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Financing & Cash flow are the biggest issues facing business today
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Private lenders for business are revolutionizing the financial landscape by offering innovative, flexible funding solutions that traditional banks often cannot match.
Unlock your business's true potential with private lending: Where traditional banks say "No," we say "Let's grow!"
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Non-Bank Finance for businesses & solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Traditional vs. Non-Bank Private Business Loans Options
Two Alternatives for Revolving Credit Lines
When your company requires revolving credit lines, two basic alternatives emerge:
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The traditional commercial chartered bank solution
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A non-bank commercial ABL facility
Let’s dig in.
The Non-Bank Lender In Canada
Alternative non-bank lenders for businesses have emerged as vital alternatives to traditional banking via conventional financial institutions in Canada. These lenders offer flexible financing solutions tailored to the unique needs of modern companies in Canada.
Thousands of companies cannot meet conventional banks' stringent criteria, so they are offering asset-based lending, invoice factoring, and other innovative financial products.
Maximum Thrust, Minimum Drag
The aeronautical term ‘maximum thrust / minimum drag’ makes sense to us when it comes to your business's financing needs. You’re looking for maximum financing that won’t hold you back—it’s our version, we guess, of rocket propulsion when it comes to growth financing. This includes exploring private loans, which offer flexible and accessible options to maximize borrowing power.
Understanding the Landscape
Chartered Banks in Canada
Most Canadian business owners and financial managers we talk to associate Canadian business financing with our Chartered banks in Canada. U.S. banks, which have charters to operate in Canada, are also included in this category.
On the other hand, credit unions offer large business loans with reduced fees and lower rates, providing specific advantages compared to traditional banks.
Private Lenders and ABL Solutions
But what about that # 2 and trying a harder solution? It’s the ABL (asset based line of credit) private lenders offer. And in the context we’re talking about, ‘non-bank’ refers to commercial finance companies that are not regulated under our banking rules. We suppose that means they can do what they want. Private lending companies come in various forms, and it's crucial to understand the services each lender offers.
Choosing the Right Solution
Factors to Consider
How does the business owner/manager decide which of these two solutions works for their company? Both solutions typically finance receivables and inventory. However, ABL distinguishes itself by adding your unencumbered fixed assets to the mix. Simply speaking, that gives you more borrowing power through private financing options.
Acquisitions and Mergers
Many companies use business credit lines to facilitate acquisitions or mergers.
They are simply capitalizing on the assets of their company and the other business combined, monetizing these for additional cash flow and working capital.
While the bank solution in this strategy might typically involve some level of term debt, the ABL solution is more suited to maximizing borrowing power for the combined new firm. Additionally, private business loans can be a flexible and accessible option for financing acquisitions and mergers.
Cost Considerations
Bank vs. ABL Solutions
Cost is often critical in deciding which credit facility makes more sense for your firm. If your firm can meet the fairly stringent requirements of our banks when it comes to borrowing (profitable, clean balance sheets, strong cash flow coverage, solid debt to equity), the actual cost of credit these days couldn’t be lower.
ABL solutions cost more, but as we said, they are more easily accessed from an approval point of view. Many lenders offer a business loan calculator with their online application process, allowing users to input the loan amount, down payment, estimated interest rate, and loan term to calculate the monthly payment and total cost.
Why ABL Costs More: Interest Rates
Why does ABL cost more, then?
That’s because non-bank private lenders offering ABL solutions have a higher cost of funds. They typically also take more risk and have less stringent credit approval criteria. We would venture to say that they have higher overall expenses in running their business, similar to private loans, which also come with higher costs and risks.
