How Easy Is It to Get Construction Working Capital Loans in Canada?

In the US, banks have become considerably more reluctant to loan money to small businesses ever since the 2008 recession occurred. This is quite understandable, when you think about it. Many small business owners have less than stellar credit and their collateral is negligible. Many banks do not consider these as encouraging signs. But to the north, getting construction working capital loans in Canada is actually not so much of a problem.

How Easy Is It to Get Construction Working Capital Loans in Canada?
How Easy Is It to Get Construction Working Capital Loans in Canada?

Helpful Banks in Canada

There are many signs which indicate that banks in Canada are much more reliable sources of funding for small and medium enterprises (SMEs):

  • As of December 2013, the domestic banks in Canada have authorized the release of more than $197 billion in credit to SMEs all over the nation. Authorized bank lending to SMEs in Canada has risen by at least 20% since 2008.
  • Banks are also expediting the loan application process and are offering more flexible solutions. This is especially true for smaller loan amounts.
  • Banks in Canada have astonishing approval rates for small business loans, with 90% of all SME loan applications approved. In contrast, US banks approval rates for loans of more than $100,000 were only 60, and loans for less than this amount were approved only 46% of the time.
  • Among the SMES who did not seek some form of debt financing, 88% of them said that they simply had no need for it. Only 3% did not seek a loan because they believed their application would be denied, while only 1% regarded the cost of the financing was too high.
  • According to Canadian SME surveys, access to financing was not among their most pressing problems that affected their growth. Of more concern to SMEs were rising operational costs, unpredictable fluctuations in the demand for their products and services, and increasing competition.
  • Banks can also participate in the Canada Small Business Financing Program (CSBFP). Here, the Canadian government shares in the risk with lenders in order to stimulate business in the country. Startups and small businesses which gross less than $5 million in annual revenues may qualify for CSBFP loans.

Supplementary Solutions

While it may seem that Canadian SMEs do not really need an alternative to traditional bank loans, there may still be a need for a supplementary solution. This is very true in case of unanticipated orders and contracts for which working capital levels are inadequate. When there are new construction projects, you may not be able to handle having to meet the payroll and pay for supplies and equipment rentals. You’ll need a quicker solution than a traditional bank loan.

And that’s where purchase order financing comes in. The finance provider may enable you to get a percentage of the value of the purchase order in advance, while it guarantees your suppliers that they will be paid once they complete their deliveries. You may also get the construction working capital loans in Canada you need to meet payroll and rent equipment. Your finance company essentially becomes your non-permanent partner in making sure that you fulfill the contract without requiring you to give up any equity in your business at all.

 

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Use Christmas Seasonal Purchase Orders to Obtain Additional Capital

On the face of it, the Christmas season is a happy time for many shops across the country. People are in the mood to buy gifts and spend money, and that means more profits for retailers and wholesalers. But if you own a wholesale business, you may find yourself deluged by large orders for which you don’t have the capital to buy raw materials and supplies. Fortunately, you can use your Christmas seasonal purchase orders as a way to secure the financing your need.Use Christmas Seasonal Purchase Orders to Obtain Additional Capital

The Mechanics of Purchase Order Financing

It’s easy enough to acquire financing using your purchase orders. First you need to approach a finance company which offers this service. They will then investigate the authenticity of the purchase order and also evaluate the likelihood of payment by the retailer when you deliver the products they ask for.

Then they will ask for your supplier and payroll needs, and also calculate the profits you can make off the deal. If your potential profits warrant the investment according to their standards, the finance company can then jump on the deal and help. They will then open a line of credit or guarantee payment for your suppliers, up to half the volume of the purchase order. Some finance companies can even offer a larger percentage.

A schedule can then be made so that the finance company can make sure that the delivery will come through as promised. All payments come through the finance company. When you deliver your goods to the retailer, the finance company collects the payment.

Usually this is not cash. Instead, you have an account receivable detailing when you will get your money. This can be as long as 30 or even 90 days. Your financer can also forward a percentage of the profits once the invoice has been processed. When the retailer finally pays in full, your finance company gets back the money they used to pay your suppliers plus a fee for their services. Your finance company can then forward the rest of your profits to you.

Why Choose Purchase Order Financing?

Most of the time, you choose this option because the bank won’t give you a choice in the first place. Banks are not exactly in the mood to give out loans to small businesses, even if you do have excellent credit or even if you have ample collateral. That’s because they don’t feel that they have enough to gain out of the deal.

But with purchase order finance companies, you actually have the option of getting some financing for every large purchase order you receive. The application process for this type of financing doesn’t take as long as a traditional bank loan and the approval rate for large orders is much higher as long as you can demonstrate a healthy profit margin.

