equity to show commitment.
• Collateral, which can be personal or business assets.

 

How long does the franchise financing approval process typically take in Canada?

 

The duration varies based on the lender and the complexity of the application. However, on average, once all required documentation is submitted, it can take anywhere from a few weeks to a couple of months. Working with specialized franchise financing advisors can sometimes expedite the process.

 

How does the interest rate for franchise loans compare to regular business loans in Canada?

Interest rates for franchise loans are generally competitive and might be slightly higher or lower than regular business loans. Factors influencing the rate include the franchisor's reputation, applicant's creditworthiness, the economic environment, and the lender's policies.

 

Can I negotiate the terms of my franchise financing agreement in Canada?

Yes, terms are often negotiable, especially if you're working with private lenders or alternative financing platforms. It's beneficial to review all terms carefully and consider consulting with a financial advisor or attorney to understand and potentially negotiate better conditions.

 

 

 

What makes franchise financing different from regular business loans in Canada? 

 

Franchise financing is tailored specifically for purchasing or expanding a franchise. It often factors in the reputation of the franchise, specific costs like franchise fees, and might utilize specialized programs like the CSBF/BIL.

 

How can franchise financing benefit a new entrepreneur in Canada?

 

Franchise financing provides a structured approach to obtaining capital, leveraging the strength of established franchise brands, which can make the lending process smoother for newcomers.

 

Are there specific franchises in Canada that are easier to finance due to their reputation? 

Yes, franchises with a strong track record, brand identity, and consistent profitability often have better financing opportunities, as lenders view them as lower risk.

 

Can franchise financing in Canada cover all costs associated with opening a franchise? 

While franchise financing can cover a significant portion, it may not cover all costs. Items like ongoing working capital or franchise fees might need additional funding sources.

What's the role of personal investment or owner equity in the franchise financing process?

Owner equity demonstrates commitment and reduces the lender's risk. It often plays a pivotal role in securing additional financing and obtaining favourable loan terms.

 

 

What Are Some Valuable Tips to Finance a Franchise?

 

• Understand the Total Cost:

  • Account for working capital in addition to the franchise price.
  • Incorporate sufficient working capital into loan requests.
  • Consider loan terms that protect working capital, such as postponing principal payment.

• Shop Around for Your Loan:

  • Consult multiple institutions for better financing terms including a line of credit for ongoing business needs
  • Diversify financing sources to mitigate risks. A commercial bank loan is not the only option - Buyers should make sure they have an acceptable credit score

• Grasp Your Contract's Terms:

  • Familiarize yourself with franchise purchase agreement nuances.
  • Understand lease ownership and repayment obligations, including royalties. Franchisor financing is rarely available directly although some franchisors partner with financial institutions to assist the franchise owner

• Evaluate Your Investment Capacity:

  • Have funds available beyond the down payment for unexpected business needs.
  • Ensure availability of funds either personally or through bank loans and alternative lenders

• Prepare Necessary Documentation:

  • Ensure availability of the franchise agreement draft, statement of personal finances, and a business plan for lenders.
  •  

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

Methods of Financing Working Capital In Canada – Leveraging Current Assets

 

You Are Looking for Financing – Working Capital Loans! 

Unlocking the Secrets of Successful Working Capital Financing

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

        Financing & Cash flow are the biggest issues facing business today

               Unaware / Dissatisfied with your financing options?

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

Email  - sprokop@7parkavenuefinancial.com

 

Financing Working Capital: Unlocking the Power of Current Assets  | 7 Park Avenue Financial

 

 

Beyond Traditional Loans: Innovative Ways to Finance Your Working Capital

 

 

 
The Irony of Business Success  

 

Isn't it ironic that business can be actually quite good... Or even great..? This then becomes a problem only because in business survival and growth is all about  financing working capital... Turning those current assets of your firm into loans or monetization facilities for cash flow.

