Working Capital Financing – Know How Essential It Is For The Success Of A Business

Working Capital – Always Necessary For Building A Steady Cash Flow

Capital is the lifeblood of every small and large sized company. When there is a deficit in capital, the company’s ability to reinvest, fund operations and meet production costs and payments gets affected severely. Therefore, it is better to find out a company’s working capital status before making any kind of investment decision. One of the best ways to continue with capital raising for a company and meet its regular cash flow requirements is to take advantage of different capital financing options available in the market.

A steady cash flow is what can keep businesses run smoothly for years. Sometimes, business owners forget to focus on this key element which can help their businesses to survive and sustain in spite of growing competition. However, they have access to different working capital financing options for managing adequate cash all the time. The capital generated through financing can be immediately used for the purchasing equipments, production, employee’s payroll, lease, and other type of operating cost that are part and parcel of a business. Even the most established business houses will have to think about capital financing when unexpected costs arise. By gaining a clear idea about the capital funding options, the business owners will be able to arrange their capital funds in a successful manner and meet all the business related expenses, which will again provide them with greater financial stability in the future.

Capital Finance – A Commendable Option For Small Businesses

Working capital financing is always important for small businesses. As compared to medium and large businesses, the small firms have minimal or limited access to equity capital market and other recognized sources of long term capital. That’s why they have to rely heavily on short-term debt solutions, most of which are closely associated with cash funding. However, limited access to equity and dependence on short-term debt causes a rise in the demand of a small firm’s cash flow, decreases liquidity, and grows financial leverage-all of which can lead to an increased financial risk of passing credit. Moreover, small businesses may face trouble in raising short-term debt and not getting enough support to secure the long-term debt required to enhance their financial status and liquidity, and minimize their credit risk. Working capital finance can play a key role in addressing this problem, especially by putting debt conditions that assure to keep a firm’s credit risk at the lowest.

Merits Of Working Capital Financing

Capital funding options ensure benefits to businesses in a number of ways. Let’s review some of them.

Capital finance addresses cyclical or seasonal capital needs of businesses. In fact, it builds up short-term assets required to revive operation and generate revenue, but which can be accessed only after giving cash payment.

Cash funding also aids in sustaining a company’s growth.

Working capital financing allows companies to invest in short-term assets that helps it operating successfully. It helps raising capital for prepaid business expenditure, like security deposits, licenses, insurance policies, and many more.

Working capital funding is used to undertake activities that can add to business operations and become successful, such as development in production unit, ongoing process and product improvements, and market expansion

Working Capital Financing – Commercial Financing Solutions

Working Capital Financing is forever a major challenge for small and medium sized business in Canada. And that is certainly not to say that larger corporations don’t have that challenge, it’s simply a case of having more assets and resources to deal with the same challenge.

As a business owner or financial manager the level of funding that you need, and the method in which you achieve that financing is really what drives the solution to your challenge. It is important, in understanding your cash flow needs and solutions, to determine if your working capital financing is required due to the capital intensive nature of your business – or if you in fact simply need to ‘ monetize’, or ‘cash flow ‘ your assets in an effort to generate more working capital and faster turnover of those funds.

Your focus on cash and business financing becomes even greater if your sales and profits are increasing. However, at the same time the ability to obtain business credit in Canada remains a challenge.

Bank financing has become more difficult to acquire, and many firms are looking at non traditional or alternative sources of financing to secure the funds they need for working capital.

Another hard reality of working capital financing is that most small and mediums sized business are searching for more cash flow on an unsecured basis. This type of financing is very difficult to achieve in the Canadian marketplace, certainly in the Chartered bank environment.

So what are the sources of financial capital that Canadian business owners and financial managers can investigate and potentially utilize? Let’s cover off some of the basic options – These include:

Personal savings (not high on a business owner’s priority list!)

Business Credit Cards

Factoring

Government Working Capital Term Loans – Financing Business Loan (These are cash term loans with fixed payments and rates)

Factoring financing

Asset Based lines of credit

When you are looking for working capital financing one of the key areas you can start with is your own key financial metrics. You don’t need to be a seasoned financial analyst to determine at what rate your receivables are turning over. The bottom line if you haven’t realized it yet (we are sure you have) is that receivables and inventory ‘ eat ‘ cash.

One key point needs to be made here, if your sales are growing at 15% and your receivables are growing at 15% that’s not a bad thing. (To calculate simply measure the ratio of these two data points) However, if your sales are growing at 15% and receivables are growing at 30% your cash flow and working capital is being consumed by the investment you have made in A/R and inventory that is not turning over. Collections and inventory turnover are a key aspect of working capital financing.

Commercial financing from a bank is the optimal solution for small and medium sized business – as have noted that is difficult to achieve. Funding a business can be complex and we urge clients to seek the advice and guidance of a respected, trusted and experienced commercial financing expert to ensure they pick the right tools to solve working capital challenges

The Key To Working Capital Financing – Asset Based Lenders

Wondering how your competition seems to have all the working capital financing they need and you don’t – the key to that answer might just be asset based lenders and the asset based lines of credit they offer to Canadian businesses such as yours.

Let’s examine how this relatively new and unique method of business financing can totally alter your business financing success.

The acronym for this type of financing is A B L; simply speaking its daily cash flow provide against your current, and sometimes now so current assets. What do we mean by that? Simply that this facility allows you to margin your receivables, inventory, and in most cases, should you choose, fixed assets and real estate. You are probably saying to yourself that you could arrange financing on your own re those fixed assets and real estate – but we are talking about using those assets as collateral for your daily revolving line of credit. So you aren’t borrowing, you are not bringing debt on to your balance sheet, you are just leveraging your ‘ assets ‘ (that’s the ‘A’ in ABL!) for daily cash flow and working capital.

