Working Capital Financing Canadian Business | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS WORKING CAPITAL FINANCING! 

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing business today 

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

Struggling to keep your business afloat? Discover how working capital financing can be your financial lifeline.

Canadian Business Working capital financing challenges sometimes leave business owners and financial managers feeling they're on the proverbial train to nowhere.

What are the issues, then? Are there traditional or new innovative financing strategies available? Let's dig in.

Working capital financing is required in several circumstances.

The challenge is determining what type of working capital financing is best designed to meet your business goals. That might include growth opportunities or funding day-to-day operating capital for business operations.

WHAT IS WORKING CAPITAL CASH FLOW, AND WHY MUST IT BE ADDRESSED?

Your accountants will tell you that working capital is simply the result of subtracting current liabilities from current assets. However, those great accountants aren't necessarily the ones to address the challenge of accessing cash to cover those shortfalls that fall between that 'ratio calculation.'

Our friends in accounting will also tell us that a ' good ' working capital ratio is 2:1, namely, two times more current assets than current liabilities. Of course, a company can have ' negative working capital,' further exacerbating the ' cash crunch. '

At 7 Park Avenue Financial, we try to help clients instead understand the ' quality of earnings ' -namely how the financials look without accounting exercises around depreciation, etc. and ensure that true profits come from higher sales and better a/r and inventory turnover, where the real profit and cash should come from!

Many business owners don't always realize they can avoid borrowing for cash simply by negotiating better terms with suppliers, shortening their cash conversion cycle.

At this time, any commercial lender or bank will examine different types of information about your sales, credit profiles, owner background, and the amount of financing you might require for a business capital need.

Many firms are taking the ' quick solution ' financing approach, which has some major benefits but also comes with some level of risk. They look toward the short-term working capital loans many firms offer, including online portals, sometimes called merchant lenders.

Although rates are very high, the loan formula is straightforward - a loan for approximately 15-20% of your annual sales repaid that comforts both the lender and the borrower on an installment basis. These loans are almost always 12 months in duration. 

Many firms qualify because they can pay off these loans from sales revenues. ' Some might have a business line of credit in place but need complimentary financing in addition to established facilities.

Firms that rely heavily on the inventory component of their business might wish to add to inventory and, on occasion, take advantage of special pricing and supplier discounts. Other firms might have initiatives around new geographic territories or marketing initiatives.

Many early-stage companies require working capital for their investment in r&d capital. At 7 Park Avenue Financial, we're big believers in FINANCING TAX CREDITS to accelerate cash flow.

Some companies are in industries that are not ' asset-intensive, 'but they still require cash and cannot pledge large amounts of hard assets or other collateral such as real estate.

Also, most business owners don't wish to raise additional equity, which dilutes ownership. That is why several working capital solutions alleviate this problem.

Our experience tells us that companies with growth potential and experienced managers who can demonstrate quality preparation of financials, a good BUSINESS PLAN, etc., will always be able to raise cash and access working capital loans.

HOW FAST CAN YOUR COMPANY GROW 

The irony of the business owner's concern is, many times, that business is great. We hate getting technical with clients, but finance has a term called 'sustainable growth' - very simply put, it's the growth rate your firm can achieve without increasing leverage or the amount of debt to equity in your firm.

It's calculated as follows: ROE X (1-dividends paid out) ROE is, of course, return on equity, the amount of net income at the end of the year as a percentage of your firm's net worth. Perhaps we have surprised some business owners by telling them the exact day they must stop growing based on their inability or desire to borrow!

Anyway, our point is not that debt is a bad thing; it's simply that at a certain point, you cannot grow your business anymore without it. No one likes taking on too much debt.

WHAT IS AN ASSET-BASED WORKING CAPITAL FACILITY?

A better solution? An asset-based working capital facility. These lines of credit add no additional debt to your firm but give you maximum liquidity for receivables, inventory, and even equipment you own.

So, we promise to stop discussing technical financial matters. Let's discuss the financing you need and the challenges you face.

As we stated, it is ironic that the stress of managing working capital is often related to success - you have new orders, contracts, and the need to build up inventory, or perhaps you have granted special payment terms to new or existing customers.

At the same time, your firm has obligations to suppliers and term creditors such as the bank or equipment lenders.

The problem is undeniable when suppliers want to be paid either upfront or in 30 days, but you have inventory buildup needs, and your customers are paying you in closer to 60 days despite your terms of 30 days.

The traditional solutions are always too obvious: Canadian chartered banks for term loans or operating facilities, or even consideration to giving up some equity in your ownership.

That is why many business owners desire an unsecured working capital loan. Many of our clients also desire these solutions. The reality? Financial conditions and a lack of collateral prohibit traditional financing in many cases.

Therefore, those non-traditional, but getting less non-traditional solutions to look more attractive daily.

By sacrificing one of two points of gross margin and true working capital, asset-based lending facilities can provide you with all the cash flow you need to finance inventory at aggressive loan to value, 90% of receivables, and, as we said, in some cases, equipment and even purchase orders.

 BENEFITS OF PROPER  BUSINESS CAPITAL LOAN FINANCING          

So what is the final effect of a true working capital facility? It's much better financially than taking on term debt, selling equity ownership, etc.

By maximizing a true working capital facility, we have just shown you that you have increased sales and profits without taking on additional debt or giving away any portion of your equity stake.

Many firms may take advantage of working capital term loans via the crown corporation supported by the Canadian government. Their solutions complement existing senior lenders and are a good bridge between debt and equity.

Larger transactions in this area are termed mezzanine financing and, in essence, are unsecured cash flow loans. Typical uses of cash flow short-term or long-term loans are reduced accounts payable or addressing the cost of additional investments in accounts receivable and employee costs, including salaries, etc.