 

The Challenges of Business Liquidity

 

In a perfect world, Canadian business owners want to be able to meet their day to day operations, make any loan or lease payments and be able to plan to pay bills for upcoming expenses or growth. How could one statement like that induce so much stress?

A lot of that planning comes from the working capital current assets category of your financials, simply speaking your liquid assets such as cash on hand, receivables, and inventories if, in fact, your business has inventory. (Some services businesses just have A/R).

 

 

How does efficient working capital management affect a company's profitability? 

 

Efficient working capital management ensures that a company has a balanced mix of short-term assets and liabilities, allowing it to meet its obligations while investing in growth opportunities.

 

By reducing holding costs of inventory, optimizing collection periods, and managing short-term debts wisely, a company can improve its cash flow and ultimately enhance profitability. Poor management, conversely, can lead to missed opportunities, higher financial costs, and potential insolvency.

 

Working capital ratios, such as the current ratio and the quick ratio, are financial metrics used to assess a company's liquidity and short-term financial health.

 

The current ratio is calculated as current assets divided by current liabilities, while the quick ratio excludes inventories from current assets. These ratios provide insights into whether a company can cover its short-term obligations using its short-term assets. Consistently low ratios might indicate liquidity issues, whereas very high ratios might suggest inefficiencies in using available resources.

 

What external factors can influence a company's working capital requirements?

 

Several external factors can impact a company's working capital needs. These include:

 

1. Economic Conditions: In a recession, customers might delay payments, increasing accounts receivable, while suppliers might demand quicker payments.
2. Industry Trends: Seasonal industries might require more working capital during peak seasons.
3. Interest Rates: High-interest rates can increase the cost of borrowing, affecting the decision to finance working capital through debt.
4. Supplier Terms: If suppliers offer favourable terms, a company might require less immediate liquidity.
5. Competitive Landscape: Intense competition might require businesses to hold more inventory or offer lenient credit terms, increasing working capital needs via  the company's ability to do so

 

Recognizing these factors helps businesses anticipate changes in working capital requirements and adjust their strategies accordingly to make short term investments in the business

  
Sources of Working Capital  

Small and medium-sized businesses in Canada rely on either capital from their owner's personal resources, or their decision to take on loans and debt of some sort.

But what type of loans makes sense when it comes to liquidity? Perhaps a better rephrasing of that question would be 'What is good working capital debt?' In our personal credit lives, we think of good debt, i.e. a mortgage, and bad debt 'credit cards'!

Equity vs. Debt in Financing

 

Naturally considering new ownership or additional equity in your company or business (taking in a partner, etc.) is simply a dilution in the long run and somewhat downsizes the overall incentive for all owners to grow the firm.

And when it comes to debt the amount of 'debt' or loans your firm can take on is certainly often limited relative to your own current financials and the state of borrowing in Canada, which vacillates from great to not great as you may have noticed!

 

  Solutions for Working Capital Constraints 

 

So, what's the solution? Is financing working capital the way to go? (As opposed to term loans and more debt). It’s not as complicated as you think. And it all comes back to our friends, those two guys known as 'current assets'!

A large part of working capital financing in your business can come from yourself. Real basics such as ensuring you aren’t paying your payables before you're collecting your receivables... if you're doing that you're simply creating a working capital shortage that you have self-imposed.

And let’s discuss your solutions for working capital constraints. We get a huge kick out of receiving newsletters from banks that focus on how to manage your cash surpluses when they are writing about working capital and cash flow. We haven’t had one client come in today with a cash surplus problem, but it's only noon...

 
Practical Solutions to Manage Working Capital 

 

Canadian business owners and financial managers challenged with financing working capital have a solid handful of solutions. Naturally in a perfect world (you mean it's not?), you would prefer to not take on a term loan for permanent working capital. But back to that perfect world... that might mean you have an overdraft or bank line of credit. For many small and medium-sized businesses that simply is not attainable - or if it is, it’s not quite enough.

