YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT LINE FINANCE!
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Financing & Cash flow are the biggest issues facing businesses today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
LOOKING FOR THE BEST BUSINESS CASH FLOW SOLUTION FOR YOUR BUSINESS?
Business line of credit lenders offer one of the most valuable types of funding required by all types of businesses in Canada to cover day-to-day business expenses.
WHAT IS THE BUSINESS CREDIT LINE
Business credit lines allow businesses to draw down on approved credit facilities as funds are required in the ongoing day-to-day operations of the businesses - These funds are used to cover current obligations and short-term expenses of the business and allow access to needed cash flow.
Eligibility requirements for a corporate credit line will vary based on the type of lender and any unique needs of the business. This financing mechanism for business allows a company to know they have the resources to fund working capital and growth needs to fund sales revenues and investment in accounts receivable and inventory.
USES OF THE BUSINESS CREDIT LINE
It allows a business to, in effect, monetizes sales via the financing of receivables, inventory... or both, as opposed to a ' lump sum ' business loan/term loan with fixed or minimum monthly payments. Interest charges on a term loan are fixed, and a credit amount will vary. Most lenders in traditional finance focus on total credit quality and repayment terms / pay back on the funds you need. Let's dig in.
BENEFITS OF LINE OF CREDIT SOLUTIONS
The benefits of the line of credit solutions in Canada include access to a revolving facility with a fixed limit that gives the business need short-term capital to fund day-to-day operations which include purchasing materials and inventory, funding payrolls, financing sales and marketing, and accessing capital during periods of seasonality or cyclicality in the industry in which the company operates.
BUSINESS CREDIT LINES IN CANADA
When financed properly, these credit lines allow a business to sell more of their product and or services - Revenue and the resulting receivables and inventory are converted into the business lifeblood - cash flow. A secured business line requires pledging specific assets; unsecured business credit lines are general in nature on all business assets, typically when it comes to available credit needs.
The type of facility that your firm is eligible for is ultimately decided by the 'risk profile' of your business That same 'risk profile' will determine the sort of security your lender (a bank - or a commercial finance company ) requires and, as importantly, how they will manage the facility to keep your business in good standing.
THE ' ABL SOLUTION '
The business owner/manager should realize that there are different varieties of commercial credit line facilities. For example, more and more firms turn to ' ASSET BASED LENDING ' as an alternative to the Canadian chartered bank revolving credit facility.
Asset-backed facilities are secured lines of credit where specific assets of the business are used as collateral for the credit facility - Typical assets secured under these facilities are accounts receivable, inventory, and fixed assets of the business . Secured lenders focus on the liquidity of the assets.
LEVERAGING SALES REVENUES AND ASSETS FOR CASH FLOW!
One of the interesting features of this facility is that more assets (for example, equipment or real estate - if applicable) can be a part of leveraging your assets for cash flow and working capital. Your regular business bank account is used for the entire process. Interest rates are typically higher, but your facility will always provide more liquidity 99% of the time. New customers and contracts can easily be taken on, given the increased ability to finance sales revenues.
We'll add that even the banking community caught onto this one. Many of our major banks have specialized Asset-based lending businesses - although some debate how different they, in fact, really are from a standard bank offering when it comes to bank statements around asset-based financing and more flexibility for short-term funding needs. Most business owners recognize a bank interest rate will always reflect a solid borrowing cost when they qualify for bank financing solutions.
BANK CREDIT REQUIREMENTS VERSUS ASSET-BASED LENDERS
From the bank's perspective, it's, of course, all about risk, and that demands their ability to ensure requirements met for a credit line include business financial statements that demonstrate profits, cash flow, clean balance sheets, and personal commitment of owners - aka the dreaded ' personal guarantee. '
Bank facilities are generally unsecured business credit lines - specific assets of the business themselves are not collateral for the facility, as banks take a general lien on the company, as well as placing a focus on the personal guarantee and net worth and credit history of business owners. Bank interest rates are the lowest and most competitive in the financial markets for companies qualifying for bank financing.
