Tapping into sources of financing must for most business owners and financial managers in Canada seem like finding the hold grail of financing; particularly after the tough time they had in 2008-2009 after the global economic meltdown.
The problem , or should we call it a challenge for business in Canada is the ability to source working capital and cash flow , and long term financing as prospects for growth, sales and revenue seem to improve and the cash flow and working capital prospects seem to have gotten tougher!
When we meet with clients who have been denied bank loans we can of course commiserate, but at the same time Canada’s banks seem to have survive somewhat unscathed compared to bank failures all over the world. The bottom line quite frankly is that Canadian business is looking to alternative sources of financing for working capital, cash flow, and asset acquisition. The Canadian government has a full scale bank that is a non bricks and mortar bank, i.e. not branches, and they are committed to providing working capital and equipment financing.
However, the bottom line reality is that if you can access the business financing you need you should consider non bank financing, because it is these firms that seem to be the current bench strength in asset and receivable financing – these firms include:
Asset based lenders – equipment, receivables and inventory
Purchase Order and Inventory financing firms
Factoring firms – i.e. receivables
Tax credit monetization firms – i.e. sred/Sr&Ed credit financing
When we talk to clients they often use the term ‘government grants and loans ‘- We feel that term is not realistic, in that that the only two real world programs out there are the Canadian SR&ED program, which is the non repayable grant for r&d, and also, the government Small Business Loan – A lot of misinformation exists about this loan as it only finances equipment and leaseholds – many clients seem to think it provides cash, or working capital financing. It does not!
There is always the equity consideration, but most business owners we meet have already contributed the maximum equity they can, and are reluctant to borrow further from personal resources, and the proverbial ‘ friends and family ‘.
Working capital financing in our terms means several very clear solutions –
Monetizing your current assets such as receivables and inventory
Cash flowing items such as Sr&Ed credits
Entering into a government working capital term loan
Negotiating a working capital/receivables financing facility – which in larger dollar terms is referred to as an asset based lending (ABL) arrangement.
When looking for sources of financing for working capital and cash flow is sure you understand the meaning behind the jargon. Determine whether you are looking for liquid operating capital, or a longer term working capital solution. Seek out and speak to a trusted, credible, and experienced financing advisor who can guide you through the Canadian working capital maze and determine what the best cash flow and source of financing is for your long term growth and profits.