Canadian business financing , fortunately or unfortunately, comes usually with a question : What type of cash flow or debt finance solutions are right for my firm - and more to the point , do I qualify for approval . Oh and one more question - What do the various traditional and alternative options cost and how do they work? The answer? Let's dig in.
One of the first areas the business owner needs to assess is the whole issue of borrowing to take on new debt, or simply being able to ' cash flow' or ‘monetize’ business assets. The need to acquire longer term fixed assets is always going to be financed via long term debt, term loans, and equipment finance and leasing. Top experts tell us that over 80% of all businesses in North America utilize equipment financing to acquire production and technology type assets.
Is leasing always the ' go to ' when it comes then to acquiring assets? In some cases current assets can be refinanced via a sale leaseback or temporary bridge loan, bringing in need working capital.
Note also that for companies in the Commercial SME Finance needs sector the Canadian govt small business loan should be considered. It's for new or start up businesses that require leasehold improvements or new assets to a maximum of 350k, although that max is in the process of being raised - great news for the firm that has under 5 Million dollars of revenue . ( 5 Million is the program max )
We advise clients strong to consider ' matching’ business financing solutions with the need. A clear example? Simple. Don't use day to day business lines of credit or cash on hand to acquire long term assets. That depletes your cash flow and working capital ratios. The strategy might make sense in the moment, but never in the long term.
Business financing needs often focus on ' liquidity '. That is the ' monetization' aspect of what we have been talking about. Here you want to focus on financing receivables and inventory. That is accomplished via such strategies that include:
Chartered bank credit revolving credit lines
A/R Financing (that might include traditional invoice factoring or our recommended solution - Confidential Receivable Finance
Tax credit monetization (Yes Virginia ... you can finance SR&ED refundable tax credits
PO/ SUPPLY Chain Financing
Asset based lines of credit - these are non bank in nature and monetize your current assets into one simple credit line that you borrow against and revolves
It's critical to assess whether the financing you need is ' traditional' or ' alternative ' in nature. Part of that assessment is the cost, as the non traditional sources will often cost 2-4 times the cost of today’s low bank financing rates, which might typically be in the 4-5% range. Note though that its a question of access to capital as opposed to ' cost of capital' for many business owners who can't qualify for unlimited amounts of business credit, which often can be sources via alternative finance vehicles.
So, do ' we need to talk '? Consider seeking a trusted, credible and experienced Canadian business financing advisor who can ensure you are on the right path to solid cash flow and debt finance solutions for Canadian business.