OVERVIEW – Information on accessing a business line of credit in Canada. Along with bank facilities asset financing non bank revolving lines deliver on cash flow and daily working capital needs
Business line of credit needs may often require the business owner/financial mgr look beyond the ‘ norm’ associated with revolving credit lines, That’s where asset financing revolving loans come in – they’re the viable bank alternative . Let’s not forget though that bank facilities of this type offer low cost and flexibility if they can be accessed. Let’s dig in.
Fundamentally it’s all about the cost of financing benchmarked against the ‘ risk ‘ associated with your firm or its industry. It’s at these times that looking at alternatives make sense.
Revolving credit facilities are primarily used for growth; and in some cases they are a solid re-financing alternative.
The ability to constantly access and draw down working capital/cash flow needs is the key attraction of securing the proper line of credit facility. The assets that make up and drive this type of business credit are:
As these two ‘ current asset’ levels rise and fall so does the line of credit accessibility. Technically speaking the bank, or the asset based line of credit provider determine your firms access by establishing what they call a ‘ borrowing base’ – typically on a monthly basis
In the case of banks typical margins against these two assets are as follows –
A/R = 75%
Inventory – 50% (varies)
The asset based lenders who provide lines of credit typically offer higher margin borrowing:
A/R – 90%
Inventory – 50-75% – (varies)
We can with confidence and experience say that asset based non bank credit lines, while more costly, almost 99% of the time offer more borrowing power.
It’s important to not also that various conditions will be imposed by a Canadian bank or non bank LOC provider. We can (again) say with confidence (and, again experience!) that conditions imposed by asset based lenders are less onerous and more flexible. To some extent the actual limit on the line of credit can almost automatically increase without further applications, etc
What then is the bottom line of your firms search for revolving lines of credit? The key points include:
Consider the entire funding landscape currently available in Canada
Be open to looking at both bank and non bank solutions – aka ‘ traditional’ versus ‘ alternative’
Have a strong sense of your working capital and cash flow needs
Ensure you have the data to allow a bank or non bank lender to consider the credit facility – typically that’s financials, aged receivables, inventory, payables, etc
Always be open to ‘ Plan B’
In summary, if you’re focused on shortening the journey on the tough road to business cash flow and working capital financing consider all options, including speaking to a trusted, credible and experienced Canadian business financing advisor who can assist you with funding needs… that deliver.
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ Canadian Business Financing with the intelligent use of experience ‘