OVERVIEW – Information on working capital term loans and small business loan solutions for Canadian business. When does a term loan make sense for your term?
Business loan needs in Canada that are sought by owners/ financial mgrs basically come down to two separate categories – revolving credit facilities and working capital term loans. There are important aspects of each type of borrowing, and understanding them is critical to financial success. So when do term loans make sense (spoiler alert – they don’t always)? Let’s dig in.
The key aspect of a term loan is the concept of ‘ fixed payments’. That defined payment and fixed interest rate make it easy for the owner/mgr to play for repayment through cash flow.
Your ability to pay the loan is essentially judged around a careful analysis by both you, and the lender. That analysis typically comes from careful inspection of your cash flow projections. In certain cases some form of prepayment may be allowed at certain times during the loan if in fact it’s amortized over several years. We note however that a full prepayment of the loan might come with some sort of penalty as the lender assumed the loan would travel its full course!
As we said, key in understanding your needs around a business term loan is the use of its proceeds. In some cases it is used to acquire an asset such as equipment – we would note of course that need can also be accomplished via equipment lease financing in Canada. The whole issue of ‘ lease versus buy ‘ is a subject for another day, as there are merits to both.
The optimal use of a working capital term loan is when its proceeds are used to generate more cash flow or profits. That’s when it’s critical to understand asset life as well as having a good handle on your projected cash flow.
How do commercial lenders ‘ price ‘ the cost of fixed term loans? It’s simply a matter or risk and cash flow assessment. Rates will fluctuate with the term and amount of the loan relative to your overall credit risk profile.
Typical requirements in getting a term loan might vary, but often include the business financials, historical bank statements showing inflows and outflows, as well as information on the owners if the business is in the small to medium enterprise (SME) area.
Term loans can range in amortizations of 1 year to 3-5 years if your cash flow warrants a longer term.
What are some common uses of working capital term loans? They might include:
Leasehold improvements / new locations / company moves
Inventory build up
Purchasing new assets
If you’re focused on a cash flow loan that makes sense for your business seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in assessing needs and qualifications.
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. 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