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ABL CASH FLOW LENDING /MEZZANINE CAPITAL
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Financing & Cash flow are the biggest issues facing business today.
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Cash Flow and Asset Based Loan Solutions
A business cash flow loan? Whether your company is expanding to increase sales or simply run into the proverbial cash flow crunch business owners might like to know that a financing tool such as mezzanine debt / subordinated debt is just around the corner. The trick? Knowing what types of loans suit your firm's exact needs and understanding these solutions complement any senior debt/secured debt you have.
DEBT / CASH FLOW/ EQUITY FINANCING OPTIONS
Additional capital infusions, whether they come from owners themselves or commercial lenders allow a company to finance specific needs - which are often industry-specific. For example mfg. companies typically require significant working capital for inventory and receivables.
UNDERSTANDING CASH FLOW LOANS
The challenge is to understand that additional long-term debt must be managed wisely .. and paid back! In certain cases, your firm might be looking at buying a competitor or a firm that adds business synergies. At the opposite end of the spectrum, some owners might be looking to take out the equity they have built up over the years while hopefully leaving the basic capital structure relatively intact.
IS YOUR COMPANY EXPERIENCING FINANCIAL CHALLENGES
Let's also not forget companies experiencing some level of financial stress, but true mezzanine loans require strong cash flow as the collateral. Those cash flows are not always present in firms experiencing any form of distress or business challenges.
True mezzanine loans are typically complementary to the debt you already have in place, although it can also be used to displace current lines of credit or owner equity.
MANY CASH FLOW LOANS ARE A HYBRID EQUITY SOLUTION
Cash flow loans for larger firms are a ' hybrid ' type of financing, in the pecking order of security they are below secured creditors but above owner equity holders. From the owner's perspective, collateralized cash flow loans are cheaper than equity raises.
So what's the problem then with cash flow financing? It's simply that it is much costlier than secured bank debt and in some cases, some mezzanine lenders might want some ownership in your firm.
The real mezzanine financing we are speaking of type is used by larger firms with the interest rate being attractive relative to equity dilution when a business considers debt and equity options. When interest rates are attractive growth capital is a solid choice via unsecured cash flow loans. A senior lender will often view 'mezz' as quasi-equity for the balance sheet.
Debt financing of any type will always be viewed as cheaper than private equity as long as the company can demonstrate the ability to repay the loan, notwithstanding the higher interest rate.
Mezzanine /cash flow loans often come with substantial flexibility and are customized to your firm's needs, allowing a company to manage cash flow and utilize funds for a variety of business and growth needs.
WHAT ABOUT CASH FLOW FINANCING FOR SMALL AND MEDIUM-SIZED FIRMS?
Companies looking for SME COMMERCIAL FINANCE solutions have the same challenges as large firms - The small business owner / financial manager wants to fund growth properly, buy competitors or finance a management buyout perhaps. Business purchase financing can often be addressed via cash flow term loans. Business acquisition loans are often a combination of term debt and cash flow financing.
WHAT IS THE BEST CASH FLOW LOAN FOR YOUR BUSINESS?
HERE ARE SOME OTHER CANADIAN BUSINESS FINANCING SOLUTIONS YOU CAN ACCESS TODAY
The Non-bank alternative financing cash flow lender provides business cash flow financing in a variety of ways. Solutions for small business owners include :
CASH FLOW FINANCING SOLUTIONS
A/R Financing
Inventory Loans -
Access to Canadian bank credit - Good business credit and personal guarantees required for secured loans and unsecured advances- Financial institutions such as banks and credit unions are the ' go-to ' for business credit for firms that qualify - Other lenders such as non-bank commercial finance companies compete with banks more aggressively in current times - offering structures and repayment terms for many small business owners - The underwriting process in business banking can take some time for owners not properly prepared and who require capital quickly
Non bank asset-based lines of credit - asset based loans based on business physical assets - The asset based lending solution competes with Canadian traditional bank financing - Typically secured loans of this nature focus on the business assets of accounts receivable, inventory, and equipment and fixed assets and real estate - Higher interests are typical in ABL lending but access to capital is greatly improved - Total cost of financing should be measured against access to more capital.
That produces a significantly greater cash flow for the company -Personal assets do not play a role in this type of financing so the focus of the owner not being personally responsible to collateralize outside assets on physical collateral is a key benefit when compared to traditional banks
That positive cash flow fluctuates on an ongoing basis and provides significant cash flow potential around challenges such as seasonality or large orders and contracts in a busy season or period. Asset based business lending is a business line of credit alternative to a bank loan agreement.
SR&ED Tax credit financing - funding the projected cash flow of your r&d work investment and the ability to access how much money is due under the sred credit.
Equipment / fixed asset financing - purchasing required assets and technology helps a company's cash flow when lease financing is utilized - An origination fee is not required for the financing of capital assets - Proper financial statements are required for larger transactions
Cash flow loans - Cash advances as cash flow loans ? Some online lenders provide short term working capital loans based primarily on sales revenues and personal credit history and credit score and personal guarantee of owners - these types of loans are a form of merchant cash advances -
The merchant cash advance was originally targeted to retailers and based on past performance and projections of future daily credit card sales/debit card future sales into the business bank account - loans for these cash flow lenders typical are short term in nature- ie 12 months term lump sum term loan structure and do no focus on the balance sheets of businesses - A general lien is placed on the company but ranks behind other secured creditors - A typical advance amount is in the 25k - 200k range and allows a company to focus on day to day activities, ie buy inventory, reduce payables, etc
Royalty finance solutions - cash flow based loans based on royalty financing versus a sale of equityor taking on additional debt
Government Of Canada Small Business Loan Program - The Guaranteed federal business loan is a term loan, not a working capital loan or line of credit. Loan terms are excellent under the program and include limited personal guarantees for owners who do not have bad credit - The loan amount under the program is capped at 1 Million dollars - Typical use of the program has loans up to 350k
Business Credit Card - Business loan options via Business credit cards
CONCLUSION - FUNDING SOLUTIONS FOR SMALL BUSINESSES IN CANADA
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian Business Financing advisor with a proven track record of success, giving you the ability to weigh the benefits and risks of cash flow finance and the type of financing your business needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is a cash flow loan - how do cash flow loans work?
Cash flow loans are a type of loan that helps businesses to overcome cash shortfalls for growth projects. Cash flow-based lending is a way for companies to borrow money by using their projected future cash flows. True cash flow loans are unsecured loans. A lender can use earnings, a credit multiplier and other factors to determine the interest rates for loans.
What's the difference between cash flow lending and asset-based business lending?
Two types of loans are cash flow-based and asset-based. Cash flow based considers the company's current cash flows, while asset based financing takes the balance sheet assets into account.
What are the requirements to qualify for a business cash flow loan?
Each lender has different requirements for working capital loans for cash flows. Most companies require an initial 2-year period of business although some offer to finance for start-up businesses that have good revenues. Minimum credit score demands can usually be quite flexible. Check your personal and business credit before applying for work capital.
What are alternative options to cash flow loans?
Alternative options to cash flow loans are available. If you have decent credit, consider small business loans via the Canada Small Business Financing Program, or invoice factoring--both could help get your funds immediately and potentially at better rates - Invoice factoring has no long term debt implication for the balance sheet
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