OVERVIEW – Information on revolving loans in Canada. Business financing often requires need for a credit facility. How do these work , what are your options for this type of solution ?
The key aspect of revolving business lines of credit is clearly ‘ flexibility’. The continual drawdown and repaying of the facility creates a ‘ pay as you go ‘ scenario as businesses both use and consume cash as they run and grow their business. That’s the good news!
The key differentiator in business credit facilities that revolve is that it’s not a term loan, via that continual drawing down and repayment we just referenced. However like term loans they do often come with ‘ limits’, but more importantly they vary with your assets.
Here an important distinction occurs. When it comes to bank credit lines these pre-imposed limits are often fixed and relate directly to typically receivables and inventory. However, if you chose an asset based non bank line of credit via a commercial finance firm that borrowing base typically has no upward limit if you in fact have growing sales and commensurate assets.
That monthly ‘ borrowing base’ that banks and asset finance companies utilize comes with some pretty basic formulas. In the case of banks, utilizing receivables as an example the borrowing base is 75% of your A/R; asset based lenders typically lend against 90%. (In both cases receivables must be under 90 days old)
Various nuances might exist in your A/R margining relating typical to issues such as government receivables, high balance concentrations with one customer, etc.
Revolving loans from banks come with various covenants and restrictions. In general we can make the statement there is a lot less restriction from non bank asset lenders on this issue.
What then are some of the key issues around pricing revolving loan credit facilities? No one disputes the fact that Cdn chartered banks offer the lowest cost business financing rates – if you can satisfy the risk profile desired by the banks. That risk profile typically includes growing sales, profits, clean balance sheets and demonstrable cash flows.
Interest rate pricing on non bank asset financings varies proportionately to credit risk. The good news here is simply that almost any firm with sales and assets is eligible for asset based credit lines. So it’s overall credit risk and the amount and type of debt a company has is the driver behind asset based revolving loans.
If you’re on the search for the right type of credit facility for your firm your search will almost always end well by seeking out a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your credit facility needs.
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue FinancialSouth Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ Canadian Business Financing with the intelligent use of experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing