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Working Capital Loans – Cash Flow Business Financing Canada

Guest post by: Stan Prokop

Article Overview: Information for small and medium sized businesses in Canada on working capital loan facilities – how do they work and how to achieve business loan approval for your cash flow financing needs.

Working Capital Loans – Cash Flow Business Financing Canada

Working Capital Loans in Canada provide cash flow business financing for Canadian business owners and their financial managers. When you achieve a cash flow loan of this type the overall financing rate tends to be very attractive.

Generally a working capital loan is a 3 to 5 year short term / intermediate term facility. Repayments are made monthly out of business cash flow, and typically the working capital loan is viewed as permanent business cash flow.

In many cases a working capital loan can have some collateral attached to it such as equipment or other business assets.

These type of facilities are made through 3 types of organizations-

Chartered banks

Independent Finance Companies

Government owned Crown Corporation

Achieving success in a working capital loan scenario will come with some conditions, as business owners will normally be required not to take out excessive funds from the business, and must be able to demonstrate that they have the cash flow in place to repay the loan. This is typically adjudicated via traditional cash flow analysis - the lender simply wants to see that you have current and projected funds flow to meet your repayment obligations.

As we stated, there is only a small handful of organizations that typically provide such business financing IN Canada. Canada's chartered banks provide the lowest rates , while other firms and organizations have a higher cost of borrowing which is passed on to your firm as the borrow .

Working capital loans should be considered for a variety of reasons - some of these are - capital improvements, equipment purchases, and working capital to support cash flow and inventory.

It is important to ensure you are entering into a working capital loan arrangement for the right reasons - as working capital loans should not be confused with based lending']);"> asset based lending on items such as receivables, inventory, equipment, real estate, etc .

Typically a working capital facility loan will require the guarantees of the owners of the firm. One of the smartest things you can do in positioning a facility such as this is to provide a crisp well thought out cash flow analysis - (an updated business plan wouldn't hurt), to give the lender the comfort that you can make payments. In your document you should know that the lender will be looking at total debt to equity once the loan is in place, and also that you have cash flow coverage to repay.

In our experience with clients working capital requests tend to be in the 50k-250k range. Larger facilities than this become known as mezzanine debt, or subordinate debt - these are fancy terms for 'unsecured cash flow loans '.

In summary, working capital loans are available in Canada from 3 different types of entities. It is important to position your request properly, and carefull attention to the metrics that the lender will be looking at will pay off for your firm. Speak to a trusted, credible advisor in business financing who will help you maximize the benefits of a true working capital loan facility.

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Article Tags: cash flow business financing, working capital loans



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