OVERVIEW – Information on different solutions for a business Credit Line. Are You Aware of Your Operating Loan Needs and Options?
Business credit line arrangements are often sought by companies that are new, established, or growing (that pretty well covers all the scenarios!!) their businesses. The operating loan is often the heart of a company’s financial arrangements yet many business owners/financial mgrs don’t really understand all their options in this area of Canadian business financing.
And yes, there are two kinds of credit line arrangements your company can undertake, and time has proven there’s room enough in town for both of them, but which suits your firm. Let’s dig in.
About those two arrangements. There is of course traditional Canadian bank operating lines of credit. These come with typically a maximum ‘ credit limit’ that you can borrow up to based on historical benchmarks of cash flow, sales levels, and quality of receivables and inventory. Banks of course prefer receivables to inventory as they are more liquid and manageable – and quite frankly they aren’t in a position to do much with inventory if something goes awry in your business arrangement with the bank.
The other alternative, gaining more traction everyday in Canada is the Asset Based Credit Line. These facilities are offered by commercial finance companies and mirror bank arrangements really only when it comes to how you access funds and how the facility revolves. In almost all other cases differences are a bit more dramatic.
The solid advantage of an operating loan is the fact that you are only using credit when you need to – the facility revolves and interest is only charged on the funds you are using at any given time. Banks tend to structure these facilities as ‘ demand loans’ which means they can be ‘ called’ at any time. Trust us that’s not a call you will always want to take!
To effectively access an operating loans of this type you need to ensure you have some key basics nailed down. They include perhaps a business plan or executive summary, but always your historical as well as up to date financials and a cash flow forecast. While asset based line of credit lenders don’t place over emphasis on personal credit of owner’s banks insist that the owner demonstrate personal credit worthiness and external assets as backup collateral.
Asset based lenders focus on the hard and liquid assets of your business, and typically lend significantly more than the bank – offering up of course more liquidity, but it’s important to note that that always comes at a higher cost of borrowing than the bank. Typical margins on asset based credit lines tend to be 90% for receivables, and a pre set % for your inventory based on a hard look at the type of inventory your business carries.
Asset credit lines also differ substantially from banks in that they will almost always lend against your fixed assets as a part of your borrowing line. That’s a key difference, especially in companies that are capital intensive.
If you’re looking to ensure your business credit line search is a boom and not a bust seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your operating loan 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 Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Direct Line = 905 302 4171
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