And why are we claiming that this type of working capital financing just might be your key to business success. Simply because you have probably found it has been challenging to get the full amount of business credit you need. In some cases you might have discovered its been a challenge to get business lines of credit of any manner.

So if your competitors are using this type of financing today, who exactly is eligible for it, and is your firm a candidate. The answer is simply that if your firm has a combination of 250k in working capital assets you are immediately eligible for asset based lines of credit. We would add that firms with smaller asset sizes can still monetize those receivables via invoice financing or discounting, but that’s not our key focus for today’s information exchange.

So now you now the offering are out there. But why should you consider it. Simply because your firm might be in one of a number of special situations – that includes issues such as your need for increased daily operating cash, you wish to merge with or finance an acquisition, you have been unable to obtain inventory financing elsewhere, you are growing to quickly for traditional Canadian chartered banking financing, etc! We are pretty sure you get the picture now!

The benefits to this type of business financing must by now be pretty obvious. It’s all about access to working capital financing and cash flow that you couldn’t access before. Assets that couldn’t be financed are now financeable, and inventory financing, previously limited or unavailable now looms on your growth horizon.

Who are these asset based lenders, and what is the cost of this financing? We’ll leave that one for another day, but if you want to investigate asset based lines of credit for your firm ( remember, your competitor probably already has ) then speak to a trusted, credible, and experienced Canadian business financing advisor who will assist you with identifying benefits and the best solution for your current strained needs in business finance.

Working Capital Financing Options To Raise Business Capital

It is no longer unusual to hear about start up and small business struggling with the finances of their ventures. More often than not, this does not stem from a lack of proper planning, and from profits that were never realized. There are simply times wherein business capital is no longer enough to cover for all the expenses needed to keep the business operating. And in times like such, business owners need reliable financial institutions that can offer them the working capital financing that they need. In this way, they will not have to waste a day of operations because they do not have money to spend.

Through working capital financing, business owners can have a good range of options when it comes to raising or increasing their business capital. They can select from options like applying for small business loans, making cash advances, credit card factoring, and opening business lines of credit. These are only some of the few financing options that business owners can resort to during those times when they need additional capital for their business.

Among these options, small business loans appear to remain as the most popular. However, it is not all too easy to qualify for a small business loan. A business must have a good credit history to qualify. And to most small business owners, having good credit ratings can be quite elusive. This is because building business credit requires time and time is something that most start up business owners do not have.

This leads most small business owners to consider other alternatives. A merchant or business cash advance is seen as an easier way of gaining additional business capital. So does business lines of credit and credit card factoring. These options do not require good credit scores. What matters more to these options is for small business owners to have good monthly sales volumes. The method of payment and repayment are also less burdensome. Payments and repayments do not come in fixed schedules. Instead, payments and repayments often come as a small percentage of the monthly sales that the business is able to generate.

You can learn more about these working capital financing options through financial firms near your area. You can also go online to learn more about them. Most financing firms already have online presence and these days, you no longer need to physically travel to the nearest financing office to apply for business capital financing options.

Alternatives and Tips On Working Capital Finance By Banks

Canadian business owners and financial managers seeking finance by banks or other sources are generally experiencing growth in sales and profits. That’s the good news, which is of course offset by the fact that this type of success requires additional working capital.

Liquidity has become the name of the game and ‘ cash is king’ even today never seems like a worn cliché. A recent study by the Conference Board of Canada indicated that the key worries of business owners were working capital cash flow. (Also referenced were ‘ regulatory issues and competition’)

So you have assets… but can those assets generate cash flow by banks or other alternate sources.

For working capital purposes it’s all about ‘ current assets ‘ which include typically receivables and inventory. As you invest in those two assets to generate sales your working capital needs go up, and your ability to manage and turn over those assets plays a key role in the sourcing of working capital by banks, and non bank institutions.

You should not be afraid to enter into traditional or alternative working capital solutions if you have properly managed current assets – you are simply monetizing for liquidity, and that’s rarely a bad thing.

So are Canadian chartered banks the solutions to your needs. Probably, possibly, maybe is our answer, meaning that if your firm is capable of meeting bank criteria for a revolving line of credit your needs typically can be met. Of more and more concern to our clients is their ability to not be able to generate sufficient financing for the sister of receivables, aka inventory.

That then takes us into an alternative for bank financing, which is the fast growing area of asset based financing, in particular asset based lines of credit. These facilities cost more, but give you total margining of the market value of your receivables, inventory, and, guess what, we’ll throw in equipment and real estate if you want to temporarily margin them. And remember, your balance sheet is not taking on debt when you enter into either a bank or alternative asset based line of credit, you’re simply monetizing your financials for cash flow.

The reality is that alternative methods of financing are growing more popular – yes they are more expensive, but if your firm generates sufficient margins and return on equity your ability to tap into virtually unlimited working capital can prove to be a very positive experience.

The reality of working capital finance by banks or alternative methods is always the same – you need to determine your asset turnover, there will always be times when you need a bulge in inventory and A/R to fund your growth.

Liquidity, that’s what it’s all about. Speak to a trusted, experienced and credible Canadian business financing advisor in order to ensure your traditional and alternative business financing options are first, clear, and second, available!