Working Capital Finance – Your Problem – Our Solutions for Solving Cash Flow Challenges

It would be great to hear our clients say they have no issues in working capital finance and challenges, and that solving cash flow problems is the least of their worries. Unfortunately we haven’t met one customer that seems to be comfortable sharing that with us.

Let’s look at the root of some of those working capital challenges; what are the problems, what caused the problems and then talk about why you are probably reading this… you want working capital solutions.

It’s of course great to have sales – and sales and profits are even better. In general when you have those you have the essence of a healthy business. But those are in effect what we could call paper transactions and it always comes back to 100 year old clich?s such as ‘ cash is king ‘ and ‘the sale isn’t made until you’re paid ‘.

Working Capital Finance - Your Problem - Our Solutions for Solving Cash Flow Challenges

That cash is required for all those mundane things, paying suppliers, paying employees, and meeting your obligations on loans and leases.

Your challenge is typical, how you do create a flow of cash in the long term, as well as addressing short term bulges to ensure you have liquidity.

Of course when you have a good handle on cash flow, everyone looks at you with a positive outlook, the most important is your supplier and lender.

Solutions to cash flow challenges often arise from the inability to plan or overcome the right type of cash flow solution. You run the risk of liquidity problems when your current assets cannot be converted in a timely manner to cash – these assets are usually in the form of receivables and inventories.

There is no day where we don’t find this type of textbook of working capital financial challenges – it’s as simple as requiring products to fulfill regular or new large orders, generating invoices, and then waiting 30, 60 or 90 days for payment. That’s the challenge of textbooks when we talk to clients asking for our help in solving cash flow problems.

So we’ve done a good enough job to tell you what your problems and challenges are – let’s discuss some real-world solutions.

The essence of working capital financial challenges is that you cannot access business credit. We encourage all customers to seek Canadian bank business loans that are hired when they are in a position to do so. Unfortunately many clients cannot meet the net value of the business, the value of personal wealth, and the liquidity ratios and agreements that your bank might need. We also strongly believe that financing inventory by banks in Canada is increasingly difficult to achieve.

Don’t borrow – cash it. That’s the best advice and plan that we established with clients to solve cash flow problems. You can get a working capital cash flow term loan, but that only creates additional debt on your balance sheet. Instead, take the assets that you already have in your book and cash them out – those assets are the … Read More

New Normal For Small Business Financing and Working Capital Management

With business financing options that have changed significantly over the past two years, it is appropriate to review what the “new normal” looks like so small business owners will be prepared to face the challenges they face with commercial lenders. Business borrowers are more likely to find commercial financing successful by quickly accepting the fact that a “new normal” way of doing things has emerged.

The dramatic reduction in the number of commercial lenders who actively make small business loans is one of the most significant changes in the business financial lending environment. Banks continue to insist that they still provide small business financing when in fact they have reduced or eliminated their commercial loan programs are an equally important part of the “new normal”.

New Normal For Small Business Financing and Working Capital Management

A recent report showed that commercial loan activity fell by the largest amount since records were kept. This trend is likely to get worse before it gets better because based on Federal Deposit Insurance Corporation accounting, almost one out of every ten banks almost fails. The current shaky financial condition of many banks is further documented by reports from the Federal Reserve and the US Treasury that more than 50 banks do not have sufficient cash flow to make payments in November 2009 for loans made by Troubled Asset Relief Program ( TARP). The payment is due every three months, and more than ten banks have missed three consecutive installments. Unlike banks that have tripled and quadrupled interest rates for individual consumers who have lost credit card payments, perhaps government regulators only hope to get their money back from delinquent banks.

Banks have been doing business too often as if they are monopolizing their small business financing services. The “new normal” for small business owners must increasingly reflect the growing realization that banks can be replaced when they stop providing adequate levels of service to their business customers.

As a direct result of the continuing shortage of banks in providing financial assistance to small businesses in sufficient quantities as mentioned above, for most business lenders, the “new normal” will involve a new bank or at least a new commercial lender (which may not be a bank at all ). Even though banks want their small business owners’ customers to believe that only banks like them can help business borrowers, this is really a myth created by bankers themselves.

For many important commercial financial services such as commercial mortgage loans, many banks have indicated that they will no longer provide such financing. For specialized business financial services such as working capital management, business consulting, and business advances, banks rarely provide cost-effective and realistic options for commercial borrowers. For business owners who have commercial loans or working capital financing that will be refinanced within the next three years, future planning will be increasingly important for the success of their small business financing. With the “new normal”, if commercial borrowers wait until their bank decides to stop the small business finance program in the future, the time will … Read More

Understanding Credit Scores – Easier For Lenders to Deal With

A good way to figure out understanding credit scores is to think about having to weed through thousands of credit reports every day like most credit vendors have to. You would like to have something that makes it easier, so you don’t have to spend all that time coming up with your own assessment of each individual credit report.

That is what a credit score is. It is a summation by FICO of what your creditworthiness is based on your credit history. It makes it easier for lenders to make expedient decisions.

In understanding credit scores you must first realize that a credit report is a laundry list of your credit history over your entire list. Any given credit report can be fairly tedious to plow through and quantify. Everyone wants fast credit decisions. The credit applicant wants a fast decision so they can get on with their purchase. The lender wants a fast decision so they can grow their business.

Having to come up with their own individual summations based on the full credit report of an applicant can be a lot of work and delay a decision. That’s not good for the lender because like any business they need to be competitive. Borrowers will be more likely to do business with someone who can make a quick decision.

