YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!
FINANCING BALANCE SHEETS IN CANADA - UPDATED 05/02/25
You've arrived at the correct address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business 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
BALANCE SHEET BASICS FOR FINANCING YOUR BUSINESS
Business finance in Canada often requires a hard look at your company's balance sheet financing possibilities.
That document is a tool to uncover various financing possibilities for most balance sheets.
When the business owner or financial manager knows the power of unlocking and utilizing a company's balance sheet around the assets or liabilities for finance alternatives, a business advantage immediately emerges. Let's dig in.
Apparently, it's not a perfect world, so it's key to understand what will work and what doesn’t. By the way, the ability to value your business in connection with a sale or merger is also a key benefit of understanding the balance sheet to finance both growth and current liabilities and operating expenses.
You're then better positioned to benefit from 'all-star' financing alternatives from banks or non-bank alternative lenders. Don't forget that equity financing is expensive and dilutes shareholders' equity, so solid debt and cash flow financing / asset-based financing is a solid solution for growing a business.
Unlocking Hidden Capital in Your Business
Many Canadian business owners struggle with insufficient working capital despite having valuable assets on their balance sheets.
This cash flow constraint limits growth, creates operational stress, and prevents seizing market opportunities via good business financial health.
Let the 7 Park Avenue Financial team show you how Balance sheet finance solutions transform these dormant assets into powerful funding tools, providing immediate liquidity while maintaining operational control. That's full use of the balance sheet equation - ie total assets equals liabilities plus owner equity
WHAT IS BALANCE SHEET FINANCING
One key way to benefit from knowledge of the balance sheet is to understand that, in numerous cases, it can unlock hidden assets and collateral for financing purposes of your net assets. The balance sheet summarizes those assets and your equity/paid in capital - Other financial statements include cash flow statements and income statements.
Some solid examples are utilizing SR&ED finance to monetize an SR&ED receivable.
The best option in our strategy of monetizing assets is your company's ability to cash flow items that don't necessarily reflect their true value.
Excess liquidation value is the key and is often part of a SALE-LEASEBACK strategy. Here, unencumbered non current assets / fixed assets such as equipment or real estate, are ' cash flowed ‘.
What does the balance sheet signal to owners/managers, and, as importantly, lenders? In some cases, that might be an element of risk, but in our example, it's simply a case of allowing you to understand what those ' BAY STREET ' folks call ' capital structure' around your total assets.
That's the long-term look of your balance sheet structure. Simply speaking, that's the right amount of debt / financial obligations you can take on versus the amount of owner equity in the business.
WHAT IS OFF-BALANCE SHEET FINANCING / HOW DOES IT WORK
Some companies look to their ability to not include liabilities on the balance sheet as a way of effectively improving their overall debt/equity in the capital structure.
Many of the rules around off-balance sheet structuring have changed considerably, and this strategy is certainly less used these days. Additionally, astute lenders and analysts can re-create the balance sheet once these off-balance sheet items are noted.
Securitization, Accounts Receivable Financing, and factoring could potentially be considered an off-balance sheet finance strategy item in that they are not listed on the balance sheet but considered contingent assets that don't come from equity or debt sources.
ASSESSING THE BALANCE SHEET
At 7 Park Avenue Financial, we recommend that business owners and their financial managers examine their balance sheet and financial structure in the same manner that a commercial lender or bank would.
That involves looking at ' ratios '—at 7 Park Avenue Financial, we call them ' relationships'—which allow you to compare different aspects of your overall financial performance.
Looking at the relationships of assets and liabilities allows you to understand what debt you can take on or how the current balance sheet impacts liquidity, interest expense, and the potential need for more cash flow.
Good financial managers will constantly examine these ' relationships' and determine where they are failing and what financial solutions might be available to finance and/or repair the balance sheet.
Generally, the ratios fall into two categories: liquidity and efficiency.
Want a better understanding of how a commercial lender will look at your business and overall financial position?
Certain basic liquidity ratios such as knowing your inventory turns, receivable turnover, etc allow you to improve your business and negotiate better financing.
It's always important, though, to understand that the true power of financial statements is the ability also to understand your income statement and how it interacts with the balance sheet. It's all about those current assets and your potential long-term debt solutions.
SOLUTIONS FOR FINANCING THE BALANCE SHEET
A/R financing - the most popular way to finance money owed via your accounts receivable-Converting outstanding invoices into immediate cash
Non-bank asset-based lines of credit - a strong and popular alternative to the traditional bank loan-Financing secured by specific business assets
Sale-Leaseback / Equipment financing strategies - refinancing assets that a company owns - Loans or leases using machinery as primary collateral - Selling assets while maintaining operational use
Term loans
Purchase Order Financing -
Inventory Loans - Using product inventory as loan collateral
Commercial real estate loans / bridge loans : Property-secured business funding
Key Point - The above-noted solutions generate cash to reduce accounts payable and generate operating cash while helping a business to generate more net income.
Case Study: The Benefits of Balance Sheet Finance
Challenge: A mid-sized Canadian industrial equipment producer, faced a significant opportunity when a major customer requested a 300% increase in orders. While tremendously positive for business growth, this order would require substantial capital investment in raw materials, additional equipment, and expanded workforce—resources the company simply didn't have available in cash reserves.
