subject: Working Capital Financing Loans Canada [print this page] Working Capital Loan financing is still one of the best and cheapest alternatives for additional cash flow. There are other alternatives to this type of financing but they involve other types of financing of course.
Working Capital financing is still, when done in the traditional manner, probably still the cheapest form of debt financing available to Canadian business owners. When structured properly they can carry both fixed and variable rates and have repayment schedules that meet your cash flow needs.
In general these loans are classified into two categories, intermediate, or long term. Intermediate tends to be 3-5 years, and long term in our experience tends to reflect a 7-10 year scenario.
While many facilities are sometimes back up by equipment collateral our focus in this information shared is around cash flow loans.
The two most common cash flow loans in many cases have fairly strict criteria and ongoing requirements from a financial performance perspective. If you business is smaller the loan can actually also specify the amount of debt that you as a guarantor, and your company also, can take on. Naturally in a pure cash flow loan the only collateral you provide as direct collateral is your firms ability to generate cash flow on an ongoing basis for repayment.
So when is this type of financing appropriate. If you company has fairly decent financial statements and can pass approval criteria this type of financing is , on balance, the cheapest form of term financing in Canada . Working capital loans are provided by three types of entities in Canada, of course our chartered banks, a government funded crown corporation, and private independent finance firms.
The challenge for Canadian business owners and financial managers is simply to feel they understand the wide spectrum of this type of financing and to ensure they understand the degree of approval required by the three types of institutions we have mentioned.
What can you business use the working capital loan for? Our clients often focus on two areas, simply growth and cash flow, and, in many cases, acquiring another firm.
Clients ask what the rates are for this type of financing facility on balance the rates are a point or so over Canadian prime , when less collateral is available and you can demonstrate cash flow ability then your loan is less secured but more costly and can be in the low teens from a interest rate point of view . This type of financing is a bit more expensive, but it is certainly cheaper than issuing new equity or taking in a partner and surrendering some ownership in your firm.
Clients ask for a simple explanation of what is required to get approved quite simply the answer is that the loan focus is on credit capacity (your ability to repay), character and experience of you as owners/managers, plus the overall ability to demonstrate accurate revenue and profit projections.
In summary, working capital loans are a great asset to any firm that can qualify for this type of financing. The loans are available through three types of entities, and proper preparation and investigation will allow you to successfully complete a transaction. Speak to a trusted credible and experience advisor in business financing to determine if this type of financing meets your needs.
