Starved For Cash ? Dying For Business Loan Debt Financing Or Working Capital Solutions ?

Is Your Business Growing – Need Funding ? What’s The Best Solution


Information on working capital and debt financing for Canadian business owners . What type of business loan or asset monetization makes sense for your firm, and why.





At one point or another all business owners and financials managers find they have to focus on either working capital or debt financing business loan type solutions for the growth or perhaps even the survival of their firm.

The ' go to ' solution seems intuitively always to consider additional debt for the company - part of the reason is that the leverage that business loans via debt provide and pay off in higher returns on equity . Larger firms consider this as a potential means to obtain a higher valuation.

But is debt always the way to go ... not necessarily as there can be some troubling side effects for the starving patient! Working capital and debt financing are of course, when considered as a whole, the alternative to raising additional equity, bringing in a partner, having to consider the sale of your firm, etc.

So is there ways to consider ' sensible' business financing that actually make sense to the business owner of financial managers of a firm? We think there are.

Certainly there is nothing wrong with debt per se... It’s just that we hope in business that its ' good debt '. Business people recognize that as debt grows on your balance sheet (and assuming you can make the payments) your return on equity increases considerably. That’s a good thing! Higher sales will increase profits under that strategy. But again, at the end of the day it’s all about not pushing your firm to the brink with that increased debt.

The challenge also is that when firms use debt in an aggressive fashion they often have challenges in raising funding quickly, at rates that make sense and they are deserving of. At the extreme end of the curve debt will of course force a company to miss out on lost opportunities, competitors also seem to have a keen knack of sensing your weaknesses!... and in general day to day operating is often affected by the focus on debt repayments .

So are there some key management points and techniques to asses whether you should be taking on more debt. Here are some issues to consider.

Look at your financing needs from a longer term perspective; that’s often difficult to do and disregarded by many. Look at it from the viewpoint of can you defer financing additional debt without missing out on opportunities for growth.

At the same time, are you aware of the types of debt financing that might work for your firm. In Canada that consists of term loans, asset financing, cash flow loans, and other subordinated debt scenarios. Ensure you are comfortable with the rates and structures of each type of financing - more importantly from a time wasting point of view ensure you are aware of the requirements that each type of lender has for all those different debt scenarios.

This is of course the time to do some keen financial planning around your ability to meet any debt payments - and it’s a good time to consider worst case scenarios of not being able to make payments.

When debt financing isn’t the answer a working capital solution often can work. That could involve monetization of current assets via an asset based line of credit, receivable financing, securitization, or financing of tax credits or an asset sale leaseback for working capital purposes.

The best time to address finance needs is often when things are going well for your firm; consider speaking to a trusted credible and experienced Canadian business financing advisor who can assist you in business loan or working capital finance.



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 . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


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

Looking for debt Financing ? Don’t Ignore Working Capital Funding Sources

We're not shocked - You wont be either - a recent U.S. survey by CFO Magazine stated that cash flow and working capital and accessing working capital funding sources was the biggest concern of any financial manager.

Welcome to Canada ! We are pretty sure we are in the same boat as we talk to clients who seek alternatives to debt financing and liquidity for their companies.

The other key item in the study was that business in general was dissatisfied with their banking relationships - again no real surprise.

So we all agree there is a gap in working capital solutions for Canadian business. Let’s discuss why that gap exists, and, more importantly is there alternatives to taking on more debt financing while at the same increasing cash flow in your firm.

As we have written in the past we always tell clients the best program in Canada, bar none in our opinion is the government small business loan program, which is underwritten by our good friends in Ottawa. Great rates, terms and structures, what more could you ask for. Well here’s the problem, the program only covers equipment, leaseholds and real estate - that’s called debt financing. So not working capital or cash flow is ever going to come out of that program for your firm. Let's move on then.

We can start by defining our working capital problem by simply saying it’s the day to day liquidity in your business that we are talking about - essentially the amount of funds you have in your company that could be liquid if you didn’t have them tied up in inventory, accounts receivable, and in some cases prepaid current assets. And of coruse the ' double whammy' comes in when you have your obligations on the other side of the balance sheet, i.e. accounts payable and term loans.

Working capital funding sources come from two areas, debt and the monetization of those current assets. We prefer monetizing and cash flowing things like A/R and inventory as opposed to debt financing, which infers a long term commitment.

So let’s get right to the point, what are your alternatives to cash flow success. The good news is there are a good handful of alternatives - they include operating lines of credit which can come from your bank or your non bank lender. Clients are increasing more interested in hearing about non bank lenders because these firms can more readily approve financing for your inventory and receivables. The ' buzz word' around this industry is asset based lending, and we advise clients to check it out, because in many cases it’s the ultimate solution to working capital success.

If you are a smaller firm you can employ accounts receivable financing, otherwise known as invoice discounting. If done properly ( and many times it is not ) it can turn your firm into literally an ATM cash flow machine, as you generate instant cash flow for all your sales . This type of facility comes at a cost and we find there are many misconceptions about the cost of this type of financing, and as importantly, how it works.

So lets summarize - you aren’t going to get working capital from our friends in Ottawa - if you qualify for bank financing employ it! Many of our clients don’t, so consider great alternatives for working capital funding sources such as asset based lines of credit, receivable financing, or in some cases even securitization.

So if your firm has a thirst for liquidity (!) speak to a trusted, credible and experienced Canadian business financing advisor who will work with you to solve your cash flow challenge .
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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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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