Approval Criteria for Non-Bank Commercial Private Lenders
Basic Requirements
So what are, in effect, the approval criteria for non-bank commercial private lenders when it comes to asset-based finance? It’s pretty basic stuff:
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You must have the ability to produce regular and proper financial statements
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You’ll need to report more often on assets such as inventory and A/R levels
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Those fixed assets that are now part of your daily credit line needs will almost always need to be appraised at least once
Key Takeaways
- Private lenders for business offer alternative financing solutions to traditional banks
- Key advantages include:
- Faster approval processes
- More flexible terms
- Ability to leverage various assets as collateral
- Accessibility for businesses that may not qualify for bank loans
- Main types of private lending:
- Asset-based lending
- Invoice factoring
- Working capital loans
- Equipment Financing
- Bridge loans
- Private lenders often focus on:
- Asset quality over credit scores
- Industry-specific needs and trends
- Overall business health and potential
- Potential drawbacks:
- Higher interest rates
- Stricter reporting requirements
- Potentially shorter repayment terms
- Best suited for:
- Businesses with significant assets
- Companies experiencing rapid growth
- Enterprises with seasonal cash flow
- Industries underserved by traditional banks
- Technology has streamlined private lending processes, improving:
- Application procedures
- Risk assessment models
- Funding decision speed
- Private lenders play a crucial role in:
- Filling gaps in the business financing ecosystem
- Driving innovation in financial products
- Providing tailored solutions for diverse business needs
- When considering private lending, businesses should:
- Carefully review all terms and conditions
- Compare options from multiple lenders
- Consider both short-term needs and long-term financial strategy
Conclusion
Does size count? We’re talking about facility size, and ABL solutions range from 250k into the tens of millions of dollars. It goes with saying (but we’ll say it anyway!) that most commercial bank facilities typically start in the 500k range with no upper limit.
Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian Business Financing advisor who can assist you with your business funding needs.
FAQ
What are the main advantages of using private lenders for business financing?
Private lenders offer faster approval processes, more flexible terms, and the ability to leverage various assets as collateral. They often fund businesses that may not qualify for traditional bank loans.
How does asset-based lending work with private lenders?
Asset-based lending allows businesses to borrow against the value of their assets, such as accounts receivable, inventory, or equipment. The lender provides a line of credit or term loan based on a percentage of the asset value.
Are interest rates higher with private lenders compared to banks?
Generally, yes. Private alternative lenders often charge higher interest rates to compensate for increased risk and greater flexibility. However, the benefits of accessibility and tailored solutions can outweigh the higher costs for many businesses.
How quickly can I secure funding from a private lender?
Private lenders typically offer much faster approval and funding processes than traditional banks. Depending on the lender and the deal's complexity, funding can be secured in a few days to a few weeks, such as merchant cash advances with installment plan monthly payments. These loans do require a personal guarantee.
Can private lenders help businesses with less-than-perfect credit?
Yes, private lenders often focus more on the value of assets and the overall health of the business rather than solely on credit scores. This approach can make financing accessible to companies with challenged credit histories.
What types of businesses typically benefit most from private lending?
Businesses with significant assets, rapid growth trajectories, seasonal cash flow patterns, or those in industries underserved by traditional banks often benefit most from private lending.
How do private lenders differ in their approach to risk assessment?
Private lenders often take a more holistic view of risk, considering factors such as industry trends, management experience, and asset quality rather than relying primarily on financial ratios and credit scores.
Are there any potential drawbacks to using private lenders for business financing?
Possible drawbacks include higher interest rates, stricter reporting requirements, and shorter repayment terms. It's crucial to carefully review all terms and conditions before committing to a private lending agreement.
Can private lenders offer advice or support beyond just providing capital?
Many private lenders specialize in specific industries or types of financing versus traditional business loans, allowing them to offer valuable insights and guidance to borrowers around a secured loan . Some may provide additional services, such as financial planning or business strategy consultation, along the same lines as traditional financial institutions.
How has technology impacted the private lending industry for businesses?
Technology has streamlined application processes, improved risk assessment models, and enabled faster funding decisions for cash into the business bank account. Many private lenders now offer small businesses online platforms for easy application and account management in alternative private business financing.
What criteria do private lenders typically use to evaluate business loan applications?
Private business lenders evaluate asset quality, cash flow, industry outlook, management experience, and growth potential for SME small business owners. They often place less emphasis on traditional metrics like credit scores and debt-to-income ratios used by banks.
How do private lenders structure their loans differently from traditional banks?
Private lenders often offer more flexible loan structures, such as asset-based lines of credit, revenue-based financing, or customized repayment terms. Non-bank private business lending firms may also be more willing to work with businesses to adjust terms as needs change versus rates on a bank unsecured loan.
What role do private lenders play in the overall business financing ecosystem?
Private lenders fill crucial gaps in the market, providing financing options for businesses that may not fit traditional banking criteria. They offer alternative private business loan innovative solutions that can complement or serve as alternatives to conventional bank financing, fostering competition and driving innovation in the financial sector.