With this type of financing, you do not have to refuse Christmas seasonal purchase orders because of a lack of funds. Each of these orders can then be used to increase your profits and grow your business.

 

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The Benefits of Large Holiday Purchase Order Finance

Some businesses make fairly steady sales throughout the year. Other businesses, however, may get more orders during certain times of the year. If you belong to this kind of industry, then it means that your working capital needs are filled with peaks and valleys. Sometimes you don’t need much, but during the holidays your cash reserves may be stretched beyond what it can adequately cover. But with the help of large holiday purchase order finance companies, you can still cover all your purchase orders anyway.The Benefits of Large Holiday Purchase Order Finance

How Holiday Purchase Order Financing Works

Without purchase order financial assistance from a finance company, large volume purchase orders are virtually impossible for you to fulfill. After all, your cash reserves may not be enough. Without help, you’ll need to have to reject some of the purchase orders, and that means you’re cutting your business off from excellent opportunities to make large amounts of profit.

With a large purchase order, your finance provider can give you the money you need in order to pay for supplies and other expenses and meet payroll for your employees. You can get as much as half or even 75% of the value of the purchase order.

Benefits of Purchase Order Financing

If you know that your company makes a lot of money during the holidays, then it’s your responsibility to consolidate your cash reserves to meet the expected increase in orders. There may be several reasons why you have failed to do so. Perhaps there was an emergency expense or opportunity earlier, or maybe the increase in orders was greater than you anticipated.

Regardless of the reason, you have to face the reality of your situation. And that’s why you need to consider purchase order financing for this emergency. There are several benefits you can get:

  • You only get the money when you’re sure there is a need for it. The money you get depends on the size and number of the purchase orders you receive during this holiday season.
  • The application process for this type of funding is easier to get, and the setup is much faster to arrange. With bank loans, the application process is terribly time-consuming. What’s more, you’re not even sure of getting the loan in the first place because banks are more reluctant to lend money to many small businesses.
  • With this form of assistance, you can get working capital for every type of large order you get. The lack of money won’t be a hindrance. Only your hard work and your abilities will determine if you can fulfill an order or not. This way, you have an excellent chance of making up for all the lean days during the rest of the year.

With some companies, a large purchase order essentially means a lost opportunity because of their inability to come up with the cash to buy materials and pay for manpower. But with large holiday purchase order finance, each large purchase order means another opportunity for your company to make a lot of profit.

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The Necessity of Purchase Order Financing for Construction Companies

If you run a construction company, it’s not easy to explain just how much you need to spend in order to make a profit. You need to pay your workers, you have to buy lots of supplies and machines, and you have to have enough money to pay for the rent of special equipment. All of these expenses can add up to an unbelievably large amount of money. But if the offered contract is large enough, then you may be able to get some purchase order financing for construction companies.

How Purchase Order Financing Works

With purchase order financing, the finance company will first confirm the authenticity of the purchase order. Then of course they will also investigate the reputation of the client company making the purchase order.

After that, you need to identify your expenses. You need to list down all your expenses which have to be dealt with in order for you to fulfill the contract. You also need to demonstrate that you can make a healthy profit out of the deal. Most finance providers won’t bother if you don’t make a good profit out of the contract in the first place.

If you can meet all the requirements, then you may be able to qualify for purchase order financing. You may get as much as half (or even three-fourths) of the value of the purchase order right away. Your finance company can then pay off your suppliers for you.

Once you get your money, you can then pay for payroll, equipment rental, and supplies. You can fulfill the contract and then get your profit. Often, the client won’t pay right away but will wait for 30 to 90 days as well.

Advantages of Purchase Order Financing

So why choose this route instead of a traditional bank loan? Here are some compelling reasons:

  • Applying for a bank loan takes a very long time to complete, and the chances of getting the money you need is fifty-fifty at best. With purchase order financing, the chances of getting the funding are much better.
  • Purchase order financing is a bit like working with partners, except that in this case you don’t need to sell of a slice of your company just to get the working capital you need.
  • By being able to accept a purchase order that may have seemed impossible at first, you build your reputation with your client and that makes you much more successful in the future. You can get a lot more contracts because of your success in fulfilling just this one contract.

Conclusion

Without the necessary cash reserves, you may not be able to fulfill a business contract. But with purchase order financing for construction, you may be able to get the money you need to meet the terms of the contract and ensure that you maintain a good reputation with your client. By fulfilling the contract, you’re more likely to get more projects from that company in the future.

