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Here’s 5 Immediate Solutions for working capital financing for your cash flow business needs!

Guest post by: Stan Prokop

Article Overview: Information for business owners on 5 different methods of achieving working capital financing for cash flow business needs . One or all of these solutions can be effective in your cash flow needs .

Here’s 5 Immediate Solutions for working capital financing for your cash flow business needs!

These days you probably would be happy with 1 solid working capital financing solution for your cash flow business needs.

We'll beat that and give you 5 ! How is that for alternative solutions to your working capital and cash flow needs?

Funding of working capital continues to be a large challenge for Canadian businesses of all size - you want to grow your business which requires investment in and of it, and by the way those suppliers and employees want to be paid on time also.

Lets examine some solid real world solutions to your cash flow needs - in some cases all of them could work for you, but in general even a couple of these solutions would ' fix ' the current problems you face on a day to day basis .

The most liquid asset any business always has, (next to cash) is your receivables. Working capital financing is best generated by the collection, or financing of your receivables. This can be done via either faster collections, or selling your receivables as you generate them. This financing is called receivable discounting or factoring, and is becoming increasing popular everyday.

Did you ever think of the government of Canada as one of your best working capital financing partners? Our clients are amazed when we suggest that ' partner' as a solution. But the specialized government program, technically called the BIL/CSBF loan program finances any equipment and leasehold improvements you need via a greatly subsidized loan program. We say subsidized, because even if you are a start up rates are great, guarantees are limited, and loan max amount is up to 350,000.00. Our clients who take advantage of this program consider it, bar none, the best financing in Canada for small and medium business, including start ups.

You've spent your working capital - would you like to get it back? Clients always ask what we mean by that. Any equipment you have already paid for can often be refinanced, the technical term is sale leaseback, and we find that either that strategy or a short term bridge loan with the equipment as security is exactly what our clients need to bridge the cash flow gap.

We spoke above about receivable financing - one of the best facilities for Canadian business is a combo working capital facility that finances, or ' margins ' both your A/R and your inventory. Since many firms previously couldn't finance their inventory either elsewhere, or via banks, the combined liquidity of borrowing against your A/R and inventory is a true power punch! Typical this type of financing is known as an based lending']);"> asset based lending facility, and makes most sense when the facility is at lease in the 250k range, and sky is the limit after that.

Many clients are totally unaware the Purchase orders financing is available in Canada. This is a strong potential cash flow saver, and generator, since your suppliers are paid for product when you order it, once you have received the P O. The P O lender takes the inventory and receivable as security, but in effect finances your whole sale. While it is an expensive form of financing if you have good gross margins and could otherwise not facilitate the sale of your large new orders and contracts it's a perfect solution.

In summary, make yourself aware of your Canadian business financing options. Working capital and cash flow are available if you have assets and orders. We have demonstrated that clearly to you via 5 separate solutions. Speak to a trusted, credible and experienced Canadian business financing advisor to determine what works for your firm.

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Article Tags: business owners, working capital financing cash flow business



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Tax returns! - Well, this is new on me. i had no idea you could sell a site off. If it's anything like purchasing a non-internet business then you need to check into multiple things. Will you need to finance to purchase? If so, you'll need to calculate the cash flow. Also, find out if there will be any add backs to the cash flow, for example, are there other workers invovled to keep the site running...perhaps workers you won't need when you take the site over? Their salaries can be added back to the cash flow if you will not need them. You must see the top page of the last year tax return (never go off just the P & L's). Did the seller run anything personal thru the tax returns that you wont? That's also considered an add back to the cash flow. What is the gross sales for the 12 months? What is the net income for the 12 months? Make sure the purchase price is justified. You can calculate a ball park range on this by doing 30 - 50% of the gross sales for the year or 3- 5 times the net earnings. What is the web traffic like? Is it steady? Do you have time to run the site or will you need to hire someone to manage it? Make sure the business is supporting itself and is profitable. Does the seller have an initial business plan from when they bagan the business, so you can look it over?
the BDC - Hi Renee, the BDC is a great lender to many Canadian businesses. I've heard many horror stories from businesses that have had problems with the BDC, but I think it all depends on which account manager you deal with (that's the case with most lenders). Anyways, I have a great relationship with the BDC Toronto office, and was successful earlier this year in getting two service based companies loans under the BDC Innovation financing program ($100,000 and $150,000, both for marketing and growth initiatives). Here's an article I wrote about the BDC late last year for an Accounting Firm's newsletter: The Business Development Bank of Canada is a financial institution belonging to the Government of Canada, with the mandate: “to encourage innovation and stimulate the growth of small and medium-size Canadian companies.” The BDC usually looks for companies with a sound management team that possess solid growth potential. The BDC can provide working capital solutions to complement traditional bank financing. The BDC’s lending practices are somewhat different from the traditional chartered banks. With the BDC, borrowers receive a guaranteed term, meaning that financing cannot be recalled without due cause. As opposed to the chartered banks, where facilities are typically demand loans and can be recalled at any time. The BDC has very flexible repayment terms, including deferring principal payments, amortizing loans for up to an 8 year term, or offering seasonal and/or progressive payment options. This allows businesses to structure their cash flow accordingly. The BDC is willing to lend to companies that are more leveraged than traditional banks would consider. As well the BDC is willing to finance higher loan-to-value ratios than the chartered banks max out on. The BDC also offers subordinated debt, where they will postpone their claim to a chartered bank. Sub-debt can be very advantageous to many companies, because the BDC ties the repayment terms to the company’s cash flow projections. The pricing model can be setup as normal interest payments, royalties on sales, bonus interest based on milestones, warrants or some combination of these items. The BDC lends sub-debt to businesses based on historical cash flow, management and growth potential. The innovation financing program provides small businesses with funds to carry out marketing and/or growth plans, increase inventory, and/or develop new products. The BDC funds all types of businesses including start-ups, however will not fund any business that earns 50% or more of their profits from alcohol sales or gambling. The cost of borrowing from the BDC is generally higher than the chartered banks. The BDC’s base rate generally starts at two points above regular bank prime, and then the risk premium is applied to these rates based on each project's potential and the amount of risk involved. The BDC may not be ideal for all businesses, but as an alternative and/or complement to traditional bank financing, the BDC could be a very attractive solution.
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