Thanks for dropping in for some hopefully great business info and on occasion some hopefully not too sarcastic comments on the state of Business Financing in Canada and what we are doing about it !

In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.

Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.

Thursday, February 25, 2010

Shooting from the hip, and Me..

On Feb 22 the National Post ran a story from NY TIMES about a fellow named George Cloutier, an mgmt consultant. Cloutier maintains :

1.People use the recession as an excuse for poor performance

2.Businesses should pay their vendors on time

3.Business owners shouldn't be likeable

4.Fear of mgmt. is a great motivator

I guess I agree with 1, and maybe 3, although I kind of like working with people I like rather than not like

When I worked in corporate for 25 years a few Executive here and there ruled by fear, and in hindsight I can never agree that was a good thing.

Wednesday, February 24, 2010

Asset Based Lending Grows in Popularity in Canada

When one of my firm’s customers has their loan called by a Canadian chartered bank recently the firm was placed into the ‘special loans ‘division of the bank. When a firm goes into special loans the bank has to make a decision whether to liquidate the firm or continue supporting the company financially, albeit on a more structured ( and probably smaller! basis . Many Canadian business owners may, or may not, be surprised that my customer, who was a large commercial bakery, was profitable and had a relatively clean balance sheet.
So what was the problem – well the major issue was that the firm was ‘off covenant ‘on some of the key bank ratios that supported the loan.
We migrated this customer to an ‘Asset Based Lending ‘arrangement. This type of facility is, relatively speaking, new in Canada and had its origins primarily in the U.S. asset based financing industry.
More and more firms are migrating to this type of financing facility. We believe it is growing popular because of several factors, primarily two in nature.
1. Many firms are in high growth mode and can’t support traditional bank based financing which is focused on a more ‘ steady as you go ‘ approach
2. The current economic downturn of 2008-2009 has significantly restricted bank and other facilities – customer look for alternatives – Asset based lending is a popular alternative

So what’s ‘ABL ‘(Acronym for ‘asset based lending’) about? It’s all about one word ‘collateral ‘. It’s your assets that are financed, not your ratios! So firms that are service based are generally not the best candidates, other than their receivables, which in fact are one of the key aspects of an ABL facility. Traditionally was being financed is:
Real Estate
Sounds great so far, right? The reality is that an ABL facility is a popular method of financing, but it is clearly 99% of the time more expensive than bank financing. We can as a general statement say that larger and better deals get better rates. The popularity that we speak of in our article in part revolves around the fact that the ABL facility works even for companies that are losing money or have some key problems.

In general some fairly standard metrics are applied to what is financed, and that is all of your receivables, a significant amount of inventory, and the liquidation value of your equipment. We can’t stress that those are general comments with respect to how much is financed in each asset category.

Asset based financing rates in Canada range from 9% per annum to sometimes 2% per month; it really depends on the size of the facility and the overall credit quality of the Canadian firm.

So again, why gaining in popularity. Well we spoke of those bank covenants, and they don’t exist in our ABL facilities, we simply finance assets. Also, asset based lenders, the good ones, are very experienced in cyclical industries, they understand seasonality, and are usually exceptionally experienced in the different asset categories we spoke of.

We spoke of some of the negative attributes of this type of financing – and in general they are:

Higher rates
ABL lenders can be more aggressive when terminating a facility they do not like
ABL is gaining in popularity and is no longer considered a ‘last resort ‘option – We would also note that some of Canada’s well known names in business are financed in this manner. Quite frankly some firms just don’t want to spend all their time talking to traditional financiers with whom they might not be successful, the premium paid can be worth the time alone.
Many companies migrate to an asset based lending facility, and when their financials improve they are once again, believe it or not, wooed by the banks that shunned them previously.
In our overview of ABL popularity we won’t cover who the players are in the Canadian industry, other than commenting they range from some well known corporate names to smaller boutique firms that are privately funded.

So whether your Canadian business is troubled or challenged, or if you have a unique merger or acquisition opportunity that is asset based you should clearly be talking to an asset based lending expert familiar with the Canadian marketplace .
Oh, and what happened to my customer who was in special loans, went to an asset based lending facility.. Well they were courted by another Canadian chartered bank and its business as usual!

CASH FLOW, You are forgiven for mis-understanding the term

We find that the term, or concept ' cash flow ' is widely misunderstood - having different meanings to different parties.

There are at least 7, if not more, methods in which the term is utilized in a number of areas of finance.

First of all the term is of course just a general term used in finance literature and textbooks relating to investments, etc.

When we see a company financial reports in the press there are often references to cash flow in the financial reports of the firm.

Getting even more specific, there are three parts to any financial statement, the balance sheet, the income statement, and the Cash flow statement. In older times this cash flow statement was called the Sources and Uses statement - simply indicating where a company got the money, and where they spent the money.

Some financial analysts refer to a company's ' funds statement ' and designate the total funds provided by operations as ' cash flow '.

Confused? We're not there yet. Financial managers and business owners use various types of analysis when making long term investments for the company. They use sophisticated financial analysis known as rate of return, payback analysis, and, guess what ' discounted cash flow ' analysis.

When a business owner is planning he will often prepare, and refer to, his ' cash flow ' budgeting.

And finally, business owners and financial mangers refer to; cash flow;

controls as they monitor the flow of funds and the control of those funds inside any company, small or large.

