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Asset Based Loans and Cash Flow Factoring and Financing Alternatives in Canada

Guest post by: Stan Prokop

Article Overview: Asset financing and lending solutions in Canada ;Information on asset based loans and cash flow factoring as valuable consideration for alternative financing methods of working capital in Canada .

Asset Based Loans and Cash Flow Factoring and Financing Alternatives in Canada

Asset based loans come in a variety of alternatives within the Canadian business financing market. On top of the account receivable you generate from sales and sales growth Canadian business also has investment directly related to inventory, equipment, and on occasion real estate.

The challenge is simply to monetize those critical current and fixed assets into cash flow when you need it, in a manner that makes sense for your firm. The most obvious way to generate cash flow and working capital from your business is to directly monetize accounts receivable via a cash flow factoring facility.

Naturally this can be also accomplish with a chartered bank operating facility, but if this is not feasible your ability to monetize receivables when you need to is best done via a factoring or invoice discounting facility .

When we sit down with clients and talk about the sometimes higher cost of non bank asset based financing in Canada one of the things we focus on is the cost of equity. Although asset based financing in its many derivatives ( bridge loans, factoring, financing against equipment equity, inventory advances, etc) may be a more costly method of financing your business we can categorically say, and the text books will back us upon this one, that equity financing is much more expensive.

A business either borrows funds, or injects owner equity into the business, and equity capital can be expensive when considering its dilutive nature relative to total ownership. And the reality is that the right amount of debt is in fact a great way to optimize leverage and increase return on investment and return on equity - a great way to measure owner and manager performance .

The key benefit of based lending']);"> asset based lending is its ability to generate cash flow for you when you need it. Cash flow and working capital needs ebb and flow daily, weekly, monthly, annually, seasonally... you name it, it is always changing. When you send invoices, build up inventory, or pay suppliers, that is all part of the cash flow conversion cycle in any business.

Your ability to focus in on assets that can generate cash when you need it is a true working capital success scenario. The best thing you can do in preparing to consider a true based loan']);"> asset based loan or based lending']);"> asset based lending facility is to ensure you can properly demonstrate the ongoing sources and uses of your funds, and in particular the turnover of those funds . The ability to clearly understand your days sales outstanding, annual inventory turns will significantly impact your ability to source and obtain the right based loan']);"> asset based loan facility.

The most obvious facility we mentioned is factoring or invoice discounting - for the purposes of information we are sharing now on this subject the best advice we can provide is very simply - choose the right factoring partner and firm - which is best done via the seeking out of a trusted, credible and experienced based lender']);"> asset based lender in Canadian business financing .

The key benefits you will derive from a properly constructed cash flow factoring facility are the amount of capital you can immediately borrow against receivables, plus the knowledge your limit will grow easily as you increase sales revenue. In many other forms of business financing receivable advances are limited to formulas and tied to financing performance of your company - that is not the cash with cash flow factoring.

Investigate the benefits of asset based loans, which may come in a format that works for your business financing success.

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Article Tags: asset based loan, asset based loans, cash flow factoring, invoice discounting



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Overdraft Banks are surprisingly supportive when presented with a well thought through plan and competent management. Bank Loans Lenders tend to look for a good business plan and security. Typically the loan is approved by a centralised back office function rather than the person you meet. Terms and rates depend upon the risk. Repayments can be very flexible to meet your specific needs. Mortgages These can include flexible repayment terms to meet your business needs. This can even be incorporated into your overdraft finance so that you have one flexible account for both personal/ business mortgages and overdraft Small Firms Loan Guarantee Scheme Up to two years trading: Up to £100,000 Over two years trading: Up to £250,000 However these are difficult to obtain and are a loan of last resort. Export Guarantee Scheme This is government backed insurance against appropriate export documentation. Mezzanine This is a halfway house between loan and equity. 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These funds are looking for exponential capital growth over 3-5 years. Asset backed finance This can cover machinery, sales invoices even sales orders. It can be a very flexible source of finance to the growing business Leasing This will cover your capital expenditure and spread the cost over a three to five year period. It is particularly useful if you do not have taxable profits to maximise your capital allowances. Sale and leaseback of a property you own is another good source of funds. Factoring Factoring offers a sales ledger administration and debt collection service. Up to 95% of an approved sales invoice is paid within 48 hours, quicker if required. Credit protection is also available to protect against a bad debt. The Factor will own and place a first charge over the book debts and they might also take other charges, depending upon the strength of the financial information. Invoice discounting Invoice Discounting can be Confidential or Disclosed; it depends upon the strength of the financial information. The service is the same as Factoring, except that the sales ledger administration and the debt collection is the responsibility of the client and not the Factor. Pre payment of the approved sales invoice is still up to 95% and the factor will still have a first charge on the book debt and therefore own the debt. This service can also have credit protection cover. All sales invoices need to be for a business to business debt, and some proof of delivery is generally required. Trade Finance This is funding provided against stock purchases, signed contracts and orders whereby the funder will prepay a certain percentage of the value Pension fund It may be possible to use your pension funds for a loan back to the business What do u think about it?


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