Real-world solutions for financing working capital and current assets without loans involve what we call the monetization or cash flowing of those current assets, Which typically is a working capital facility, non-bank in nature (yes they are available and exist!) that allows you to draw daily, as needed on your a/r and inventory in the form of a business line of credit. Larger facilities of this nature are termed 'asset-based lines of credit' - we call them ‘ABL’s... and they often are superior to bank facilities for a lot of different reasons.

 

Alternative Working Capital Solutions 

Other working capital solutions, but nonetheless real, are financing your tax credits, purchase order finance, or securitization of your contracts or receivables.

 

  

Key Takeaways  

 

Working capital is the difference between a company's current assets (like cash, accounts receivable, and inventory) and current liabilities (like accounts payable).


Importance: It represents the funds available to a business for day-to-day operations. A positive working capital indicates a company can cover its short-term liabilities with its short-term assets.

Role of Current Assets:


Current assets are assets that are expected to be converted into cash or used up within one year, including cash, accounts receivable, and inventory.

They are crucial liquidity indicators. Ensuring these are efficiently managed means businesses can quickly access cash.

The Need for Financing Working Capital:

Businesses often require more liquid funds than on hand, especially during growth or seasonal fluctuations.

Financing provides the necessary funds to keep operations running smoothly without disruptions due to cash flow gaps.


Main Methods of Financing Working Capital:

The common ways include short-term loans, bank overdrafts, accounts receivable financing, and asset-based financing.

Understanding these methods gives insight into how businesses can maintain liquidity and seize growth opportunities without compromising operational efficiency.

Risks and Benefits of Financing:

While financing provides immediate liquidity, it also introduces debt which comes with repayment obligations.

Businesses must balance the benefits of immediate liquidity against the costs and obligations of taking on debt to ensure long-term financial health while accessing additional working capital and cash flows

    

Conclusion    

 

Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor on the right method of leveraging cash flow from your assets and business. Today would be a good timeframe!

 

  

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

 

 

What exactly is "working capital" in the context of a business?

Working capital refers to the difference between a company's balance sheet such as cash,  marketable securities, accounts receivable, and inventory) and subtracting current liabilities (such as accounts payable and accrued expenses).  Fixed assets are not a part of the calculation Net working capital represents the short-term available funds a business has to support its daily operations and meet its financial obligations. Business owners should understand how to calculate working capital formula and the working capital ratio.

Why is the financing of working capital important for businesses?

Financing working capital is crucial because businesses, especially growing ones, often require more liquid funds than they have readily available. Ensuring adequate working capital helps businesses maintain smooth operations, cover short-term debts, and invest in opportunities, without the constant worry of running out of cash and achieving a negative working capital position.

How are "current assets" different from other assets in a business?

Current assets are short-term assets expected to be converted into cash or used up within a year. This includes cash, accounts receivable, and inventory as part of the company's short term liquidity.In contrast, long-term assets, like property, plant, and equipment, are used over longer periods and aren't readily converted to cash.

What are some common ways businesses can finance their working capital to maintain a company's financial health?

Businesses can finance their gross working capital through various methods, such as bank overdrafts, short-term loans, trade credit, factoring or accounts receivable financing, and asset-based financing. The best method to generate cash often depends on the business's financial health, industry, and specific needs around the company operating cycle. Financial modeling and cash flow forecasts are important tools in effective working capital management and understanding of the cash flow statement.

Isn't taking on debt to finance working capital risky for a business?

While any form of debt or long term debt  comes with inherent risks, when managed prudently, debt can be a beneficial tool for a business. Financing working capital allows businesses to seize growth opportunities, manage cash flow gaps, and handle seasonal variations in revenues. The key is to ensure that the cost of the debt is outweighed by the benefits it brings, and that the business has a clear strategy for repayment.


 

Straight Talk On Why Asset Based Lines Of Credit Are Alternatives To Debt Financing

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Revolutionize Your Business Finance with Asset Based Credit Facilities

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Asset Based Lines of Credit: A Smarter Business Financing Option | 7 Park Avenue Financial

 

Asset Based Lines of Credit as a Business Financing Solution and Bank Alternative

 

Canadian business owners and financial managers continue to hear about newer forms of business financing in Canada, mainly asset based finance / asset based lending, and, even more remarkably, an asset based line of credit facility.

