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Inventory Financing In Canada. Exploring How Canadian Companies Finance Inventories

Inventory Financing In Canada. Exploring How Canadian Companies Finance Inventories

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Published by Stan Prokop
Information on inventory financing methods in Canada . How does the Canadian business owner/manager finance inventories in a manner that enhances working capital and cash flow
Information on inventory financing methods in Canada . How does the Canadian business owner/manager finance inventories in a manner that enhances working capital and cash flow

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Categories:Types, Business/Law
Published by: Stan Prokop on Jun 29, 2013
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06/29/2013

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Friday, June 28, 2013
Inventory Financing In Canada. Exploring How Canadian CompaniesFinance Inventories
Why Used Submarines Can’t Be FinancedOVERVIEW – .Information on inventory financing methods in Canada . How doesthe Canadian business owner/manager finance inventories in a manner thatenhances working capital and cash flow
 
in Canada. What are the methods that Canadian business uses toensure that working capital investment is maximized? Let's dig in.When business owners/financial managers are challenged on how to finance inventoriesit's important to focus on two areas - we'll call them
' tips' and ' traps'!
Financing inventory typically revolves around either retail or commercial concerns.Smaller retail businesses have a huge challenge as banks and other commercial lendersare reluctant to lend against inventory. Compounding the problem is the fact they viewthat type of business as an ' all cash ' business - so why would it need financing?Typically when inventory is financed by a bank or commercial concern it's important torealize that it's always financed at cost. Another good thing to know is that in certaintypes of financing actual physical counts, inspections, or appraisals will be required byyour lender - again typically a bank or non bank commercial lender . That won't always be required, but on occasion it’s an absolute must. The lender needs to determine the
'margin formula '
that they will lend against on an ongoing basis.Margin formulas vary significantly based on several key factors. They include an analysisof which one of the three stages your inventory is in (raw materials, work in process, andfinished goods). Businesses that are able to demonstrate they have perpetual inventorysystems in place stand a much better chance of ' borrowing power ' when it comes tofinancing inventories as part of your overall ' current assets'.Your overall gross profit also plays a key point in financing. Ultimately important is thelenders / banks opinion on how marketable your goods are under a worst case ' forcedsale ' scenario.Many business owners consider the Canadian Small Business Loan program for thefinancing of their business. They wrongly assume that the program covers some sort of working capital, cash and inventory components. That is not the case!
 
In that program only 3 classes of assets
 
can be financed - equipment, leaseholds, and real estate.Is there a winning way that we constantly recommend and implement for clients lookingfor inventory finance? The answer is that most successful financing in this area is in thecontext of a combined credit facility that also financed receivables. Two sources of financing exist here - The Canadian Chartered bank, and, in some cases even better: Non bank asset based lines of credit.While the bank or commercial non bank lender places a higher emphasis on receivablesdue to their more immediate liquidity they also fully realize those sales are generatedfrom inventory turnover. While banks differ in Canada on inventory margins it is nonunusual in ' ABL ' (asset based credit revolvers) to achieve anywhere from 30 - 75% borrowing power.Oh, we almost forgot. Whycan't used submarines be financed? We would offer up that they can't be readilyliquidated, and valuation is extremely hard to determine. Although we suppose the lender could utilized a ' FLOATING DEBENTURE '!If you want to beat the challenge of inventory finance in Canada seek out and speak to a
, allowing you to achieve the business finance you require.

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