Solution: Rather than pursuing equity investors, which would have diluted ownership, or traditional bank financing, which would have taken too long to arrange, the company implemented a comprehensive balance sheet funding strategy. They secured a $2.8 million combined facility using:
- $1.2 million equipment financing against existing CNC machines
- $1.1 million accounts receivable financing
- $500,000 inventory-backed revolving line
Results: The company successfully:
- Fulfilled the expanded order with 100% on-time delivery
- Increased annual revenue by 42% within 12 months
- Maintained complete ownership and control
- Improved overall profit margins by 3.8% through volume efficiencies
- Created 27 new full-time positions in their community
- Established a financing structure that automatically expands with future growth
KEY TAKEAWAYS
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Advance rates for borrowing money vary significantly by asset class, with accounts receivable typically qualifying for 70-85%, inventory for 50-70%, and equipment for 50-80% of appraised value depending on liquidity and condition.
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Canadian lenders emphasize comprehensive reporting requirements, including regular asset listings, aging reports, and covenant calculations that require robust financial systems.
CONCLUSION
Business finance balance sheet financing allows you to benefit from a company's financial position with financing strategies and working capital funding that are probably in use by your competitors!
Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your financial needs around your business operations.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK/ MORE INFORMATION
What is a balance sheet?
The balance sheet is a snapshot of the company at one point in time. It reports on assets, liabilities and shareholder equity for that specific period - it doesn't analyze or comment about trends over longer periods! The cash flow statement and the profit and loss statement are the other two keep parts of a financial statement when prepared under proper accounting principles . The balance sheet will reflect the retained earnings /shareholders equity in the business.
What types of assets qualify for balance sheet financing in Canada?
- Fixed assets like real estate, equipment, and machinery
- Current assets including accounts receivable and inventory
- Intellectual property with established market value
How quickly can balance sheet financing be arranged compared to traditional loans?
- Timeframe varies based on asset complexity and documentation
- Standard arrangements typically complete in 2-4 weeks
- Established relationships with lenders can accelerate approval
- Pre-vetted assets may qualify for expedited funding options
When should a business choose balance sheet financing over equity financing?
- Balance sheet financing preserves ownership percentage and control
- Particularly advantageous during temporary cash flow challenges
- Beneficial when asset values exceed current operational returns
- Optimal when business expects near-term revenue increases
Where do Canadian businesses find reputable balance sheet financing partners?
- Chartered banks offering asset-based lending programs
- Specialized commercial finance companies
- Industry-focused lenders with sector expertise
- Financial intermediaries specializing in structured finance solutions
Why might balance sheet financing have lower interest rates than unsecured options?
- Reduced lender risk due to collateral security
- Clear liquidation pathway if default occurs
- Stronger position in bankruptcy proceedings
- Alignment with standard banking risk assessment models
How does balance sheet financing affect a company's debt-to-equity ratio?
- Increases liabilities side of balance sheet
- Potentially increases assets through cash infusion
- May affect covenant compliance on existing debt
- Creates important considerations for future financing rounds based on financial ratios.
How does balance sheet financing preserve business ownership?
Balance sheet financing allows business owners to maintain their equity stake without dilution. Unlike equity financing where ownership percentages decrease with investment, asset-based financing uses existing balance sheet strengths to secure capital while maintaining complete ownership and decision-making control.
Why is balance sheet financing more flexible than traditional bank loans?
Balance sheet financing provides enhanced flexibility through:
- Customized repayment structures aligned with asset cash flows
- Ability to finance specific divisions or asset categories
- Options for revolving facilities that adjust with business cycles
- Fewer restrictive covenants than conventional corporate loans
When does balance sheet financing offer better terms than unsecured financing? Balance sheet financing delivers superior terms when:
- Company owns substantial unencumbered assets
- Business has stronger asset position than cash flow history
- Industry experiences cyclical revenue patterns
- Growth requires significant capital expenditure before revenue generation
What documentation is required for balance sheet financing applications? Balance sheet financing applications typically require:
- Audited or reviewed financial statements (2-3 years)
- Detailed asset listings with supporting valuations
- Accounts receivable aging reports
- Inventory schedules with turnover metrics
- Business plans demonstrating use of funds
- Personal financial statements for guarantors
- Business bank account info
Is balance sheet financing appropriate for startups or primarily for established businesses?
Balance sheet financing applicability varies by business stage:
- Early-stage startups typically have insufficient assets for meaningful financing
- Companies with 2+ years of operations often qualify for accounts receivable financing
- Established businesses with fixed assets access the broadest financing options
- Acquisition-focused startups may leverage target company assets in structured deals
- Technology startups might qualify for IP-based financing with proper valuation
What fundamentally distinguishes balance sheet financing from cash flow financing?
Balance sheet financing uses specific company assets as direct collateral, with advance rates and terms tied to asset quality rather than overall business performance. This security structure allows businesses to access capital based on what they own rather than what they earn, creating opportunities even during profitability challenges.
Citations on Balance Sheet Financing
- Business Development Bank of Canada. (2023). "Canadian Business Financing: Trends and Opportunities." https://www.bdc.ca/reports/financing-trends
- Deloitte Canada. (2024). "Asset-Based Lending Market Report: Canadian Landscape." https://www.deloitte.ca/insights/asset-lending
- Royal Bank of Canada. (2024). "Commercial Financing Solutions: Balance Sheet Approaches." https://www.rbc.com/business/financing
- Ernst & Young. (2023). "Capital Efficiency in Canadian Mid-Market Companies." https://www.ey.com/canada/capital-efficiency
- CPA Canada. (2024). "Strategic Asset Financing: Accounting and Tax Implications." https://www.cpacanada.ca/resources/asset-financing