 

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Why It’s Better to Partner with a Factoring Company for Start Up Business

The largest benefit of a capitalist society is that you can go into business of your own if you want to. You don’t have to remain an employee all your life. You can save up, quit your job and start your own business – or you can also do this the other way – save up, start a business and then quit your job when your business becomes stable. But sooner or later you’ll realize that you need more money than you started with, and your best option may be a factoring company for start up business.

Look at your other options, and you’ll realize that they all have serious drawbacks:

  • You can go to a bank for a loan. This is true, but only in theory. The reality is that banks these days don’t really feel enthusiastic in lending money to startups. Your startup company doesn’t have a long record for profitability, and that frightens banks that may not be sure about your ability to pay back a loan. That means you need to have an excellent credit, and you need some collateral as well.

Add the fact that loan applications are time-consuming, that banks don’t have a high approval rate, that you may not get the amount you need, and that your bank may also have provisions as to how you will spend your money, and you’ll realize that a bank loan may not be the solution you need.

  • You can use your credit card. A lot of small business owners use this method, because it’s quick and easy, plus they can just pay off the interest each month. But just about every financial expert agrees that this is a terrible idea. The interest rate can really siphon off a lot of money from your business. And what’s more, the more you borrow the more your credit score goes down. And of course, the credit card may not offer a lot of money in the first place.
  • You can borrow from friends and family. This can seriously damage your personal relationships if you are unable to pay off the debts.
  • You can partner with venture capitalists for a slice of your company. While this may look good, the more successful you are the more you have to pay for that money you receive.

For example, let’s say your business is now worth $100,000. You then get $30,000 in return for giving up 30% of your business. With your great idea and your hard work, you manage to eventually grow into a million dollar business. And that means you received $30,000 and paid for it with $300,000.

The Benefits of Factoring

All of these examples prove just how beneficial it is to just use factoring for your funding needs. The entire approval process is very short, and approval is much more certain. You don’t get into debt at all; you get an advance on the value of your accounts receivables (from 70% to 90% or even higher) and the factor gets its fees when the invoice is paid in full. The factoring company sends you the rest of the payment minus its fees.

As a startup, you won’t have to set up your own collection department, as the factoring company does that for you. You can get as much money you need as long as you have the accounts receivable to factor. And the factoring company can even investigate potential clients for you so that you know which ones deserve credit from you.

With a factoring company for start up business, you get the money you need with less hassle, and you get more added services should you need them.

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How Medical Accounts Receivable Financing Works

The healthcare industry provides one of the most important services that people need. If you run your own medical clinic, you have the privilege to care for people and restore them to good health. Unfortunately, in the healthcare industry, it takes an unbelievably longtime for you to actually get your fees from the insurance companies. And that’s why medical accounts receivable financing is so important—and all too common. Medical Accounts Receivable Financing

Obtaining Funding with Your Accounts Receivable

As every healthcare provider knows, Medicare, Medicaid, and private insurance companies take quite a bit of time to cough up the money to pay for your services. These institutions (especially insurance companies) are much more adept in receiving money from clients instead of paying out claims. This delay can truly have some terrible consequences for your clinic.

Accounts receivable financing is one way to solve this. Instead of waiting for an interminable amount of time to get your fees, the finance company can forward a percentage of the accounts receivable to you immediately. You can then get as much as 90% of the value of the invoice right away. The rest of the money will be sent to you by the finance provider once the insurance company has finally paid in full. The company takes a small percentage from that payment.

Advantages of Accounts Receivable Financing for Healthcare Providers

So why should you consider accounts receivable funding? There are several notable advantages:

  1. The application process is very easy and quick. You can get the financing you need even if you are just starting up your company. The approval rate for this kind of financing is much greater than getting a loan from a bank. Your credit doesn’t affect your chances of getting your money.
  2. This financing does not involve getting into debt. Thus, it doesn’t have any further effect on your credit rating.
  3. You can use the money for a lot of things for your clinic. You can use the money to cover your payroll. You can use the cash to hire more people or renovate your clinic. You can buy more equipment so that you can improve or expand the services you provide.
  4. You can use the finance company’s services as a way to solve many of your collection problems. You won’t have to hire personnel to deal with insurance companies to get your fees. Instead, the finance company can do that service for you. They have the skills and the experience for that sort of job.

So if you want to improve your amount of ready cash for whatever need you have for your clinic, a traditional bank loan may not be your best option. With medical accounts receivable financing, you can get exactly the amount of money you need by using your invoices as a means to get funding.

 

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Comparing Factoring to Line Of Credit: Which One Is Right For You?

