What Is A Working Capital Loan ? Business Financing Cash Flow Loans

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WORKING CAPITAL FINANCING SOLUTIONS

Working capital loans in Canada have the ability to provide the cash flow & business financing solution your business needs to achieve overall funding success. Let's look into these real-world funding solutions you can access, and let's dispense with any 'locker room talk ‘! Let's dig in on business owner financing options and types of working capital loan and financing solutions!

GROW YOUR BUSINESS WITH DIFFERENT FINANCING SOLUTIONS AVAILABLE

7 Park Avenue Financial can help you grow your business with the resources to expand. With a variety of financing options, we're here to support your capital needs.

True cash flow loans (with numerous variations) come with attractive rates at the expense of not having to issue or generate additional owner equity when looking to obtain money/financing for your business.

HOW DO YOU REPAY A WORKING CAPITAL LOAN?

Real working capital term loans come with a typically 3-5 year short-term/intermediate-term focus. Typically payments are made monthly out of the cash flow your company proves it can generate regularly. In essence, the solution is a permanent working capital solution to your overall capital structure, and it's one of the best small business financing options when a permanent working capital solution is required.

These loans should typically not be used to acquire long-term assets, which can often be financed with long-term debt or lease financing solutions.

WHAT IS THE BEST TYPE OF BUSINESS FINANCING FOR YOUR BUSINESS

When it comes to business loans, In some cases, a true working capital loan can have some collateral attached to it, such as equipment or other business assets. The other solution is, of course, a business line of credit. Still, typically it's all based on your ability to prove consistent and positive cash flows when looking to provide working capital to your business.

These types of facilities for a working capital line facility are made through 3 types of organizations-

THE CANADA SMALL BUSINESS FINANCING PROGRAM

The Canada Small Business Financing Program is a source of business financing overlooked by many entrepreneurs. Many regard it as the best business financing for startup ventures, although loans go as high as 1 Million dollars and are guaranteed to Canada's government's bank. Any private firm or proprietorship is eligible for the 'SBL" loan. The borrower's good personal credit is a key requirement for this type of ' lump sum' term loan that is typically paid back over 2-5 years with repayment terms tailored to your need or project that many owners will take advantage of.

Good personal required is required for the government loans program as well as other ' traditional lenders. Alternative lenders typically place less reliance on a credit score/personal guarantee for business credit, although interest rates are commensurate with overall credit quality.

Achieving success in a working capital loan scenario will come with some conditions, as business owners will normally be required not to take out excessive funds from the business and must demonstrate that they have the cash flow in place to repay the loan, as we've stated.

THE NEED FOR A CASH PLAN

The lender's challenge in a cash flow loan is their need to ensure your current and projected funds can meet your repayment requirements.

Only a small handful of organizations typically provide such business financing in Canada. Canada's chartered banks provide the lowest rates, while other firms and organizations have a higher cost of borrowing, which is passed on to your firm as the borrower.

In some cases, your company might be considering business transition financing for an acquisition or management buyout - Talk to the 7 Park Avenue Financial team about buying a small business in Canada if you are considering a business purchase.

Why should your firm consider a cash flow solution? The typical reasons might be capital improvements, equipment purchases, and working capital to support investments in receivables and inventory.

It is important to ensure you are entering into a working capital loan arrangement for the right reasons - as working capital loans should not be confused with asset-based lending on items such as receivables, inventory, equipment, real estate, etc. Business technology financing via leasing solutions can be utilized for your computer, technology, and software financing needs.

Typically a working capital facility loan will require the guarantees of the owners of the firm. One of the smartest things you can do in positioning a facility is to provide a crisp, well-thought-out cash flow analysis (an updated business plan wouldn't hurt) to give the lender the comfort that you can make any payment. In your document, you should know that the lender will be looking at total debt to equity once the loan is in place and that you have cash flow coverage to repay.

In our experience with clients' working capital, requests tend to be in the 50k-250k range. Larger facilities than this become known as mezzanine debt or subordinated debt - these are fancy terms for 'unsecured cash flow loans.

BEST POSSIBLE SOURCES OF BUSINESS FINANCING?

In recent times numerous alternative finance solutions have emerged as resources to address the working capital challenge. These solutions include:

Short-term working capital loans/merchant advances - while the interest rate is higher than traditional financing, these loans are easily obtained in your search for quick capital, sometimes online. They are based on your firm's sales history. Loan terms are typically 12 months and often represent a loan amount of 15-20% of your annual sales.

Factoring / AR Financing - Factoring companies are a form of accounts receivable financing that provides businesses with an opportunity to sell their invoices at discounted rates for immediate cash. This enables them to make the most of their investment in accounts receivable for customers who may not pay until as much as 30-60 days later.

The factoring company pays upfront when sales are made. When considering a working capital loan interest rate borrowers need to understand that in factoring finance costs are expressed as a fee, and not an interest rate per se.

SR&ED Loans - financing your r&d tax credit to fund the development of new markets and products and services for firms who look to invest in the future expansion within their industry

Sales/Royalty Financing / Saas Financing / Venture Debt Programs - Suitable for early-stage firms where access to capital is as important as the cost of capital

Sale leasebacks / Equipment Leasing - Commercial business equipment financing for your asset needs when looking to expand and acquire new assets

In summary, working capital loans for small businesses are available in Canada from a business financing lender particularly suited to your needs. It is important to position your request properly, and careful attention to the lender's metrics will pay off for your firm.

CONCLUSION - LOOKING FOR THE BEST WORKING CAPITAL LOANS?

Venture capital, not the solution? It rarely is for small business! Small business loans and Business financing solutions can come from both traditional and alternative lenders for any specific purpose. It's important to understand your business needs before proceeding with any funding options. The 7 Park Avenue Financial team is happy to help you find the right type of financing for your company, whether you're a startup or an established thriving enterprise.

Speak to 7 Park Avenue Financial, a trusted, credible advisor in business financing who will help you maximize the benefits of a true working capital loan facility or alternate solution that makes sense for your business or industry. If you're looking for business capital and working capital needs and the best business financing options and real-world solutions for business loans with our in depth knowledge , then let's get started on your business growth!

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

Canadian small business owners often feel the pressure to find financing for their businesses—different types of funding options are available to help you get your Canadian-based enterprise off and running. There are many ways to fund your new start-up venture; however, Canada has some unique choices just waiting for entrepreneurs who need startup funds fast.

Working Capital Loans help businesses pay for daily expenses and manage cash flow gaps during slow seasons. A working capital loan is a type of business financing that can pay for payroll and operating costs. It's also good at managing the cash flow gap and covering shortages during the slow season for many businesses; these loans are often called "operating" or "working capital" loans. When structured as a term loan debt payments are made by the borrower in installments.

Proper short-term financing solutions will help in the management of a firm's current assets and current liabilities including retiring accounts payable in a timely manner so they can stay afloat. In some cases, an unsecured loan or credit line from a chartered bank might be the best solution to ensure net working capital stays positive. Companies should sometimes consult with their accountant or tax advisor to ensure financing meets business goals around the balance sheet and capital structure

Businesses seeking bank financing or additional working capital should ensure they have a proper credit profile.

What are the types of working capital loans?

Accounts receivable financing/factoring finance to address trade credit management and funding

Online lender solutions such as merchant cash advances for financing based primarily on annual revenue - the application process is quicker than traditional financing

Government Guaranteed Loans via Industry Canada's Small Business Financing Program, which now includes a line of credit component for day to day operations for the company's liquidity or a busy season and bulge financing need - The program is used by thousands of businesses annual including a working capital loan/working capital requirements for new business or franchise purchases

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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