Liquidity Problems? Cash Flow Challenges? Bank Problem? Here’s Your Next Step
7 PARK AVENUE FINANCIAL
Liquidity problems and cash flow challenges plague thousands of Canadian business owners and financial managers. A lot of this challenge revolves around a company's inability to properly access bank financing in Canada. If that's the case what is the next step then?
We think that next step understands your alternatives, ensuring you understand why you are in a liquidity crisis, i.e. that cash strapped feeling, and finally understanding what might get you back on the right course at the bank.
Is there an easy way to a business owner of finance manager to assess the overall probability of achieving bank financing? For our purposes it comes down to your ability to understand 4 key issues. What are they?
First of all, as a general rule you have to be able to show profitability. We can't count the number of firms we meet who are in either a bad year financially or in many cases in the throes of a turnaround back to profitability. Unfortunately in general that doesn’t count at the bank. Banks take the approach that you will pay the loans or working capital financing back from profits. If you can’t demonstrate that there is an immediate obstacle to bank financing success.
Your firms overall collateral position is the 2nd focus from a bank perspective. Certain types of collateral are more preferred than others. They include real estate, receivables, uncollateralized equipment, etc. In general inventory is rarely viewed as appropriate collateral by the bank.
The third focus from the bank is your overall balance sheet. Aside from ensuring it balances..!! .. you must have the right combo of debt and equity. Is there a rule of thumb in this area? Typically the answer is that you must have a dollar of equity in your firm for every 2 dollars in debt.
Finally, is there anything more uncomfortable than the issue of personal guarantees? It's all about ' putting it on the line ‘, which of course many business people are reluctant to do. Your logic is of course that you incorporated to avoid guarantees, and that there should be some risk sharing. Again, that’s your view, not the banks.
We do believe, and have seen that in many cases a strong financing proposal might eliminate all or at least part of a guarantee, so be prepared to address this issue delicately and properly.
Although Canadian chartered banks are among the absolute best in financial strength, management, services and infrastructure it's of course still easy to cast dispersion and doubt on their stated goals of helping Canadian businesses, particularly small and medium business .
So when you or the Canadian chartered banking system have lost faith in each other what’s next? The reality is that many non-bank institutions and independent commercial finance firms provide a variety of cash flow solutions to your business. They include non bank asset based lines of credit, receivable financing, equipment financing and sale leasebacks, and supply chain and tax credit financing. And these solutions work, and in many cases compete directly with bank offerings.
Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in identifying the next step in Canadian business financing alternatives for your firm.
Article submitted Monday, February 20, 2012 & read 21 times.
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