omqiend.info

Two types of alternative business financing that often get confused with one another are Accounts Receivable Financing and Purchase Order Financing. It’s understandable that they sometimes get confused, however, they are two very different types of alternative business financing that serve two very different purposes.Accounts Receivable Financing is used when you have outstanding invoices on your aging report and want to access that cash now instead of waiting to be paid at a later date.  NOTE:  To qualify for Accounts Receivable Financing, your product or service must have been delivered and invoiced; otherwise there are no Accounts Receivable invoices to use as collateral. The two types of Accounts Receivable Financing most commonly used are Asset Based Lending and Factoring:

Asset Based Lending – You can get traditional bank financing or alternative business financing in the form of asset based lending.  If you qualify for bank financing, go that route first because the cost of capital will always be less than non-traditional asset based lending.  You receive a line of credit from a bank or non-bank lender and use your accounts receivable invoices as collateral for the line.  Each institution has different underwriting standards; however, the important thing to remember is that the strength of your company will still play a role in getting approved. 

It will be not be possible to get bank financing if your business is losing money because banks are very conservative…and rightly so; they’re not making much money on your line compared to non-traditional lenders.  These non-traditional lenders will still have to qualify your company in the underwriting process (although less stringent) and have certain covenants tied to the line in order for it to stay open.

Factoring – This is a form of financing where a 3rd party purchases your accounts receivable invoices at a discount so you can receive working capital today instead of having to wait 30, 60 or 90 days to be paid.  Factoring is more flexible that asset based lending in the sense that you’re qualified based on the strength of your clients, not your financial strength.

Purchase Order Financing, also known as PO Financing, is used when capital is needed to fulfill an order after receiving a PO.  Smaller companies that start to receive larger orders can turn to this type of alternative financing to help sustain growth.  PO Financing only makes sense when profit margins are large enough to offset the cost of capital.  It can be costly; however, it’s still cheaper than equity.So remember, Purchase Order Financing is used on the front end of a transaction and Accounts Receivable Financing is used on the back-end of a transaction.  If your company needs financing for growth or survival, these two types of financing may be very helpful financing tools. 

Business capital requirements in Canada often boil down to some basic truths the business owner/financial mgr/entrepreneur needs to address when it comes to financing for businesses.One of those truths? Knowing the true state of their financial condition and what financing they do and don’t qualify for when it comes to meeting commercial lending requirements in Canadian business.Business Loans In CanadaWhether you are smaller or start-up firm looking for information on how to get a business loan or a larger established firm looking for growth financing or acquisition opportunities we’re highlighting 3 mistakes that commercial loan seekers like your company need to avoid making when addressing, sourcing and negotiating your cash flow / working capital and commercial financing needs.1. Understand the true condition of your company finances – These are almost always successful addressed when you spend time on your financials and understand how your financial statements reflect your access to commercial loans & business credit in general2. Ensure you have a plan in place for sales growth and financial needs as it relates to commercial financing3. Understand that actual hard facts about cash flow which is, of course, the lifeblood of your companyCan you honestly answer or feel positive about all those 3 points. If so, pass Go and collect $ 100.00!A good way to address your company’s finance plans is to ensure you understand growth finance solutions, as well as how to manage in a downturn – i.e. not growing, losing money, etc; It’s never fun to fund yourself in an economic or industry downturn such as the COVID pandemic of 2020!When we talk to clients of new or established businesses it seems they are almost always talking about sales, so the ability to understand and focus on the differences in their profits and cash fluctuations is key.How do cash flow and sales plans and projections affect the type of financing you require? For one thing sales growth usually starts out by consuming your cash, not generating it. A poor finance plan will drag your business down and addressing financing simply gets tougher and tougher.Three basics always emerge when it comes to your search for the right business capital and financing.1. The amount of financing you need2. The type of financing (debt/cash flow/asset monetization) The business loan interest rate will be dramatically affected by whether you choose traditional or alternative financing solutions. Private business loans in Canada come from non regulated commercial finance companies most often known as ‘ alternative lenders ‘. These lenders are typically highly specialized in one ‘ niche ‘ of business financing and may be Canadian firms or branches of U.S. banks and non-bank lenders3. How the financing is structured to be manageable with your day to day operationsWhat Finance Company In Canada Can Meet Your Borrowing Needs & Why Is Capital Important In BusinessLet’s identify and break down key financings your firm should know about and understand if they are applicable and achievable to your business. They include:A/R Financing / Factoring / Confidential Receivable FinanceInventory finance / floor planning / retail inventoryWorking Capital term loansUnsecured cash flow loansMerchant working capital loans/advances – these loans are geared toward short term cash needs and are typically one year in duration. Loan amounts are typically 15-20% of your annual sales revenues.Royalty financeAsset based non bank business lines of creditTax credit financing (SR&ED bridge loans)Equipment Leasing / Sale leasebacks – Equipment financing in Canada is used by almost 80% of all companies looking to acquire new, and used, assets.Govt Guaranteed Small Business Loan program – Government Loans in Canada are sometimes referred to as ‘ SBL’, aka Note: BDC Finance solutions are available from this Canadian non-bricks and morter crown corporation. A small business loan via the government-guaranteed loan program comes with true flexibility around term loan duration, market rates, no pre payment penalties, and of course the low personal guarantee that is required by borrowers. These two ‘ government ‘ loan solutions are often perfect for financing a new business.If you’re focused on not making mistakes in your business finance needs and want to capitalize on the solutions your competitors are probably already using seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow and commercial financing needs.