Are short term cash flow issues interrupting your growth?
One of the biggest concerns entrepreneurs have is with gaps in cash flow, which makes it difficult to consistently meet payroll, pay suppliers, and cover routine expenses. What kinds of business funding is available to Canadian small business owners? Financing cash flow is a possibility through a few options, which would help you meet those operational expenditures and power your growth.
Self-assess your resources, as financing cash flow is somewhat unique for each small business depending on the industry, stage of business, and the owner’s resources. Then speak to your accountant to discuss which type of loan for financing cash flow is best for your business. They’ll ask you about your obstacles and suggest solutions depending on what type of money you will need.
What is cash flow financing?
Cash flow financing is when a loan is made to a company and backed by the company’s existing and expected cash flows. This type of financing is different from an asset-backed loan, where the collateral for the loan is based on the business’s assets.
What is invoice financing?
Invoice financing, also known as receivables financing, is a short-term ( usually 90 day) loan which is borrowed against outstanding invoices. A business receives a next day cash advance for receivables (invoices) that clients are due to pay. Many small businesses have a hard time covering expensive materials or unexpected costs that pop up while waiting for the money to come in, and that’s where invoice financing companies like FundThrough come in.
Velocity by FundThrough
Velocity Invoice Financing is Canada’s fastest-growing working capital solution, as it allows small business owners to access funds tied in outstanding receivables. It gives you control over when you get paid. Velocity receives payment directly from your client when they pay your invoice. You can control which clients invoices you want paid immediately from within your account. It’s quite easy to apply and be approved. You get the full value of your invoice deposited into your business bank account the next day, and the fees are pretty low at 2.5%.
Through FundThrough’s Express Invoice Financing, they advance any number of invoices up to a funding limit with automatic weekly repayments and no customer contact. At $20,000 you can assign FundThrough as the payee and get 97.5% up front. For example, a sign company gets a contract for $50,000, but needs to buy expensive materials now, before they make the sign and receive payment. They can assign the invoice to FundThrough and they’ll follow up and take 2.5% as payment. They get 100% in 30 days when the client pays, but will loan you the money you need now. They only put a lien on your receivables, not all of your assets or your house. Banks want personal guarantees. If you don’t pay them, they will take everything you own. Interest rates may be better, but the downside is that it takes forever to come through, and they need every document there ever was. FundThrough comes through within 24 hours.
Invoice financing is a great option when you have gaps in cash flow and want help managing your monthly fixed costs. It is the quickest and easiest way to get money. Always ensure that you know the exact amount of funds that you need to cover all recurring and scheduled operating costs. Make sure you do this monthly to have a basis for any cash flow decision making. If you’re looking for a bigger loan, for funding to help your business grow, then the Canadian lending marketplace Lending Loop may be able to help.
Lending Loop
Lending Loop is Canada’s first fully regulated peer-to-peer lending platform focused on small businesses. Since it can be a struggle for small businesses to afford financing because of all the costs and overhead of banks, Lending Loop has developed a platform to connect all types of investors with small businesses in Canada looking for financing to grow more profitable.
Do you need to hire staff? Purchase new inventory? Lending Loop’s minimum loan qualification criteria is 1 year in business, $100k in annual revenue, and a 600+ personal credit score. They will also want to see 2-3 years of financial statements, a business plan, and personal guarantees. They loan amounts from $1,000 to $500,000 to help build business in whatever way, with no early repayment penalties. Funded businesses pay 5.9%-25% interest to LendingLoop, they a percentage and individual investors get returns. If you need more of a long-term lending solution, Lendified may be it.
Lendified
Lendified is bigger than Lending Loop. It’s institutional money that may be able to fund your next step with up to $150,000. Their financing is straightforward, and can help Canadian small businesses that can’t get the funding they need from a bank or an alternative lender. Interest starts at 8%, most loans are in 10%-12% range. If that seems high, think again. With Lendified, your company could save up to 40% compared to a merchant advance.
Merchant Advance
Merchant Advance Capital is a Canadian alternative financier, offering short term loans to small businesses that would most likely not be able to receive from established Canadian banks. Typical reasons for a merchant advance include inventory purchases, taking advantage of an unexpected opportunity, renovations, equipment purchases, and advertising.
Their Flex financing can give you $5,000 to $500,000 to grow your business. They provide the capital as an advance against future credit and debit card sales. It’s best for seasonal small businesses that need temporary extra cash for staffing, inventory deals, ramping up for the busy season, or paying off some higher interest debt they’ve accrued during slow times. To qualify, your Canadian-based business must be at least 6 months old with at least $5,000 in average monthly sales.
Their Fixed Solution is a traditional small business loan for $5,000 to $500,000, which is geared towards businesses that don’t have debit/credit sales or prefer a fixed repayment schedule and maturity date. As with the Flex Solution, your Canadian-based business must be at least 6 months old with at least $5,000 in average monthly sales.
The downside is that Merchant Advance is expensive. Keep in mind that you won’t necessarily get a loan in the amount needed if there is no ROI to measure. It’s not possible to generate good cash flow unless a business making sales and collecting the proceeds. From the Merchant Advance perspective, your “cash flow” is the total net amount of cash available to your business for debt reduction, as well as growing business assets. A lender like Merchant Advance will study a cash-flow analysis that shows this over the span of a year. Your business’s cash flow tells them how much debt your business can handle and how much cash flow is left to be reinvested into the business.
Which financing cash flow program fits?
It’s important to look for the most appropriate financing cash flow program to suit your business’s needs, may that be through Velocity by FundThrough, Lending Loop, Lendified, or an alternative financier like Merchant Advance. It is also important to have a continuous attention to the process of cash flow improvement to help you achieve the desired results over time.
For most small businesses, financing cash flow through revenue-based funding can help to borrow from expected cash flow in the future, which allows the opportunity to obtain the funds today rather than sometime in the future.
If you’re looking to hire, read our article Subcontractor vs Employee: What’s the Difference?, and then click over to The Cost of Hiring an Employee in Ontario Part 1.