Understanding credit scores and how they are used can be a great tool in figuring out your financial future.

If you keep a diligent eye on your credit score and continually work to keep it high, you can take advantage of the great prices out there right now on everything from houses and cars to home improvements and other consumer items. Times are tough, but if you have a good credit score you can really do well for yourself and take advantage of your good credit score.

Understanding credit scores and how lenders look at them can give anyone an advantage when making credit deals. The thing to keep in mind is that credit scores are a short cut for lenders to make decisions on how creditworthy you are. To keep your credit scores up you can take some easy steps such as paying bills on time, using prepaid credit cards and trying to consolidate all your outstanding debt into one bill. All of these actions can help raise your credit score so you can take advantage of credit deals . . .… Read More

Making Dough, Splashing Spondulicks and Wasting Wonga

With the exception of sex, drink and food there are more slang words for money in the English language than for any other thing.

Perhaps due to being the UK’s financial centre since commerce began, most of the slang terms for money originated in London.

In the old East End of London, cockney rhyming slang produced some of the most creative terms and phrases for money. Bees (bees and honey), lolly, readies, folding, wonga and hundreds more terms have emerged from Bow to Wapping and Bethnal Green to Whitechapel over the centuries.

The popularity of different terms comes and goes, new variations crop up and older ones are revived with bewildering regularity.

Back in the 1970s you could ask someone to lend you “a lady” without out it being construed as an illicit request. In the decade that gave us glam rock and punk rock “a lady” meant 5 (Lady Godiva – fiver).

For cockneys and mockneys in the 1990s, if something cost “a bag” it was 1000 (bag of sand – grand). More recently, in gambling circles, “a biscuit” has come to mean 1000. This is not exactly rhyming slang, it’s referring to the size of larger casino chips – which look like biscuits.

Borrowing a pony to boost your macaroni

To confuse things further, over time, slang terms for money begin to refer to other slang terms rather than to an actual thing. In the last 5 years it has become popular to use “macaroni” to mean 25. There is no direct connection between “macaroni” and 25, but it does rhyme with pony…

“A pony” has been used to mean 25 since the 18th century and is still popular today. However, theories about the origins of its use are hotly contested.

Some say 25 was the price of a small horse in the 1700s, others argue it’s because there was a picture of a horse on an Indian 25 rupee note at the time. There are even those that trace it back to biblical stories – far too convoluted to go into here.

Whatever the origin, it keeps on changing and maybe one day in the future etymologists will be arguing over why people in early 21st century used “macaroni” to mean 25 – I’m going to get my theory in early and say, given the current rate of inflation, it was the price of a packet of pasta in 2012.

Wonga, wadge and moola

Immigration and travel has had an impact on the words we use for money. Yiddish speaking immigrants from Russia and Germany in the late 1900s and early 20 century had a huge impact on the English language.

It was common to hear many Londoners refer to their money as shekels right up until the early 1960s.

Moola/moolah is as popular today as it was in the 1930s. “Moola” comes from the word matzah, a type of bread. Dough and bread have been used as terms for money for many years.

Wonga … Read More

Introduction to Derivatives

Humans have always been inventive through their sojourn in this world, and have come up with innumerable inventions that have made their lives comfortable. Sometimes though, they have done themselves, and their world, a lot of harm, with their inventions.

While many of the human inventions have fulfilled a genuine need, some inventions have served only their contrived needs, and yet others have catered to the baser instincts of man, primarily, greed.

Into which of these above categories does the financial instrument called “derivatives” fit in? Does it serve a genuine need or a contrived one, or only serves to pander to man’s greed? In the light of the present Banking crisis, said to be triggered by the housing mortgage crisis, it would appear that derivatives fall in the last category.

What is a Derivative? A derivative is a kind of financial instrument that does not have a value of its own, but derives it from an underlying base. This base may be an asset, or an index, or even a phenomenon. In a way,a derivative resembles a parasite that feeds off its host.

Derivatives do not have an independent existence of their own. They exist as offshoots of either assets like stocks, commodities, residential mortgages, etc. or indices relating to the stock market, consumer prices, exchange rates, etc., or even phenomena like the weather conditions. They derive their values from assets as described above.

Purpose and Scope: There are several purposes for which derivatives are put to use. Sometimes they are used to cover the risks associated with genuine business transactions, and sometimes for plain profit making. Sometimes it is dictated by necessity, sometimes by inclination. Some of the major purposes of using derivatives are:

Risk Management: The major purpose of having derivatives is to manage or counter risks faced in the business environment, especially that which cannot be dealt with conventionally. It is also called Hedging. Hedging occurs when the risk of the underlying asset is transferred through the medium of the derivative from one person to another. A forward contract in a foreign exchange transaction like export and import is an example of hedging.

Suppose an exporter of wheat based in Chicago exports a consignment of wheat to the United Kingdom, and expects the rate of the British Pound to decline against the U.S. Dollar, he may book a forward contract and sell his pounds at current rates against future delivery of wheat to the U.K.

Speculation: Another purpose for which derivatives are used may be to book extra profits, or profits out of the ordinary, by taking advantage of the favorable movement of the value of the underlying asset. Here the purpose of using derivatives is not hedging, or countering risk, but to scoop up additional profits. This activity is called speculation.

Arbitrage: Yet another purpose of derivatives is called as arbitrage, that is taking advantage of a lower current market value vis a vis, the future value of an asset. Whereas the use … Read More