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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Alternative Business Financing Options
Introduction to Alternative Financing
Alternative financing refers to non-traditional financial options that provide businesses access to capital outside traditional bank loans.
While banks say 'no,' alternative business financing opens doors to growth that many Canadian entrepreneurs never knew existed.
These options have gained popularity recently, especially among small business owners who may not qualify for traditional financing due to strict eligibility requirements or lack of collateral.
Alternative financing options offer flexible repayment terms, faster funding, and more accessible eligibility requirements, making them attractive for businesses looking to grow or expand.
For many business owners, traditional bank loans can be challenging to obtain due to stringent credit score requirements and the need for substantial collateral.
Alternatively, alternative financing focuses more on the business’s performance and potential than just credit scores. This shift allows small business owners to access the funds to drive growth and innovation.
Beyond the Bank: Navigating Alternative Business Financing in Canada
The Problem: Traditional bank loans are becoming harder to secure, leaving many Canadian businesses struggling to fund their growth. Agitate: Without access to capital, businesses miss crucial opportunities, lose market share to competitors, and struggle to maintain operations.
TheSolution? Let the 7 Park Avenue Financial team show you how Alternative financing options provide flexible, accessible funding solutions tailored to modern business needs, often with faster approval times and less stringent requirements.
3 Uncommon Takes:
- Alternative financing can actually strengthen your banking relationships by demonstrating revenue management capabilities
- Some alternative financing options can serve as practical tax planning tools when structured properly
- Alternative funding can be used strategically to build business credit without personal guarantees
The Reality of Business Finance Challenges in Canada
Many business owners and financial managers think that bank business loans solve finance challenges in Canada.
But the new reality is that you might be eligible for more business financing than you thought. If bank solutions aren’t accessible, a brave new world of alternative lending is out there, offering a range of nontraditional financing options… Let’s dig in.
The Need for Business Financing and Cash Flow Management
In a perfect world (apparently, it’s not), most businesses aim to have all the cash flow they need or to access unlimited business credit lines when it comes to running/growing their companies.
Small business loans, particularly those offered by non-bank lenders, provide flexible repayment terms and more accessible qualification criteria, making them an attractive financing option for small businesses.
That challenge of ensuring that sales revenue exceeds operating expenses and commitments to lenders will ultimately decide your business’s success.
Understanding Your Capital Needs
When you understand your capital needs best, you become more ‘eligible’ for business financing through banks and other commercial lenders.
In our discussion, we’re focusing on debt and financing your assets, not equity raising, which is a whole other topic!
Additionally, alternative lending companies play a crucial role in providing financing options, especially for small and midsize businesses that may not meet the stringent qualification criteria of traditional loans.
Working Capital and Cash Flow Financing
The essence of working capital and cash flow financing revolves around selling your products and services and waiting 30-60 days for client payments. (30 days? We only wish!)
Alternative loans provide flexible solutions for small businesses, often featuring simpler application processes and quicker funding times. Business owners and managers who wish to finance their business adequately need to create cash flow budgets that reflect those inflows and outflows of cash.
The Role of Accounts Receivable in Business Financing
In most circumstances, the cash flow you generate will always come from receivable collections, and A/R is typically the largest or one of the most significant assets on your balance sheet. Peer lending, a form of non-traditional financing where individuals borrow directly from investors, is also an option.
Financing that large asset can come in several ways:
Bank Credit Facilities
Commercial A/R Financing
Asset-Based Non-Bank Business Lines of Credit (‘ABL Solutions’)
Owners and managers will find that if they focus on solid receivables management, the external solutions we have identified will become more eligible for approval in the required amounts.
Traditional financial institutions play a significant role in providing loans, offering enduring advantages in the financial market. As an aside, we all know that Canadian chartered bank financing is low-cost and flexible, but when that bank solution is not accessible, numerous other alternative finance vehicles exist.
Alternative Financing Solutions Beyond Receivables
In addition to the aforementioned A/R financing and asset-based credit lines, owners can look to venture capital as another alternative business lending option.
Sale-Leasebacks
Selling and leasing back assets is a proven cash flow strategy that corporations of all sizes use.
Refundable Tax Credit Loans
These loans are available via the 'SR&ED' program.
Royalty Finance
A non-dilutive financing method is one in which companies receive funds in exchange for a percentage of future revenues.
Purchase Order Financing
A solution that allows businesses to fulfill large orders without upfront capital.
Merchant Cash Advances / Short-Term Working Capital Loans
A Merchant Cash Advance (MCA) is a flexible form of alternative business financing in which a company receives upfront capital in exchange for a percentage of its future sales revenue.
Here's how it works:
- The business receives a lump sum payment
- Repayment occurs automatically through a fixed percentage of daily credit/debit card sales
- Rather than fixed monthly payments, the amount repaid fluctuates with business revenue
- Payments are typically collected daily or weekly
- The total repayment amount includes the advance plus a factor rate (similar to interest)
Equipment Financing: A Strategic Asset Investment
When they need to replenish new assets, companies ranging from start-ups to prominent public companies consider equipment financing the most popular method of financing assets from which their company will benefit over time. It’s a matching of cash outflows to asset benefits.
