OVERVIEW – Information on business line of credit alternatives in Canada. Rates and other factors to consider when working capital and cash flow financing are critical to survival and growth
The business line of credit in Canada is used to finance the growth and operations of your business when that can not be done by owner capital and self financing sufficiency. But many owners/financial managers find themselves in positions where they don’t fully understand the 2 types of business credit facilities, what they cost, and how they work. Let’s dig in.
So what are those two alternatives ? Naturally answer # 1 from clients we meet and talk to is of course the Canadian chartered bank credit facility . The other, less common, but more popular everyday is the non bank business line of credit. This facility (not always, but more often than not) cost more, but offers more liquidity, is easier to obtain, and grows with the size of your business assets.
The major qualifier for bank credit lines is pretty simple – good financial statements. Those statements must of course reflect good equity, profits, and reasonable debt load.
If those qualifiers can’t be met in their entirety the ‘ ABL ‘ asset backed credit line is a very solid option. Common structures for the facility are similar to bank lines – the margining of receivables and inventory. The difference is that you have a much higher ‘ borrowing base ‘ around those two assets based on their ongoing values.
Receivables are typically financed at 90% of their value, and inventory, depending on its nature is financed anywhere from 25-75% of its value.
For both types of credit lines the owner/manager can assume that financing charges are only being applied on what is outstanding and utilized by your firm. While bank facilities have fixed approved limits, asset backed credit lines have limits but are easily adjustable if your firm is growing sales and current assets. Note that one other interesting aspect exists with the alternative ‘ ABL’ facility. That aspect includes the financing of your equipment and fixed assets, which are, in effect, bundled into the total credit line.
The business owner/manager can therefore quickly see that the ability to borrow much more on inventory and A/R, as well as using fixed assets for additional borrowing quickly translates into a lot more working capital and cash flow for your business, when you need it.
When your firm utilizes a bank line of credit it’s of course all done through one operating account that the bank monitors. In the case of asset based credit facilities various methods can be used to facilitate the actual management of the account. That needs to be addressed because the ABL firm is usually not a bank but a private commercial finance company.
If you feel you’re stranded in a ‘ wasteland ‘ of lack of credit and working capital alternatives seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can ensure your firm has the ability to access rates , structures and the amount of working capital you require to fund and grow your business.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing