Explore more about working capital financing loans here.
Financing working capital loans involves understanding the diverse options available, from conventional bank loans to non-traditional private lenders, and making informed choices that align with your business's unique requirements.
How can businesses strike the perfect balance between the reliability of traditional bank financing and the flexibility offered by private lenders when seeking working capital loans?
Traditional Financing in Canada
When Canadian business owners and financial managers think in terms of capital typically Canadian chartered banks come to mind. That’s what business people tend to call traditional financing in Canada. But is it always readily available and possible to obtain? Many businesses find themselves in the position of needing to grow, or in some cases simply survive around the need for extra cash flow and liquidity.
Exploring Working Capital Solutions
The optimal solution is of course simple - have some sort of facility in place to access cash... when you need it! Two choices come to mind - a traditional working capital term loan from a bank - it's essentially long term working capital with fixed monthly payments. Alternatively, and in many cases, the better option, a non-bank facility from private lenders is a better, if not more accessible solution.
Discover how private lenders can provide cash financing solutions.
Defining 'Private Lenders' & 'Alternative Finance'
And to be clear, let’s define 'private lenders' as that term is often misunderstood in the context of a Canadian working capital loan.
It may mean other things to you, but in our discussion today we are simply referring to a non-bank entity, quite often a commercial finance firm that has a specialized niche in business lending and working capital.
What facilities are offered by these 'private lenders' if we can call them that? They include offerings such as receivables purchasing, working capital facilities that combine the borrowing ability of your inventory and receivables into one facility.
Essentially a business line of credit from a non-bank entity. Other offerings, somewhat more specialized include purchase order and contract financing, tax credit financing, and what we call the ' big kahuna ' of working capital cash flow financing in Canada - ABL (Asset based lending).
Managing Current Assets and Fixed Assets
When we think of the facilities as described above we're talking about the 'current assets' part of your balance sheet - that’s where the liquidity lies.
Working capital outflows though can also be stemmed by utilizing lease financing or a sale leaseback strategy... that’s for your fixed assets of course.
Solutions for Retail Businesses.
Advantages of Bank Loans for Working Capital
The advantages of a bank loan for working capital purposes are pretty clear - it enhances your commercial credit history, rates are the lowest and most desirable.
Explore more about business capital financing loans.
So the essence of your subject today is that you're in effect surrounded by working capital finance and loan options from both private lenders and Canadian chartered banks.
It's a question of knowing what those sources are, and, most importantly... which one works best for your firm, whether you're a small retail business or a small to medium-sized established corporation. (The big boys do quite well on their own, thank you).
Learn about business cash flow financing and its role in working capital.
Dynamic Cash Flow Management: Instead of viewing working capital loans as a static financing tool, some businesses see them as dynamic instruments for cash flow management. These businesses take advantage of flexible repayment terms to strategically time their loan utilization. For instance, they may use the loan to negotiate early payment discounts from suppliers, taking advantage of cost savings that outweigh the interest expense. This approach transforms working capital loans into active tools for optimizing cash flow.