Comparing Factoring to Line Of Credit: Which One Is Right For You?Quite a few businesses these days have heard of factoring, and they’re now comparing factoring to line of credit to see which one works out better. To make this comparison, let’s take a closer look at each.

How a Line of Credit Works

The first step is to apply for a line of credit from your bank. With a line of credit you get a maximum limit of money you can draw from a bank and you don’t have to take out all the money at once. It’s much like having a credit card for your business. If you have a $100,000 limit then you can borrow the full $100,000 or borrow only $10,000. You then pay only the interest on the amount you borrow and the principal amount.

Getting approval for a line of credit these days can be a very long and complicated procedure. You better make sure that your credit is very good, otherwise your application may just be denied or you won’t get the limit you want. And if you reach the limit then you have to renegotiate with your bank for an extension.

How Factoring Works

With factoring, you don’t go into debt at all. You simply send your invoices to your factor, and they give you a set percentage of the value of the invoices in advance. For example, if you have an invoice for $100,000, then you can get anywhere from $70,000 to $90,000 in a few days (or even in just one day). You don’t have to wait for the due date on the invoice which can be for 30 or even 90 days. Once that customer pays the factor in full, you are sent the rest of the payment, with the factor pocketing the fees from that payment.

Getting approval for invoice factoring is very easy and your personal credit isn’t even an issue. And you can also control the amount of money you receive. If you need more money in advance, then you simply send more invoices to the factor for an advance. Your factor can help you keep track of your invoices, they can do the collecting, and they may even investigate which clients have a good record of paying in full and on schedule.

 

So which one is better for your business? If you can get a line of credit from a bank quickly and the interest rate is reasonable, then that’s your better option. But that’s a very big if. Credit card companies can really charge a lot in interest. And for that reason, many businesses are opting for invoice factoring.

With invoice factoring, you are much more certain of getting approved and the entire process is much faster. Once you get approval, you get your money very quickly. And there’s no debt involved that can further affect your credit rating. You may even get additional services that make your entire operations much more efficient.

It’s up to you to decide which one is better for you when you’re comparing factoring to line of credit. But for practical purposes, it’s pretty much obvious that factoring is better, because aiming for a line of credit is useless if you can’t get it anyway.

 

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Do You Have the Working Capital for Christmas Seasonal Sales Spikes?

If you run a wholesale distribution company, functioning as the bridge between local retailers and overseas manufacturers, Christmas seasonal sales spikes represent a huge chunk of your business for the year. And that means you really need to prepare adequately. You have to make sure that you optimize your supply chains and distribution networks so that you can quickly deliver high volumes of products to needy retailers eager to take advantage of the consumer desire to spend for gifts.

Visit Neebo Capital to get working capital to meet holiday orders.
Visit Neebo Capital to get working capital to meet holiday orders.

If you have the foresight, then you should have prepared for this eventuality long before the Christmas season even started. But even the most prepared may not have enough working capital to ensure that they have the products ready to deliver for the retailers. It’s not uncommon for successful wholesalers to get large volume orders for which they may not have reserve cash to use.

Fortunately, there are options which you can consider so that you actually have the money needed to buy supplies:

  1. You can arrange for a loan or a line of credit from a bank. A line of credit is probably your best bet for this scenario. With it, you can draw only enough money for your needs, so that you don’t pay interest on money you don’t need to spend. It’s very easy to ask for a loan for a specific amount of money that turns out to be either insufficient or too much.

However, many wholesale companies have long realized that banks are unreliable partners when it comes to emergency funding. You may or may not get your loan, as the requirements can be pretty strict regarding your credit and your collateral. And you may have to endure a protracted loan application process in the bargain.

  1. You can arrange for invoice factoring to bolster your cash reserves. When you deal with retail companies, you have to accept the fact that they do not pay you cash on delivery of the products they ask for. They’ll make you wait for at least 30 days. Sometimes the wait can even be as long as 90 days. This means that you can’t access those funds as a way to buy the supplies for your retailers.

But you can access those funds with invoiced factoring. The factor gives you an advance on the value of the accounts receivables, and this can reach up to 80% or even 90% of the value of the invoice. You get the rest later when the retailer finally pays for the previous products you’ve shipped them. But with this advance, you get enough money to buy supplies if you receive a large order and your current cash reserves are inadequate to cover the volume of the order. Invoice factoring has a higher approval rate, your credit doesn’t matter, and the application process is much faster.

  1. You can use the purchase order to obtain additional financing. Basically, the financing company can provide half (or even more) of the value of the purchase order. With this method, you can then bolster your cash reserves to meet the demands of Christmas seasonal sales spikes.

