Cash Flow Loans for Small Business: A Comprehensive Guide | 7 Park Avenue Financial

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   ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT CASH FLOW  & WORKING CAPITAL FINANCING OPTIONS?

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Cash flow loans empower small businesses by turning their future revenue into today's funding opportunities.

Struggling to fund your business dreams? Discover how cash flow loans can open doors for you today!

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer  CASH FLOW LOANS FOR SMALL BUSINESS & solutions that solve the issue of cash flow and working capital  – Save time and focus on profits and business opportunities

Securing Your Business’s Future with Smart Cash Flow Lending

INTRODUCTION

Working capital financing... on demand? What if...  just what if you could eliminate your working capital financing issues via cash flow solutions that work as you run and grow your company?  That surely is the wish of most, if not all Canadian business owners and financial managers.  Let's dig in.

Cash flow loans for small businesses provide a lifeline, allowing business owners to leverage future cash flows for immediate capital needs. Cash flow financing allows the company to combat the cyclical nature of revenue, offering a financing solution that helps manage payroll, inventory, and unexpected expenses effectively.

 
WHY YOUR BUSINESS NEEDS ONGOING WORKING CAPITAL

 

The reason you need that working capital is, of course, to pay off all your short-term obligations promptly. Typically those are accounts payable and items such as lease or loan payments on your balance sheet, and of course, we include payroll and salary obligations. That growth in sales and thus inventory and receivables can drain cash flow!

CASH FLOW LENDING VERSUS ASSET BASED LENDING

Cash Flow Lending:

This type of lending evaluates a business's sales revenue streams and historical and projected cash flows to approve loans, often via a short term financing solution. The emphasis is on those current and projected cash flows, sometimes requiring personal guarantees to secure the loan. While offering more flexibility and easier access, cash flow lending can involve higher interest rates due to the lack of physical collateral on the balance sheet.

Asset-Based Lending:

Asset-based lending, aka  ABL,  involves securing a loan against physical balance sheet assets like machinery, real estate, or inventory and accounts receivable. The presence of tangible collateral typically results in more favourable interest rates. Lenders such as banks and commercial finance companies look at a business's physical assets, which can lead to a potentially longer and more complex application process. It relies on the existing value of the assets rather than future revenue projections, making it a different financing approach from cash flow lending.

 
ASSESSING YOUR CASH POSITION VIA BUSINESS MEASUREMENTS

 

As a business owner, you need to know whether your overall working capital position is stable, declining, or increasing.  There are some straightforward measurements to assess the overall situation. One of the most basic measures is to monitor sales growth against those current assets. Simple as that.

 
AN EXAMPLE OF SALES GROWTH AND THE NEED TO ASSESS INVESTMENT IN CURRENT ASSETS

 

Example?  - Your sales are growing by 20% per annum, but you determine your accounts receivable and inventory have grown to  35% of their former values, then, guess what, you have a working capital solution need. No surprise there, as most business managers intuitively know the strains that working capital needs a place on a business.

 
HOW TO  ' UNLOCK ' CASH FLOW !

 

Unlocking! That's the key to a cash flow solution.

 

What do we mean by that? Simply that you have to do two things to unleash the cash flow invested in your business in the form of receivables and inventory. First, you have to improve turnover. That's an internal thing, and we can't help our clients on that one. You have to do it yourself. Collect receivables faster, be more diligent in extending credit terms, and control your inventory.

 

When cash flow is low, businesses can often face obstacles in funding their everyday operations. To help cover these costs during the slow season or periods of financial distress, some business owners may consider taking out loans or financing receivables and inventory via alternative lenders.

 

Almost all businesses will have times when additional working capital is needed to fund obligations to suppliers, employees and the government while waiting for payments from customers.

 
HOW TO MONETIZE YOUR SALES AND ASSETS

 

Secondly, our clients ask for external help is the need to 'monetize' working capital accounts. How is that done? The most common solution is bank financing via an operating line of credit for A/R and inventory to address working capital financing needs.

 

Many businesses, though, certainly those seeking SME Commercial Finance loans, can’t access all the bank financing they need. Or, in some cases, any at all!

