You Still Have Canadian Working Capital and Commercial Finance Business Lending Options

Updated: May 11, 2011

But not so fast say our clients. Have you ever tried to write a payroll cheque with a ' definition '! The hard reality is that you need to understand how to convert those short term ' current assets ' into cash flow either on an operation basis, or a borrowing basis. It's those two strategies that allow you to meet obligations with real money!

And what are those assets in question - we're pretty sure you know them already, but to recap its receivables and inventory. Those two assets, more often than not, and how you address them, are they key to financial health. Remember also that you ability to again, manage, and borrow on those two asses allows you to grow your business.

A shortage of working capital tends to be a huge red flag when it comes to your bankers, lenders, and lessors, potentially signaling the end to your business. The irony is that in many cases we say sales are actually still growing in those circumstances, so the business owner doesn't realize that the large investment in A/R and inventory is actually crippling working capital and cash flow success.

So, how can you increase your capital in both traditional and non traditional ways? If you are an established Canadian company the qualifications for bank financing of receivables and inventory are pretty clear - a growing viable company, a clean balance sheet, profits, and collateral and credit worthiness of the owners. Medium sized to larger firms can avail themselves of more ' esoteric' forms of working capital and commercial finance solutions such as unsecured cash flow loans and securitization facilities.

But hey, what about the start up or very new firm? Don't despair, because even though financing options are a bit more limited, and sometimes more expensive, traditional and non traditional solutions in commercial finance also work. Those might include the government based unsecured working capital term loan, receivable financing , or a working capital facility based on margining your receivables and inventory . This type of facility is typically called in the industry an ABL, or ' asset based ' line of credit. They work and they are great, depending on your circumstances. If your firm does R&D you can even cash flow or monetize your R&D tax credits.

We have spoken about external facilities to access, both traditional and non traditional. But remember also that the solution may lie within. Our friends over at the textbook place define your working capital ratio as being hopefully at least 1:1.

If in fact your ratio is much higher than two you're in the best and worst of situations. you have lots of working capital ( on paper ) but short term assets are tied up in a/r and inventory which is not turning over enough . So look within also and focus on collections and inventory turnover . If you ever walk into a Financial Post 100 firm you shouldn't be surprised that large corporations have large, sometimes very large headcount allocated to receivables and inventory management. That's why they are successful in working capital commercial finance.

Featured Research
  • Eight Ways You Should Be Using Contact Center Reporting

    Every day, your contact center collects critical data that can be used to drive strategic improvements to your efforts in the future. But that data is meaningless if you don’t know how to access and analyze it. The key to do doing both is using reporting features. By understanding how to use reporting tools, you will gain much greater insight from the data you are collecting. more

  • Is Your Phone System Stealing Profits?

    Having the wrong phone system can dramatically cut into your profits. Despite this, many businesses just sign up for a plan or platform that seems ‘good enough’. If you haven’t carefully considered your options and the included features, there’s a very good chance that you are leaving money on the table in some way. more

  • Best Video Conferencing Features for Business

    Most businesses are currently underutilizing their video conferencing software because they aren’t aware of the different ways it can be used. Understanding the different features of video conferencing software can be critical to getting the most out of your investment. These features often vary from one option to the next as well, so it's important to do your homework before choosing a specific service. more

  • Phone System Technology Showdown

    VoIP and IP telephony are often misconstrued as being the same type of phone system, but the truth is they operate on different technology and deployment methods. This guide will explain the differences between VoIP and IP, go into the pros and cons of both VoIP and IP-PBX, and give insight into which type of phone system will benefit your business the most. more

  • 8 Ways the Cloud is Changing ERP for the Better

    What if there was a tool available that allowed for you to save up to a quarter of your operational costs? Studies have shown that Enterprise Resource Planning (ERP) solutions enable businesses to access accurate, real-time information about daily operations which allow for the reduction of operational costs of up to 23% and administrative costs of up to 22%. more