THE CREDIT LINE SOLUTION YOU HAVE BEEN LOOKING FOR!
Business line of credit needs are often challenging when owners/financial managers are trying to run…and, oh yes, ‘grow’ their company.
WHO OFFERS BUSINESS LINES OF CREDIT
That’s why ABL, the acronym for asset-based lending operating facilities, can deliver a solution for almost every business – with only 1 prerequisite – assets such as receivables, inventories, equipment, or even real estate. Let’s dig in.
FLEXIBLE FINANCING OPTIONS
So why is ABL becoming one of the fastest ways to get your business financing going? The answer -a valuable tool known as a line of credit for business. It’s a working capital facility, similar to a bank facility that provides working capital on a regular basis against inventory, receivables, and in many cases, equipment and real estate if that is applicable.
One can argue the case forever on whether Canadian banks are providing the right amount of financing and support for small business, and yes, even large businesses in Canada – We don’t think we’ll get full closure on that discussion, although bank interest rates have never been more attractive for those that qualify.
Most top experts and studies say that SME COMMERCIAL FINANCE needs are certainly not fully delivered by traditional banking institutions as it relates to new firms, high-growth firms, or businesses with any kind of financial challenge on their balance sheets and income statements.
While smaller businesses might rely on credit cards or short-term working capital loans the best solution is access to a revolving credit solution.
So assume you either can’t qualify for a chartered bank business line of credit or unsecured loans from banks , or, on the other hand , perhaps do, but the facility doesn’t meet your needs – in some cases, the preset credit limit may be not enough for your growth needs. That’s where an ABL or asset-based line of credit comes in.
SUPPORTING CASH FLOW NEEDS AND BUSINESS GROWTH GOALS
How does ABL work then? It’s a simple, no-nonsense form of financing provided by non-bank-type firms – typically commercial finance companies. Many call it ‘alternative financing,’ but we can assure you this form of ‘business financing’ is becoming more mainstream and popular every day.
DOES YOUR COMPANY QUALIFY FOR A BUSINESS LINE OF CREDIT?
How to qualify for a small business loan or revolving line of credit is information that every business owner must know.
Because the chartered banks focus on traditional metrics such as your overall financial performance, outside collateral, credit score and credit history of owners, personal guarantees, etc., you will find the overall business credit line requirements under the ABL process much simpler and common sense. It’s simply a case of borrowing against your real assets, with little or no reliance on the issues we outlined above relative to a bank-type facility.
PAY INTEREST ON ONLY WHAT YOU BORROW UNDER YOUR CREDIT FACILITY
The specialty of an asset-based line of credit provider is simply their strong knowledge of your industry and assets, so because of that, your ability to generate almost unlimited working capital becomes very obvious very early on in the picture. As with any business credit facility you pay interest on the credit line loan only on the amount outstanding that is utilized in your facility and you still use your regular business bank account as funds are deposited there for your use. Business loan rate of interest and charges are based on overall credit quality.
BANK CREDIT LINES VERSUS OVERDRAFTS
Traditional bank business lines of credit provide ongoing access to funds for your day-to-day operations, sometimes through an overdraft limit.
Key benefits are the liquidity available for business needs and the ability to manage cash flow as needed.
Access to bank credit requires solid proof of your company’s business financial performance. Typical supporting documents include company financial statements, business tax returns and personal financial information and credit history of the owner/owners. A business plan is typically always required – 7 Park Avenue Financial prepares business plans for clients that meet and exceed bank and commercial lender requirements.
Banks will, on approval set a credit limit and interest rates associated with the credit line
WHAT AMOUNT OF LINE OF CREDIT DOES YOUR FIRM QUALIFY FOR?
How does a line of credit work? What do we mean by that? Simply that if you have receivables, assets and equipment you can always borrow against them on an ongoing basis so typically you can draw down on 90% of receivables, 40-70% of your inventory values, and pre-agreed upon amounts on the appraised value of unencumbered equipment.
When It comes to how to increase credit limit needs commercial lending asset-based financing solutions increase automatically as your sales and other assets grow – a ‘ borrowing base certificate’ is prepared every month with new limits.
Typically companies that are the best prospects for this type of financing are firms with fast growth and in some cases a limited track record i.e. a start-up, etc. who can benefit from a revolving line of credit.
In some cases, this type of business operating line of credit could possibly be complementary to your existing bank facility, but more often than not, it replaces it totally.
WHAT YOU NEED TO KNOW ABOUT LINES OF CREDIT AND THE COST OF FINANCING
How are ‘ABLs’ priced? While there are a number of key advantages to an asset-based line of credit they do normally cost more than bank facilities. Depending on the size of the facility and the overall nature of your firm, its industry, and other challenges you might be facing, the final pricing will reflect a realization of those issues.
So yes, it will cost more, but those costs can be significantly offset by increased cash flows via inventory turns, the ability to purchase smarter with that cash and to convert receivables immediately into cash for additional sales efforts.
WHO QUALIFIES FOR BUSINESS CREDIT LINES
Don’t forget though that you have in effect just negotiated unlimited working capital, and have those credit line benefits and the ability to turn assets more quickly and generate increased cash flow, revenues and profits. That’s a true business financing triple threat! If you’re looking for more good news, understand also that asset-based operating credit lines are suitable for pretty well every industry in Canada – Again, it’s always about the assets.
CONCLUSION- BUSINESS LINE OF CREDIT CANADA
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor in this area to ensure that you determine if you can benefit from a small business line of credit or another business funding source for a business financing arrangement for your growth and business needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is a business line of credit?
Business lines of credit are revolving loans that give businesses access to funds based on specific assets , most commonly accounts receivable and inventories. Commercial line of credit interest rates are based on an assessment of the overall company credit score
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7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
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 ‘
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