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Business Loan in Canada – Accounts Receivable Factoring

Business Loan Canada Scenario:  Recently an Importer in Ontario Canada after having exhausted its efforts in seeking a Commercial Loan.  They sought funding from its local banks in Toronto, Ontario, Canada looked to a Commercial Finance Broker.

Business Loan Canada - Accounts Receivable FactoringTheir customers are all across Canada.  They had plans to expand into the US market.  Due to growing orders they had been maxing out their Operating Line of Credit consistently. Their bank had then capped at $50,000 and would not increase it.

The terms with their suppliers in China are 30% .  With the order placement and the balance before the product leaves the warehouse. These are quite popular terms when dealing with China for goods.

Business Loan Canada – Accounts Receivable Factoring

The sales for the company are $1.5 million per year.  Typical daily sales outstanding of 45 days, which is quite common, and in many industries considered quite good. The average amount in Accounts Receivable is $200,000.  As you can see the $50,000 Line of Credit was of little use to them.

The company had to carry inventory.  This is because their customers expected orders to be shipped within 1 week of order.  The fact the main supplier was in China meant they had to have sufficient stock.  Often inventory had to carry them for a months sales at any given time.

Against the owner’s wishes, they had to use personal loans to cover the cash shortage.  They did this so that they could operate and carry the required inventory.

The cash flow crunch was cured by setting up a new Business Line of Credit, not actually a Business Loan, rather alternative funding using Accounts Receivable Factoring.

The Importer now can take advances up to 85% of their outstanding Accounts Receivable to carry the needed inventory, pay off the bank that was not willing to help them and even pay off the personal loans they had taken. Imagine the relief.

If a company sells its accounts receivables to a factor, this is not considered a Business Loan and would be based on outstanding sales, the Line increases as the sales increase. So as sales grew, so do the availability of funds.

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