The Different Business Financing Options in Canada

The Different Business Financing Options in Canada
The Different Business Financing Options in Canada
October 16, 2016

To effectively finance your business in Canada, you will need to have a good knowledge of current assets on your balance sheet. A current asset plays a major role in dictating the cash flow and working capital which are described by professionals as liquidity. For Small and Medium Enterprises (SMEs), this means being up to date with your payments such as loan, lease and paying suppliers.

Financial statements will tell you whether you are gaining or losing

The statement of the cash flow of any firm is enough to tell if they are making gains or losing. Most of the companies around the globe give out their products or services on credit as a way of staying in the competition. This attitude is what creates the receivables. Receivables are unsecured promises made by customers to pay in the future and there is a provision to offset bad debts (i.e. when they fail to pay). Generating positive cash from account receivables (A/R) is the true success of any business.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Losing on the cash flow can be potentially good news

This may appear a little bit complex to an uninformed mind but losing on cash flow is an indication that the company needs to invest more in the account receivables to be able to maintain their sales. However, if there is an element of mismanagement in the company or loss of funds without an adequate cash flow financing to back it up, the company will be on the downslope to bankruptcy.

There are many ways to financing a business

Businesses––whether old or new––can choose any of the different available financing options to breathe life into their activities. Below are some of the financing options with little hints to what they stand for.

  1. A/R Financing: In this type of financing, the company uses its asset receivables or money it is owned as collateral to obtain a loan in a financing agreement. The capital stuck as debt is freed and the risk of non-payment transferred to the financing institution.
  2. Bank business credit lines: This type of loan can either be secured or not. It is a working capital loan that will make funds available to your business for its day to day running.
  3. Inventory loans: The business inventory loan is very important when a company runs out of money but are in need for inventory. The present and future inventory will be used as collateral and can be surrendered to the financier if the company defaults in payment.
  4. Sale leaseback finance: In Sale leaseback financing, the company sells its asset and leases it back such that they continue to make use of the asset for a long term but will no longer own it. This is generally done with fixed asset (for example real estate).
  5. Tax credit financing: This is the amount of money a taxpayer can subtract from the money they owe the government. Whereas exemptions and deductions tend to cut down the taxable income, a tax credit will reduce the size of the tax.

Business credit line is the recommended financing option

This form of financing is very interesting and highly beneficial to a business because the business can bill, collect, and finance their A/R without notifying their client, otherwise known as the third party. Here is special advice to industries looking for finance:

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

  • Make sure that your industry qualifies for the financing option.
  • Study your cash flow and understand what factors have an impact on it.
  • Speak to an experienced Canadian business financing advisor to help your business choose the financing option that is most appropriate for it.

Article highlights

  • A good knowledge of current assets will help you choose the best financing option for your business.
  • There are different financing options businesses can choose from.
  • A financial advisor can help you decide the best financing option for your business.
  • Sale leaseback financing allows you to sell your asset and lease it back for a long term.
  • A/R financing frees up capital tied down as debt.
  • The best financing option will not achieve a good result if the business is mismanaged.
  • Current asset usually dictates the working capital and cash flow.
  • Inventory loans allow a business to get a loan for the purchase of inventory.
  • Tax credit financing allows the taxpayer to subtract some money from their tax.
  • Business credit lines allow the business owner to finance their business without the knowledge of their client.

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