Wasting Time On Acquiring A Business Line Of Credit ?
OVERVIEW – Information on the secured business line of credit in Canada . Financing solutions for your business must include day to day working capital solutions
A secured line of credit is almost always a necessity in business finance in Canada. A lot of clients we meet either are chasing a facility they don’t qualify for, or in some cases simply don’t understand the alternatives. We’re pretty sure we can lend some clarity to the matter.
Credit lines in the business environment are a combination of:
Uses for commercial lines of credit include expanding your business, funding daily operations, or simply giving the business owner/ financial manager some ‘ de-stressing’, knowing they have the liquidity they need if it’s required.
It’s equally important not to use credit lines for the wrong thing – in finance that’s called ‘ matching’ of debt and assets. For instance, you would not use your credit line to a maximum amount to purchase a fixed asset. You would be in a bad position pretty quickly as liquidity dried up while the asset in question is actually meant to provide your firm with its use for years. In that case the asset should be acquired via a term loan or equipment lease financing, as an example.
The concept of the business credit line is simple. It involves two things – fluctuations, and paying only for what you are using on the facility. Your bank or commercial lender likes fluctuations. That reflects the ebb and flow of your business as items are purchased, receivables are collected, etc.
The advantages of access to such a revolving facility include rates that match your firm’s credit quality, the flexibility of paying down the facility as your cash flow allows, and the ability to leverage up the facility if your sales and financial statements can be validated.
As we have noted, the alternatives to business borrowing typically are term loans, lease financing, etc.
A lot of the needs around ‘LOC ‘ borrowing revolve around the seasonality or bulges in your business. Your ability to do a bit of reasonable forecasting is key when it comes to applying for the facility as you are required to demonstrate that the facility fills the gaps between cash outflow and cash inflow!
Start ups or early stage companies in Canada have a tough, if not impossible time to get a business secured credit line. The security for the facility is typically the owners’ personal guarantee, as well as a charge or lien against assets such as A/R, inventory, and equipment. That’s typically collateralized by a General Security Agreement on the assets in your business.
If your business is start up/early stage and can’t produce a couple years of financials you will find that the whole process is tougher than negotiating with a pirate,
which Tom Hanks told us is quite a challenge.
So, alternatives? They include:
Non Bank asset based lending
Tax Credit Monetization
Don’t waste time barking up the wrong tree (financial institutions?) when it comes to business finance needs. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your working capital and cash flow needs.
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
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