YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!
A MUST READ GUIDE TO CASH FLOW FINANCING NEEDS
UPDATED 05/11/25
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing businesses today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CONTACT US
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
CASH FLOW FINANCING WHEN YOUR BUSINESS NEEDS FUNDING!
HOW MUCH CASH DO YOU NEED
Business cash flow financing often requires some ' straight talk. The ability to finance your company with the right loan/loans properly is one of the most powerful success forces in Canadian business.
But how does the business owner/financial manager determine where the company's cash flow is and where working capital will come from via cash flow statement analysis, and where the cash went? Let's dig in.
Bridge the Gap: When Business Opportunity Meets Financial Reality
Facing a cash crunch while growth opportunities and operational costs knock at your door?
Many Canadian business owners struggle with timing mismatches between accounts receivable and pressing operational expenses.
Let the 7 Park Avenue Financial team show you how Cash flow loans offer a streamlined financing solution that provides quick access to working capital based on your business's revenue strength rather than assets or credit history.
Uncommon Takes on Cash Flow Loans
- While most financing discussions center on interest rates, the cash flow lending definition is really that the true value of cash flow loans lies in opportunity cost prevention—the revenue and market share you retain by having funds precisely when needed.
- Cash flow loans can function as an effective hedge against supply chain disruptions, allowing businesses to purchase inventory in bulk when available rather than waiting for regular payment cycles.
- Contrary to common belief, strategic use of cash flow loans can strengthen your business credit profile by demonstrating successful management of short-term financing and timely payments.
WHAT ARE THE BEST CASH FLOW LOANS FOR BUSINESS
Working capital type loans have a multitude of purposes.
In some cases, it might be long-term growth planning in typical business initiatives such as traditional marketing or even digital marketing initiatives, r&d capital spending, or a more robust ' feet on the street ' salesforce. To achieve those, you need to generate consistent cash flow!
In other cases, new influxes of working capital and cash flow might be required for current facilities, which may be ' maxed out ' due to the constant replenishing requirement of working capital as you invest in inventory, outstanding invoices / receivables, and the purchase of new assets.
It's important to note that new assets that have a longer useful economic life should never be financed with short-term credit facilities. That's a cardinal rule of business financing that many business owners / financial managers realize a little too late!
Equipment leasing and financing, as well as standard equipment loans, are best suited for the purchase of assets.
The majority of companies in North America (industry statistics say 80% )utilize lease financing. A subset of the lease finance option is ' sale leaseback ' finance, allowing your firm to keep the asset, refinance it for additional cash flow, and regain ownership of the asset at the end of the term. Commercial real estate can also be addressed as part of the leaseback process.
The new paradigm in business today is often tied to a firm's investments in technology. Technology, finance and tech funding needs can require a major investment of business capital.
The good news is that IT (information technology ) needs can easily be accommodated in the world of lease financing.
Also, it is hopefully no surprise that software, albeit an ' intangible ', can be financed, and companies can also raise working capital/cash via financing their ' SAS ' ( software as a service ) contracts.
BRIDGING THE CASH FLOW GAP
In many cases, cash flow financing makes sense because your company might not be 'asset-rich ', which is certainly the case in the new economy of service-based industries that are less capital-intensive.
That of course,e means they don't have that ' hard collateral ' that typically Canadian banks are looking for. Often, the case is that your firm requires a permanent net cash working capital injection, typically best satisfied by a working capital term loan.
CASH FLOW STRATEGIES FOR FUTURE CASH FLOW NEEDS
Here, the focus is on the cash flow of the business and the ability to satisfy monthly payments, which are usually over a 3-5 year term.
Here, the key requirement for your company is to present a defendable cash flow projection, which is usually included as part of an updated business plan.
In any working capital loan or asset refinancing,g considerable discussion should be generated around the flexibility of repayment. There is in fact a very harsh and simple reality around your business cash flows.
The answer? You've simply bought assets, or generated new assets such as receivables and inventory via monies spent.
There is a natural flow in business - it's all about paying down your debt, keeping taxes up to date, building working capital assets, and generating and taking profits
How does the owner/mgr make the right choices in raising funding for your business and keeping your financials understandable - i.e. understanding where the cash in your business is ' flowing '.
Many firms are challenged by low owner equity, which compounds the owner's ability to take cash out of the company.
Is there a simple secret to managing and financing your cash flow? The pros call this whole process ' operating cash flow '; it’s simply your profit or loss for the month, plus or minus your changes in working capital accounts - we’re back to those receivables and inventories again.
CASH FLOW FINANCING VERSUS ASSET-BASED LENDING
External financing for your business will come from either term debt or business credit lines.
By the way, those business revolving credit facilities will come from either a bank or a non-bank commercial finance company offering asset-based credit line facilities.
