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Financing & Cash flow are the biggest issues facing businesses today
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Business capital lending is essential for empowering businesses to thrive in competitive markets.
Unlock your business's potential with the right capital lending solution today!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer BUSINESS CAPITAL LENDING SOLUTIONS that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Let the 7 Park Avenue Financial team demonstrate the solutions to obtaining business lending to obtain business capital while ensuring you understand the features and benefits of different types of financing.
INTRODUCTION - BUSINESS CAPITAL LENDING
Operating lines of credit, or Asset-based lines of credit, via 'non-bank lenders, are fast becoming one of the most flexible and popular business lending methods for small, medium, and large customers to finance their operations.
Securing funding is key to running and growing your company. Business capital lenders offer a lifeline for companies seeking to bridge financial gaps, invest in new opportunities, and ensure smooth day-to-day operations to fund everyday business expenses.
Talk to the 7 Park Avenue Financial team to ensure you understand the complexity of business borrowing and ensure you make the right informed decision to finance your business.
Understanding the intricacies of business capital lending can empower business owners to make informed decisions that foster long-term success and stability.
THE RISE IN POPULARITY OF THE ASSET-BASED LENDER IN CANADA
Asset-based lending is getting increasingly popular with Canadians. These operating loans are totally focused on the assets of the business, most predominately receivables and inventory. firms. Terms are more accommodating and are usually 'non-covenant' based from a business loan perspective. Unpredictable cash flows and seasonality are often other reasons why asset-based credit line has substantial appeal to business owners and managers.
FINANCING CURRENT ASSETS - CASH FLOW 101 FOR FUNDING ASSET TURNOVER
The total focus of the facility is the 'Current asset' portion of your balance sheet, i.e. receivables, and inventory. In certain cases, equipment, real estate, and intangibles can be financed. Credit line facilities are set up based on your borrowing requirements relative to your receivable and inventory assets.
WHAT IS THE COST OF ASSET-BASED CREDIT
Generally, receivables under 90 days are financed, as those over 90 days infer uncollectability.
Although some focus is placed on overall viability and secondary sources of repayment overall, the focus is on the business assets. Rates vary based on the size of the facility, overall asset quality, and the lender pricing model - While they deliver the ultimate liquidity based on those higher borrowing margins borrowers of non-bank solutions should almost always expect a higher interest rate.
BANK LENDING VERSUS ABL LENDING
This type of financing provides the firm with significantly more liquidity as the Canadian chartered banks usually lend only 50-75% on current asset categories such as receivables and inventory.
More and more Canadian businesses in the small and medium-sized enterprise space are finding it difficult to achieve the operating lines of credit they need from our traditional lenders, such as the Canadian chartered banks. These firms are turning to asset-based lenders. In our experience, many companies are not even aware that such a financing option exists.
Asset-based lending places less emphasis on proven track records and financial strength instead of focusing on key business assets such as accounts receivable, inventory, and in some cases, equipment and real estate.
A small business looking for an equipment purchase should consider the Canada small business financing program offered by the Canadian government - the program is facilitated via banks and the majority of the loan is guaranteed to the bank by the federal government. The program also funds leasehold improvements and real estate.
Equipment financing via a traditional lease finance solution can also fund new assets and technology your business needs.
FINANCING NEW ASSETS
Owners of the business must have a good credit score the program is limited to companies with less than 10 Million dollars in sales revenues annually. Owners ready to get good interest rates should investigate the government small business loan. This is a term loan, so it's a long-term solution that matches the need for assets that will be used in the business, and borrowers can choose between a variable or fixed rate - Typical loan terms are between 24 months to 60 months based on the need of the borrower.
THE MOST POPULAR METHOD OF ASSET-BASED LENDING IS ' FACTORING'
True asset-based lending should not be confused with 'factoring.' In a factoring environment, the company in effect sells its receivables to another firm at a discount. Asset-based lending allows the company to bill and collect its receivables. The loan is paid down and reduced, in a fluctuating manner, as the company collects its invoices.
This type of financing can, in effect become a strong lifeline in the current liquidity and credit crisis. Banks traditionally margin receivables more conservatively, and further significant reliance is placed on the customer's overall financial health concerning the current balance sheet and income statements.
The one negative aspect of this type of lending is that it comes with a higher cost. The lender usually has a higher cost of capital and is looking for a significantly higher return than a traditional chartered bank.
In most cases, more reporting by the company is often required. That is to say; they are more often submitting updated reports related to current receivable and inventory levels. Overall a more rigorous due diligence is in place.
BUSINESS LOANS & LINES OF CREDIT
The current asset-based lending market in Canada is still quite small, but the industry is clearly growing.
WHY BUSINESS LENDING FOR WORKING CAPITAL FINANCING SOLUTIONS VIA ABL WORKS
In summary, small and medium-sized businesses should check out asset-based lending as an alternative to traditional bank financing.
Asset-based lending can provide unlimited liquidity to firms who are growing - because it focuses on the assets, not the balance sheet and income sta Due to the complexity and relative lack of knowledge around this industry, the firm should work with a trusted business financing advisor.
