OVERVIEW – Information on business credit lines in Canada. When it comes to funding your revolving borrowing facilities what choices are available and what works best – for your firm?
Business credit lines in Canada. We sometimes think it’s a lot like ‘ sensible shoes ‘. You suddenly realize how important they are! So when it comes to working capital funding in Canada the business owner quickly realizes the importance and value.
But is the Business ‘ LOC’ something that only the Ouija board can discern as to what’s best for your firm? Not really of course, it just takes some drilling down into what is available and what’s best.
If there is one solid use for biz credit lines it’s simply their ability to finance your business as you move along in growth. If you’re not self financing and don’t have a huge equity position (coupled with slow paying clients) the corporate credit line gives you cash flow.
Don’t forget also, as we’ve been known to preach that solid a/r and inventory balances can even be used to partially finance acquisitions – all the better if the firm you’re acquiring has those same type of current assets.
In Canada you have 2 Choices for access to business revolving credit. One is the ‘ go to ‘ – our Canadian chartered banks. Interest costs with banks are of course low, and these days they actually couldn’t be much lower. Bank requirements for business credit lines might be viewed as ‘strict’ by many borrowers. Quite frankly we have never felt they were unnecessarily strict – its just that we must assume if the bank is lending unlimited amounts at low rates that they can be easily forgiven for asking for companies with good financials, profits, positive cash flows, external collateral, and good personal credit history of owners, including of course the proverbial ‘ PG ‘ – the dreaded personal guarantee.
When your firm can’t access bank credit for revolving facilities your other choice is in fact a lot more accessible. It’s the ‘ ABL ‘ – The asset based business line of credit. Although 98% of the time asset based credit facilities are more expensive they are easier to access from an approval perspective. Facility sizes run on the small size to the 250k range – and large facilities run to the tens of millions of dollars, usually funded by independent commercial finance companies.
An interesting thing about ABL credit is that it’s offered by the Canadian banks, but they don’t run many TV commercials on that one. We won’t get into why we think that’s the case, but give us a call anytime and we’ll tell you why we think that way!
Surely most business owners know they can’t really access business credit line facilities if they don’t sell on commercial credit terms. From the occasional call we get we’re never quite sure they do in fact realize that. However, an interesting point is that ABL lending has subsets of inventory and equipment financing, so you in theory could have an ABL line that simply margins inventory and equipment. A good example might be a retail chain.
Our banks are very trusting when it comes to letting you run your business on a credit line. They in some cases only do an annual review of your financials, in certain cases you might be reporting monthly on some basic business metrics.
Asset based lenders offering credit lines are more giving, but less trusting. So be prepared to do a bit more reporting and expect the odd personal visit here and there! We meet many business owners who wonder what their bank looks like! But of course there are a lot of great bankers in Canada who know their clients business.
Understand your needs, alternatives, and seek out a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs.
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
South Sheridan Executive Centre
2910 South Sheridan Way
Phone = 905 302 4171
Email = firstname.lastname@example.org
7 Park Avenue Financial
Canadian Business Financing