 

 

Understanding Asset Based Finance 

 

Clients always ask us the same thing - Is this a form of debt financing, and exactly what is the difference between this and a Canadian chartered bank facility? Let’s examine those questions more closely.

 

In general asset based finance is a broad term which, could refer to several things. We have the same problem with other terms such as working capital and cash flow; they seem to be 'catch-all' phrases for several types of business financing and to make things more complicated they infer different things to different people.

 

Understanding the Terminology

 

 

So let’s be clear, using asset-based lines of credit jargon we are talking about a business line of credit that a Canadian chartered bank offers, and comparing it to the new kid in town, as asset-based line of credit via an independent commercial finance company.

 

 

Utilizing Asset-Based Credit Facilities 

 

When your firm originates an asset-based credit facility, you are in effect, using the liquidity in your current assets (typically those are receivables and inventory) and in some cases, pulling some liquidity out of fixed assets such as equipment and real estate. Yes, you can access cash flow on a revolving basis out of your equipment and land if they are unencumbered.

 

We still probably have most business owners confused because they are asking themselves right now that this seems exactly what my bank does (or what you would like them to do).

 

 The Specialization of Asset Based Lenders 

 

So here’s the difference - asset-based lenders are highly specialized. Unlike many bankers who are generalists, they are highly focused on the actual true underlying value of your assets on an ongoing basis.

 

By ongoing we mean daily, weekly, monthly, not long-term. In the old days (and boy, do we wish the old days were here in business financing), you met with your banker quarterly or yearly, reviewed your financials, reset the credit line, and went on to grow, prosper and succeed.

 

However, business banking has changed in Canada, and accessing the cash flow and working capital you need daily has become more challenging. Banks are regulated by provincial and federal governments around their capital bases and what they can lend on and are subject to concentration issues. By that, we mean that a bank could not choose to lend all its capital to one industry, such as autos, etc.

 

 ABL is The Key Differentiator 

 

So the key differentiator in asset based lines of credit is simply that you are working with a company that is often not regulated and is staffed by a specialist with a firm handle on your asset base.

 

That's where the good news kicks in because you can sometimes access up to 50 -100% more in revolving credit facilities. After all, the advances against receivables, inventory (yes inventory!) and other assets are maximized to the hilt.

 

In essence, you are working with an asset-based finance lender that can provide you with maximum cash flow and work with you to give you vital insights into asset turnover and help you through special situations. Remember, this is not debt financing via term loans or additional debt on your balance sheet; you are monetizing your liquid assets to the maximum.

 

Key Takeaways

Asset-Based Financing Basics: Understanding the fundamental concept that asset-based financing leverages your company's assets, such as receivables and inventory, to secure a line of credit is crucial. This concept is the cornerstone of asset-based lines of credit.

Differences from Traditional Banking: Recognizing that asset-based lines of credit differ from traditional bank financing is essential. Highlight the key distinctions, including the specialization of asset-based lenders, their focus on asset values, and the flexibility they offer.

Asset Monetization: The concept of monetizing your liquid assets, like equipment and land, without adding long-term debt to your balance sheet is critical. This illustrates how asset-based financing provides cash flow without traditional loans.

Benefits of Asset-Based Financing: Understand the advantages, such as higher credit limits via a higher loan to value ratio on the borrowing certificate, more significant cash flow potential, and tailored financing solutions. These benefits make asset-based financing an attractive alternative to conventional banking.

 

Conclusion

 

So there’s the main difference, and if this type of financing for your business seems to make sense for your company's cash flow needs, Call 7 Park Avenue Financial to a trusted, credible and experienced business financing advisor to guide you through the next evolution in Canadian business financing when you choose asset based lending and when you need to secure funding.

