YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT LINES!
BUSINESS LOANS AND REVOLVING CREDIT FACILITIES
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
"Stop watching opportunities slip away because your cash is tied up – learn how successful businesses stay liquid and agile."
Business Line of Credit
Is there a ‘ BUSINESS LINE OF CREDIT CALCULATOR‘ that owners/managers can use to determine their financing needs?
There are several key components of that ‘ calculator’, and they also may help you in determining which credit facility makes sense for your company to support business growth.
What is a Business Line of Credit?
A business line of credit is a versatile financing tool that gives businesses access to a predetermined amount of money, known as a credit limit.
This credit limit can finance working capital costs, such as purchasing inventory, managing cash flow, or covering unexpected expenses.
Unlike a term loan, a business line of credit is a revolving credit facility. This means that businesses can borrow and repay funds as needed, up to the credit limit. This flexibility allows businesses to manage their working capital more effectively, ensuring they have the necessary funds to operate smoothly and seize growth opportunities.
CASH FLOW STRUGGLES? WE'VE GOT A BUSINESS LIFELINE
"Cash Flow Struggles? Your Business Lifeline Awaits"
When unexpected expenses hit or growth opportunities arise, many Canadian businesses find themselves trapped between timing and available capital. The stress of juggling payroll, inventory, and growth initiatives can paralyze decision-making and stifle expansion. A business line of credit offers the breathing room needed, providing instant access to funds while only paying interest on what you use.
THREE UNCOMMON TAKES ON BUSINESS LINES OF CREDIT
- Using a business line of credit as a competitive advantage tool for seasonal inventory pre-purchasing
- Leveraging the line of credit's interest payments as a tax planning strategy
- Using the credit line as a backup emergency fund to negotiate better terms with suppliers
THERE ARE 2 TYPES OF BUSINESS LINES OF CREDIT IN CANADA
You might find that your firm is in the middle of one of those ' Smackdowns' between the two types of competing lines of credit in Canada for business.
Which type of ' business loan ' works for your business? Let’s dig in.
WHAT FINANCING NEEDS DOES THE LINE OF CREDIT FILL?
Several factors determine financing needs - the most basic are the seasonal or ‘ bulge’ gaps that typify your business or industry.
Businesses often use a line of credit to buy inventory needed for operations, ensuring they can cover expenses until revenue from sales is generated.
Credit lines in business fill ‘ the gap ‘ between the time between the mfr. or providing your goods and or services (or both) up until your clients pay.
It’s never a perfect world in revenue and cash flow realization - so enter business credit lines. The business credit line is not an installment loan, there is no monthly payment - the line fluctuates as you draw down funds and of course you only pay for what you use.
Loan payments are typically associated with term loans, which are usually 3-5 years long. Total interest is calculated for the life of the loan.
Interest rates fluctuate based on traditional or alternative financing solutions and factors such as transaction type, overall credit quality, etc.
ADDRESS THE OPERATING CYCLE GAP IN CASH FLOWS
Are there consequences when you don't assess your financing needs to address the gap we have just mentioned?
Surely there are, the most serious being business failure—but that’s the extreme. Other areas of concern are damaged vendor or client relationships and perceptions by your lenders that your company will be unable to meet obligations.
A GOOD BUSINESS LINE OF CREDIT HELPS YOU MANAGE SALES REVENUE GROWTH
If you have the right revolving credit facility, you have a strong chance of 'managing' your sales.
Startup or early-stage firms have a more significant challenge because they often cannot qualify for bank financing immediately until they can establish themselves and meet some banking criteria. In those cases, banks will often look predominantly at the personal assets or guarantee of the owner, which isn’t the most desirable scenario for entrepreneurs and owners!
THE CREDIT LINE CALCULATOR IS YOUR SALES FORECAST!
Your sales forecast is a critical component of our ' business credit line calculator'.
Many firms, especially those that are a bit larger, have both an internal sales forecast for their own measurements and external revenue projections for lenders / outside owners, etc. The sales forecast is a key component of our ' credit line calculator '.
Sales will generate receivables, the key component of corporate credit lines. Your forecast should show when those projected sales will be collected, driving the final need for a credit facility.
WHAT ARE THE 2 TYPES OF BUSINESS CREDIT LINES IN CANADA
There are two types of business credit revolvers in Canada: They are your SmackDown contenders -
1. The Canadian chartered bank/credit union facility
2. The non-bank Asset-Based Credit Line
Knowing how each of these types of lender assesses borrowing is, in fact, the final element of our business financing needs calculator.
