OVERVIEW – Information on available solutions for the working capital cash flow financing crunches faced by Canadian business owners and financial managers
Working capital cash flow financing challenges, we’ve found. create huge ‘ Creativity Deficits ‘ in the minds of Canadian business owners and financial managers. They tell us they are constantly looking for a finance solution that doesn’t have an ‘ expiry date ‘! We’re happy to share some of those solutions. Let’s dig in.
If you think when you’re watching the business news that only large corporations are addressing cash flow issues imagine what the SME Commercial companies in Canada must address. How does the business conserve cash and arrange financing that is ‘ evergreen ‘ in nature – allowing you to utilize assets and sales to cash flow your operating and growth needs.
Business people get working capital and cash flow mixed up a lot we have found – your day to day working capital is made up of your investment in A/R and inventory and at the same time recognizes accounts payable. Poor payables management often destroys key supplier relationships.
It’s important to use your cash flow for the right types of financing – you should be utilizing equipment leases for assets that have a longer economic life.
Don’t forget also that existing assets can be refinanced via sale leaseback strategies, bridge loans, or refinancing of any of your company’s commercial real estate – even 2nd mtges can bring additional capital into your business. Government guaranteed business loans can help finance leasehold improvements and fixed asset needs – rates and terms are excellent – commensurate with the same financing the ‘ big boys ‘ access.
The ultimate short term financing tool for any business is a commercial business credit line. Banks do that best, and the lowest cost. Problem – not every business qualifies with demanding criteria such as high owner net worths, personal guarantees, debt and cash flow covenants that meet bank standards. While banks have the lowest cost of capital, as well as ample capital not everyone qualifies.
The solution for not qualifying at the bank? The good news is multiple sources of short term financing exist:
Non bank asset based lines of credit
Refundable tax credit finance loans ( SR&ED Credits )
A/R Financing (We always recommend CONFIDENTIAL RECEIVABLE FINANCING) Here you bill and collect your own receivables with no notification to suppliers, clients, etc. You control cash needs and flow.
Remember also that a company can inject ‘ permanent working capital ‘ via a working capital term loan. It’s simply a cash flow with fixed repayment terms. That solution brings debt onto the balance sheet though, and is very different from ‘ monetizing ‘ assets such as A/R, inventory… and equipment. Naturally bank and working capital term lenders also like to see healthy owner injections of capital – which is not always possible our clients tell us! The two main criteria for working capital loans are a good cash flow ratio and reasonable debt/equity.
We’re always amazed at business owners or their managers who are running significant businesses without proper planning using things such as a simple cash flow forecast. One famous saying tells us that ‘ revenue is vanity, profit is sanity, but cash flow is king ‘!
Never forget also that it’s not just access to the financing solutions we’ve mentioned that bring true cash flow success – you must turn inventories, grant prudent credit.
Those basics will allow you to foresee potential ‘ bulges’ in cash flow needs and have better negotiating leverage with your bank or a commercial finance firm. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can put you on track to permanent solutions to Canadian business financing challenges.
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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