Looking for Debt Financing? Don’t Ignore Working Capital Funding Sources

Looking for Debt Financing? Don't Ignore Working Capital Funding Sources

We’re not shocked – You won’t be either – a newly released U.S. survey by CFO Magazine stated that cash flow and working capital and accessing working capital funding sources were the most important concern of the financial manager.

Welcome to Canada! We are convinced we are in the same boat even as we talk to clients seeking alternatives to debt financing and liquidity for companies.

The other key item within the study was that business generally speaking was dissatisfied with their banking relationships – again not surprising.

So many of us agree there is a gap in working capital solutions for Canadian business. Let’s discuss why that gap exists, and, more importantly, perhaps there are alternatives to signing up for more debt financing while at the same increasing cashflow with your firm.

As we’ve written inside the past we always tell clients the most effective program in Canada, bar none in your opinion may be the government small company loan program, which is underwritten by our buddies in Ottawa. Great rates, terms, and structures, as well might you obtain. Well here’s the challenge, this software only covers equipment, leaseholds, and real estate – that’s called debt financing. So bust capital or cashflow is ever going to emerge from that program to your firm. Let’s move ahead then.

We can start by defining our working capital problem by simply saying it does not take daily liquidity within your business that we have been talking about -, the number of funds you’ve in your company that may be liquid in case you didn’t have them tangled up in inventory, accounts receivable, and perhaps prepaid current assets. And of course the ‘double whammy’ also comes in when you have your obligations conversely of the balance sheet, i.e. accounts payable and term loans.

Working capital funding sources are derived from two areas, debt along with the monetization of people’s current assets. We prefer monetizing and cash flowing things like A/R and inventory instead of debt financing, which infers a long term commitment.

So let’s get right to the point, what exactly are your alternatives to earnings success. The good news can there be are a good handful of alternatives – they include operating credit lines which could originate from your bank or maybe your non-bank lender. Clients are increasingly keen on hearing about nonbank lenders since these firms can more readily approve financing for your inventory and receivables. The ‘buzz word’ surrounding this market is asset-based lending, and we advise clients to check one out because on many occasions it does not take the ultimate strategy for work capital success.

If you are a smaller firm you can employ accounts receivable financing, referred to as invoice discounting. If done properly (and lots of times it’s not) it could turn your firm into literally an ATM income machine, as you generate instant cashflow for all your sales. This type of facility comes at a cost and we find there are numerous misconceptions about the price of this type of financing, so when importantly, the way it operates.

So let’s summarize – you are not getting working capital from my friends in Ottawa – in case you be eligible for bank financing to employ it! Many of our clients don’t, so consider great alternatives for working capital funding sources like asset-based credit lines, receivable financing, or perhaps certain cases even securitization.

So in case your firm carries a thirst for liquidity (!) make contact with a trusted, credible, and experienced Canadian business financing advisor that will use you to solve your income challenge.