Inventory Financing Accounts Receivable Finance Solutions | 7 Park Avenue Financial

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Inventory & Receivable Financing: Your Gateway to Growth

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        Financing & Cash flow are the biggest issues facing businesses today

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Maximizing Business Growth through Inventory and Accounts Receivable Financing

Introduction to Innovative Business Financing 

Successful business owners and financial managers are always looking for a new... no, wait, 'better' way business financing success. Nowhere that is more obvious than in the quest for accounts receivable and inventory financing, the actual monetization, if you will, of your balance sheet current asset accounts.

Understanding Working Capital (W/C) Solutions

So we have dubbed the solution as a W/C solution if you will. What's W/C? Why working capital of course! And a variety of 'flavours' of this type of financing loan facility are available to your company. It's just that they are not well known - Until now!

The Evolution of Cash Flow and Working Capital Financing 

Is it unique, or novel to be looking for ways to raise cash flow and working capital out of your receivable and inventory investments? Absolutely not, it's just that it's become a lot more difficult in the past several years - and we're talking from the start-up right up to major corporations - No one has been exempt from the pain challenge of raising working capital, that works!

Exploring Available Cash Flow Products 

So what sort of 'cash flow products' if you will, are available? Many clients are skeptical that it is difficult, or impossible to generate a stand-alone inventory finance facility. There is some truth in their belief, in that the collateralization of your inventory is in many cases tied to the overall collateral that your company offers up, usually in the form of a blanket General Security Agreement given to your lender, in some cases Canadian chartered banks.

Post-Recession Challenges in Inventory Financing

However, the hard reality, even harsher since the 2008-2009 recession and the 2020 COVID-19

Comprehensive Overview of Financing Options  

So let’s cover off your options in this regard, one of them might well be the option you are looking for. At the top of our order is of course straightforward bank financing that is margined against your collateral, typically the A/R and inventory we mentioned. That’s probably optimal, but the requirements that come with that facility are significant, they are good financials, owner guarantees, strong operating performance... well you know the drill.

Alternative  Finance Firms and Asset-Based Loans  

However, did you know that there are independent finance firms that offer a working capital facility along the same lines as that chartered banking arrangement we mentioned?

The most valuable facility is the asset-based loan, a financing arrangement that in many ways is similar to a bank deal, but significantly margins your inventory financing needs simply because real value and appraisals are made on your inventory. There are numerous situations where clients have been able to double, and even triple their overall working capital loan facility with this type of transaction.

 Role of Second-Tier Financing Firms 

A number of what we call 'second-tier' firms step in for many small and medium-sized transactions, for facilities that generally range from 250k - to 3 Million dollars. These facilities are more expensive, but again give you very solid borrowing power.

 Achieving Pure Inventory and Contract Financing in Canada 

And back to our main theme, is it possible to achieve a pure inventory and contract financing in Canada.

This solution is more expensive, but non-bank in nature, and provides a method in which your suppliers are paid directly, with your rights in inventory and contracts being assigned to the lender an independent finance firm, somewhat boutique in nature. You are simply leveraging the actual inventory prior to it being sold and generated into a true receivable, which of course it can then be monetized.

 KEY TAKEAWAYS 

1. Inventory Financing and Accounts Receivable Finance: These are types of business finance where a company uses its inventory and accounts receivable (outstanding invoices) as collateral for a loan. The primary purpose is to improve cash flow and working capital by borrowing against these assets.

2. Working Capital (W/C) Solutions: Understanding that these financial solutions are designed to enhance a company's working capital. Working capital is the money available for the day-to-day expenses of a business, and these financing methods aim to increase this liquid capital by using current assets (inventory and receivables) as leverage.

3. Collateralization and Risk Assessment: Realizing the importance of how inventory and receivables are valued and used as collateral. Lenders assess the risk by evaluating the quality and liquidity of these assets. This assessment affects the amount of financing a business can secure.

4. Types of Financing Facilities: Comprehending the difference between traditional bank financing (which may have stricter requirements and lower costs) and asset-based loans offered by independent finance firms (which may provide higher borrowing limits against inventory and receivables but at a higher cost).

5. Impact of Economic Changes: Recognizing how economic conditions, like recessions, affect the availability and terms of inventory and accounts receivable financing. These conditions can alter the risk appetite of lenders and the feasibility of securing these types of loans.

Inventory Financing and Accounts Receivable Finance can significantly influence business decision-making. For instance, access to inventory financing might lead to overconfidence in stock management, prompting businesses to overstock.

Conversely, it could encourage more strategic inventory control, betting on the psychology of scarcity and exclusivity. Similarly, accounts receivable finance might alter a company's approach to credit terms with customers, balancing the immediate cash flow benefits against potentially fostering a culture of late payments.

 Conclusion

So, what's our take away here? Pretty basic, yet giving you hope. Various forms of direct inventory, non-bank financing, and contract and purchase order financing do exist in Canada. They are becoming more mainstream every day.

Intrigued? Got questions? Have a unique situation? Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor with real-world solutions to an inventory financing loan facility in Canada.

 FAQ

What is inventory financing?

Inventory financing is a loan where businesses use their inventory as collateral to receive funding for inventory purchases, enhancing their working capital.


How does accounts receivable finance work?

It involves borrowing against the money owed by customers' accounts receivable balances, providing immediate cash flow based on outstanding invoices.



Who can benefit from this type of financing?

Businesses with significant inventory or receivables who can't access traditional business loans or a bank line of credit, and need quick cash flow to meet operational costs, can benefit the most from a factoring company solution.



Are there risks involved in these financing methods?

Yes, the primary risk is over-leveraging assets, which can impact financial stability if not managed wisely.



What makes these financing options preferable to traditional loans?

They offer quicker access to funds for medium-sized and small business and are often more flexible, catering to businesses with strong assets but less conventional credit profiles who could benefit from solutions such as invoice factoring.



What are the eligibility criteria for inventory financing?

Eligibility for an inventory loan from a bank or financing company typically includes having a proven track record, a strong inventory management system, and a healthy business operation. The ability to purchase inventory for a business is critical to meet customer demand.

    

Can start-ups access accounts receivable finance?

Yes, start-ups can secure financing via accounts receivable factoring , provided they have valid accounts receivables from creditworthy customers.


How does economic fluctuation affect these financing options?

Economic fluctuations can impact lending terms and availability, with lenders becoming more cautious during downturns.



Are there specific industries that benefit most from this financing?

Industries with high inventory turnover, like retail and manufacturing, often find these options more beneficial.


How quickly can a business access funds through these methods?

Depending on the lender and the business's financial health, funds can typically be accessed within a few days to a few weeks.