Your company might be a ' victim ' of seasonal tendencies in many industries, requiring additional management to focus on the proverbial cash flow credit crunch.

KEY POINT - Business owners must differentiate between long-term capital needs and short-term cash flow requirements. The concept of matching finance to the appropriate balance sheet asset is key. Asset acquisitions should be financed through long-term debt solutions such as EQUIPMENT FINANCING.

Many firms looking to acquire owner-occupied premises should consider a commercial mortgage as the proper debt financing.

Often, a new or amended BUSINESS LINE OF CREDIT will provide the cash flow for your company's needs.

A traditional bank facility or an Asset-based line of credit can provide your company with cash flow that matches sales growth and covers the additional investment your firm must make to carry accounts receivable and inventories.

A small business factoring service will often solve the problem for smaller firms. Canadian businesses not qualifying for traditional bank credit facilities can easily access non-bank asset-based lending facilities.

These facilities will almost always provide more access to credit than bank margining of the balance sheet. While more expensive, you can provide your firm with the cash to cover the business operating cycle. 

FACTORING / ACCOUNTS RECEIVABLE FINANCING / CONFIDENTIAL RECEIVABLE FINANCING

Factoring companies in Canada offer asset-based lending, which allows a company to sell receivables on an ongoing basis as soon as sales are generated. Our recommended solution in this area is Confidential A/R Finance, enabling you to bill and collect your invoices and take advantage of all the benefits of factoring.

The GOVERNMENT OF CANADA SMALL BUSINESS LOAN PROGRAM for capital loans is one of the best loans for businesses in Canada. An excellent vehicle for  small businesses in  financing three specific asset categories:

EQUIPMENT

LEASEHOLD IMPROVEMENTS

REAL ESTATE

Commonly called the ' SBL LOAN, 'it offers attractive terms and rates. The federal government of Canada guarantees the large majority of the loan via INDUSTRY CANADA.

Case Study:

A Canadian retail business faced seasonal cash flow gaps, struggling to stock inventory before the holiday rush. By securing working capital financing, they accessed $100,000 within 48 hours, enabling them to meet supplier payments and double their sales.

The result? A 40% increase in revenue and a stronger financial position for the next season.

CONCLUSION

A working capital loan or other available short-term financing solutions can meet a company's short-term operational needs for payroll, rent, and debt payments.

These loans are not used to buy long-term assets or investments, so they're just another form of corporate borrowing the company uses when funds start running low. They allow the company to pay interest only on the funds used.

Talk to the  7 Park Avenue Financial team about the many ways in which you can grow your business with cash flow solutions, such as :

Short-term working capital loans,

Lines of credit from either bank or non-bank commercial lenders

Invoce finance

Sale-leaseback financing

Merchant cash advances

SR&ED tax credit financing

Focus on keeping your business running smoothly by managing inventory and paying suppliers on time. You should also make sure to pay debts on time and prioritize accounts receivable collections; this is a great way to generate more cash flow for your business! If needed, consider external working capital financing options. 

Canadian businesses turn to business loans for working capital finance solutions when cash is required to run and grow the business. Different available solutions will allow you to run and grow your company while increasing existing assets and internal resources, which won't fill the gap.

Access to business capital is key to success. Several specific financing solutions in alternative lending business credit and traditional finance can offer your business the best business loan solution.

Call 7 Park Avenue Financial,  a trusted, experienced, and credible business financing advisor, for more information on how finance for working capital and proper working capital asset-based lending facilities can help small business owners grow sales and profits in their goods or services.

 FAQ: FREQUENTLY ASKED QUESTIONS 

What is working capital financing?

Working capital finance is a type of business financing designed to help with the working capital for your company. It can be used in different ways, but generally, it frees up cash so you can grow without worrying about getting loans from banks or investors. Working capital allows a firm to grow or take on larger projects. Every company uses working capital solutions available for different needs, but it simply generates cash in the short term under various types of traditional and alternative lending solutions.

How does working capital financing improve cash flow?
It provides immediate funds to cover expenses, ensuring smooth operations.

Can working capital financing help with seasonal fluctuations?
Yes, it’s designed to address seasonal cash flow challenges.

Is working capital financing suitable for startups?
Absolutely, especially for startups with strong revenue potential.

What are the repayment terms for working capital financing?
Terms vary but are often short-term, aligning with cash flow cycles.

How quickly can I access funds?
Many lenders disburse funds within 24-48 hours of approval.

What happens if I can’t repay my working capital loan?
Lenders may offer extensions or restructure the loan, but fees may apply.

Can I use working capital financing for long-term investments?
It’s best suited for short-term needs; consider term loans for long-term projects.

Are there tax benefits to working capital financing?
Interest payments may be tax-deductible; consult a tax professional for details.

How does invoice financing differ from working capital loans?
Invoice financing uses unpaid invoices as collateral, while working capital loans are more general.

What industries benefit most from working capital financing?
Retail, manufacturing, and seasonal businesses often see the greatest benefits.

What are the main types of working capital financing?
Options include lines of credit, short-term loans, and invoice financing.

How do lenders assess eligibility for working capital financing?
They focus on cash flow, revenue, and business performance rather than collateral.

What are the typical interest rates for working capital financing?
Rates vary but are often higher than traditional loans due to shorter terms.

Citations

1. Canadian Federation of Independent Business (CFIB) – "Small Business Cash Flow Challenges."

2. Statistics Canada – "Small Business Lending Trends."

3. RBC Economics – "The Role of Working Capital in Business Growth."