 

FAQ

 

What exactly is an asset based line of credit, and how does it differ from traditional bank financing?

An asset based line of credit is a type of business financing that leverages your company's  valuable assets, such as receivables, inventory, and even fixed assets, to provide a revolving line of credit. Unlike traditional bank financing, asset based lenders are highly specialized and focus on the actual value of your assets on a daily, weekly, and monthly basis, allowing for more flexibility and potentially higher credit limits.



How can I access cash flow from assets like equipment and land using asset based lines of credit?

Asset based lines of credit enable you to access cash flow from assets like equipment and land if they are unencumbered. This means you can monetize these assets to their maximum potential without adding additional debt to your balance sheet.


Why should I consider asset based financing over traditional bank loans?

Asset based financing offers several advantages, including the ability to access more substantial credit facilities, increased flexibility, and a focus on maximizing your asset's value. Unlike traditional banks, asset based lenders are not as heavily regulated, allowing for more tailored financing solutions.

Are asset based lines of credit suitable for businesses of all sizes?

Asset based lines of credit can benefit businesses of various sizes, but they are particularly advantageous for businesses with significant assets, such as receivables and inventory. Small, medium, and large businesses can leverage these credit facilities to optimize their cash flow.

How can I get started with asset based financing, and whom should I consult for guidance?

To explore asset-based financing for your business, it's advisable to consult with a trusted and experienced business financing advisor such as 7 Park Avenue Financial. They can help you navigate the nuances of these credit facilities and guide you through the process of securing asset based lines of credit tailored to your specific needs and goals.

 

What are the typical eligibility criteria for businesses seeking asset-based lines of credit?

Eligibility criteria often include having a solid asset base, sales revenues, and a history of general creditworthiness, and the ability to demonstrate consistent asset turnover. The specific requirements may vary among lenders.

Are startups eligible for asset-based lines of credit, or is this financing option primarily for established businesses?

Asset-based lines of credit are typically more accessible to established businesses with a track record of assets and operations. Due to their limited asset base, startups may find it more challenging to qualify.

What potential risks are associated with using asset-based lines of credit for business financing?

Risks can include the potential for higher interest rates compared to traditional loans, the risk of asset devaluation affecting credit limits, and the need to regularly monitor and report asset values.

How can businesses mitigate asset-based financing risks to ensure financial stability?

Mitigation strategies include prudent management of  balance sheet and physical assets, careful selection of asset-based lenders, and maintaining strong financial discipline to prevent over-leveraging for this type of cash flow financing.


What does the application process for asset-based lines of credit typically involve, and how long does it take?

The application process may include a detailed review of your assets, financial statements, and credit history. The timeline can vary but may take several weeks to complete, depending on the complexity of your financial situation. Some companies may simply choose accounts receivable financing facilities.


Are there any specific documents or information businesses should prepare when applying for asset-based lines of credit?

Businesses should be ready to provide documents for asset based loans, such as financial statements, accounts receivable and inventory reports, and details about their assets. Being well-prepared can expedite the application process.




 

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Rise of ABL Finance : A New Era in Canadian Business Funding

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The Challenges of Traditional Bank Financing in the Modern Canadian Landscape

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

        Financing & Cash flow are the biggest issues facing businesses today

               Unaware / Dissatisfied with your financing options?

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

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Unlocking the Power of ABL Financing Loan Revolver in Canada

Exploring Asset Based Lending in Canada

 

Introduction

 

A recent article  by Michael A Cappabianca  / Aird & Berlis was an excellent summary of Asset-based lending post-Covid -

 

In the article, the author maintains that the COVID-19 pandemic deeply affected the global economy, with Canada's asset-based lending (ABL) market experiencing significant changes in demand, credit availability, and overall dynamics.

 

The pandemic led to a notable shift in ABL demand as companies across sectors like manufacturing, retail, and hospitality utilized it to manage liquidity, fund operations, and harness growth opportunities. Pandemic-induced disruptions saw many businesses unable to fulfill financial obligations, leading them to turn to ABL, especially with the lure of record-low interest rates.

