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Inventory Financing In Canada : Sweating It Out On Business Loans For Inventories?
Unexpected Turbulence Around Your Business Inventory Financing Needs






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Inventory financing in Canada is often a key component of the business loan challenge. That challenge? Ensuring the right mix of working capital financing for inventories, and that it complements your other external financing is what it's all about. Let's dig in.

In times gone by, inventory financing was most often provided by Canadian chartered banks as a product of the overall revolving line of credit, which of course usually included receivables also. The ability of a company to free up cash that is tied up in inventory is critical for a firm's cash flow.  These days traditional financing perceived as 'hard to get' having many owners/managers sweating it out in this key area of their business.

Have you heard the line: "if your working capital is positive you need cash flow financing'. The working capital definition referred to is of course the classic textbook definition of going to your balance sheet and subtracting current liabilities from current assets.

However, most of us operate in the real world, not the textbook world, so how do we finance inventory that we as business owners and financial managers know is good collateral?

What the Canadian business owner and financial manager must realize is that your bank or independent inventory financier is not interested in ever getting back your inventory. That should lead you to focus very strongly on your ability to project your inventory turnover, its overall marketability, and your ability to qualify the inventory into several categories - which include raw materials, work in process, and finished goods.

Success breeds challenges, because when you are turning over your inventory you need to replace it, and quite often the financial investment you have made in inventory is still part of your overall cash conversation cycle - which is of course: inventory,  receivable, cash, in that order.


Combined with A/R Finance solutions asset loans are powerful working capital l drivers -simply because unless bank facilities that are ratio financial statement performance-driven, they are in fact collateral and true value-driven.

So a proper facility, when set up, margins your receivables and inventory to their true agreed-upon values. What we are of course saying is that if you have slow-moving inventory and uncollectible receivables you will be a poor candidate for an inventory financing facility.

In order to achieve a proper facility focus on maintaining adequate inventory reports and controls, ultimately a perpetual inventory system is the best method of securing inventory finance because it of course helps focus on the true picture of your inventory movement.


Your firm's ability to produce valid purchase orders, contracts, and proper inventory accounting is a key plus in successful inventory finance. A solid proposal, prepared with the assistance of a business financing advisor perhaps, will include a financial and executive summary review, inventory records and control documentation, and your ability to show repayment of the inventory loan as well as good fluctuations.

Inventory finance works best when you can clearly demonstrate a need, and the ability to show the inventory financing facility will generate additional sales and profits. If you have good margins that will help offset some of the additional costs of such a facility. Simply your ability to generate more cash from inventory and to purchase smarter should in fact be a new benefit that will reap additional profits.

You can also spend a lot of time in Canada searching out for inventory financing that doesn't exist. It is highly specialized, and the number of firms is in the handful, so focus on working with the right parties so as not to waste your valuable time. Understand costs, as well as the benefits that an inventory financing facility will bring to your business. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your inventory loan and asset finance needs.










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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