When it comes to business credit lines, the most manageable facilities are those when the credit line fluctuates significantly.
Banks or finance firms will always look more favourably on your ability to constantly draw done and replenish the facility via your receivable and inventory turnovers.
Assets that need to be financed in your business might include plant and equipment assets, vehicles, as well as technology/software etc.
Here, term debt options from asset-based lenders such as lease financing, will almost always make the most sense. What's the bottom line in accessing outside funding and managing your balance sheet properly?
THE BOTTOM LINE IN FINANCING THE BALANCE SHEET
1. Develop a strong sense of how cash flows in your business- a good cash flow forecast based on your historical inflows and outflows helps. Ensure your provincial and federal taxes are paid on time- If you have tax arrears, they can often be consolidated into a new refinancing of your business
2. Determine your business line of credit needs - this is a critical area of business cash flow financing. Remember that Canadian chartered banks are NOT the only credit line providers - Finance those long-term assets with long-term leases or loans
3. Focus on building equity in your business via good gross margins and profits. The overall quality of your ability to generate cash flow will be a dominant focus for any commercial lender. The a/r turnover and types of customers you sell to will also be a factor, and in general, your accounts payable turnover should be consistent with your 'DSO ' (days sales outstanding ) performance.
4. Taking a holistic approach to these points via what the pros call ' the cash conversion cycle ' will determine your loan success. Other ' soft factors, such as the lender's impression of your mgmt team and experience, as well as personal credit histories etc should never be overlooked as a component of any loan submission. In any commercial loan proposal, there are always some key documents and information that should never be overlooked or omitted.
WHAT ARE THE REQUIREMENTS FOR CASH FLOW LENDING SOLUTIONS
Business lenders look at cash flow health - no secret there!
That determines the amount and type of cash flow financing you are eligible for.
Banks offer unsecured cash flow loans, but at the same time, they look at accounts receivable quality and turnover, levels of accounts payable, as well as inventory turns.
Cash flow projections are essential,l and commercial lenders as well as banks will assess earnings, revenue projections and client quality.
In some types of cash flow finance, owners ' net worth and credit score might be a part of the approval factors. The bottom line is a solid understanding of your firm and industry's cash flow cycle as this varies depending on the industry.
DO YOU NEED A BUSINESS PLAN?
A business plan and cash flow are key, and it should cover your requirements and use of funds, management overview, company background, as well as historical financial statements.
At 7 Park Avenue Financial, we prepare that document for clients with a focus on financials, not ' marketing ' or an infomercial on the company that is high on promises and short on financial delivery!
Firms with positive cash flow will always have a better chance of obtaining the required amount and type of loan they need.
Every firm at certain times in its history experiences the ' cash flow crunch,' and growing too fast is not the worst problem to have, if you have the right financing solutions in place to address that situation.
The ability to access funds to take on larger contracts and obtain preferred pricing from suppliers is a positive need for cash flow financing. That business growth often leads to a larger investment in receivables, sometimes augmented by slow-paying customers.
In that instance, solutions such as a/r financing, factoring/invoice financing, asset-based lines of credit, or Confidential Receivable Financing, the latter being our most recommended solution at 7 Park Avenue Financial.
This type of facility takes away the 'notification' issue found in standard ' factoring' offerings and allows you to bill and collect your own a/r while at the same time achieving all the benefits of a bank-type line of credit, ie the ' revolving credit facility '.
The Difference Between Cash Flow Loans & Asset Based Financing
KEY POINT: Understanding the difference between business cash flow term loans versus monetizing your assets across the multitude of solutions in the Asset-Based Lending universe is important.
While both types of loans are ' secured,' monetizing your assets does not bring additional debt to the balance sheet.
Each type of these two loans offers different benefits and risks. In each case, your ' collateral ' is, in the case of the working capital loan, the cash flow, while in an asset-based loan, it is the underlying collateral.
Working capital cash flows are always ' credit quality ' based, so the criteria we have talked about already, such as historical cash flow, profit, type of industry, etc, are key drivers in the approval process for cash flow management and funding.
Companies will typically want to be able to demonstrate good profit margins and a relatively clean balance sheet with acceptable debt/equity ratios.
UNSECURED CASH FLOW LOANS
Unsecured short-term cash flow loans are all the rage these days - they come with higher rates by their unsecured status, but at the same time are much more easily accessible.
A good rule of thumb is that your company can achieve loan approval for 10-15% of your annual sales volume.
The popularity of these loans arose out of the Merchant Cash Advance Loan industry in the U.S., which grew out of providing loans to retailers based on future sales and credit card receipts !.
These loans, unsecured for the most part, often fix a cash flow gap/cash crunch via business funding.
