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Financing & Cash flow are the biggest issues facing business today
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Canadian business financing... It works when you have business owners and financial managers in Canada that know how to be successful with the right type of finance for their company - as well as a lender or institution that wants to share that success with yourself.
For the business owner the reward is growth and profit, for the lender its repayment with a reasonable rate of interest commensurate with credit risk.
When we speak to clients about financing choices it's all about ensuring you understand the alternatives. Let's examine 5 of those.
One of the newer methods, relatively speaking, that Canadian firms use to finance growth is the selling of their receivables as they generate sales. This form of financing goes under a number of names: receivable financing, invoice discounting, factoring, etc. By employing this method of finance they immediately generate typically 90% of any sale into direct cash, with the other ten per cent, less financing costs, coming to them when their client pays.
Although there is a strong perception in the Canadian marketplace that this type of financing is expensive. It becomes less expensive when business owners utilize that cash to sell more, take supplier discounts, and purchase more effectively with new found cash. In truth this method of financing, quite frankly, works best when you are partnering with the right finance firm and have the right type of facility in place.
An even lesser known method of Canadian business financing is what is known as purchase order or supply chain financing. This works best when you have legitimate orders from bona fide clients and have a need to be able to pay your supplier significantly in advance of your own firm receiving final payment from your client.
PO and Supply Chain finance can really float you through a busy season or time of year.
Smaller firms and retail organizations have a real challenge in financing their firms. This is because they traditionally don’t have the assets that are sought after by banks and other finance firms when it comes to working capital and cash flow financing. So the solution here becomes bridge loans that are typically collateralized by inventory and cash flows. Typically you would supply 3 months of recent bank statements to show inflows and outflows of your business.
80% of all North American businesses employ equipment financing in that it allows you to have up to date assets that won’t become obsolete during the time you need them for production, operations, etc.
Almost anything can be leased and financed, and all credit qualities are eligible based on the creative structuring offered by lessors in Canada.
As a business owner your choice becomes whether you enter into a capital lease or an operating lease, depending on the ultimate disposal of the asset at the end of the lease term.
That method of financing, i.e. lease finance brings us nicely into # 4 in our list of 5 methods of business finance. Here the concept is customer financing - i.e. offering a finance program for your clients when you have a product that can in fact be financed. Setting up a program with a qualified partner allows you to sell more, generate cash flow on the sale immediately, and be perceived by your client as a full-service vendor that truly adds value to their operations.
Finally, don't forget the government SBL loan, which is, bar none, the best available financing for new or established firms with fewer than 5 Million dollars of revenue. Great rates, terms and structures, and a solid solution for financing equipment and leaseholds.
Speak to a trusted, credible and experienced Canadian business financing advisor on putting together a package or financing request that properly positions your firm for financing success.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
