YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE
REVOLVING CREDIT FACILITY FINANCING
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A business credit facility agreement is often a necessity for any emerging and growing company. What are the qualifications for a revolving loan of this type, and are there choices in types of facilities? Or alternatives? Let's dig in.
WHAT IS A BUSINESS CREDIT LINE / REVOLVING LOAN?
In its simplest form, a business credit line is a secured arrangement with a bank or commercial finance company to finance cash flow and working capital needs with Accounts Receivable and Inventory as an example. This is not a term loan type of financing. A facility works best for all parties when it constantly ' revolves. '
ASSET TURNOVER IS THE KEY TO SUCCESSFUL CREDIT LINES
Your ability to manage such a facility as a borrower relates directly to your receivables and inventory turnover. Those are key drivers in the approval for the amount and type of your facility.
BUSINESS CREDIT LINES VIA CANADIAN BANKS OR ASSET BASED LENDERS
In Canada, a credit agreement for business credit lines is offered by Canadian chartered banks and commercial finance firms, some of whom are called ' ABL ' lenders. That’s because those firms offer non-bank asset-based lines of credit.
WHAT TYPE OF LENDER SUITS YOUR BUSINESS CREDIT LINE NEED?
What determines then your ability to get approved for the type and amount of financing you require? When it comes to a bank facility, it’s the various components of what we call your ' risk profile. ' They include quality of financials, size of current assets (A/R / inventory), management depth, and business owners' personal credit.
When your business can't achieve true bank financing, or, in some cases, the amount of bank financing you need, commercial finance firms can readily address your needs. Here the total focus and emphasis changes to basically only the size and quality of those same business assets.
ASSESSING COST AND ACCESS TO CAPITAL IN YOUR REVOLVING CREDIT LINE
While more costly, business owners and managers introduce this type of lending; they are happy to hear that borrowing margins are much more generous. Typically that’s 90% of A/R and anywhere from 30-70% of inventory. You want another kicker - your facility can be significantly more increased if you choose to have other unencumbered fixed assets included in your borrowing base. That a true cash flow supercharger!
WHAT ARE REPORTING REQUIREMENTS FOR BANKS AND ALTERNATIVE LENDERS
You will be typically required to provide regular reporting capability vis a vis financials and aged inventory, and a/r reports. For a bank, this might only be one a year, sometimes more regularly. But when it comes to reporting on Asset-based non-bank credit facilities, expect to report monthly all the time and sometimes weekly. Various industries have different risk profiles associated with their inventories and receivables. The maximum amount you can borrow under the ' ABL ' type of financing is virtually unlimited as it is based on combinations of your sales and assets. The interest rate on asset-based facilities is higher, but of course, as in traditional banking, you only pay for funds you have drawn down on and are using. Revolving loan interest rate considerations also depend on the amount you are borrowing and the general overall credit quality around your drawdown loan.
As a business owner or financial manager, you should never have to settle for less when it comes to a revolving credit facility and loan needs. If your firm is not ' bankable ' in the amount of cash flow and working capital financing, you really need to seek out and speak to 7 Park Avenue Financial; a trusted, credible and experienced Canadian business financing advisor, to ensure access to a proper business revolving credit facility agreements.
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