Business owners and managers should seek qualified assistance in locating an asset-based lender that suits their industry and overall financing requirements re loan size, etc. A study done by CIBC several years ago indicated that business owners who sought out trusted financing advisors had revenues 76% above those who did not seek a business financing specialist or trusted advisor. Traditionally these types of loans or operating facilities are for firms with fewer than 50 employees.
ACCESS TO CAPITAL VERSUS COST OF CAPITAL - FINANCING YOUR ' SPECIAL SITUATION'
Asset-based lending in Canada is a classic case of a source of capital at the right time, given the current turmoil in the financial and credit markets. Many special situations can be addressed by these facilities, including buyouts and cross-border projects, and debt restructuring. Many firms that are even in bankruptcy or receivership can avail themselves of a true asset-based lending agreement.
Although it is often a more expensive type of financing the case can be made that asset-based financing is much cheaper than the firm issuing additional equity and diluting ownership. Key benefits are financing receivables and inventory at high advance rates for increased liquidity.
KEY TAKEAWAYS
Types of Business Loans: Understanding the various loan options helps in selecting the right fit for your business needs.
Loan Application Process: Knowing the application steps ensures a smooth and successful loan acquisition.
Eligibility Criteria: Meeting the requirements is crucial for loan approval.
Interest Rates: Understanding how rates impact the cost of borrowing aids in financial planning.
Loan Repayment Terms: Knowing the repayment schedules helps in managing cash flow effectively.
CONCLUSION - BUSINESS CAPITAL & FINANCING SOLUTIONS - ENHANCE FINANCING FLEXIBILITY TODAY!
Have a financing question? Small businesses and medium-sized firms in Canada will always need external financing if they are focused on growing revenues in the sale of their products and services.
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business credit needs.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is the business operating line of credit?
Businesses use operating lines of credit to meet their daily cash flow requirements. These revolving loans are often repaid by the business as they generate enough cash from sales and other transactions to make payments back on time.
Operating Lines Of Credit may be secured with assets such as receivables inventory or a variety of different collateral depending on what is available.
Operating lines of credit provide businesses with access to money when needed most: during periods where there's not much revenue coming in due to seasonal fluctuations or slowdowns related to economic downturns like recessions or depressions; but also more generally throughout an entire year if necessary so long as you have good standing.
How does business capital lending work?
Business capital lending provides funds to businesses for various needs, including expansion, inventory, or operational costs. It involves applying for a loan and receiving a lump sum or line of credit based on the lender's criteria.
What are the benefits of business capital lending?
Benefits include improved cash flow, ability to seize growth opportunities, and maintaining smooth operations. It also helps in managing financial emergencies effectively.
How do I qualify for a business capital loan?
Qualification usually requires a good credit score, a detailed business plan, financial statements, and proof of consistent revenue.
How can business capital lending affect my credit score?
Timely repayments can boost your credit score, making it easier to secure future financing. However, missed payments can negatively impact your score.
What is the typical interest rate for business capital loans and working capital loans?
Interest rates vary based on the lender, loan amount, and the borrower's creditworthiness. It's crucial to compare rates from different lenders to get the best deal.
What documents are required for a business capital loan application?
Typically, you'll need financial statements, tax returns, a business plan, and personal identification documents.
Are there any fees associated with business capital loans?
Yes, there can be origination fees, application fees, and maintenance fees depending on the lender. Commercial real estate loans might require appraisals.
How long does it take to get approved for a business capital loan?
Approval times for any business loan or working capital loan vary but generally range from a few days to a couple of weeks, depending on the lender and completeness of the application. Many smaller firms choose a merchant cash advance solution from online lenders that come with fixed monthly payments and readily accessible capital, albeit at higher rates. A minimum credit score is required by lenders, typically in the 650+ range, as well as the personal guarantee requirement. Business credit cards are also readily available.
Can startups qualify for business capital loans?
While challenging, some lenders offer options tailored for startups. A strong business plan and good personal credit can improve chances.
What is the difference between secured and unsecured business loans?
Secured loans require collateral for the financial institution or commercial finance company, offering lower interest rates, while unsecured loans do not require collateral but may have higher interest rates.
How does collateral work in business capital lending?
Collateral is an asset pledged against the loan, reducing the lender's risk and often resulting in better loan terms.
What are the alternatives to business capital lending?
Alternatives include equity financing, crowdfunding, and grants which don't require repayment but may have other implications. Merchant cash advances, ie short-term working capital loans in a term loan structure are also popular.
How can I improve my chances of getting a business capital loan?
For SME small business owners, improving your credit history and overall business credit score, maintaining accurate financial records, and having a solid business plan can enhance your chances of approval.
What is business capital lending?
Business capital lending provides funds to businesses to meet short-term needs and ensure operational continuity. It helps in managing cash flow, purchasing inventory, or expanding operations.
How does business capital lending support business growth?
By providing necessary funds, it allows businesses to invest in growth opportunities, manage daily expenses, and maintain financial stability during downturns. Some companies choose government loans as a solid solution to access capital.
What are the key factors to consider when choosing a business capital lender?
Consider interest rates, loan terms, fees, and the lender's reputation. Comparing multiple lenders ensures you get the best deal for your business needs.
