YOUR COMPANY IS LOOKING FOR WORKING CAPITAL FINANCE!
WORKING CAPITAL LOAN / BUSINESS LINE OF CREDIT SOLUTIONS
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Unlock your business's full potential with instant access to cash when you need it most – discover the power of a Working Capital Line of Credit.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Working Capital Line Of Credit and other cash flow financing solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Working Capital Business Credit Lines
In our humble opinion, working capital at 7 Park Avenue Financial shouldn’t be a 'Blue Moon' event for small businesses in Canada.
Working Capital Lines of Credit revolutionize business finance by offering flexible, on-demand funding solutions tailored to your cash flow needs.
That's of course a term used to mean a ‘rare event', and unfortunately, a lot of Canadian businesses view their search for a business line of credit as somewhat of a search for that 'rare event'. We don't think it has to be that way, so let's dig in.
It's All About The Cash: Warren Buffett on Working Capital Line of Credit
Not many people disagree with Warren Buffett; one of his favourite sayings is, ‘It’s all about the cash. ‘
So when we sit down with many clients for an initial conversation about working capital loans and business credit solutions, we find it interesting that much of the talk seems to revolve around sales, profits, debt, equity, etc., but not always about a company's cash flow and working capital. Therein lies the problem.
3 UNCOMMON TAKES ON WORKING CAPITAL CREDIT LINES
Contrary to popular belief, a Working Capital Line of Credit can be a strategic tool for business expansion rather than just a safety net. By leveraging this financial instrument, companies can seize unexpected growth opportunities without depleting their cash reserves.
Savvy entrepreneurs often use their Working Capital Line as a negotiating chip with suppliers. Access to readily available funds empowers businesses to secure better terms or bulk discounts, potentially offsetting the cost of credit.
In some cases, maintaining an unused Working Capital Line of Credit can boost a company's creditworthiness. Lenders may view this unused credit as a sign of financial prudence and stability, potentially leading to more favourable terms on future loans.
HOW DO YOU MEASURE BUSINESS SUCCESS IN YOUR COMPANY
So, while others, including business owners and financial managers, measure their competitiveness in the long term by success in sales, profits, etc., let’s not forget Mr. Buffett’s focus—cash flow in the short term on a day-to-day basis!
A key component of this short-term financial health is the company's current assets, which represent the difference between its current assets and current liabilities. Current assets, which can be converted into cash within a year, are essential for assessing a business's liquidity and short-term financial health.
ASSET TURNOVER IS KEY
Companies such as yours generate cash through asset turnover, and your success will ultimately depend on how you measure, finance, manage, and analyze that cash turnover.
Managing everyday business expenses is crucial for maintaining a healthy asset turnover, ensuring that routine operational costs are effectively covered.
HOW DO COMPANIES IN CANADA ADDRESS ACCOUNTS RECEIVABLE FINANCING
What are the ways that companies in Canada finance receivables?
The best and most common solutions for types of business lines of credit are as follows:
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Canadian commercial bank lines of credit (the focus is on historical cash flow and personal credit score emphasis) - The best interest rate via Canadian banks is always an attraction for the business owner, and the current low-interest rate environment is included!
Receivable financing non-bank facilities - aka ‘factoring’ ‘invoice discounting’ ‘Confidential receivable non-bank financing’ (the latter being our favourite for clients unable to access bank finance) - these facilities come with higher fees and interest rates in general but offer access to much more capital
Merchant cash advances provide quick access to funds for businesses with high credit card sales volumes.
This type of financing offers a lump sum upfront, with repayments automatically deducted from future sales. Merchant cash advances have distinct requirements compared to other funding options, making them an attractive solution for businesses needing fast funding.
Asset-based lines of credit
Tax credit financing (SR&ED, etc.)
Securitization
The cost of financing and rates and fees in your business capital solutions will vary depending on the type of financing you seek and your overall business credit profile.
Another key determinant is whether you are accessing traditional or alternative financing based on the type of business lender best suited to your business needs.
WHAT ARE THE COMPANY'S CASH FLOW DRIVERS IN YOUR BUSINESS
So what are those ‘cash flow drivers’?
One of them is of course accounts receivable. Short-term financing, such as working capital lines of credit, helps manage cash flow fluctuations by providing businesses with flexible access to funds for covering daily operational expenses. Not necessarily the amount of investment you have in A/R, (although that’s important also) but the timing of those inflows of customer receipts.
DON'T FORGET PART 3 OF YOUR FINANCIAL STATEMENTS - THE STATEMENT OF CASH FLOWS
When business owners dare say it, even financial managers review their accountant or internally prepared financials, they always tend to focus on the balance sheet or income statement.
The 3rd part of the financial statement is the cash flow statement, and because of its technical nature, many owners /managers fail to grasp how it measures your business success.
READING YOUR FINANCIALS - HERE'S 1 TIP ABOUT WORKING CAPITAL LOAN
Here’s a tip of that cash flow statement.
Believe it or not, some of the smartest financial analysts around tend to read any financial statement by first reading the footnotes to the financials, and then looking at the cash flow statement. By that time, they have figured out a lot more about your company than you’d be surprised!
A working capital loan is crucial for maintaining business stability during fluctuating sales cycles.
Working capital credit facilities via any traditional or alternative line of credit allow your firm to cover day-to-day funding needs and avoid the inevitable cash flow crunches from inventories, employee payrolls and other fixed cost obligations.
Any seasonal or one-time event in your business or industry can adversely affect cash flow.
TRACK YOUR SALES AND COLLECTIONS ON AN ONGOING BASIS
The other key aspect of cash flow that's worth discussing when it comes to a business line of credit is fluctuations in cash flow and working capital needs.
