Build Cash Flow Statement From Balance Sheet And Income Statement Why A Business Asset Based Loan Financing Is The Perfect Solution For Cash Flow In Canada

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Why A Business Asset Based Loan Financing Is The Perfect Solution For Cash Flow In Canada

You are a Canadian business owner and financial manager looking for information and guidance on a business asset based loan. What is asset-based credit financing, sometimes called cash flow factoring – how it works and why it could be the best solution to your company’s working capital challenges.

Let’s cover the basics and find out how you can benefit from this relatively new form of property financing in Canada.

A good start is always to understand and cover some basics about what this type of financing is. Simply put, a facility is a credit arrangement that is drawn down and regularly repaid against your receivables, inventory and, if necessary, equipment and real estate if your business also owns those assets.

By providing collateral for your assets, you are effectively creating a permanent borrowing base for all your assets – this viability then varies on a daily basis based on the invoices you generate, the inventory you move and the cash you collect from customers. When you need more working capital, you simply withdraw the initial funds that are covered by your asset base.

You probably already see the advantage, which is that if you have assets, you also have cash. As your receivables and inventory grow, they effectively provide you with unlimited financing.

Unlike a Canadian chartered bank that finances your asset-based business, credit financing really has no limits. An alternative option for this type of working capital financing is of course a line of credit from an authorized Canadian bank – this option always comes with a limit and strict requirements regarding the quality and ratio of your balance sheet and income statement, as well as performance contracts and personal guarantees and external collateral. So there is a big difference in non-bank financing which we have tabulated for your consideration.

Your asset-based lender works with you to manage the facility – and you’re required to regularly report on your A/R and inventory levels, which are the mainstays of financing.

Smaller companies use a specific subset of this financing, often called factoring or cash flow factoring. This specific type of financing is less transparent to your customers, as the cash flow factor may insist on checking your customer invoices, etc. True asset-based loan financing is usually transparent to your customers, which is the way you want it to be – You you invoice and charge our accounts yourself.

If our facility provides you with unlimited working capital, then why haven’t you potentially heard of it and why isn’t your competition using it. Our clients can always be forgiven for asking that question. The reality is that in the US this type of financing is a multi-billion dollar industry, and in Canada it has become popular, even more so after the financial meltdown of 2008. Some of Canada’s largest corporations use financing. And if your company has working capital assets of 250 thousand and above, you are a candidate. Larger objects are of course in the millions of dollars.

The Canadian asset-based financing market is highly fragmented and has a mix of US, international and Canadian asset financing lenders. They have different appetites for deal size, how the institution operates on a day-to-day basis, and prices that can be competitive with banks or significantly more.

Talk to a trusted, credible and experienced business financing advisor and determine if the benefits of business asset-based loan financing work for your business. They have the potential to accelerate cash flow, giving you cash all the time you need it (assuming you have the assets) and essentially liquidating and monetizing your current assets to provide steady cash flow, and that’s what it’s all about.

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