Cash Flow Loan Working Capital Management Solutions

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The Cash Flow Doctor Is In! Working Capital Management Solutions To Meet Your Cash Flow Needs

Working capital management challenges often conjure up the fact that there's something rotten in cash flow land.

BEST OPTIONS FOR CASH FLOW LOANS?

Is there a solution to your cash flow needs? Is that type of loan even available? Let's dig in!

The ability of a business to be able to cover daily expenses is key, and the cliche that is never really that worn - cash flow is king- still rules when it reflects healthy businesses. But when those cash inflows are not consistent and traditional loan financing from banks is not available a cash flow lending solution is required. At the end of the day it's all about asset based lending vs. cash flow lending and which one of these might best suit your business.

There are any uses for working capital loan facilities - it might be about the business owner's goal to fund growth, in other cases, it might be reinvesting in r&d ( and hopefully accessing SR&ED Financing solutions) - The ability of a business to secure different types of credit facilities/line of credit can assist in the growth and day to day operating challenges of Canadian businesses.

In some cases, a permanent working capital solution will help offset the lack of assets or external collateral.

WHY CASH FLOW FINANCING WORKS

Some cash flow loans have a term loan structure and are based solely on the cash flows of a business - with little or no emphasis on personal assets or external collateral of the owners.

Canadian cash flow lending banks offer unsecured loans based solely on historical and present cash flow and the ability of the business to continue cash performance via sales and asset turnover. In that way, cash flow loans are different than asset-based financing solutions.

Amortization terms on these types of loans are usually in the 3-5 year range and are supported by those inflows of sales revenues - depending on the lender there is often flexibility in interest or principal postponement if that makes sense.

So assuming the role of the cash flow doctor let's talk about your company's symptoms! Are any of these recognizable?

5 SYMPTOMS OF A CASH FLOW PROBLEM IN YOUR BUSINESS

THE CASH FLOW PRESCRIPTION!?!

Expanding too quickly allows you to stay ahead of the competition of course, but brings with it something the finance folks call 'overtrading', which is a cash conversion cycle of negativity when those commitments we referred to can't be made because of the high investment in receivables, inventory and fixed assets you have made to grow your business.

The Bottom line - you've got business assets, but they are all tied up, leading to a case of poor liquidity. And we must be honest here; if you didn't have the assets or sales potential there is almost no way we can help.

ASSET BASED LENDING FINANCE SOLUTIONS VS CASH FLOW FINANCING

Soon or later any growing company will require some level of borrowed capital and understanding your borrowing choices is key to long-term success- In some cases, it might be a traditional bank solution to fund the business operations - which might also include the desire to acquire a business or competitor or fund the purchases of new assets or technology.

Your ability to bring liquidity and monetize your assets focuses strongly on identifying how you are able to convert assets to cash.

What about those solutions we've spoken of? It always comes down to current assets, so you require a solution to be able to monetize sales quickly and convert A/R and inventory in working capital management success.

In Canada your alternatives are several, and quite frankly these would apply to almost any business anywhere. Many clients that come to us focus on what they term a 'cash flow loan'. Is that available? Yes... Is it recommended? Maybe! It's a term loan for permanent working capital. Naturally, that comes with more debt and fixed interest payments, so that is many times, not an optimal solution. But it is a permanent working capital solution.

Our other preferred solutions to the working capital management challenge are the following:

Inventory Financing

Some businesses might be suited for short-term working capital loans, sometimes also call MCAs or merchant cash advances. These loans should not be viewed as permanent or long-term capital solutions but work for firms that can make regular payments based on sales and cash inflows.

In many cases, the seasonality or ' cash bulge requirement ' might be addressed by such a loan. In other instances, sit might be an emergency expense that was not planned for or, as well the need to start a new project around a marketing or sales initiative. Repairs or upgrades to equipment or technology in the business might also be addressed by this type of loan.

