Cash Flow Financing In Canada. Internal And External Debt And Hybrid Asset Finance

Cash flow financing in Canada comes in many forms

. In some cases it's a hybrid asset finance model. When it comes to banks specifically they are of course focusing on both assets that have saleable value as well as healthy cash flows. No mystery there!

But cash flow financing can come from many different sources. The three general categories of these sources include:

Short term (less than one year) debt - example - a bridge loan

Business lines of credit

Long term debt (term loans, leases, mortgages)

Canadian business owners and financial managers should not forget that banks arent the only source of business capital in Canada. Commercial finance firms, leasing companies, niche lenders and even insurance companies provide a lot of the finance that powers Canadian business.

In fact these other ' non bank ' sources are in some ways much more achievable because of the banks insistence (for all the right reasons) on proper debt/equity ratios, interest coverage, and restrictions on taking on more debt.

So when pure cash flow financing isn't going to work but you have ' assets' a lot more financing is available. Some examples:

Receivable finance

Inventory finance

Asset based credit lines

Tax Credit Monetization

Purchase order /supply chain finance

Equipment financing

Government SBL loans

Some types of what we call 'hybrid' finance could exist also as options for Canadian business. They are hybrid because they often take the form of a combination of debt and equity. Subordinated financing or mezzanine finance often is in 2nd position to other secured lenders. As a result many firms also take some equity in your firm as an added ' kicker ' to their overall finance structure with your firm. Although this financing is typically always in the mid teens from an interest rate point of view that should not seem expensive to the owner/manager when he cant obtain further capital and the only other options is giving up more equity . Giving up equity is always expensive, very expensive.

Want to know where many owners miss the boat? It's internal cash flow! While not all new or growing businesses might have a lot of ' profits' yet to generate cash flows and asset turnover you can accelerate and increase cash flow via credit from suppliers and the most common sense action of all - collecting your receivables on time! Reducing inventory or even selling of an asset you don't need... you guessed it... generates internal cash flow.

So, bottom line, there are some implications in equity, debt, asset monetization finance. There is in fact a large spectrum of financing available to your firm - but you need to carefully asses risk/reward and the 'premium' you might pay to get that financing.

Consider:

Cost

Collateral

Covenants

Equity dilution

When you are assessing finance alternatives for your company. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor to asset cash flow and hybrid asset finance alternatives.

by: sprokop

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