Canadian Business Capital – Bank Business Lines of Credit & Alternatives

Business Capital. Easier said than done, right? Let's examine how bank and other secured lenders offer business lines of credit - More importantly, we're going to bet a dollar ( we're conservative by nature!) that you might not be aware of some other options and alternatives for business line of credit financing !

Business operating lines are used to finance your investments. Your investments in receivables, inventory, and other current asset accounts of course. Canadian banks willingly offer these credit facilities (no seriously, they do) but the quality of the collateral they take is critical to that offering!

So how do the Canadian banks structure that facility in order to be made whole and feel comfortable in providing you with that business line of credit that is so badly needed for working capital and cash flow financing. For a starter, they take a first charge on the actual assets that are used to margin the facility - those current assets are accounts receivable, inventory ( raw materials, work in process and finished goods ) , all secured via a common security agreement which is typically referred to as a GSA ( General Security Agreement ) . You'll of course be surprised at how un - general and very specific this agreement is!

So once you have a bank operating line of credit how long does it last for. In our experience these facilities are renewed on an annual basis - with the two criteria for renewal being your business financials of course, as well as how the account has operated over the past year.

How are limits established for bank business lines of credit in Canada? Typical ' ratios '' or ' margining ' as we have called it are 75% of accounts receivable under 90 days, and some per cent age of inventory. It's only our opinion, but Canadian chartered banks really struggle with the inventory component of your business lines of credit - most typically because they can’t be expected to have experience on the value and disposal of all types of inventory. So typically you are very luck if you can get anywhere from 10-50% inventory financing on the value of your inventory.

Do your customers ever find out about how you are arranging business capital? Not really, the security is registered at a central registry, but clients and suppliers are never notified unless, of course, your loan is called.

Naturally many firms do also require long term financing commitments for business capital assets - i.e. those ' fixed assets' on our balance sheet . Typical bank term loans in Canada range from 3-5 years, sometimes longer, and have strict repayment and cash flow coverage requirements

As many Canadian business owners know, often personal assets are also charged as extra collateral for business lines of credit in Canada. These include cash savings, home equity, cash surrender value of life insurance policies, etc.

So why do the majority of Canadian business owners and financial managers always try to get bank financing in place. In might just be force of habit, but we think two other factors play a role. They are the cost of bank financing in Canada (its low!) and, as importantly, their lack of knowledge of other financial options.

There are other financial options for business capital in Canada other than the banks? Yes, there are! Prudent owners and managers should investigate ever growing alternatives including asset based lending, confidential invoice financing, tax credit financing, and purchase order financing, and unsecured cash flow loans. How's that for alternatives!

To more closely explore traditional or alternative options in business capital in Canada consider talking to a trusted, credible and experienced Canadian business financing advisor, who can put you on the path of business lines of credit that make sense.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/business_capital_bank_business_lines_of_credit.html

Looking For Working Capital And Business Capital In Canada ? Commercial Lending Isn’t What You Think

Having a closed mind on achieving working capital and business capital financing via commercial lending just might not be the best thing .

Let's focus in on working capital financing and talk specifically about the type of cash flow solution that might best suit your business - which you haven’t even considered!

No one is disagreeing with you that Canadian business financing solutions aren’t difficult to achieve, yet alone envision. By itself working capital and cash flow financing is more unsecured from a finance firm or lenders position. So exactly how do you go about financing your business and determining what, in today’s challenging environment ( post 2008-2009 ) are the best solutions for business capital?

When you think about it, its really all about your cash cycle, how funds flow through your business and historically how your business has operated with this ' cash cycle ' in mind . Every business, or rather industry, seems to have a little bit of its own nuances.

And if you are a service focused business then the receivables you generated pose an even more of a required focus as we need to determine how you will use working capital financing to finance business operations. That is not to say that service type businesses cant be financed, it just becomes a question of securing financing that meets your specific needs - as the financial folks would say , you business is not capital or asset intensive - yet you still require cash flow financing - as your sales grow your receivables and operational needs grow also.

So let’s get to the nub of our discussion, what are the solutions available for working capital in the current Canadian commercial lending environment?

If you are more of a service business ( i.e. not capital intensive - example = mfg ) and can demonstrate on going recurring sales and receivables you are a prime candidate for a receivable financing facility . Our favorite and in fact recommending is a confidential invoice discounting/financing facility. This type of commercial lending facility is generally available through what we call non banks - i.e. private independent finance companies. It allows you to generate cash flow and working capital as you generate sales, and you can then focus on meeting your obligations of staffing and operations prior to collecting from clients. You also do this on a confidential basis, i.e. there is no notification to your client basis, as is the case with more traditional receivable financing.

Firms that are more asset intensive need to consider ABL facilities ( asset based lending ) that provide a combo of inventory, a/r and equipment financing that is margined ( on a daily basis !) to give you all the cash flow and business capital you need . Canadian businesses know only too well that lengthy collection periods can become the death of their business.

Also in many cases the amount of receivable financing you need simply isn’t always available from Canadian chartered banks - we meet many clients who have some commercial lending from banks, but it never seems to be enough when you are in growth mode or experiencing some sort of other business challenge. This then forces the Canadian business owner and financial manager to assess options that you don’t necessarily have to consider, i.e. getting in additional equity and diluting your ownership.

In summary , yes we agree its complicated - term loans, asset based loans, invoice discounting facilities, unsecured cash flow financing ... a lot of considerations . And which one is truly best for your firm. As we've said it might not be as complicated as you think .Speak to a trusted credible and experienced Canadian business financing advisor to understand the best solution and the cost and ramifications of commercial lending that makes sense for your firm.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/working_capital_commercial_lending_business.html