Inventory Financing: Managing an Essential Asset
Along with receivables, another often critical asset category is inventory. Small businesses usually rely on alternative financing options, such as crowdfunding and alternative loans, to access essential capital when traditional bank financing is unavailable. Bank and asset credit lines can include an inventory component, and firms that sell on cash, such as retailers, have access to inventory credit lines.
The Challenge of Inventory Financing
Inventory finance is not the easiest to obtain from traditional lenders, and careful appraisal of your inventory quality and turnover is key for an asset based lender
The Importance of Sales Growth in Business Finance
Although we always seem to preach asset management and financing techniques to clients, we're the first to recognize the importance of growing sales. Firms that can’t grow or are constantly declining sales revenues are often perceived as being in a death spiral when considering small business loans.
The Cash Flow Impact of Sales Growth
However, the challenge of growing sales, which we point out to clients, is often one reason cash flow is tight, due to the higher investments you need to make in A/R, inventory, and fixed assets.
Case Study- An Alternative Financing Success Story
A promising Canadian SaaS startup developed innovative project management software for the construction industry. Despite securing major clients and showing strong year-over-year growth, the company faced significant seasonal fluctuations in its cash flow due to the industry's cyclical nature. Its revenue varied from $50,000 to $200,000 monthly, making traditional bank financing problematic.
The Challenge:
- Banks required 2+ years of consistent revenue
- Traditional lenders couldn't accommodate seasonal revenue swings
- Fixed monthly payments would strain cash flow during slow seasons
- Growth opportunities were being missed due to capital constraints
- Emergency cash reserves were depleted, managing seasonality
Alternative Financing Solution: The company secured $250,000 through revenue-based financing with these key features:
- Payments scaled with monthly revenue (8% of monthly revenue)
- No fixed payment schedule
- No personal guarantees required
- Funding received within 5 business days
- No collateral requirements
Implementation: The funding was strategically deployed:
- $100,000 for sales team expansion
- $75,000 for product development
- $50,000 for marketing initiatives
- $25,000 for working capital buffer
Results After 6 Months:
- Revenue growth: 40% increase
- Customer acquisition: Added 150+ new clients
- Team expansion: Hired 5 key employees
- Product development: Launched 2 new features
- Cash flow: Maintained healthy reserves through seasonal dips
Long-term Benefits:
- Financial Flexibility
- Payments automatically adjusted to revenue
- Preserved cash flow during slower months
- No stress about meeting fixed obligations
- Business Growth
- Capitalized on market opportunities immediately
- Scaled operations without diluting ownership
- Maintained control over business decisions
- Operational Advantages
- Quick access to capital when needed
- No board seats or equity surrendered
- Freedom to pivot business strategy
- Strategic Impact
- Built stronger financial track record
- Improved negotiating position with future lenders
- Established alternative financing relationships
Key Takeaways
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Revenue-based financing provides capital based on future income projections, offering flexibility that traditional loans can't match.
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Invoice factoring converts outstanding receivables into immediate cash flow, solving timing gaps.
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Merchant cash advances leverage consistent card sales for quick access to working capital.
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Equipment financing allows asset acquisition without depleting working capital.
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Alternative lenders focus on business performance over credit scores, expanding access to capital.
Conclusion
Are you focused on ensuring you understand what financing you are eligible for and what traditional bank business loans and alternative methods of finance make sense for your business?
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with your finance needs.
FAQ
How can alternative financing improve my business cash flow?
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Faster access to working capital
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Flexible repayment terms
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No fixed monthly payments
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Seasonal payment adjustments
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Revenue-based options
What advantages do alternative lenders offer over traditional banks?
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Quicker approval process
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Less emphasis on credit scores
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More flexible qualification criteria
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Innovative funding solutions
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Customized financing options
How does the application process differ from traditional bank loans?
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Streamlined online applications
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Fewer required documents
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Faster processing times
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Digital verification methods
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Simple submission process
What are the typical costs associated with alternative financing?
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Factor rates vs. interest rates
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Processing fees
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Early repayment options
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Payment frequency choices
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Term length considerations
What makes alternative financing more accessible than traditional loans?
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Focus on business performance
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Flexible qualification criteria
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Multiple funding options
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Quick approval process
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Simple documentation requirements
What documentation do I need for alternative financing?
Do I need perfect credit for alternative financing?
Alternative financing focuses more on business performance and revenue than personal credit scores, making it accessible to businesses with less-than-perfect credit histories.
What is crowdfunding?
Crowdfunding enables businesses to raise capital from multiple individuals through online platforms, offering three main approaches:
- Equity-based: Investors receive company shares
- Reward-based: Backers get products or rewards
- Donation-based: Supporters contribute without returns
Key benefits include minimal upfront costs, quick fundraising potential, and building a community while maintaining operational control. This financing method is an effective alternative to traditional funding sources, particularly for startups and creative ventures looking to engage directly with their target audience.