They can fix the seasonality of many small to medium-sized businesses and can address those unplanned emergencies that befall any business that experiences low cash flows - Loans are often based on a one-year term and on historical and forecasted cash flow, and payments can be made weekly or monthly at the discretion of the lender. Short-term opportunities in buying products at an advantageous price.
ASSET BASED LENDING
The required amount of financing you need can often easily be acquired via the 'Asset-Based Lending' process.
These facilities mirror a bank line of credit, and allow you to margin and borrow against, on an ongoing basis, your receivables, inventory and equipment/fixed assets.
These are the ' collateral' components of the loan, and historical cash flow is really a secondary factor in the approval process. Asset lenders typically focus on larger deals, and typical candidates are asset-rich firms that might have profit and cash flow challenges.
This is one way in which a non-cash-rich company can grow its business. Typical borrowing amounts are receivables at 90%, inventory at 30-50%, and the value of appraised assets.
Companies requiring SME COMMERCIAL FINANCE can quickly see that his type of financing will provide significantly more financing than they could ever achieve via a bank.
Customers are required to report, usually monthly at a minimum, on their a/r, inventories and payables.
Your firm is a good candidate for asset-based lending if you can report properly on your financial performance and are prepared to cooperate in the due diligence process leading towards an offer to finance.
Borrowing does not have to be a negative process - in many cases, it allows your company to capitalize and seize on new market opportunities to grow your business.
Most borrowers can often easily find that they can generate a solid return on investment for every dollar borrowed.
A recent survey by a leading business capital provider in the U.S. stated that small businesses can achieve a 5x return on every dollar borrowed based on their planned use and turnover of capital borrowed.
Case Study: The Benefits of Cash Flow Loans
A popular farm-to-table restaurant in Burlington, Ontario, faced a critical decision when the retail space adjacent to their location unexpectedly became available. The owner recognized the perfect opportunity to expand her dining capacity by 40% just before the busy summer season, potentially increasing annual revenue by $300,000. Additional personal assets weren't really available to assist in the business's financial health.
The challenge: The space required immediate commitment with a $75,000 deposit, plus another $125,000 for renovations within 45 days. The restaurant showed strong financials with $80,000 monthly revenue, but traditional banks estimated 8-12 weeks for an unsecured loan approval, far too slow for this time-sensitive opportunity.
Solution: After researching options, the business applied for a cash flow loan through an online lender specializing in restaurant financing, given the significant credit history required by banks. By providing six months of bank statements and point-of-sale system data, the restaurant secured enough money via approval for $200,000 within three days. The funds were deposited within a week of the initial application.
Results: With immediate capital access, the restaurant secured the space, completed renovations before peak season, and increased seating capacity from 60 to 85 tables. The expansion generated an additional $28,000 in monthly revenue, far exceeding the $6,200 weekly loan repayment. The business repaid the loan in 10 months, with the expansion generating an estimated $336,000 in additional annual revenue.
CONCLUSION - CASH FLOW LOANS FOR SMALL BUSINESSES IN CANADA
Cash flow loans can be used to finance several key business needs, such as investments in sales and marketing as well as coverage of shortfalls around negative cash flow aspects of the business when business credit lines are fully utilized or not available.
Focused on access to the right finance solutions?
Call 7 Park Avenue Financial a trusted, credible and experienced Canadian business financing advisor who can assist you with your long-term funding and working capital needs.
FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION / PEOPLE ALSO ASK
WHAT IS A CASH FLOW LOAN
A cash flow loan typically requires no collateral or the requirement to pledge personal or business assets. Financing is approved based on the company's expected cash flows as opposed to overall business assets. So historical and forecasted revenues and profits are closely scrutinized and typical loan terms based on the type of financing approved will be between 1-5 years.
WHEN ARE CASH FLOW LOANS USEFUL TO A BUSINESS - ASSESSING CASH FLOW FINANCE OPTIONS
Owners of a business must assess both short-term needs as well as long-term needs around capital assets or other strategic investments required for long term growth. Short term cash should never be used for long-term major investments, so a proper balance of financing must be achieved. Problems will result if short-term cash flow is impacted by the financing of longer-term assets.
Cash flow lending solutions make sense if your business has healthy cash flow, you are a rowing business and opportunities to grow revenue or purchase inventory arise - ie taking advantage of a significant supplier discount to purchase inventory.
In many cases accounts receivable turnover in a business will require an injection of permanent working capital that might be achieved by a working capital term loan.
What exactly is a cash flow loan and how does it differ from traditional bank financing?
Cash flow loans are revenue-based financing solutions where lenders provide capital based primarily on your business's cash flow strength rather than collateral or extensive credit history. Unlike traditional bank loans that may take weeks for approval and require significant documentation, cash flow loans emphasize recent revenue performance and can be funded within days, offering flexibility for businesses with strong sales but limited assets.