 

Cappabianca further maintains the future of the ABL market in Canada holds several considerations. Interest rates play a crucial role, with ABL loans typically having higher rates than traditional cash flow loans; a rise in rates could make ABL less appealing to borrowers.

 

The market is also influenced by volatile asset values due to changes in demand, interest rates, pandemic-related supply chain challenges, and global unrest. Lenders for an asset  based loan must assess risks in sectors like travel while identifying growth in health care and e-commerce areas. Other factors include rethinking supply chain management, adhering to a potentially changing regulatory landscape, and the vital role of ABL in post-pandemic business recovery.

 

As summary, the author maintains that despite the challenges brought about by the pandemic, ABL's versatility has proven to be a critical tool for businesses in Canada. Its adaptability has been essential in helping companies navigate the tumultuous economic environment. As the nation's economy begins its recovery phase, ABL will be pivotal in fostering growth and supporting enterprises in their rebound efforts.

 

 

Understanding ABL  Versus  The Challenges of Traditional Bank Financing

 

Are you totally on top of the newest trend in Canadian business financing? Then, of course, you're fully aware and knowledgeable on ABL  asset based loans for a business credit revolver loan versus the alternative... a bank line of operating credit.

 

What's that? You're not? No problem... read on!

 

Nowadays, no Canadian business owner or financial manager disputes with us the challenges of obtaining what everyone seems to call 'traditional' bank financing. For all the right reasons (probably... hopefully?!) Canadian banks hunkered down and tightened the lending strings after the 2008-2009 financial debacle. Current higher rates in 2023 and generally poor economic and market conditions inhibit bank financing for many firms.

 

The Rise of ABL Financing

 

 

Therefore, it’s not hard to determine how various specialized funds and independent finance firms became prominent by offering ABL funding . A = Asset B = Based L = Loan... It’s as simple as that.

 

 

  

Finding a Solution to Business Financing Challenges  

 

Do you recognize any parts of the following story... we think you will. You feel as if you have hit an impasse in expanding your firm. Personal funds have been depleted, and your efforts to find that elusive 'traditional' financing have failed. Additionally, your firm might have some real challenges in returning to profit after your industry has been out of favour with those in the glass towers who seem to know everything...

 

Asset Based Financing: An Alternative to Bank Lines

 

Is there really a viable solution to that business financing challenge, i.e. a real-world alternative to a bank line/cash flow financing and credit revolver loan? Enter asset based financing and asset-based lines of credit!

 

  

Assessing the Cost of Asset Based Loans

 

Interest rates for ABL Funding can vary depending on factors like the borrower's creditworthiness and the assessed risk of the collateral. In some cases, ABL Financing rates may be higher than traditional bank loans, but they offer unique benefits, such as greater flexibility and access to liquidity based on assets.

 

Depending on the size of your facility and the overall financial condition of your firm, the cost of ABL financing will either be lower, competitive, or higher than your current finance arrangements. ‘Thanks a lot' we can hear you say, as that sure wasn’t very informative!

But we stand by that comment because of the complexity involved in assessing the size of your financing requirements, the overall creditworthiness of your company, and the mix of financing you need when it comes to ABL . The bottom line is simply that every situation is unique and needs to be addressed in that manner.

 

Unlocking High Liquidity Ratios

 

The essence of our message is hopefully clear - you do have a Canadian business financing alternative. It's a non-bank revolving credit revolver via an independent firm that provides very high liquidity ratios on a loan to value ratio on key balance sheet assets such as credit and loan terms on receivables, inventory, and in many cases, fixed assets and commercial real estate.

 

  

Qualifying for  Asset Based Lending ABL Financing  

 

Do we qualify? is question number 1 or 2 more often and not from clients. The answer in the ABL  world is that everyone qualifies with only one required criterion - you have sufficient assets and sales and a need for working capital via that borrowing base of sales and assets.

