Unlock Business Potential: Guide to Business Finance Solutions and Working Capital Funding

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YOUR COMPANY IS LOOKING FOR BUSINESS FUNDING & WORKING CAPITAL

FOR YOUR CANADIAN BUSINESS! 

Empower Your Business: Harnessing Working Capital Funding and Other Finance Solutions

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing businesses today 

                              ARE YOU UNAWARE OR  DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

FUNDING FOR  YOUR BUSINESS IN CANADA / CAPITAL FUNDING SOLUTIONS

Working capital financing and small business financing in Canada is about assessing your current and future business finance solution needs for commercial loans and funding.

We hear a lot about 'stress testing' these days, which seems a great analogy for our theme of ensuring entrepreneurs that their businesses can withstand the right funding challenges. Let's dig in.

INTRODUCTION

In the business world, having enough cash and working capital is similar to the fuel that keeps your venture running and growing. Whether you're steering a big, established company or at the helm of a small start-up just finding its feet, choosing the right funding strategy is super important.

Picking a financial plan that fits your business like a glove can be the game-changer that nudges you toward success rather than an early exit.

So what about that oft-used term 'working capital? It's used a lot and means different things to different people in the industry via your financial statements  - more often than not, simply 'operating liquidity.'

WHAT IS WORKING CAPITAL?

Textbooks clearly define working capital: going to your balance sheet and subtracting current liabilities from current assets. That's a great textbook definition, but let's visit the real world together on what that means regarding financial resources.

In looking at different stress tests' for your business, it's all about your daily operating needs and, of course, your ability to reduce the long-term obligations you might have in leases or loans.

The absolute number of dollars in your networking capital, as defined by our definition above, does not matter. (Although positive working capital is better than negative working capital!)

FINANCING CURRENT ASSETS   

So how do you 'stress test' your business for cash flow needs? It's all about the turnover and management of your working capital accounts. Those accounts are:

Inventory

Receivables

Account Payable

Simple business logic tells us that if your inventory and receivables are turning over properly, and you're managing your payables (by delaying them to the maximum amount possible per your terms with suppliers), you will be achieving working capital management success and well on your way to 'stress test' success for a commercial loan.

FINANCING WORKING CAPITAL AS YOUR BUSINESS GROWS 

When your business is in the category of startup businesses or just growing and building up receivables and inventory, the liquidity pressures always increase as operating expenses grow. A business owner's personal investment power is limited. That's when the stress comes in!

ALTERNATIVE FINANCING SOLUTIONS IN CANADA 

Alternative financing strategies to increase cash flow availabilities are another positive solution and a good funding source. Your fixes are potentially various - a permanent working capital term loan (larger companies and the big boys call these loans' sub debt' or mezzanine financing via financial institutions and lenders such as our Canadian banks ).

Most businesses are unaware of funding opportunities in the alternative finance area, which often come with higher costs but bring significant funding to the company. They include:

 ALTERNATIVE FINANCE SOLUTIONS FOR WORKING CAPITAL BUSINESS FUNDING 

A/R Financing / Factoring / Confidential Receivable Finance - well-paying customers eliminate some of the financing support required for accounts receivable and inventory investment - High growth companies will always require more risk capital, and how much funding you need in this area depends on your DSO and inventory turns.

Inventory loans

SR&ED Tax Credit Financing - funding your research and development

Sale leasebacks on owned assets

Bank Credit lines / Non-bank asset-based lines of credit ('ABL Loans')

Many alternative finance solutions, in most cases, do not bring more debt to the balance sheet.

GOVERNMENT LOANS FOR SMALL BUSINESSES  / GOVERNMENT PROGRAMS

Canada Small Business Financing Program federally guaranteed government loans offer another debt financing solution for small businesses unable to access full traditional financing from financial institutions. The government partners with select banks and credit unions to provide government-backed loans. These can be a beneficial choice for businesses that find it hard to get traditional loans based on criteria and eligibility requirements from banks.

Similar to the Small Business Administration in the states, the government of Canada offers the Canada Small Business Financing Program, which finances equipment, leasehold improvements and even real estate for thousands of businesses every year, including startups.

In 2022 the government substantially upgraded the program, adding new types of financing and increasing the loan limit to 1.1 Million dollars - Talk to the 7 Park Avenue Financial team to determine if you qualify for SBL loans.

The program is modelled on a traditional business loan with a term loan monthly payment structure - and it does not require that you pledge personal assets as collateral security. There are no hidden fees under the program, but there is a 2% registration fee due on approval, with that amount being potentially blended into the loan payment terms. The interest rate under the program is competitive with other types of traditional financing.

Many new businesses  & startup companies, as well as franchises, are financed via these government loans. A new business will always have a daunting financing challenge. Any business with actual or projected revenue of less than 10 Million dollars can apply.

More established businesses can focus on bank loans or alternative finance solutions. Every new business owner should investigate the program. BDC loans are also available as a working capital loan option for  Canadian businesses. The business loan rate of interest for any government or government-related loan will always be competitive based on overall credit quality.

