Working Capital Financing Approaches! Make them work for you
Properly structured working capital financing can provide the boost your business needs to grow and operate. Businesses take on the challenge of a lack of cash flow for a variety of reasons:
New market opportunities
Special projects
Etc.
The bottom line is that properly structured trade finance allows financial owners and managers to monetize assets in the business in the short or long term. An example of a long-term scenario would be a sale and leaseback; A short-term example could be the cash flow from your accounts receivable.
Textbooks tell us that there is a clear definition of working capital, that is, go to your balance sheet and subtract current liabilities from current assets. That’s a great textbook definition, but let’s visit the real world together on what that means.
The absolute dollar amount in your net working capital as defined by our definition above doesn’t really matter. (Although positive is better than negative working capital!)
It is important to know that certain types of business financing solutions are more applicable than others, depending on the special needs of your business. The classic example of a cash flow challenge is when you are growing, profitable, but have a gap between available cash in your business and short-term obligations.
Examples of working capital financing? They include:
Term Loans: Recent trends have shown the importance of short and medium term cash flow loans. The overall credit quality of your business and the amount you need will drive a final solution. Loans may or may not be secured against certain assets. Unsecured cash flow loans are very popular today and have grown out of the popularity of merchant cash advances.
Business lines of credit, essentially a ‘overdraft’, are often the most common sources of cash flow. When these are not available from traditional banking sources, other asset-based commercial lenders step in to take over.
A well-structured business line of credit is, in effect, a safety net for your general cash flow needs.
Other ways of financing working capital? They include:
Invoice financing, also known as ‘Factoring’
Purchase order financing
Tax credit financing
Dirty leases
Bottom line? There are numerous sources of financing for working capital. Choose the right one for your business with the help of a trusted, credible and experienced Canadian financial advisor. Then get ready to grow your business!
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