The business credit line in Canada. Clients we meet to can visualize it... they sometimes just can't access it - it' almost as if it's an ancient art they haven't quite perfected. As a result... cash flow and working capital challenges. Does it have to be that way... we think you know the answer already... it doesn't and here's why. Let's dig in.!br>
Part of the challenge of those biz credit lines is simply the fact that the majority of business owners and financial managers are fairly focused only on one solution - which is of course the commercial bank line of credit.
That is definitely one solution. The other (What? There's Another?!) Is a non bank asset based credit line facility. Both facilities monetize your receivables and inventory... the difference then? ... The Asset based credit line often monetizes and equipment and real estate also; as part of your overall borrowing power. The big difference is the real key point here - lending is more generous in a non bank asset credit line. Receivables and inventory are margined more aggressively, and in bank scenarios rarely are your unencumbered fixed assets monetized into credit lines.
The use of your business credit line in Canada, whether it's a bank line of non bank in nature can be viewed as a ' replenishment ' of cash from funds your firm has invested in working capital and fixed asset accounts. That need becomes even more acute when your business is growing. The simple reason - you've got more sales tied up in still uncollected receivables, inventory, and the need for some fixed asset or technology replacement here and there!
Whether you disagree or not, all banks have very specific rules in Canada around business credit lines. Bank credit lines for start up or very new businesses in Canada essentially... Don't exist! That's because our strong banking system in Canada places a large emphasis on historical strong financial history, solid profits, and squeaky clean balance sheets.
If your firm is offside on banking requirements it's still exceptionally very safe to say that you qualify for an asset based credit line from a non bank commercial finance firm. And that higher leverage and borrowing power is still there of course - it's the appeal of the ABL (Asset based Line)
By the way, if you are in fact ' off side' with your bank on their key metrics, ratios, covenants, and collateral issues the ABL line rides to the rescue more time than you think . So while your busines may have temporarily stumbled the non bank asset based line of credit steps in to keep cash flowing and working capital working!
It's not pure roses and sunshine all the time with your busines credit line. You should always be prepared to supply proper reporting and updates on your busines assets, even more so with ABL type facilities which in some cases might even require due diligence visits, appraisals, etc.
If there is a bottom line here its that the business owner/financial manager needs to understand both the alternative to credit lines, as well as the nuts and bolts of how and why they work best.
P.S. If you want to consider new, replacement , or alternative credit facilities seek out and speak to a trusted, credible and experienced Canadian business financing advisor .
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact details :
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