In some months collections are great, in some they are not, and in those same months, you might have larger outflows to suppliers, etc.
Sales revenue rarely goes up in a straight line. So it is often impossible to anticipate perfect cash flow needs unless you track your sales and A/R trends. But it would be best if you still tried - monthly or over 12 months to capture longer-term trends.
KEY TAKEAWAYS
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Revolving nature: Funds can be borrowed, repaid, and re-borrowed within the approved credit limit.
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Flexibility: Businesses draw only what they need when needed, minimizing interest costs.
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Short-term focus: Primarily used for operational expenses rather than long-term investments.
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Credit limit: Typically based on the company's revenues, assets, and creditworthiness.
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Interest calculation: Charged only on the amount used, not the available credit line.
CONCLUSION
Every business in Canada will eventually struggle with funding issues, so any tip or strategy related to business finances will help your business survive a credit crunch.
While business plans aren't necessarily required for loans and credit facilities, they can help your cause. At 7 Park Avenue Financial, we prepare business plans that meet and exceed the requirements of banks and commercial lenders.
Business experts tell us that over 80% of companies fail just because of cash flow —i.e., lack thereof! We have demonstrated both methods and solutions for monitoring the flow of funds and accessing sensible credit facilities.
Focus on a long-term analysis of your sales revenues' highs and lows and target temporary bulges in business credit needs.
While you can internally address issues such as lowering your expenses and utilizing long-term sources of capital to acquire assets—e.g., equipment leasing—asset turnover is still key to day-to-day funding.
Small businesses should not underestimate the need for cash flow focus and the use of the correct type of credit line for your firm. That effort allows you to avoid the tragedy and rejection feeling that comes from working capital shortages.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in your working capital needs.
FAQ
How does a Working Capital Line of Credit improve cash flow management?
A Working Capital Line of Credit provides immediate access to funds, allowing businesses to cover short-term expenses, bridge payment gaps, and maintain smooth operations even during slow periods or unexpected financial challenges.
What advantages does a Working Capital Line of Credit offer over traditional loans?
Unlike traditional loans, a Working Capital Line of Credit offers flexibility in borrowing and repayment. You only pay interest on the amount used, can repay and reborrow as needed, and avoid long-term debt commitment.
Can a Working Capital Line of Credit help my business seize growth opportunities?
Absolutely. With quick access to funds, you can capitalize on time-sensitive opportunities such as bulk inventory purchases, equipment upgrades, or expanding into new markets without depleting your cash reserves.
How does a Working Capital Line of Credit support seasonal businesses?
This credit line provides a financial cushion during off-seasons for businesses with cyclical revenue. It allows you to maintain operations, cover expenses, and prepare for peak periods without relying solely on seasonal income.
Is a Working Capital Line of Credit suitable for managing unexpected expenses?
Yes, it's an excellent tool for handling unforeseen costs. Whether it's emergency repairs, sudden inventory needs, or covering payroll during a temporary slowdown, the line of credit ensures you have funds available when unexpected situations arise.
What criteria do lenders consider when approving a Working Capital Line of Credit?
Lenders typically evaluate your business's credit score, revenue history, time in operation, and overall financial health. They may also consider your industry, business plan, and projected cash flow.
Are there any restrictions on using the funds from a Working Capital Line of Credit?
While generally flexible, these credit lines are intended for short-term operational expenses. Most lenders prohibit using the funds for long-term investments, real estate purchases, or refinancing existing debt.
How quickly can I access funds once my Working Capital Line of Credit is approved?
Access speed varies by lender, but many offer same-day or next-day funding once your line is established. Some may require a short processing period for each draw request.
What happens if I can't repay the borrowed amount on my Working Capital Line of Credit?
If you're unable to repay, consequences may include increased interest rates, fees, reduced credit limit, or potential legal action. It's crucial to communicate with your lender if you foresee repayment difficulties.
Can startups or new businesses qualify for a Working Capital Line of Credit?
While it's more challenging for new businesses, some lenders offer options for startups. These may have higher interest rates or require personal guarantees or collateral until the company establishes a strong financial track record.
What factors should I consider when determining the appropriate credit limit for my business?
Consider your typical monthly expenses, seasonal fluctuations in cash flow, projected growth, and potential emergency needs. Analyze your financial statements and cash flow projections to determine a limit that provides adequate coverage without overextending your business.
How does the interest rate on a Working Capital Line of Credit compare to other financing options?
Interest rates for Working Capital Lines of Credit are often lower than credit cards but higher than long-term loans. They're typically variable, based on a benchmark rate plus a margin. When evaluating your options, compare offers from multiple lenders and consider the overall cost, including fees.
What strategies can I use to maximize the benefits of my Working Capital Line of Credit while minimizing costs?
Utilize the line of credit strategically by drawing funds only when necessary and repaying quickly to minimize interest charges. Implement strong cash flow management practices, negotiate favourable payment terms with suppliers, and consider using the line to take advantage of early payment discounts or bulk purchase savings.
RELATED ARTICLES
CANADA SMALL BUSINESS FINANCING PROGRAM / WORKING CAPITAL
EDC EXPORT GUARANTEE PROGRAM
ABOUT 7 PARK AVENUE FINANCIAL
7 Park Avenue Financial originates traditional and alternative financing and asset-based financial services providers that offer lease financing, cash flow and working capital financing, and business acquisition loans.
The company works closely with clients to develop key business strategies based on their unique needs. The company is committed to providing the highest level of customer service and innovation to help businesses succeed.
Combining our experience and solutions, we help our clients achieve profitable cash flow and debt financing and streamline the process with a full range of credit offerings.
