OVERVIEW – Information on secured business loans in Canada. Business financing solutions revolve around secured or unsecured lending and here are the differences
When it come to SECURED LOANS in Canadian business financing it is all about matching the right type of financing to two important aspects of your business – your assets, or your cash flows. Naturally the ‘ cash flow’ or repayment of loan also ties back into the amount of financing your firm might be eligible for.
Secured loans represent a critical aspect of your overall ‘ capital structure ‘, namely how you address the issues of how much debt and how much equity in your overall finance strategy. Hopefully you have a strategy! Let’s dig in.
In certain cases the business might also want to address multiple sources of debt, theoretically all of which can be properly secured.
Corporate asset type secured loans typically come with a fixed interest rate, so it’s no surprise that in our current low interest rate environment there is that advantage to consider when assessing taking on debt.
Although lenders in Canada don’t traditionally think of secured loans as being made to ‘ INVESTMENT GRADE ‘ companies the reality is that these loans are secured by the underlying assets of the company. So if your firm is in the unfortunate position of defaulting on the loan the collateral is of course the underlying asset.
While Canadian business owners and managers might think of secured loans as ‘ FIXED TERM LOANS’ they can also be bank business lines of credit, or non bank asset based revolving credit facilities. And not to make things more complicated, many firms take advantage of both a term loan as well as a revolving credit line, both of which are ‘ SECURED’
While asset based secured loans revolve around ‘ cash flows’, the actual secured credit line facilities are based on simple margin borrowing of current assets such as inventory and receivables .Using A/R as an example a Canadian chartered bank will provide a secured credit facility on 75% of your outstanding receivables that are less than 90 days old. The non bank credit line will typically allow this margin borrowing go up to 90%, providing 15% more overall liquidity to your business.
In certain instances companies might be eligible for secured‘ cash flow loans’. Typically priced in the low to mid teens, these loans are often a secured 2nd position collateral registration against your assets, and the total focus of these loans is your cash flow generation abilities. Depending on your firms overall credit quality and debt to equity pricing will also vary based on current rates and underwriters risk assessment.
When it comes to SECURED BUSINESS LOANS in Canada its all about, unfortunately, ratios and covenants. Certain calculations, traditional in nature, will be made to assess the overall financial health of your business.
Typically these ratios are cash flow coverage and debt to equity, as well as overall ‘ quality’ of assets of the business.
It’s important to understand the differences around SECURED and UNSECURED loans when it comes to Canadian business financing. 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 finance 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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