Exploring Alternative Working Capital Solutions: Beyond Traditional Banking | 7 Park Avenue Financial

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Venture beyond traditional banking because today's successful businesses require innovative financing solutions

Working Capital: Bank Alternatives and Financing Options

What Is Working Capital? How To Find Alternatives To Bank Financing

Canadian business owners and financial managers seeking working capital finance by banks or other sources are generally experiencing growth in sales and profits.

That's the good news, which is of course offset by the fact that this type of success requires additional working capital and newer ways to finance your business. Putting working capital to work enhances your firm's value when the return on capital is higher than your cost of financing!

The Importance of Liquidity in Business

Liquidity has become the name of the game and 'cash is king' even today never seems like a worn cliché. Past studies by the Conference Board of Canada indicated that the key worries of business owners were working capital cash flow. (Also referenced were 'regulatory issues and competition'). The bottom line is: Business owners and their financial managers want options for business loans and financing solutions!

Alternatives to Traditional Bank Financing  

So you have sales and assets... but can those assets generate working capital finance by banks or other alternatives?

 The Rise of Alternative Funding   

The ability to secure funding at critical times is always challenging for entrepreneurs, even in established companies. A combination of personal and business assets is often required in bank financing. That is one of the biggest reasons that alternative funding has risen to so much prominence.

Online Borrowing Solutions?

Somewhat remarkably many businesses have even turned to online borrowing solutions in Canada. Canadian chartered banks have also participated in the online borrowing industry, although reviews of customer experiences in business journals such as the GLOBE & MAIL and NATIONAL POST have met with some lacklustre customer experience.

Although approvals are relatively fast interest rates borrowing costs and terms of repayment have left many customers wanting better solutions. Merchant cash advances are one of the most popular offerings and in some cases, retailers can get cash advances based on projected future credit card sales.

The Appeal of Short-Term Working Capital Loans 

The main appeal of short-term working capital loans is the emphasis on fast approval, no requirement for additional collateral, and less emphasis on personal credit scores and net worth.

Asset  Turnover Management and Working Capital Needs 

For working capital purposes it's all about 'current assets' which include typically receivables and inventory. As you invest in those two assets to generate sales your working capital needs go up, and your ability to manage and turn over those assets plays a key role in the sourcing of working capital by banks, and non-bank institutions.

Alternative Working Capital Solutions 

Asset Based Lines of Credit

That then takes us to an alternative for bank financing, which is the fast-growing area of asset-based financing, in particular asset-based lines of credit.

A/R Financing and  Invoice Factoring

A/R Financing/Factoring (We recommend Confidential Receivable Financing) Thousands of SME'S / small businesses utilize this type of financing

Accounts receivable finance is one of the most highly utilized and successful forms of non-bank working capital financing versus short-term loans that bring debt to the balance sheet

 Other Alternative Financing Solutions 

• SR&ED Tax Credit Bridge Loans
• Sale leaseback solutions
• Inventory & Purchase Order Financing
• Loans for professional practices (Doctors/Dentists/Lawyer/Accountants, etc.)
• Short Term Working Capital Loan (aka 'Merchant Advance Installment Loans ')
• Asset based non bank lines of credit - companies pay interest on only funds drawn under the facility

The Importance of Financial Matching  

It is important to understand the financial concept of matching when it comes to working capital finance solutions.

Is Alternative Financing Right For Your Firm?

Business financing is a challenge, so owners must invest their own time, or work with a trusted advisor to evaluate options.

Companies with good sales revenues, profits and clean balance sheets will have more options such as a traditional bank loan,  but we have demonstrated that commercial lenders providing alternative finance options are plentiful and offer numerous cash flow solutions to your short-term needs. If your firm has sales, and or assets you have non-bank funding options.

Key Takeaways

1. Understanding Working Capital: This is foundational. Without understanding what working capital is, the rest of the information will not be as meaningful. It's the difference between a company's current assets and current liabilities, determining the amount of capital a business has to fund its daily operations.

2. The Importance of Liquidity in Business: Liquidity, often simplified as 'cash is king,' speaks to the accessibility and availability of funds to meet short-term obligations. It's crucial for the survival and growth of a business.

3. Alternatives to Traditional Bank Financing: This section encompasses a variety of alternative financing methods, highlighting the need for businesses, especially those that might not qualify for traditional bank loans, to explore other options.

4. Asset Management and Working Capital Needs: This delves into how managing current assets, particularly receivables and inventory, affects a company's need for working capital. The effective management of these assets can decrease the need for external financing.

5. Determining the Right Financing for Your Firm: This segment emphasizes the need for businesses to evaluate their unique situations and requirements to choose the best financing options. It's not just about obtaining financing; it's about securing the right kind of financing.

Conclusion: Prioritizing Liquidity   

Liquidity, that's what it's all about. Call 7 Park Avenue Financial , a trusted, credible Canadian business financing advisor in order to ensure your traditional and alternative business financing options are first, clear, and second, available!

FAQ

What exactly is "working capital"?

Working capital is the difference between a company's current assets and liabilities, determining the funds available to support daily operations.

Why is liquidity so vital for businesses?

Liquidity, or accessible and available funds, is crucial for businesses to meet short-term obligations, ensuring survival and facilitating growth.

What's the appeal of alternative financing over traditional bank loans?

Alternative financing often offers faster approvals, no need for added collateral, and less reliance on personal credit scores, providing flexibility for various businesses.

How does managing assets like inventory and receivables affect working capital needs?

Effectively managing these assets can decrease the need for external financing as businesses can better turn over assets to generate sales and manage cash flow.

How does the interest rate of alternative financing compare to traditional bank loans?

Alternative financing options might have varied interest rates, sometimes higher than traditional banks, but they offer more flexibility and ease of approval.

Are there any hidden fees associated with alternative working capital solutions?

It's essential to thoroughly review any contract and understand all associated fees, as some alternative financing solutions might have fees not typically found in traditional bank loans.

How quickly can a business secure funds through alternative financing?

Many alternative financing options, especially online solutions, pride themselves on speedy approvals and fund disbursement, often within days.

Do all businesses qualify for alternative working capital solutions?

While alternative financing provides more flexibility, businesses still need to meet specific criteria set by lenders, which can vary.

Can startups or new businesses benefit from these alternative financing methods?

Yes, startups and newer businesses often find alternative financing beneficial since they might not have the history or collateral required for traditional bank loans. Invoice financing is accessible to many newer businesses that do not qualify for a traditional line of credit.


 

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