—Sponsored article by Blue Chip Leasing
One of the biggest struggles facing Canadian manufacturers, particularly the successful ones, is managing cash flow.
When business is good and the market is active, they have many opportunities for growth, whether it is from existing or new clients. But managing these opportunities can create problems. It’s almost a “be careful what you wish for” scenario.
Many shop owners seek out people like me because they are looking for a strategy to put more equipment on their floor without taking funds from their working capital. Bringing in new business or producing larger volumes for existing clients puts pressure on cash flow because additional expenses are incurred to support the new orders.
These expenses can include the purchase of more material and tooling and the hiring of more operators and programmers.
None of these costs can be financed except with a bank operating line, which for most businesses big or small usually is inadequate relative to the amount of money that they actually need.
Security necessary for loan
The reason most bank lines are limited is that the security required by any bank or any tier one institution is a minimum of three times what they loan out. Because the bank is in a stable financial position, it is able to offer relatively cheap rates for an operating line (normally a couple points above prime), but it also is the reason that only a relatively small amount of funds are available.
This situation really isn’t drastically different than a standard mortgage in which interest rates are low, again in relative terms, because the lending institution is in an equity position from the onset and are lending only a percentage of the value of the property.
The rest of this column can be found on Canadian Metalworking, a market news site for the metal fabrication industry.
The article is part of the Financial Management Success Centre, showcasing strategies to access working capital, reduce costs, and leverage the value of shop floor equipment.