At 7 Park Avenue Financial, we have worked with many clients over the years to have an opportunity to buy inventory or material at a discount if they can pay cash to the seller/vendor using such a financing tool.

THE CASH FLOW LOAN INTEREST RATE - PROS AND CONS OF CASH FLOW LOANS

These short-term loans suit many firms and fees on late payments might be high and come at a higher interest rate - but if short-term capital is beneficial and a company can manage payments they are a wide solution from commercial and online lenders.

It is necessary to analyze the cost of short-term capital relative to the time and costs the loan will be outstanding - that will help business owners assess their overall return on capital. A short-term loan with a higher rate may have less total financing costs than a long-term loan from a traditional lender which might come with a lower interest rate.

Long-term capital needs required long-term financing solutions - so short-term loans should be used to finance long-term assets or address the expansion of the business around long-term goals.

These solutions come in a variety of combinations depending on the size of your working capital requirement, as well as the general financial profile of your business - i.e. are you currently financially challenged, or are all aspects of your business simply great? (It's rarely the latter when we talk to clients.

WHAT QUALIFICATIONS DOES YOUR BUSINESS NEED TO SUPPORT A CASH FLOW FINANCING SOLUTION?

Traditional and alternative lenders will always focus on the overall cash flow healthiness of your business which allows them to approve asset fiance of pure cash flow solutions around your business capital needs.

In unsecured loans via the traditional bank loan or alternative cash flow finance, the lender will focus on sales and asset turnover as well as the quality of key balance sheet accounts such as accounts receivables, inventories, and days payable outstanding. A high-quality customer base of well-paying clients will always impress the business lender.

The reality is that every business has a ' cash conversion cycle ' around their particular industry - some businesses are cash intensive, and some are less so. Cash flow from operations and the ability to provide accurate and conservative projected cash flow will help any financing, as well as the ability to provide and maintain ongoing financial statements. Depending on the lender and type of financing emphasis may, or may not, be placed on the financial information of owners of the business, credit history and credit scores, etc.

CONCLUSION

In summary, investigate the benefits and mechanics of the financing solutions we have outlined. Determine which ones work for your firm, and speak to 7 Park Avenue Financial, a trusted, credible and experienced business financing advisor on your ability to secure in short order the cash flow loan for business and working capital you need to run your business successfully.

FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK / MORE INFORMATION

What are cash flow loans?

Cash flow loans via a cash flow lender are usually term loans in structure and are not focused on the personal guarantees or personal assets of the owner as collateral under a loan agreement. The small business loan market focuses on past and current cash flow in the business when a short-term financing option is required. The loan agreement might be a 1-year term of long for many small business owners, while asset based loans tend to be longer in terms and structure.

High interest loans called 'short-term working capital loans/merchant advances' typically have a secondary general lien on the business which ranks behind a senior lender. These loans are lump dollar loans and financing options around a term of 12-24 months are common - Funding the day-to-day operations of a business by putting cash in the business bank account is a common use and the small business owner can stay afloat as well as take advantage of business opportunities.

Cash flow lenders might be small non-bank commercial finance firms or even online lenders who are providing loans on future sales and credit card and debit card sales for retailers - and are known as the merchant cash advance option. The company's sales and cash flow are key to loan approval

Is cash flow the same as profit?

Cash flow is not profit when looking at a company's cash flow. While profit is a financial balance representing revenues and costs on the income statement the cash flow statement reflects the inflows and outflows of a business which have different timing based on purchases and collections around the positive cash flow goal.

When is cash flow financing useful to a business?

Long-term growth is rarely solved via working capital solutions and may lead to the proverbial cash flow crunch - Capital assets and technology investments should be made with long-term funding solutions - Cash flow loans work when firms have cash flow needs outside of a traditional credit line and are focused on rapid growth in sales or new products, supplier payments being made on time and to fund the investment a firm makes in receivables, inventories, and staffing.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Working Capital Management Cash Flow Loan 7 Park Avenue Financial

UNDERSTANDING CASH FLOW LOANS