 

Because that’s what an asset based line of credit revolver is all about. And, as we said, it might be more expensive, and due diligence on your operations and assets might be a bit more rigorous (in fact, it will be for sure - ABL lending focuses on assets, not ratios!).

 

  

The Canadian ABL Loan Marketplace  

 

What's happening in the Canadian ABL loan marketplace? Lots. Billions of dollars of financing are being accessed every day by your competitors who are knowledgeable about this new type of Canadian business financing. And it’s sure cheaper than bringing in additional equity if in fact, that could be arranged.

 

 

Key Takeaways

 

 

1. Definition of ABL -  Understand that ABL stands for Asset-Based Lending, a financing method where a business uses its tangible assets, such as accounts receivable, inventory, and equipment, as collateral to secure a line of credit or loan.

2. Benefits of ABL Financing: Recognize that ABL  loans offer advantages like increased liquidity, flexibility in funding use, and access to capital even when traditional bank financing is challenging to obtain.

3. Differences from Traditional Bank Loans: Differentiate asset-based loans from traditional bank loans, noting that it relies on assets rather than creditworthiness, making it accessible to businesses with valuable collateral but potentially weaker credit profiles.

4. Qualification Criteria: Understand that the primary qualification for ABL Financing is the presence of business assets, making it more inclusive compared to traditional loans.

5. Cost and Risk Considerations: Acknowledge that the cost of ABL  can vary, and due diligence on assets and operations is more rigorous. Balancing the benefits against potential higher costs and risks is essential.

 

 Conclusion 

 

Interested? Intrigued? Want to know more? Call 7 Park Avenue Financial,  an experienced, trusted, and credible Canadian business financing advisor, for the scoop on an ABL loan versus bank line. We guarantee you will be glad you did.

 

  

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

  

 

 

 

What is ABL Finance, and how does it differ from traditional bank financing?

ABL Financing, short for Asset Based Lending, is an alternative to traditional bank financing in Canada. It revolves around using your business assets, such as receivables, inventory, and fixed assets, as collateral for a line of credit.

Why have asset based business credit lines gained prominence in Canada?

Canadian banks became more cautious with lending after the 2008-2009 financial crisis, leading to challenges in obtaining traditional bank financing. ABL Financing became prominent as an alternative solution for businesses.

How does ABL Financing address the challenges faced by businesses needing funding?

ABL Financing offers a real-world alternative for businesses that have struggled to secure traditional financing. It provides liquidity based on tangible assets rather than solely on financial ratios.

Who qualifies for ABL Financing, and what are the criteria?

The primary qualification for ABL Financing is the presence of business assets. As long as your company has assets, you can potentially qualify. However, the due diligence process on your operations and assets may be more rigorous than traditional financing.

 

What types of businesses in Canada are best suited for ABL Financing?

ABL Financing is suitable for a wide range of businesses, including manufacturing, distribution, retail, and services. It is especially beneficial for companies with substantial tangible assets, such as inventory and accounts receivable, that can be used as collateral.


Are there any limitations on how businesses can use funds obtained through ABL Financing?

Generally, businesses have flexibility in using funds obtained through ABL Financing. They can use the capital for various purposes, such as expanding operations, managing cash flow, purchasing inventory, or financing acquisitions. The borrower and the lender often negotiate the specific use of funds.

What are the key differences between ABL Financing and equity financing in Canada?

ABL Financing involves securing a line of credit using a company's assets as collateral, while equity financing typically involves selling ownership shares of the company to investors. ABL Financing allows businesses to maintain ownership and control while leveraging their assets for funding, whereas equity financing dilutes ownership.

Are there any risks associated with ABL Financing that businesses should be aware of?

While ABL Financing offers valuable benefits, it also carries risks. Businesses need to be cautious about overleveraging their physical assets, as failure to meet repayment obligations could lead to the loss of valuable collateral. Additionally, the due diligence process for ABL Financing can be rigorous, and lenders may closely monitor a company's financial health throughout the financing term. Businesses must understand these risks and manage them effectively.