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Financing & Cash flow are the biggest issues facing business today
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Working capital lenders are a critical part of the SME COMMERCIAL FINANCE lending arena in Canada. When it comes to your 'cash flow drivers' in your company it’s the right finance solution that counts. It should be your goal to be a ' driver' on that cash flow bus, not a passenger! We're examining some of those solutions to ensure you've got the right finance model in place. Let's dig in.
Various parts of your business play a key role in the cash flow/working capital conundrum. The ability to generate a profit is certainly very close to the top of the list. The increases and decreases in your working capital account are next in line. Finally, other cash outflows come from the need to buy fixed assets, although most businesses finance those needs via lease financing and term loans.
Business owners quickly realize there's a huge difference between profit and cash flow. Suppose you or your accountants are showing a positive working capital position on the balance sheet. That doesn’t necessarily mean that you are generating positive cash flow from operations. It's short-term working capital lenders that provide the solutions to those investments you are making in A/R, inventory, and other misc. Investments.
And those solutions? They include:
Canadian chartered bank business credit lines
Non-bank asset-based credit lines
Inventory Financing
Refundable tax credit finance - primarily the ' SR&ED' program
Sale leasebacks
Unsecured cash flow loans
PO/CONTRACT financing
Sales/royalty finance solutions
As you convert those inventories and receivables into cash, you repay those facilities.
Cash flow finance lending is made by banks and commercial finance lenders based on your overall risk profile. This includes your assets' perceived values, how you convert them, and the controls and practices you have in place.
That ' risk profile ' also determines whether you can finance your business via a chartered bank or a commercial ' specialty lender.' Many businesses need to seek non-bank solutions due to volatile financial changes in their business or simple seasonality needs that drive high cash flow fluctuations.
In most cases, your company will always be able to generate higher borrowing levels via commercial lenders who provide you with more margins on your assets' levels - although typically at a higher cost.
The value of and turnover of your A/R and inventories is the essence of solutions from working capital lenders.
If you're looking to access proper financing from those cash flow drivers in your business, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your finance lending needs.
Stan Prokop
