OVERVIEW – Information on the ability of Canadian business to select the right type of financing when it comes to business line of credit loans . Bank and other Commercial financing alternatives are discussed
What does a good business line of credit cost? Actually there are some definite answers to that question regarding business line of credit loans in Canada , but the better question , in effect your ‘ rethink ‘ might well be what does it cost if your business doesnt have access to this type of financing. Let’s dig in.
A revolving credit line (it’s not a loan per se) is almost always a requirement for any type of business that sells on commercial credit to business clients. (Retailers and others that sell on cash are often deemed to be self financing without the need of revolving facilities)
A lot of the demand for a business credit line is driven not by the ebb and flow of your business, but by seasonal demands and bulge requirements around things like large purchase orders and contracts awarded your firm.
Experienced and successful business owners and financial managers plan well for repayment of their ‘ term’ debt ; but its just as important, and possible , to take the same approach in a revolving business credit line.
A very common question posed to us by clients is in fact ‘ how much of a revolving credit facility will we actually need and apply for?’ The actual need can actually be nicely mapped out by certain key ‘assumptions’ you make in some key components of your business.
And those key components? They include things like your starting cash balance, anticipated collections based on your terms and collection experience, and the rate of interest charged on by your bank or commercial finance firm partner. The right size facility will allow you to draw on cash flow needs as your firm requires, while avoiding huge negative outflows that will impair your abilities to run your business – i.e. payroll, loan payments, supplier commitments, etc.
Start up or early stage companies have a huge challenge when it comes to obtaining true bank lines. Because they don’t have profits, historical cash flow and other outside collateral more often than not they need to address non bank sources of business credit. These include:
Asset based non bank lines of credit
Tax credit bridge loans
These solutions allow business owners to not have to raise outside equity, offer up personal collateral, or put personal credit history at risk.
Business credit lines are used to run and grow your business – they can also be key components of a major growth plan, or even when you are considering merging with or acquiring another business. In many cases firms that have found themselves sin dire straits use these types of facility to help manage a ‘ turnaround’ ABL ‘Asset based ‘ credit lines are non bank in nature and best suited to this type of strategy.
Oh, and what does a business credit line cost? Current bank rates are at all time lows so typical rates are in the 4-5% range, sometimes lower, sometimes higher. Non bank rates can provide double the liquidity but are 3-4 times more expensive, but deliver on capital and cash flow you require. Our advice – focus as much on access to capital as cost of capital . Both are important .
Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can help you ‘ rethink’ financing requirements.
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
Off. 905 829 2653
Cell 905 302 4171