Business Working Capital Financing
Business working capital financing may, or may not have to come from your bank it might even come from yourself which we will also explain.
Canadian business owners and financial managers are looking for real alternatives when it comes to working capital financing for cash flow, profits and growth. The reality is that business prospects in 2010 are getting better and better it seems and feels, while business financing availability isn't necessarily reflecting that, as most firms have experienced.
If you are a start up firm then the overall financing challenge is even more pronounced.
Is it possible to get a working capital or operating credit line from a Canadian chartered bank? Is there an alternative to that type of financing? Our answers are a resounding 'yes '! For both questions.
Canadian chartered banks offer working capital and revolving credit facilities that are based on both the overall assets financed i.e. receivables and inventory however there is a significant amount of emphasis placed on balance sheet and income statement rations, covenants, external collateral, and personal guarantees. If you can get past those then clearly more often than not you have a solid working capital facility at great rates given that interest rates in Canada are at all time lows .
But, is the bank the only way to fund your business for working capital and cash flow. Absolutely not. Credit lines are available from what typically are called non-traditional sources, but the reality is that in the current environment non traditional financing is fast becoming 'traditional '.
There are numerous firms which provide what we term for our clients as ' working capital facilities ' , they may also be called asset based lines of credit, and in some cases where just receivables are involved factoring or receivable discounting becomes a businesses main source of cash flow and working capital . And, as we stated, all of this is outside the traditional Canadian chartered bank environment.
We recommend you at a minimum at least explore non bank working capital financing by working with a trusted, credible and experienced business financing firm that can both explain and deliver of working capital and cash flow solutions for your business.
Naturally you can supplement working capital with a variety of long term options which include a lease financing facility for equipment, tax credit financing if you have a Sr&Ed claim, a Canadian government small business loan for leaseholds and equipment expansion, or a specialized term loan available from Canada's government bank . That specific type of loan will inject permanent working capital into your firm, as opposed to short term operating facilities.
The advantages of non bank working capital financing is that on average you will be eligible for much more margining on your working capital requirements . What does this mean simply that as your inventory and receivables grow you will be able to climb up the liquidity ladder without being capped at a certain limit? The ability of a business owner to know that he has access to working capital as his business grows is key of course.
Non bank working capital financing for business working capital comes usually at a higher cost than traditional bank financing. But we encourage clients to do a careful analysis of what that additional capital can do for their firm in several key areas of business success:
Sales and profit growth
Supplier relations
Ability to purchase and pay more effectively
Ultimately as a business owner you want to be able to know that your liquidity can grow as your business grows.
In summary, ensure you understand both your working capital needs, and even more importantly, your options. Investigate your options thoroughly and you should be able to benefit from viable business financing alternatives .
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