YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT!
THE ASSET BASED LENDING SOLUTION
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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Line of Credit Financing revolutionizes business capital access, providing a flexible funding solution that adapts to your company's evolving needs.
Only 37% of SME's that applied for a line of credit received the full amount they requested, highlighting the competitive nature of this financing option.
Unlock unlimited financial potential: Line of Credit Financing puts you in control of your business's cash flow.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer LINE OF CREDIT FINANCING and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Line of Credit Financing: Business Lines of Credit in Canada
Business credit line choices in Canada generally come under two categories offered by financial institutions.
Which cash flow/working capital option is right for your firm? Does the ‘relatively’ newer ‘ABL’ option make sense to investigate? It just might so let’s dig in.
THE LINE OF CREDIT ADVANTAGE
Line of Credit Finance solutions allow businesses to access funds based on day-to-day needs - These revolving facilities deliver cash flow to the business.
SOME UNCOMMON TAKES ON LINES OF CREDIT IN CANADA
- Reverse psychology in credit lines: Some businesses intentionally maintain lower credit limits to foster disciplined spending habits and impress lenders with their prudent financial management.
- Seasonal credit hibernation: Clever entrepreneurs negotiate dormancy periods for their lines of credit during off-seasons, potentially reducing fees and demonstrating astute cash flow management.
BUSINESS CREDIT LINES ARE A MUST FOR MOST BUSINESSES
While a corporate credit line is a must for any growing business (we’ll talk about why later), it is crucial to understand the importance of responsibly borrowing money when using a business credit line. Canadian business owners feel somewhat stifled regarding the creativity and innovation that come with a flexible business credit facility.
WHAT ARE THE USES OF A CREDIT LINE AND CREDIT LIMIT
While these types of facilities allow you to operate daily, they can also be used to borrow money to finance the growth the entrepreneur envisions, including, by the way, having the ability to acquire another business.
EVEN ACQUISITIONS!
Management can even use this type of financing to acquire the company for which they work. However, this typically necessitates additional funding to round out the transaction.
THERE ARE TWO CHOICES FOR A REVOLVING LINE OF CREDIT
As noted, two choices are available for revolving credit facilities. It’s essentially a simple choice:
A business line of credit can be compared to a home equity line, which allows homeowners to borrow against the equity in their homes, often with different terms and conditions.
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Traditional Canadian chartered bank commercial credit lines (Secured and unsecured) - Interest rates are, of course, the lowest in Canada.
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ABL (asset-based lending) facilities focus on the pool of assets in the ‘ CURRENT ASSET ‘ part of your balance sheet - namely, accounts receivable and inventories. By the way, things get creative when the asset-based financing facility is sometimes structured to allow you to borrow against fixed assets and purchase orders/contracts). Real estate equity for company owner premises can also be included as a part of your borrowing facility.
THE FOCUS ON 2 KEY ASSETS BY A FINANCIAL INSTITUTION
A/R and inventory are any firm's ‘self-liquidating’ assets. During your business operating cycle, they liquidate themselves on an ongoing basis… every day.
The market value of these assets determines the maximum amount of credit that can be borrowed, as lenders typically allow access to a percentage of the asset's market value.
The key issue is simply the timing of that liquidation, which necessitates the financing options we’re discussing.
OTHER TYPES OF CASH FLOW AND WORKING CAPITAL FINANCING
We’ve focused on differentiating the traditional bank line of credit from the Asset-Based Lender offering. But it’s important to note that some subsets of Asset-Based Lending (ABL) can provide many firms with the capital they need.
Consolidating debt can be a strategy when using different financing options, such as Home Equity Lines of Credit (HELOCs), to lower interest rates on high-interest debts and create a structured repayment plan.
Separately, they include:
A/R Financing
Inventory Loans
Non-bank asset-based lines of credit / Asset Based Loan/ Bridge Loan
SR&ED Tax credit financing
Equipment / fixed asset financing
Cash flow loans
Royalty finance solutions
Purchase Order Financing
Short Term Working Capital Loans/ Merchant Advance
Securitization
The above subsets of ABL asset-based loans are often used by start-up and high-growth firms that cannot meet the stringent criteria of our banks in Canada.