 

In business, you achieve positive working capital financing via profits that fund growth, borrowing on a long-term debt basis (not our favourite!), or selling assets ... The latter, not our favourite.

 

What is our favourite then?!  It is, as we said, monetizing current assets. You do this via a working capital facility that margins A/R and inventory properly. When combined with the inventory component, these facilities make sense for firms with monthly A/R and inventory balances over 250k. When that amount is less than 250k, a receivable financing strategy is required.

  
WHAT IS A/R INVOICE FINANCING   

Invoice factoring is a non-loan financing strategy for small businesses that converts outstanding invoices into immediate cash.

By financing your invoices with a a factoring company, you can access the funds usually within a few days instead of waiting up to 120 days for customer payments. The factoring company advances most of the invoice value, minus fees, and then collects payment directly from the customer. This method boosts your cash flow quickly, helping cover critical expenses like payroll and supplier payments and supports taking on new projects. It provides a vital cash flow management tool, enhancing flexibility and growth potential without adding debt.

 
WHAT IS THE BEST NON-BANK A/R FINANCING SOLUTION?

 

Our recommendation?  Confidential invoice financing or discounting, which we feel is the ultimate cash flow solution. It allows you to bill and collect your own receivables and turns your firm into a cash flow machine that can handle all manner of sales growth.

 
KEY TAKEAWAYS

  
 
CONCLUSION  

 

Want to solve the working capital financing cash flow solution challenge? 

Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor - that's your final hot tip!

 
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What is working capital financing?

Working capital financing is common for businesses with inconsistent cash flow.

This type of loan or line of credit solution enables companies to fund such items as day-to-day operations or payroll, but not larger investments like equipment or real estate. It's one strategy that growing companies can use when taking on bigger projects beyond their usual capacity since it doesn't involve borrowing too much money at once and incurring debt they may not immediately have the means to repay in full right away

What benefits do cash flow loans offer small business owners?

Cash flow loans provide quick access to capital based on anticipated future revenues, helping manage unexpected expenses and maintain operations.

How does a cash flow loan differ from a traditional bank loan?

Unlike traditional loans that require extensive collateral, cash flow loans often depend on the business's expected future earnings. Some businesses explore government loans via the Canada Small Business Financing Program

What are the typical terms of a cash flow loan?

Terms can vary widely, but generally feature shorter durations and may have higher interest rates compared to conventional loans.

Is my business eligible for a cash flow loan?

Eligibility largely depends on your company's revenue history and projected cash flows rather than physical assets.

Can cash flow loans affect my business credit rating?

Yes, like any form of credit, responsible repayment improves your credit score, while mismanagement can harm it.

What is the impact of a good credit score on securing a cash flow loan?

A strong credit score can enhance loan terms, including lower interest rates and more favourable repayment conditions.

Are there any industries that benefit most from cash flow loans?

Industries with high seasonality or fluctuating sales cycles, like retail and hospitality, often benefit most from this type of financing.

How quickly can a business access funds from a cash flow loan?

Funds from cash-flow loans can often be accessed within a few days of application approval, making them ideal for urgent financial needs.

What documentation is typically required to apply for a cash flow loan?

Applicants usually need to provide financial statements, proof of income, business plans, and sometimes cash flow forecasts.

What are some common mistakes to avoid when applying for a cash flow loan?

Businesses should avoid underestimating the needed amount, overlooking terms and conditions, and failing to have a solid repayment plan.

What criteria do lenders consider for a cash flow loan?

Lenders typically assess business performance, credit history, market conditions, and projected revenues.

How can business cash flow loans be used effectively in a small business?

A business cash flow loan is best used for bridging short-term liquidity gaps, financing growth initiatives, or stabilizing seasonal sales fluctuations. Merchant cash advances, which are short term working capital loans are readily available ( including from online lenders) but come with higher rates and are installment loan structures with monthly payments based on your sales.

What are the risks associated with cash flow business loans?

Risks include the potential for high interest rates and the pressure of repayment during periods of low revenue. A business loan calculator can be used to review various interest rates and payment options.