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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
Direct Line = 416 319 5769
Office = 905 829 2653
Email = email@example.com
Business line of credit interest rate issues are often the concern of the Canadian business owner and financial manager. So in a positive (hopefully) sort of way we're ' blowing the whistle ' on the differences in business lending rates when it comes to revolving credit facilities. Let's dig in.
We’re hopefully not surprising the majority of business owners /finance managers around the fact that there are several types of business lines of credit. The most common, and often most difficult to achieve is the Canadian chartered bank line of credit. Why is that the case? It's pretty simply - it’s based on the quality of your business financial statements.
We often meet clients who are unable to initially produce financial statements that are up to date and reflect the current status of their business. While it’s obviously a bit more acceptable if they are prepared by a C.A. firm, or audited quite frankly any good accounting firm should be in a position to provide you with data that shows clearly the relationships of balance sheet accounts, sales and your income statement, etc.
Banks totally focus on this data and are looking for evidence of a strong position. It's this data that will drive the lowest and most flexible interest rates that properly allow you to negotiate personal guarantees, loan covenants, ratios that make sense to your business and industry. With Canadian rates at an all time low those rates tend to be in the 4-6% range these days. Our comment... wows!
Bank financing is all about relationship lending and shortfalls in your financials will not let that relationship develop, forcing the owner/manager to consider business lending via alternatives.
Alternatives? Yes, Virginia. Two other alternatives exist. The first is commercial finance asset based lending. While any positive business relationship or lending relationship is desired asset based lending, i.e. non bank commercial finance lines of credit zero in on the collateral in your business - namely receivables, inventory, and equipment. Your ability to collateralize these to the maximum available often allows companies with no chance of accessing bank credit to have significant revolving credit facilities.
Its formula based business borrowing - with typical margins being 90% on A/R, 30-70% on inventory, and 70% of liquidated equipment asset values.
Asset lending rates are almost always more expensive but provide valuable liquidity to businesses that can't access Canadian bank credit.
A smaller, but growing subset of business credit lines is ‘factoring '. This is purely receivables focused, and allows the business to generate immediate cash on every sale they make. Again, costs are 3-4 times higher than bank rates but business credit becomes virtually unlimited - important to smaller, new or growing businesses in the SME sector.
Yes, the business line of credit rate will vary with your business needs, but take solace in knowing alternatives and flexibility abound. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can ' blow the whistle ' on business lending alternatives that make sense for your firm.