Business Financing in Canada, (despite the belief of some) still involves choices in the type of credit facility that works best for your firm under different circumstances and needs. We’re reviewing the ‘ important stuff ‘ on these types of finance. Let’s dig in.
When we talk ‘ credit facilities ‘ it’s important to distinguish between various types, i.e. loans, revolving credit lines, leasing facilities, etc. Credit facilities of various types complement the shareholder equity in the business. That balance of debt and equity is critical to business success as it really determines both financial pressures and flexibility around your borrowing requirements.
Whether you’re looking at short term operating needs of longer in nature ‘ term loans’ it’s all about ensuring you have the flexibility to run your business. In effect it’s your ‘ back up plan ‘!
The positive aspect of ‘ working capital’ / ‘ revolving’ facilities is that they are ‘ evergreen ‘ in nature, constantly allowing you to draw on funds based on traditional collateral such as receivables and inventory and the cash flow that comes from those two assets. Think of these types of credit lines in effect its a credit card for your business, allowing you to constantly draw on funds as needed.
Long term loans can vary anywhere from 3 to ten years for a business – in the case of a commercial mortgage 15-20 years are in fact reasonable time frames for such a finance need. The best term loans for your company match the asset to the cash flow.
Using our analogy of comparing the business line of credit as a ‘ credit card’ for your business it’s important to… you guessed it… not max out the facility! Firms that are constantly at their borrowing maximum on credit lines and term loans are of course perceived as being in at least some form of financial distress.
The security for business lines of credit themselves are either some or all of the business assets or in some cases just the ‘ cash flow ‘ the company generates. Rates from either banks or non bank commercial finance companies will reflect the credit quality and collateral of the loan or credit line.
It’s important to have a solid credit line facility in place as it’s the ultimate daily ‘ safety net’ for your business.
If you’re looking to understand business credit facilities such as:
Business Lines of Credit (bank and non bank)
seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you on the… important stuff’!