THE BANK SOLUTION TO REVOLVING CREDIT
Banks/credit unions will typically lend 75% of your outstanding A/R that is less than 90 days old. Your sales forecasts can now be amended to show your borrowing based, i.e. your credit line cap.
DON'T FORGET THOSE BANK SECURITY REQUIREMENTS
Remember also that banks require profits, total collateral on your business, and debt and cash flow ratio requirements that match their credit line terms and conditions approval criteria.
A bank may include a claim on a company's inventory and accounts receivable as part of the loan agreement, emphasizing the secured nature of such loans and their ties to the borrower's current assets.
While the annual interest rate and repayment terms are very competitive in banks, not all businesses qualify for the required funding.
WHAT AMOUNT OF FUNDING DOES THE ASSET-BASED LENDER ADVANCE
How to Get a Business Line of Credit
Securing a business line of credit involves applying to a financial institution like a bank or an alternative lender.
The application process typically requires the business to provide comprehensive financial information and documentation, including business financial statements, tax returns, and credit reports. The lender will review this information to assess the business's creditworthiness.
Factors such as the business’s financial health, credit history, and revenue projections will influence the lender’s decision. If approved, the lender will determine the interest rate and terms of the credit line based on the business’s risk profile and financial stability.
Interest Rates and Fees
The interest rates and fees associated with a business line of credit can vary widely depending on the lender and the business's creditworthiness.
Generally, interest rates for business lines of credit range from 5-20% per annum. The specific rate offered will depend on factors such as the business’s credit score, financial health, and the type of lender.
In addition to interest rates, businesses should be aware of potential fees, including origination, maintenance, and late payment fees.
These additional costs can impact the overall cost of borrowing, so it’s essential to review the terms carefully and understand all associated expenses before committing to a credit line.
WHAT AMOUNT OF FUNDING DOES THE ASSET BASED LENDER ADVANCE
The non-bank asset-based lender advances 90% of A/R and typically margins inventory and equipment in that formula.
It’s a winning combination for firms that can’t meet bank or business credit union requirements. The interest rate is higher on asset-based loans and revolving credit facilities but it often becomes a question of access to capital versus the cost of capital.
It is important to note that the ' loan amount ' funded by asset-based lenders increases automatically as your sales and assets grow.
KEY TAKEAWAYS
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Revolving nature allows repeated use without reapplication
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Interest is charged only on utilized funds
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Credit limits based on revenue and business health
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Flexible draw and repayment schedules
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Documentation requirements vary by lender type
CONCLUSION - TRANSFORM YOUR BUSINESS WITH REVOLVING CREDIT ACCESS
Small businesses struggle with various solutions such as business credit cards, short-term merchant advance loans, etc.
The new normal in business finance (post-2008 worldwide economic / 2020 COVID-19 tumble) requires that small business owners and financial managers pay much more attention to lending sources and alternatives they might previously not have considered.
A small business line of credit is a flexible financing option that can be accessed online. It provides benefits over traditional loans.
Abandon that crystal ball or Ouija board and your gut feelings about financing needs.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, to help assess your business needs and available choices in business credit and get you back on the road to financing success.
FAQ
How quickly can I get approved for a business line of credit?
Approval times typically range from 2 weeks depending on the lender and documentation readiness.
Traditional banks may take longer, while online lenders often provide faster decisions.
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Required documentation varies by lender. - traditional or alternative
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Pre-approval is often available within hours
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Full approval depends on the business profile and financials
What personal credit score do I need to qualify?
Most Canadian lenders require a minimum personal credit score of 650, though requirements vary:
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Traditional banks: Usually 650+
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Higher scores typically mean better rates
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Business credit history also considered
What collateral is required?
Collateral requirements depend on:
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Secured vs. unsecured options available
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Business assets are often used as security
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Personal guarantees are commonly required
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Real estate may strengthen the application
What makes a business line of credit more flexible than traditional loans?
How can it improve my business cash flow?
What are the long-term advantages of maintaining a credit line?
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Build business credit history
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Establish banking relationships
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Create financial flexibility
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Access emergency funds
How does it compare to credit cards for business expenses?
What types of expenses work best with business credit line financing?
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Inventory purchases
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Equipment upgrades
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Marketing campaigns
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Operating expenses
What documentation is needed for the application?
How often are credit limits reviewed?