How are repayment terms structured for short-term working capital loans loans?
Repayment structures for cash flow loans typically feature:
- Daily or weekly automatic payments rather than monthly
- Terms ranging from 3-18 months, depending on the loan amount
- Fixed payment amounts for consistent budgeting
- Potential for percentage-based revenue sharing models
- No prepayment penalties with many modern lenders
How do seasonal businesses effectively utilize cash flow loans without creating repayment stress during slower periods?
Seasonal businesses utilizing cash flow loans should strategically time their financing around their business cycle. The most effective approach is securing financing just before peak season when you need inventory or staffing increases, then using the higher revenue period to make repayments. Some lenders offer flexible repayment options where payments adjust based on revenue percentage, which automatically accommodates seasonal fluctuations. Creating a detailed cash flow forecast showing both peak and slow periods helps determine the optimal loan amount that won't strain resources during downtime.
What documentation and financial records should a business prepare before applying for a cash flow loan to increase approval chances?
Documentation preparation for cash flow loan applications should focus on demonstrating revenue consistency and business stability. Key records include 3-6 months of business account bank statements, recent tax returns, profit and loss statements, and accounts receivable aging reports. Having a clear explanation of the loan purpose strengthens your application, as does evidence of pending contracts or purchase orders if applicable. Modern lenders may also request access to your accounting software or payment processing data for real-time verification.
What role can cash flow loans play in business expansion plans?
Cash flow loans play a strategic role in business expansion by bridging timing gaps between growth investments and resulting revenue increases. When expanding to new locations, launching products, or entering new markets, expenses typically precede revenue generation. These loans provide the working capital needed to fund initial marketing campaigns, hire staff, purchase equipment, or secure larger facilities before new revenue streams fully develop. For growing businesses that may not yet qualify for larger bank loans, cash flow loans offer accessibility based on existing revenue performance rather than requiring years of profitability in the new venture.
How do cash flow loans compare to traditional lines of credit for managing operational expenses?
Cash flow loans compared to traditional lines of credit offer distinct advantages for operational expense management, particularly for newer businesses. While lines of credit typically provide lower interest rates, they require stronger credit profiles, longer business history, and often collateral. Cash flow loans prioritize recent revenue performance over these traditional metrics, making them accessible to businesses that might not qualify for lines of credit. Additionally, cash flow loans provide a lump sum upfront (beneficial for larger immediate expenses), while lines of credit work better for ongoing, variable expenses. The tradeoff comes in cost—cash flow loans generally carry higher rates but deliver faster access and fewer qualification hurdles.
When should a business owner choose a cash flow loan over other financing options?
Business owners should choose cash flow loans over other financing options when facing time-sensitive opportunities or challenges that require immediate capital. These situations include purchasing discounted inventory, covering emergency equipment repairs, bridging seasonal revenue gaps, or funding time-limited growth opportunities. Cash flow loans make particular sense when the ROI on the planned use of funds exceeds the loan cost, when traditional bank financing timelines are too slow for your needs, or when your business has strong revenue but limited assets for collateral. For businesses with less-than-perfect credit but healthy sales, cash flow loans often provide accessibility unavailable through conventional lending channels, such as a traditional loan.
Why do lenders offer cash flow loans without requiring collateral? Lenders offer cash flow loans without requiring collateral because they've developed alternative risk assessment methods focused on revenue performance rather than assets. By analyzing business bank statements, payment processor data, and accounting records, these lenders can verify cash flow patterns that demonstrate repayment ability. Many use proprietary algorithms and scoring models that evaluate hundreds of data points beyond traditional credit metrics. Additionally, the higher interest rates charged for these loans help offset the increased risk from the lack of collateral. Some lenders also mitigate risk through personal guarantees from business owners, daily/weekly automatic repayments, and shorter loan terms.
Citations / More Information
- Canadian Federation of Independent Business. (2024). "Small Business Financing Report." CFIB Small Business Resources. https://www.cfib-fcei.ca/en/resources/small-business-financing-report
- Business Development Bank of Canada. (2023). "Alternative Lending Options for Canadian Entrepreneurs." BDC Industry Reports. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/alternative-lending-guide
- Statistics Canada. (2024). "Survey on Financing and Growth of Small and Medium Enterprises." Government of Canada. https://www150.statcan.gc.ca/n1/en/subjects/business_and_consumer_services_and_culture/business_performance_and_ownership
- Financial Consumer Agency of Canada. (2024). "Business Loans and Lines of Credit Guide." FCAC Financial Tools. https://www.canada.ca/en/financial-consumer-agency/services/loans/business-loans.html
- Deloitte Canada. (2023). "The Future of SME Financing in Canada." Deloitte Industry Insights. https://www2.deloitte.com/ca/en/pages/financial-services/articles/future-of-sme-financing.html
