Business Line Of Credit Challenges in Canada: We Know Why
Business line of credit needs stem from needs of your business for operational and growth success. Let's dig in.
The interesting thing about these types of facilities is that their need in effect mirrors the ' journey ' of your business. They often start out with the owner/entrepreneur struggling with the realization the current assets he or she has grown through sales have depleted cash on hand. Even worse is that traditional lending sources such as our Canadian chartered banks that place a tremendous amount of emphasis on the personal financial resources, credit history, and outside assets of the owner/entrepreneur.
That brings us to the ' pivot point '. It's where owner/entrepreneur, or his or her financial manager must be able to quickly and expertly know where to, and who to turn to.
In the case of company credit lines it boils down to three alternatives:
Banks
Non bank ABL credit lines
Subsets of traditional and alternative lending that provide part or all of the financing need
There is no clearer requirement than the needs of a bank for approving business credit lines. It's all about your company's current and past financial statements, cash flow coverage, and business asset and outside collateral and positive perception of owners. Unfortunately when anyone of these is lacking it's almost impossible to get financing approved.
For businesses at the lower end of the SME sector mundane issues such as personal credit scores and personal net worth suddenly become ' critical' for bank approval.
We hasten to add that when your company can access Canadian chartered bank financing the rates and the flexibility available are quite frankly unsurpassed.
ABL Credit: ABL (asset based lending) is the non bank alternative for the business line of credit. Here pretty well only one thing counts - assets. Both short term and long term assets are in effect ' combined' into one revolving line of credit. These assets become the ' only ' collateral on your deal, not a ' secondary ' source as in Canadian banking facilities.
ABL credit is very ' formula ' driven - but for once those formulas make sense. Borrowing ability typically is 90% of your A/R, anywhere from 30-70% of your inventory, and the true liquidating value of any fixed assets.
By the way, top experts tell us that in the U.S. over 30% of that business credit line borrowing is done by ABL facility providers. While that's not yet the case we tell clients that that trend is in fact a positive one also.
So that brings us to ' sub sets ', in effect small ' niches' in working capital and cash flow financing. They include:
Factoring / Confidential Receivable Finance
Inventory finance
SR&ED Tax credit loans
Working Capital term loans - while adding debt to the balance sheet they do in fact inject permanent working capital into your business.
All three categories of the business credit line in Canada come with different costs. ABL facilities cost more, but always deliver. Bank financing provides low cost growth financing. And when niche financing is needed for a variety of reasons or challenges our ' subset ' trio as outlined above also delivers.
Seek out and speak to a trusted credible and experienced Canadian business financing advisor when you're searching for that ' pivot point ' in business credit.
Stan Prokop [http://www.7parkavenuefinancial.com/stan-prokop]
The interesting thing about these types of facilities is that their need in effect mirrors the ' journey ' of your business. They often start out with the owner/entrepreneur struggling with the realization the current assets he or she has grown through sales have depleted cash on hand. Even worse is that traditional lending sources such as our Canadian chartered banks that place a tremendous amount of emphasis on the personal financial resources, credit history, and outside assets of the owner/entrepreneur.
That brings us to the ' pivot point '. It's where owner/entrepreneur, or his or her financial manager must be able to quickly and expertly know where to, and who to turn to.
In the case of company credit lines it boils down to three alternatives:
Banks
Non bank ABL credit lines
Subsets of traditional and alternative lending that provide part or all of the financing need
There is no clearer requirement than the needs of a bank for approving business credit lines. It's all about your company's current and past financial statements, cash flow coverage, and business asset and outside collateral and positive perception of owners. Unfortunately when anyone of these is lacking it's almost impossible to get financing approved.
For businesses at the lower end of the SME sector mundane issues such as personal credit scores and personal net worth suddenly become ' critical' for bank approval.
We hasten to add that when your company can access Canadian chartered bank financing the rates and the flexibility available are quite frankly unsurpassed.
ABL Credit: ABL (asset based lending) is the non bank alternative for the business line of credit. Here pretty well only one thing counts - assets. Both short term and long term assets are in effect ' combined' into one revolving line of credit. These assets become the ' only ' collateral on your deal, not a ' secondary ' source as in Canadian banking facilities.
ABL credit is very ' formula ' driven - but for once those formulas make sense. Borrowing ability typically is 90% of your A/R, anywhere from 30-70% of your inventory, and the true liquidating value of any fixed assets.
By the way, top experts tell us that in the U.S. over 30% of that business credit line borrowing is done by ABL facility providers. While that's not yet the case we tell clients that that trend is in fact a positive one also.
So that brings us to ' sub sets ', in effect small ' niches' in working capital and cash flow financing. They include:
Factoring / Confidential Receivable Finance
Inventory finance
SR&ED Tax credit loans
Working Capital term loans - while adding debt to the balance sheet they do in fact inject permanent working capital into your business.
All three categories of the business credit line in Canada come with different costs. ABL facilities cost more, but always deliver. Bank financing provides low cost growth financing. And when niche financing is needed for a variety of reasons or challenges our ' subset ' trio as outlined above also delivers.
Seek out and speak to a trusted credible and experienced Canadian business financing advisor when you're searching for that ' pivot point ' in business credit.
Stan Prokop [http://www.7parkavenuefinancial.com/stan-prokop]
