Blowing The Whistle Business Line Of CreditOn Business Credit Lines And Rates Why 3 Types Of Business Lending For Credit Facilities Have Different Rates

OVERVIEW – Information on how differences exist in the business line of credit interest rate. Differences occur with the type of lending you access for revolving credit facilities


Business line of credit interest rate issues are often the concern of the Canadian business owner and financial manager. So in a positive (hopefully) sort of way we’re ‘ blowing the whistle ‘ on the differences in business lending rates when it comes to revolving credit facilities. Let’s dig in.

We’re hopefully not surprising the majority of business owners /finance managers around the fact that there are several types of business lines of credit. The most common, and often most difficult to achieve is the Canadian chartered bank line of credit. Why is that the case? It’s pretty simple – it’s based on the quality of your business financial statements.

We often meet clients who are unable to initially produce financial statements that are up to date and reflect the current status of their business. While it’s obviously a bit more acceptable if they are prepared by a C.A. firm, or audited quite frankly any good accounting firm should be in a position to provide you with data that shows clearly the relationships of balance sheet accounts, sales and your income statement, etc.

Banks totally focus on this data and are looking for evidence of a strong position. It’s this data that will drive the lowest and most flexible interest rates that properly allow you to negotiate personal guarantees, loan covenants, ratios that make sense to your business and industry. With Canadian rates at an all time low those rates tend to be in the 4-6% range these days. Our comment… wows!

Bank financing is all about relationship lending and shortfalls in your financials will not let that relationship develop, forcing the owner/manager to consider business lending via alternatives.

Yes, Virginia. Two other alternatives exist. The first is commercial finance asset based lending. While any positive business relationship or lending relationship is desired asset based lending, i.e. non bank commercial finance lines of credit zero in on the collateral in your business – namely receivables, inventory, and equipment. Your ability to collateralize these to the maximum available often allows companies with no chance of accessing bank credit to have significant revolving credit facilities.

Its formula based business borrowing – with typical margins being 90% on A/R, 30-70% on inventory, and 70% of liquidated equipment asset values.

Asset lending rates are almost always more expensive but provide valuable liquidity to businesses that can’t access Canadian bank credit.

A smaller, but growing subset of business credit lines is ‘factoring ‘. This is purely receivables focused, and allows the business to generate immediate cash on every sale they make. Again, costs are 3-4 times higher than bank rates but business credit becomes virtually unlimited – important to smaller, new or growing businesses in the SME sector.

Yes, the business line of credit rate will vary with your business needs, but take solace in knowing alternatives and flexibility abound. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can ‘ blow the whistle ‘ on business lending alternatives that make sense for your firm.

Author: Stan Prokop
7 Park Avenue Financial :

Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :



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