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What’s A Good Alternative to Traditional Business Bank Loans?

Many small businesses these days need some form of financing before they can start or grow their business. For most people, that means negotiating with a bank to get the loan they need. But this is only a good solution in theory. In general, you will have to consider another alternative to traditional business bank loans.

Problems with Bank Loans

Actually, there is a long list of potential problems with you deal with banks so let’s just mention the most important ones:

  1. The approval rate for business bank loans are not quite as high as many businesses hope. If you plan to borrow less than $100,000 the approval rate is about 46%. For greater amounts, the approval rate is 60%.
  2. Many banks don’t see many small businesses as good investments. They are not impressed with common businesses problems such as low customer demand and unreliable cash flow, and they are not exactly enamored of the low credit ratings of some small business owners either.
  3. Banks nowadays shy away from loaning to small businesses because they are expensive for banks, and yet they don’t offer a lot of profit anyway.
  4. Even if you do get a loan from a bank, the entire process will eat up a lot of your time. And often, the loan you’re offered may not be enough to meet your immediate needs. You can apply for a $200,000 loan and your bank can offer to lend you just $40,000.

Traditional Alternatives

If a traditional business bank loan is not possible, often small businesses obtain funding through one of two ways: using a credit card or selling equity.

Many small businesses have used credit cards as a way to get the additional funds they need for their business. It’s really quick and easy, and for immediate needs they can’t be beat. But there are serious downsides to this method. For one, the interest rate can be atrociously high. You can pay too high a price for the privilege of using those additional funds. Another problem is that the credit limit may not be enough, and you may find yourself maxing out your credit cards and still having some problem with your capitalization.

Other companies solve their problem by selling a percentage of their company to venture capitalists. For example, if the value of your business is $2 million, you can sell off 20% of your company and receive $400,000 in short order. But here the problem is that you’ve lost 20% of your company—and future growth means that you only get 80% of your future earnings.

Newer Alternatives

Fortunately, if you have a need for further financing many institutions are offering newer alternatives. Some institutions offer loans which you can pay off giving them a percentage of every credit card payment made to your company. Some restaurants have made use of this method, and the big advantage is that your monthly payments will depend on your revenue. If your sales are slow, then you pay only a little amount for the month.

Another method is to use your invoices. You can sell off your accounts receivables for a percentage of their value so you get your money immediately. Some institutions even offer you a cash advance when you receive a purchase order so that you have the money to meet that order.

So when you need additional money for your business, you can at least console yourself with the fact that there may be a more ideal alternative to traditional business bank loans if a bank can’t help you get the financing you need.

 

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A Working Capital Loan Will Generally Not Affect Your Working Capital

As every business owner or manager knows, one of the most crucial factors that can determine how a business will grow and succeed will be the amount of working capital it has. You need working capital to function. You use it to pay for your overhead expenses, payroll, and purchase products or raw materials for your inventory. This is why some businesses apply for a working capital loan. But what some may not realize is that a working capital loan will generally not affect their working capital.

What is Working Capital?

Part of the confusion lies in the fact that some business owners do not really understand what “working capital” is. It’s not just the cash you have that allows you to pay for all your operational expenses.

Technically speaking, working capital is what you have when you take all your current assets and then you take away all your current liabilities. The key word here is “current”. This means the asset is something that you can convert to cash easily (as in within a year or less). Your current liabilities are then what you need to pay for within a year.

So when you calculate your working capital, you try to determine how much cash your business has when you have to pay supplier invoices when they are due. You have to determine just how long you have and figure out how long it takes for your inventory to turn into accounts receivables and then into cash. You do the same with your supplier’s invoices and for your immediate needs, such as overhead and payroll. If your cash isn’t sufficient, then you’ll need a working capital loan to help you pay for what you need.

Working Capital Loan

So how do you get some working capital? There are several methods. One traditional way is to get additional funding from investors. For example, you can get some more cash in exchange for a percentage of your company. You and your investor may agree that your business may be worth exactly a million dollars, so the investor can give you $100,000 for 10% of your business.

You can also get a loan from a bank and other lenders. For example, you can get a set amount of money, or you can get a line of credit much like a credit card. With a line of credit, you have a maximum amount you can borrow, but you can borrow only what you need so you don’t have to pay interest in borrowed money you won’t need. With a working capital loan, you have more cash in hand, but you also get more liability because you still have to pay for that loan.

Conclusion

So this is why a working capital loan will generally not affect working capital. You do have more cash available to pay for your working capital expenses, but your assets and your liabilities remain the same. You increase your assets, but your liabilities increase by the same amount as well.

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