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Working Capital Financing Approaches! Make Them Work For You

Working capital finance, properly structured, can support both the growth and running needs of your business. Businesses face the challenge of cash flow shortages for a variety of reasons:

New market opportunities

special projects

And so on!

The bottom line is that properly structured business financing allows owners and financial managers to monetize business assets on a short or long-term basis. An example of a long-term situation is a sale leaseback; A short-term example might be the cash flow from your account.

Text books tell us that there is a clear definition of working capital, which is going to your balance sheet and subtracting current liabilities from current assets. This is a great textbook definition, but let’s take a real-world tour of what this means.

The number of dollars 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 finance solutions are more applicable than others depending on the specific needs of your business. A classic example of a cash flow challenge is when you are growing, profitable, but your business has a gap between cash flow and short-term liabilities.

Examples of working capital finance? 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 determine the final solution. The loan may be secured on a specific asset or may be unsecured. Unsecured cash flow loans are very popular right now and have grown from the popularity of merchant cash advances.

Business lines of credit, essentially an ‘overdraft’, are the most common sources of cash flow. When these are not available from traditional bank sources, other commercial property based lenders step in to pick up the slack.

A well-structured business line of credit is actually a safety net for your overall cash flow needs.

Other forms of working capital financing? They include:

Invoice Finance – aka ‘Factoring’

Purchase Order Finance

Tax credit financing

Sale leaseback

The bottom line? There are many sources of working capital financing. Choose the right one for your firm with the help of a reliable, trustworthy and experienced Canadian business financing consultant. Then get ready to grow your business!

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