Cash Flow From Assets Involves Which Of The Following Components One Real Way To Solve Business Financing Challenges – Asset Backed Lending

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One Real Way To Solve Business Financing Challenges – Asset Backed Lending

Something that works. We all want that. And in the new reality of business financing in 2010 and 2011, an asset-backed loan may be your new choice for Canadian business financing.

Asset-based lines of credit are becoming more popular every day. It is simply a newer method of lending to Canadian businesses with a complete focus on assets. ‘Property’. That’s the key word. So what are the means? ask the customers. Typically, this includes inventory, accounts receivable, machinery and equipment in your fixed assets section of the balance sheet, and in some cases real estate. In some very unique cases, IP or intellectual property, a la patents, etc., may be funded.

Another common new category is tax credits, such as SR ED (SR&ED) tax credits. Tax credits are actually claims, money owed to you by the government in the form of a grant. So monetizing this asset as soon as possible allows you to use money more efficiently in your business.

Our customers usually think of inventory and receivables as the only items they could provide liquidity to the bank. The reality is that even stock financing is becoming increasingly difficult in the chartered bank environment, especially for start-ups, small and medium-sized businesses. So this is the main difference between an asset backed loan and a working capital system; in its simplest form, it is simply the margin of all these other assets to capture maximum liquidity.

So who actually uses these types of cash flow assets and why are they a very solid alternative to what we call “traditional” bank financing. (We’re not so sure these days that “traditional” bank financing is as accessible as it used to be – what do you think?!)

The truth is that this type of Canadian business financing is an alternative to bank financing, it’s real, it’s available, and it allows you to not have to think about more unpleasant options like raising new equity and reducing ownership.

We’re all for secured bank loans… if your business can qualify for all the loans it needs. But if you’ve had financial challenges, consider home equity loans as a good option. What are some of these ‘challenges’ we are talking about that may not allow you to finance with a Canadian chartered bank… its issues like temporary loss, turnaround, new ownership, balance sheets and covenants that may not work for the bank etc.

Asset-based finance doesn’t really care about all these issues – yes, they are discussed, but they always come back to “assets” – and if you have them, you can margin them on a daily basis for working capital and cash flow.

So what’s the catch. While we believe the benefits of asset-based lines of credit far outweigh the alternatives, the reality is that 95% of the time, this type of financing is more expensive. It also requires more ongoing reporting, although most business owners we talk to are happy to pay more finance charges and agree to reporting if they actually have all the cash flow they need to grow and profit in today’s competitive environment. You can also expect a little more due diligence on your overall asset quality when setting up a facility.

There’s always a bottom line in business, and in our case today, a secured line of credit is a new and emerging working capital financing that provides your business with all the liquidity it needs to grow. Talk to a credible, experienced and trusted Canadian business financing advisor to find out if this type of working capital and loan benefits your business.

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