Cash Flow Duration And The Term Structure Of Equity Returns Working Capital Financing – Why Asset Based Lines of Credit Work

You are searching about Cash Flow Duration And The Term Structure Of Equity Returns, today we will share with you article about Cash Flow Duration And The Term Structure Of Equity Returns was compiled and edited by our team from many sources on the internet. Hope this article on the topic Cash Flow Duration And The Term Structure Of Equity Returns is useful to you.

Working Capital Financing – Why Asset Based Lines of Credit Work

How can Canadian business owners and financial managers secure working capital and cash flow financing for their business at a time when access to business financing appears to be a major challenge?

The answer is that there is a potential solid solution called an “asset-based line of credit,” otherwise what we call “working capital.” What is this type of financing, is it new to Canada, and more importantly, how does it work and what are the benefits and risks?

Although asset-based lenders tend to be specialized independent finance companies, many business people are surprised to learn that deep within the bowels of some Canadian banks there are small, somewhat boutique divisions that specialize in asset-based lending. Ironically, they often compete with their peers in more traditional commercial corporate banking.

The most active assets financed by these companies are usually current accounts receivable and inventory, but in many cases you can use a professional advisor or partner to structure a facility that also includes an equipment and real estate component.

In general, a good way to think about an asset-based line of credit is one that allows you to increase your margin and make higher advances on accounts receivable and inventory for a temporary period, usually a year or more in our experience. This means more cash flow and working capital.

One of the main attractions of an asset-based loan scheme (referred to by experts as ABL) is that the overall credit quality of your business does not play a major role in determining whether you can get approved for this type of financing. As the name suggests, financing is on your ‘assets’! And it doesn’t really focus on debt-to-equity ratio, cash flow coverage, loan covenants and external collateral. Business owners who borrow from Canadian chartered banks on an operational or term loan basis are of course very familiar with these conditions – in a way you could call them “restrictions”.

Most lawyers and accountants will tell you that you should only really deal with any business borrowing with a respected, trusted and credible business finance advisor who can guide you through the pitfalls and pitfalls of any commercial finance deal. Missteps in business financing can lead to long-term negative effects related to such issues as being locked into a facility, being denied too much collateral, or being locked into pricing that is out of proportion to your overall assets and credit quality.

What are the key questions to consider when considering such a financial instrument? Mainly these are:

– Prepayments for each asset category (A/R, inventory/equipment)

– How the rates are determined (asset-based lines of credit and ABL loans are generally more generous with the total size of the facility, but you need to make sure you only pay for what you use

– Contractual Obligation – in a perfect world (we know it isn’t!) we should focus on the possibility of payment at any time or at least with some form of nominal compensation

– Ensure that an asset-based loan, which generally costs more, will allow you to stay or focus on profitability; we spend a lot of time with clients on how we can defer the additional costs of Abl facilities through several different strategies

So what’s the point. As always, it’s simple – consider asset-based loans and the ABL facility as a good alternative for financing your business. Work with a trusted advisor as this type of financing in Canada is generally something I either understand or don’t know enough about. Be selective in structuring your plant based on the issues that work best for your business in derived benefits. This is good business financing sense.

Video about Cash Flow Duration And The Term Structure Of Equity Returns

You can see more content about Cash Flow Duration And The Term Structure Of Equity Returns on our youtube channel: Click Here

Question about Cash Flow Duration And The Term Structure Of Equity Returns

If you have any questions about Cash Flow Duration And The Term Structure Of Equity Returns, please let us know, all your questions or suggestions will help us improve in the following articles!

The article Cash Flow Duration And The Term Structure Of Equity Returns was compiled by me and my team from many sources. If you find the article Cash Flow Duration And The Term Structure Of Equity Returns helpful to you, please support the team Like or Share!

Rate Articles Cash Flow Duration And The Term Structure Of Equity Returns

Rate: 4-5 stars
Ratings: 4317
Views: 61623761

Search keywords Cash Flow Duration And The Term Structure Of Equity Returns

Cash Flow Duration And The Term Structure Of Equity Returns
way Cash Flow Duration And The Term Structure Of Equity Returns
tutorial Cash Flow Duration And The Term Structure Of Equity Returns
Cash Flow Duration And The Term Structure Of Equity Returns free
#Working #Capital #Financing #Asset #Based #Lines #Credit #Work

Source: https://ezinearticles.com/?Working-Capital-Financing—Why-Asset-Based-Lines-of-Credit-Work&id=4458555