YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE!
ACCESSING 2 TYPES OF BUSINESS LINES OF CREDIT IN CANADA
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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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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
The business line of credit in Canada is used to finance the growth and operations of your business when that can not be done by owner capital and self-financing sufficiency. But many owners/financial managers find themselves in positions where they don’t fully understand the 2 types of business credit facilities, what they cost, and how they work. Let's dig into the ' operating line of credit'
THE 2 KEY ALTERNATIVES / CHOICES FOR A BUSINESS CREDIT LINE IN CANADA
So what are those two alternatives? And we're not talking about business credit cards or online lenders! Naturally answer # 1 from clients we meet and talk to is of course the Canadian chartered bank credit facility or business-oriented credit unions. The other, less common, but more popular every day is the non-bank business line of credit. This facility (not always, but more often than not) cost more, but offers more liquidity, is easier to obtain, and grows with the size of your business assets.
The major qualifier for bank lines of credit with a good credit limit for your business needs are pretty simple - good financial statements. Those statements must of course reflect good equity, profits, and reasonable debt load- as well as of course a good personal credit score / personal guarantee to get approved and access those solid lower interest rates in a business bank account. The credit history and business background of owners is important factor in bank lending.
THE ASSET BASED LENDING ALTERNATIVE!
If those qualifiers can't be met in their entirety the ' ABL ' asset-backed credit line is a very solid option. Common structures for the facility are similar to bank lines - the margining of receivables and inventory. The difference is that you have a much higher ' borrowing base ' around those two assets based on their ongoing values.
BUSINESS BORROWING INCREASES IN ASSET BASED CREDIT
Receivables are typically financed at 90% of their value, and inventory, depending on its nature is financed anywhere from 25-75% of its value. Real estate and equipment can also play a key part in that credit line.
For both types of credit lines, the owner/manager can assume that financing charges are only being applied on what is outstanding and utilized by your firm. While bank facilities have fixed approved limits, asset-backed credit lines have limits but are easily adjustable if your firm is growing sales and current assets. As we mentioned note that one other interesting aspect exists with the alternative ' ABL' facility. That aspect includes the financing of your equipment and fixed assets, which are, in effect, bundled into the total credit line.
The business owner/manager can therefore quickly see that the ability to borrow much more on inventory and A/R, as well as using fixed assets for additional borrowing quickly translates into a lot more working capital and cash flow for your business when you need it.
ABL ALLOWS YOU TO USED YOUR REGULAR BANK ACCOUNT
When your firm utilizes a bank line of credit it's of course all done through one operating account that the bank monitors. In the case of asset-based credit facilities, various methods can be used to facilitate the actual management of the bank account. That needs to be addressed because the ABL firm is usually not a bank but a private commercial finance company.
CONCLUSION
If you feel you're stranded in a ' wasteland ' of lack of business loan and working capital alternatives for a line of credit for business and are looking for short term day to day small business financing options seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can ensure your firm has the ability to line of credit business rates and structures for the amount of working capital you require to fund and grow your business and sell more products and services.
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Stan Prokop
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