YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE!
BUSINESS LINES OF CREDIT THAT WORK FOR YOUR COMPANY
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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The business line of credit. When it comes to revolving credit facilities/lines of credit for business in Canada is the ' status quo ' good enough? That status quo is of course your ' existing state of affairs ' and more often than not that ' same old' just isn’t good enough when you're growing or expanding your business.
A SECOND ALTERNATIVE TO THE TRADITIONAL CREDIT LINE?
So we've decided to open the SUGGESTION BOX today and see what's happening in the world of corporate credit lines, including one solid alternative you might not be aware of as to credit a business can be used to fund daily operations under terms and conditions you can live with. Let's dig in.
Top experts agree on this type of borrowing; the ' revolving facility ' is both valuable and critical to your business. Unlike term loans they allow the owner to take advantage of short-term cash needs in an easy manner.
BANKS ARE THE USUAL SOURCE OF A CREDIT LINE
It of course does make sense that our Canadian chartered banks are the one ' go-to ' when it comes to business borrowing. (SPOILER ALERT - ' What, there's another alternative?!) Bank credit is plentiful, flexible, and, top of mind for most business owners and financial managers, low cost! A bank approved credit limit can greatly enhance your working capital needs. Commercial lending of course is big business when it comes to our Chartered banks and the unsecured business credit line.
So what factors determine your ability to get a business line of credit that works for your firm? There is a number, and some are more important than others. As simple as it sounds this includes clearly demonstrating you need one.
RETAIL AND CASH BUSINESSES DON'T REQUIRE LINES OF CREDIT
If you're in an all-cash business with no receivables or inventory, which is the case for many retailers, your company is going to have a hard time demonstrating the need for revolving credit. That’s simply because this type of financing typically funds current assets such as receivables, which don't come into play in retail/cash.
ALTERNATIVE BUSINESS CREDIT SOURCES
Many business owners sometimes get by with just a business credit card or merchant cash advances where the business bank account will typically always have a positive balance in the short term. The interest rate on cards and cash advances is higher and might have a miscellaneous annual fee, etc. Whether it's business loans or credit cards owners should always ensure they understand cost and fees and the ability to meet monthly payments.
ENSURE YOU HAVE A CASH FLOW FORECAST
The key to demonstrating your need for a corporate credit line is a cash flow forecast that shows proper assumptions in sales growth and builds up in receivables and inventory. It's those assets that typically make up your borrowing base. By the way, we hate to be the bearer of bad news but it is exceedingly difficult to get such financing if you're a start-up. Canadian banks are just not set up to take start-up risk in corporate credit without strong collateral or equity involvement of the business owner/owners.
THE 4 C'S OF CREDIT
What are then some of those key characteristics in business credit? It should be little or no surprise that the bank's focus hasn’t changed in a100 years, and it’s the timeless adage of:
CHARACTER - in small business the personal credit score of the owner/owners is important
CAPITAL
CAPACITY
COLLATERAL
QUALIFYING FOR THE BUSINESS CREDIT LINE
Businesses with good commercial credit ratings, track records, and clean financials are always in a position to apply. Interest rates for small businesses are competitive among banks but generally higher and the ability to pay that interest should factor into your cash flow projections as the lender may need projections or business plans to increase facilities.
7 Park Avenue Financial prepares client business plans that meet and exceed bank and commercial lender requirements
THE NON-BANK BUSINESS LINE OF CREDIT ALTERNATIVE
What about that alternative though that we mentioned to bank credit facilities. It’s called the ABL, the ' asset-based loan/line of credit'. It's non-bank in nature, more generous in borrowing power, easier to get 99% of the time and available in all sizes, typically from 250k to the many millions.
CONCLUSION
There is no doubt any growing company needs the cash or working capital supplied by a business line of credit. If you are looking to get approved for a business loan or credit line seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your borrowing needs and alternatives that make sense.
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Stan Prokop
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