Business loan requirements for a bank loan will always demand a good credit score and the owner's personal credit history.

It is important to note these loans are not 'business grants/ government grants' but lump sum cash term loans repayable typically over 2 years to a 5-year term at the borrower's option, with no prepayment penalty! For a new company, applications for grants require time and expense ! .. and due diligence takes time for approvals.

 DEBT FINANCING 

Debt financing is a common way to fund a business. It entails borrowing from banks or other lenders and paying interest over a period. Companies must go through a detailed application process, possibly including personal credit checks with the requirement of a personal guarantee.

While it allows you to keep full control over your business and offers tax benefits, the commitment to monthly repayments and potential difficulties securing a loan during financial slumps are potential drawbacks.

THE 'STARTING A BUSINESS CHALLENGE    

Those solutions mentioned above are gaining more traction in Canadian business finance daily! On occasion, you may be asked for a business plan or cash flow projection, and these are always recommended as  part of a quicker approval process,

Many clients tell us they address some of their working capital needs through Business Visa credit cards. This adds additional capital. You are paying for what you use, but in our opinion, it does a poor job of separating the owner's personal credit from the business, as these cards are closely tied to the owners' personal net worth and credit scores.

The other solution in a more traditional sense is to ensure you are using lease financing or sale-leaseback financing to minimize cash flow out when considering asset purchases. 

Solutions such as this save the business owner from committing additional funds into the business via owner equity which he may not be able to or not want to do.

It certainly isn't unusual in Canada to see business owners, via their financial resources, 'lend' their company money in times of need to fund their business, often with no fixed repayment schedules. However, as we noted, the better solution is an effective turnover of receivables and inventory or accessing the alternative working capital solutions we've mentioned.

 CONCLUSION 

So, when those long shots of business incubators, angel investors /venture capital  & venture capitalists seem impossible, every business in Canada always returns to business capital working capital challenges.   Individual and outside investors will also demand a portion of ownership that is undesirable as a company grows.

Venture capital funding/crowdfunding is for Canada's smallest percentage of successful businesses. In the early stages, the proverbial' friends and family' is one option- although rarely the best one as investors for the company.

Those challenges are diminished, and your business is more successful when you focus on the proper turnover of current assets and the financing of those assets.

If you want to ensure your company is 'stress tested' for proper Canadian business funding needs, speak to 7 Park Avenue Financial,  a  trusted, credible and experienced Canadian business financing advisor who can assist you with your funding options and other sources of funding and capital needs via a bank loan or commercial alternative finance solution to find funding your start-ups or an established Canadian business to take your firm to the next level!

Get the financial return you are looking for by talking to our 7 Park Avenue Financial team when it's a challenge to fund your business. More funding and proper financing will enhance your long-term growth ability.

 FAQ: FREQUENTLY ASKED QUESTIONS

What is the Canadia Small Business Financing Program

The C S B F program uses a secured loan from banking institutions through sharing the risk with lenders. Loans can be used to cover costs such as leasehold improvements and leasing equipment as well as real estate/property

What are angel investors?

Angels invest their own time and money into helping small companies get off the ground. For funding what they have decided to invest in they get potential wealth from royalties or equity on successful products that made it past stage one!

Sometimes they might be leaders in a field and contribute experience and network of contacts to a company's success. Angels typically invest between $25,000-$100,000 into the early phases of business start-ups that may not have access to other types of funding.

 What is the difference between debt financing and equity financing?

  Debt financing involves borrowing money that must be repaid over time with interest. It's like getting a mortgage or car loan for your business. On the other hand, equity financing involves raising money by selling company shares. You don't have to pay back the money, but investors gain ownership of your company.

 How can working capital funding benefit a small business?

Working capital funding is a financing arrangement that can help a small business cover its short-term operational costs, such as payroll, rent, and inventory purchases. This type of financing from a traditional lending institution or commercial finance company can bridge the gap between payables and receivables, ensuring continuous operation even when revenue is inconsistent.

What is mezzanine capital?

Mezzanine capital combines the features of debt and equity financing. It's often a loan that can be converted into equity interest if the borrower fails to repay on time or in full. This provides the lender with a safety net, making it a viable option for businesses showing growth but lacking extensive financial history.

What are 8 Sources of Business Finance to Start a Business?

Personal Investment: Investing your funds demonstrates a commitment to your project. You can use cash or assets as collateral.

What are the criteria for private and government grants?

What is equity financing

What is Mezzanine Capital

Mezzanine Capital offers a hybrid financing option that blends debt and equity financing features. This funding type is often suitable for rapidly growing new companies that may not meet the stringent requirements for bank loans. Mezzanine capital can enhance a company's balance sheet appearance and be procured quickly. However, the costs can be higher due to increased risk to the lender and the risk of losing a significant portion of the company.

Click here for the business finance track record of 7 Park Avenue Financial