Canadian businesses, during their search for new and innovative financing solutions continue to hear about asset loans and accounts receivable financing solutions. The two types of financing for Canadian business owners and financial managers are a subset of what is known as an asset-based credit line.
More new financing to Canada, grow in traction and popularity, and many are still misunderstood as a total financing strategy for your company. Let’s clarify some of the myths and explore some of the benefits of these terms.
One of the main differences in asset loans is usually funded through non-bank settings. You must look for this type of loan if you cannot produce adequate working capital to finance your business in the traditional bank environment rented in Canada.
The point is you receive financing and your operating facilities, depending on how they are structured, in various categories of your business assets – two main asset categories are:
Accounts
Inventory
In many circumstances you can also use equipment, and occasionally real estate. The client then asks us why this is different from what they use – which is a bank financing around this same asset. The answer is that a very strong focus is placed on the true fundamental value of your assets – less dependence placed on balance sheet rations, loan agreements, outside guarantees, etc.
Most of the leases and operating facilities in traditional banks are very focused on cash flows. The irony of this type of calculation is very clear for business borrowers – that Irony is that historical cash flows are used to estimate cash payment capabilities in the future. It often doesn’t work for many companies that experience temporary challenges.
Asset loans, and asset-based paths of credit focus on guarantees. Many clients we face have guarantees in A / R, inventory, orders for new purchases and contracts, equipment, etc. but cannot meet traditional cash flow loan requirements. That is why they are the main candidates for asset loans, asset-based credit lines, or in its simplest and most basic forms, financing receivables that are fully marginalized receivables in future growth.
So now we understand what the facilities are. How does it work on day to day, our clients ask? The answer is that it is a facility that goes up and down, frankly every day, with your loan needs. As a receivable and inventory you fluctuate, you delay current values. This optimizes the amount of cash flow and working capital available for sales growth and profit generation.
The security mechanism around this facility is very similar to all types of bank financing – that is to say that the first accusation gathering rights are placed on funded assets. The level of progress about receivables and inventory is set and because of cash forward and then repaid by your customers, cash is submitted to pay your round balance. That simple. The true beauty of this facility is when you grow your facility to grow with you – it might be the most powerful aspect of such financing.
This working capital facility, dominated by Inventory-based A / R becomes more traditional in everyday nature. Talk to trusted, credible, and experienced advisors in this field – if you don’t get financing, you need to grow and prosper competitively then this type of solution might be exactly the hat you are looking for.