WHAT IS THE REAL PURPOSE OF A CREDIT LINE AND PAY INTEREST
The real purpose of any credit line is to fund the time between production and collection from your clients.
The minimum payment for a personal line of credit is often based on the interest portion of the balance or a fixed minimum amount, ensuring that other related obligations for outstanding amounts are also met. ABL lending typically costs more, but if your business can turn its assets and grow revenues, it’s a very realistic and accessible option.
KEY TAKEAWAYS
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Revolving nature: Borrow and repay funds repeatedly within the approved limit
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Flexible access: Draw money as needed, paying interest only on the amount used
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Credit evaluation: Lenders assess business financials and credit history to determine eligibility
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Interest calculation: Rates are often variable, based on a prime rate plus a margin
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Repayment structure: Minimum monthly payments, with the option to pay more or full balance
CONCLUSION - Maximize Profits, Minimize Stress: Discover the Power of Flexible Line of Credit Financing
If you want a business credit line that meets your needs, consider discussing ABL or bank financing options.
Call 7 PARK AVENUE FINANCIAL, a trusted, credible and experienced Canadian business financing advisor.
You’re now in a position to get good at choosing finance solutions that meet your requirement!
FAQ
How does Line of Credit Financing improve cash flow management?
Line of Credit Financing allows businesses to draw funds as needed, providing a buffer for seasonal loans and financing. It allows companies to borrow and repay multiple times. This flexibility reduces the need for multiple loan applications and offers more control over interest costs, as you only pay for what you use.
Can Line of Credit Financing help with business growth opportunities?
Absolutely. With quick access to capital, businesses can seize time-sensitive opportunities such as bulk inventory purchases, equipment upgrades, or expansion projects without depleting cash reserves or waiting for lengthy loan approvals.
How does A Line of Credit Financing impact a company’s financial planning?
Line of Credit Financing offers predictable access to funds, enabling more accurate financial forecasting and budgeting. It provides a safety net for unexpected expenses and allows businesses to pursue growth strategies confidently, knowing they have readily available capital.
What types of businesses benefit most from Line of Credit Financing?
While beneficial for many, businesses with cyclical revenues, long invoice payment cycles, or rapid growth trajectories often find Line of Credit Financing particularly valuable. It helps smooth out cash flow irregularities and provides the flexibility to manage varying financial demands. Interest is only paid on the outstanding balance.
What documentation is typically required for a Line of Credit application?
Lenders usually require financial statements, tax returns, bank statements, and business plans. They may also ask for accounts receivable and payable aging reports, legal documents, and personal financial information from business owners.
How does a business increase its Line of Credit limit over time?
To increase your credit limit, maintain a good payment history, demonstrate consistent revenue growth, improve your credit score, and regularly communicate with your lender about your business’s financial health and plans.
Are there any alternatives to traditional bank-offered Lines of Credit?
Alternatives include online lenders, peer-to-peer lending platforms, and invoice financing. Some businesses also explore business credit cards or merchant cash advances as alternative revolving credit options.
What happens if a business defaults on a Line of Credit?
Defaulting can lead to severe consequences, including immediate repayment demands, legal action, asset seizure (for secured lines), adverse credit reporting, and difficulty obtaining future financing. It’s crucial to communicate with lenders if facing repayment challenges.
How do economic conditions affect Line of Credit terms and availability?
Economic downturns may lead to stricter lending criteria, lower credit limits, or higher interest rates. Conversely, favorable economic conditions might result in more competitive terms and increased credit line availability.
What factors determine the interest rate on a Line of Credit?
Interest rates are influenced by the prime rate, the borrower’s creditworthiness, the line’s size, and whether it’s secured or unsecured. To set rates, lenders assess business financials, credit history, and market conditions.
How does a business decide between a secured and unsecured Line of Credit?
The choice depends on available collateral, desired credit limit, and risk tolerance. Secured lines often offer lower rates and higher limits but put assets at risk. Unsecured lines provide more flexibility but may have stricter requirements and higher rates. Business owners may also choose a personal loan to fund the business.
What are common mistakes businesses make when using a Line of Credit?
Common errors include overreliance on credit for long-term financing needs, poor tracking of draws and repayments, using the line for non-business expenses, and failing to make timely payments. Proper management and strategic use are crucial for maximizing benefits and minimizing risks.
