Information on financing inventories in Canada. Business Loan needs around working capital and cash flow often require some level of inventory finance to supply your business with capital required to grow and profit
Canadian business owners and financial managers are always challenged to properly finance inventory for both regular operations and of course growth.Does Your Business Have An Inventory Finance Hangover ? Here’s Some Cures !
There are a number of inventory options in Canada – some of these are complimentary to your firm’s current operations, some are unique and stand along financing arrangements.
As we have noted, business either require inventory financing as a part of their regular operations, or they often require increased inventory financing based on growth and large new orders and contracts .
Customers that our firm works with fall into a few specific categories with respect to their inventory financing needs:
They have existing inventory financing through their banking arrangement
They have bank financing but this does not include an inventory component
They have alternative financing arrangements via an asset based line of credit or a purchase order financing arrangement
It is also important to mention that when we sit down with a customer and discuss inventory financing the term inventory is used as a ‘catch all ‘term – in reality Canadian business inventories fall into several categories – raw materials, work in progress, and finished goods.
Canadian banks in Canada finance current assets of your firm as an ‘operating facility ‘or revolving line of credit. This type of facility margins receivables at usually 75%, and inventory at much less of a % of margining. That places a working capital pressure on the firm as it requires cash to pay for goods, with this cash not turning into a receivable and cash for at least another 60 days.
When bank financing does not include an inventory component that is when the financing challenge truly begins.
We are of the opinion that the best inventory financing arrangement for Canadian firms is a true asset based line of credit that is a non bank facility. We can also call this a true working capital facility, as it provides you with a very strong margining of BOTH your receivables AND inventory! In our experience, and depending on your industry, you will achieve the highest level of margining, and therefore working capital, based on this type of financing arrangement. Although financing costs will be higher than bank rates you will have the capital you need to grow your business and service orders and contracts.
When your business is heavily dependent on an inventory component (unlike a service oriented company that has either no inventory or little inventory) you need financing to be able to turn over stock and remain on strong terms with key suppliers, or overseas suppliers.
How much inventory financing is needed? Many business owners intuitively know how much inventory they need to have on hand, or what amount of financing they need to support that inventory. If they don’t we work with customers to help them understand those calculations and numbers. A great and easy tool for the Canadian business owner or financial manager to use is the simple measure of: INVENTORY TO CURRENT ASSETS
As a business owner you are always concerned about enough inventories on hand to service customers. Receivable are close to cash, but inventory is not exactly self liquidating into cash, so the management of inventory is critical.
To calculate your ratio simply take inventory and divide by your total current assets, and for discussions sake multiply by 100 to get a %. So what is a good number? The answer is there is no right answer as every industry is different. So the best way to employ this great tool is to calculate this ratio historically and on an ongoing basis and determine if you are entering a ‘red flag’ situation.
We encourage Canadian firms to talk to a trusted business financing advisor to determine what options are available, and how they can maximize inventory financing for their future growth and profits! 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 business finance 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
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.