It’s A Mystery Within An Enigma – The Business Credit Line For Canadian Businesses

The need for a bank credit facility in Canada in Canada arises primarily out of the fact that business, unfortunately, never goes in a straight line. Commercial business loans and revolving credit facilities satisfy that challenge, but which type (What there are choices? – Yes there are! ) of working capital facility works for your firm? Let’s dig in.

Business, as we said, doesnt go in a straight line for a couple reasons – seasonality in some industries, bulges of cash flow needs, and the need to finance current asset accounts such as A/R and inventory.

The business credit line is typically an asset monetization, but it can also be a term loan, cash flow loan, mezzanine facility, etc.

Whether your firm is coming out of start up mode, or if its in full fledged growth mode there is always a need for financing – buying inventory, honoring your fixed payment obligations, and satisfying growth challenges .

For a bank credit facility in Canada several key requirements must fall into place. Key among these is the ability to demonstrate your business is ‘ cash flow positive ‘. Canadian banks take this one step further, they look at historical cash flow, present needs, and future needs. The true beauty of the approved credit line is your company’s ability to constantly borrow and repay that line – hence the term ‘ revolving’.

Huge mistakes are sometimes made when business owners use short term credit facilities, i.e. working capital borrowing to address the need for long term financing – typically equipment, fixed assets, leaseholds, real estate. The bottom line is that that is simply a mistake and can lease to disastrous consequences.

No secret that our Canadian banks prefer larger transactions – they come with covenants and tough approval criteria, but the benefits – liquidity, low costs, growth facilitation, and removing the need for more equity are, simply benefits rarely equaled with other types of financing, many of which are more costly.

Smaller businesses and start ups face a more extensive challenge. Requirements for the business, and owners, include good personal credit histories, no CRA issues, the ability to demonstrate business and personal assets, and quite often a business plan or cash flow forecast.

As we explain it to our clients its often the rising to the challenge of separating your business life from your personal financial life When things go awry damage can easily be done to the owners personal credit scores, making it difficult to borrow both from your business or your personal needs – i.e. mortgages, etc.

Did you know there’s a strong alternative to the bank credit facility? It’s the non bank Asset based line of credit. Offered by private commercial finance firms it’s a facility that monetizes A/R, inventory, and equipment into one working capital borrowing facility. Depending on the size and overall profile of the borrower it can be equal in pricing to banks, but more often than not is more expensive.

Remember also that various subsets of asset based lending provide the same type of cash flow solutions for business – they include:

A/R Financing (We recommend CONFIDENTIAL RECEIVABLE FINANCE)
Inventory financing
SR&ED Tax credit monetization
PO Financing
Working Capital cash flow loans

If you need assistance with evaluating the type and need for a bank credit facility and are looking to remove the mystery and enigma in Canadian business financing seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with commercial business loans tailored to your needs.