Does My Firm need a Working Capital Loan ?

Clients we meet with often want to need if they require additional working capital financing for their overall business growth and survival. They also, as prudent business owners, want to know what alternatives are available for financing consideration.

Lets answer question # 1 first – we can some facetiously say that the answer will be similar to your lawyers answer to most questions – you may need a working capital facility or loan, or you may not ..!

What do we mean by that? The key issues in working capital financing is understanding what it is, why it is needed, and what alternatives you have as a Canadian business owner of financial manager to access that additional capital .
Let’s get back to our key point, which is simply that we need to first understand what working capital is. We can go by the textbook definition, which is simply go to your balance sheet, take current assets, subtract current liabilities – and voila ! You have your working capital amount. Let’s bore down a bit and truly understand this number and what it really means to your firm on a day to day basis.

Your current assets are of course your inventory and receivables; your current liabilities are your payables and what you have upcoming in loan and lease payments everyday. As a business owner you know that these numbers change everyday, and that as your business grows you require a larger investment in accounts receivable, inventory, and a buffer of cash on hand for miscellaneous issues, emergencies, etc.

Now let’s examine a very key point that will help you understand the thrust of our message. Higher working capital is preferable, but if your inventories and receivables aren’t turning then higher works against you, because you have built up assets that aren’t turning, and it cost you money to build up those receivables and inventory.

So the reality is that you have three options in assessing your working capital financing needs.

They are as follows:

1. Focus on higher turnover of receivables and inventory – and stretch your payables as long as you can so as not to lose your valued supplier relationship

2. Monetize your working capital in a more efficient manner – i.e. negotiate an operating line of credit with your bank based on receivable and inventory margining – Alternatively supercharge your current assets by what is known as an asset based lending facility

3. Consider a permanent working capital term loan – this is a long term, generally 3-5 years cash loan that is repaid in specific installments. Essentially you are committing long term working capital into the business which will help alleviate growth needs.

So in summary, what is our bottom line? Its simply that you need to understand what working capital is – you need to determine if you can generate working capital internally or externally, as per our options # 2 AND # 3 above. Speak to a trusted, credible and experienced advisor in Canadian working capital solutions and you will be on the way to increased sales and profits via a proper business financing strategy.

7 Park Avenue Financial : South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 905 302 4171

Office = 905 829 2653

Email = greg@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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 100 Million $ of financing for Canadian corporations .

‘ 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.

Stan Prokop

adian Business Financing

Working capital being all the capital or stock assets you have at work that needs money to keep the machine churning everyday.  How do we do this and what are the fundamental principles involved?  Also, if my bank won’t fund my working capital needs, who else will?  How?

Basically, a co. needs to monetize their working capital accounts. How?  The most common solution is bank financing via an operating line of credit for A/R and inventory. Alternatively,  confidential invoice financing or discounting is an ideal cash flow solution. Discounting allows you to bill and collect your own receivables and turn your cash flow needs into a healthy cash machine…ready to handle all your growth in sales.  Take the guess out of your sales growth needs and unlock your short term assets by monetizing them today.

Another option, not limited to the above is a cash flow loan. A more sophisticated finance term for this loan is a mezzanine or ‘sub debt’ loan. For smaller and medium sized businesses these loans tend to go up to the $250k range and are offered by a specialty lender which is funded by the Government of Canada.  Larger cash flow and working capital loans tends to be in the $ Million range and are offered by non banks. These loans typically are unsecured, are used for working capital purposes, and have rates in the low to mid teens due to their unsecured nature.

Working capital means different things to different business owners. There are certain government programs that might meet your needs in the areas of term loans, leasehold improvements, etc. But true working capital is the financing of current assets such as receivables, inventory, and purchase orders.