EMAIL - sprokop@7parkavenuefinancial.com
Working Capital Financing Sources For A Business In Canada
Business loans in real-world scenarios don't rely on 'alternative facts' when it comes to achieving the right solution in working capital finance sources, as well as other types of funding your company might need. Looking for some solid 'real' facts on Canadian business financing? Let's dig in.
The one guarantee we provide clients is telling them that business financing is never a question of why it's usually 'when'!
THE FINANCING OF WORKING CAPITAL - THE ROAD TO SHORT TERM FINANCIAL HEALTH
Working capital and cash flow are of course the heart of every business.
The challenges of obtaining that financing become a question of time. Cash flow is required for your regular ongoing business around accounts payable and other obligations, as well as your growth strategy. In most cases your company is part of a regular cycle - you buy inventory, produce things, sell, bill and collect. In a perfect world, your suppliers give you unlimited time to pay and unlimited credit limits. And of course, your customers pay you in exactly 30 days. Guess what? It's not a perfect world!
RAISING SHORT TERM FINANCE
If you are a traditionally financed firm you have access to bank capital for revolving credit lines based on your business needs successfully raising short term capital for business needs. But for a growing number of Canadian firms access to traditional bank capital is not available. Many firms simply can't meet the numerous basic requirements that our banks demand those low-cost traditional bank financing scenarios.
You therefore probably need help in identifying sources of business financing that work for you. The solutions actually are quite numerous -
3 QUESTIONS TO ASK ABOUT YOUR BUSINESS NEEDS
What funding solution best suits your need for raising funds
What are the costs involved
Does your business model suit a particular financing solution?
SOURCES OF WORKING CAPITAL FINANCE
Working capital financing comes in several forms - it can include:
Non bank asset based lines of business credit - lines of credit are short term revolving facilities to access business credit and allow the business to pay interest only on the amount of the facility used
Inventory loans
A/R Financing - the most popular method of raising short term funds and financing sales - businesses receive advance payments prior to collection of accounts receivable - a solid alternative overdraft facility
Sale Leasebacks - refinancing fixed assets /long term assets and company owner commercial real estate
SR&ED tax credit financing
PO Finance
Working Capital Term Loans - Source of permanent working capital / long term sources of working capital / retained profits
Merchant loans - merchant advances: short term loans based on sales and owner credit history - this is a working capital loan typically 12 months in duration
Bank loans - a bank overdraft facility/business credit line
One of the most important things you can do for working capital business financing is to ensure that the type of financing you source matches your needs. What we mean by that is that you should match short term needs with short term financing.
Factoring, aka 'A/R Financing' might be a good example. If your receivables aren't financed, and you need cash to meet inventory and supplier commitments that type of financing is immediate and addresses your needs. Why would you enter into a five-year term loan at fixed payments for a short-term capital need or requirement?
Understanding your current asset mix and turnover are key to successful business growth & cash flow turnover.
Those assets can quickly be monetized into a working capital facility that comes in a variety of methods. The reality is that your inventory and accounts receivable grow lock step to your sales and your ability to finance them on an ongoing basis will give you access to, in essence, unlimited working capital.
There are some solid technical rules for them around how you can generate positive pricing for working capital facilities. By calculating and analyzing some basic financial ratios (we call them relationships) in your financial statements you can get a strong sense of what’s available in working capital business financing and what pricing might be involved.
Those ratios are your current ratio, your inventory turns, your receivables turns or days sales outstanding, and your overall debt to worth ratio. Depending on where those final ratio calculations around current assets and current liabilities ( the ' working capital ratio') come in will ultimately allow your working capital financier to put your firm in a low risk, medium risk, or high-risk band of pricing.
The bottom line - Pricing and solutions vary, and your ability to convey the positive aspects of your business to the working capital lender will ultimately lead to final pricing and solution.
CONCLUSION
If you're looking for 'facts' on small business financing for small and medium-sized businesses speak to 7 Park Avenue Financial, a credible, experienced and trusted working capital business financing advisory to determine what solutions are the best for your firm.
FAQ / FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK
What is financing working capital?
Working capital financing is the funding of temporary working capital that is available to a business by financing current assets such as receivables and inventory , or the availability of cash flow loans based on repayment of loans via cash flows of the business. Financing working capital is often related to growth or expansion as well as funding day to day operations.
What are the short term sources of working capital finance?
Sources of working capital include the ability to borrow from commercial banks and non bank financial institutions such as commercial finance companies, trade credit from suppliers, and the financing of accounts receivables for raising funds for the business - Larger firms can often issue commercial paper via the capital markets to improve financial position