Bank capital is unlimited when it comes to credit limit needs and numerous solid ancillary services such as online banking, forex, etc. Credit history and business performance are key requisites of bank credit approval.
Bank, of course, places a significant emphasis on personal credit score. As a rule, asset-based financing does not include a small business loan/business funding. A good credit score is typically a 650+ at credit bureaus in Canada.
Many commercial finance firms compete with banks and credit unions for what we call ' subsets ' of the bank credit facility for small businesses.
That might be:
A/R financing
or inventory financing
Merchant cash advance /short-term working capital loan providers
Small firms even use business credit cards / online lenders as a temporary line of credit - hardly the best use of business credit, but a necessity sometimes and easily accessible
MORE LIQUIDITY / ACCESS TO CAPITAL
Traditional bank financing typically provides funding for mostly A/R and inventory. This is done by monthly borrowing bases established based on the value of those two ' current assets ' on the balance sheet. A Canadian-based business should always be able to achieve a higher limit with ' abl financing,' as well as credit decisions for an increase in facility size made very promptly.
The type of working capital/cash flow finance that your business needs is often determined by factors such as seasonality bulges in sales revenue and their timing recognition, or simply the general ' operating cycle ' of the business - with different industries having different cycles and peculiarities. Asset-based finance provides you with a borrowing base to establish a monthly statement around your borrowing needs which typically vary depending on your firm's business model.
In a perfect world (is there one?), solutions from the business line of credit lenders (banks/commercial finance companies) will allow your company to convert sales into cash - allowing the facility to revolve via receipts and outflows in your business accounts. Exactly what you are looking for!
In some cases, a permanent working capital term loan from Canada's government-owned non-bricks and mortar bank might also solve a problem - it simply depends. These loans are repaid from predictable cash flows.
CONCLUSION - UNSECURED BUSINESS LINE FUNDING NEEDS
Small business always needs capital and liquidity - no secret there. It is a valuable tool for successful financial performance with flexible financing from non-bank firms instead of traditional lenders.
If you're looking for a ' detour ' in the business fork in the road for the right type of business credit line, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with funding options and ongoing access to working capital that both make sense.. and are attainable. We will work with you to streamline the application process and identify additional documentation and info relating to approval.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is a business credit line?
A Credit Line for business is an excellent way to get the funds you need while still allowing yourself some wiggle room. A traditional credit line offers flexibility and low-interest rates, making it a good option when dealing with ongoing expenses or those occasional large purchases that may come up from time to time.
Business lines of credit are offered by traditional financial institutions such as banks, business credit unions, commercial financing companies and asset-based lenders - Businesses should be able to demonstrate proper financial statements and business growth and the need to fund short-term capital.
Should A Business Get a term loan or a business revolving credit line?
Choosing a term loan or credit line is based on your business needs, as each works differently.
A small business term loan provides you with the specific amount needed for one-time expenses such as purchasing equipment and inventory. A good rule would be if it's large purchases then consider getting into long repayment plans which gives more control over when exactly all these bills need payment while still maintaining accessibility through emergency loans should things go south midstream.
Term loans are fixed amounts of financing and are viewed as lump sum loans with regular fixed installments and defined amortization periods - Business credit lines will offer more flexibility allowing a business to use and pay for funds only as needed - Lenders prefer business credit lines to fluctuate around the ongoing use of the facility to provide funds and replenish the facility with cash inflows from the collection of receivables.
What are the eligibility requirements for a line of credit?
The eligibility requirements for a line of credit will vary by the type of lender - but all businesses should be prepared to provide key business documentation such as articles of incorporation/business licences and historical and interim business financial statements and bank account information. Most companies will benefit by providing a business plan to the lender that helps validate the general financial health of the business. Business plans should demonstrate revenue growth potential and the experience of management and owners as well as financial projections that demonstrate the ability to repay debt.
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