What becomes clear is that ' cash flow ' has become somewhat of a ' catch all ' wording and is somewhat confusing as more often than not it does not reference actual ' cash ' on hand, or evens the flow!!

Most financial people would probably agree the purest form of ' cash flow ' is in fact one of the items we have mentioned above - that is to say its the cash referred to in the company's CASH FLOW STATEMENT - we referred to it as one of the three pillars of any financial statement. The common calculation of this number is the net income of the company, plus the depreciation, which was not an actual cash outlay.

In summary, we have seen that the term cash flow means a lot of different things to different people - Business owners, and financial managers should know what method of cash flow they are utilizing, its uses, and how it will be interpreted by lenders, financial analysts, shareholders, etc.

And yes, you are forgiven for misunderstanding the term!

Why is everyone talking about Factoring and Accounts Receivable Financing in Canadian Business Circles?

There continues to be a fair amount of press about the alternative financing method known by a number of different names – These include Factoring, Working Capital Financing, Cash Flow Financing, Invoice Discounting, etc!! Let’s keep it simple and we’ll just call it factoring for our purposes.

The old cliché that the ‘cheques is in the mail ‘probably has never run more true for Canadian business owners and financial managers. Receivables, on balance, tend to be in most cases either the largest (or pretty close to it) liquid asset of the company, next to cash. And there is never enough cash.

As the economic challenges of 2008-2009 massively affected business credit liquidity all over the world, including here in Canada the other cliché of ‘cash is king’ became even more important. Many business owners we talk to continually say they are devoting too much time to collection of receivables and their working capital issues, rather than focusing on running and growing their business.

We should mention that as Canadian business owner’s work on liquidating their receivables into that much needed cash that it is, many times, the larger corporations that are paying them as slowly as their smaller customers. Larger corporations by delaying payables can increase their own cash flow rations significantly, and the smaller customer or supplier, your firm, has little leverage with such large corporations. (We won’t name any names to protect the innocent!)
Standard payment terms for most industries, more often than not, is 30 days, but it is of course not unusual for suppliers to stretch out to 60 and sometimes even 90 days.

So where does factoring come in. It certainly can be a consideration for Canadian business owners, as it alleviates the problems we have mentioned above – namely high investment in current assets of receivables and inventory, and prolonged delays of payment from even the largest customers.

The ‘factor ‘ purchases the account receivable, withholds a fee for doing that, and advances cash immediately, almost the same day, against those invoices .

Factoring has been around over a hundred years or more, and has gained huge acceptance in Europe and the U.S. – It certainly never caught on in the past to the same degree in Canada as it has in other places. Some analysts estimate that in the U.S. it’s a 100 Billion dollar business, and in Canada it’s a 4 Billion dollar business.

So let’s get back to our core theme – why is everyone talking about Factoring. Again, it’s the instability of the financial markets and the difficulties that smaller and medium sized firms have in arranging ‘adequate’ business financing. We emphasize adequate because yes, it is great to get a line of credit at your bank of say $ 100,000 at current Canadian rates of 5 or 6 per cent per annum, but if you need 300,000.00 and all your collateral is tied up what good does that do – not a lot.

We believe factoring has done when primarily because of the tightening of chartered banks – Business owners go where the money goes, so alternative non traditional financing such as factoring will continue to do well when banks tighten credit facilities
As Canadian business optimism improves, but credit remarkets remain unstable to a certain degree factoring continues to be a solid viable solution. If your firm has assets such as receivables and in some cases inventory or purchase orders the Canadian business owner can obtain immediate cash for those assets. Most of these firms would not qualify for larger term oriented loans with various financial requirements such as other collateral, debt covenants, operating covenants, etc.

Depending on which type of factor facility the Canadian business owner chooses the facility can also reduce his collection and administrative work.

The best candidate for a factoring facility is a high growth firm with good gross margins. That profile is very important. Why is that? It’s because factoring is more expensive than bank financing, so the firm gets all the cash it needs, but margins are eroded by a couple per cent age points. A low margin, commodity type business is not optimal for a factoring solution...
In Canada, as we have noted, factoring is still not widely accepted, in the U.S. it is dominated by a couple of huge players and probably a thousand smaller firms.

In summary, factoring continue to gain traction in the Canadian business financing marketplace. It is more expensive than bank financing, but provides a lot of liquidity that could otherwise not be found. Business owners need to thoroughly investigate this type of financing if they feel it’s appropriate, or engage the services of a trusted financing advisor in this area with credibility and solid partner firms in this area.

Tuesday, February 23, 2010

Business Banking in Canada - An overview

Banking and business borrowing in Canada is significantly different than in the United States. That is primarily driven by the fact that our banking system is uniquely different. In the U.S., borrowing finance is driven through various entities - which include major ' money center banks ', Commercial banks, community banks, and what are know as S&L's, ( savings and loans ). In addition the American landscape is populated by community banks.

The Canadian banking system is different, in that the country has chosen to adopt a more smaller ( by competitor ) banking system that is extremely concentrated and dominated by a handful of major players. Primarily these are:


All of these banks support the Canadian Small Business Financing program sponsored by the federal government.

There is a decent sized credit union movement in Canada, and many of these credit unions are making forays into Commercial banking and financing. Many people tend to feel these credit unions have not yet accumulated either the talent or the capital pool to properly play in business banking and commercial lending.

We would point out that some time ago now the government introduced legislation to allow foreign banks to lend in Canada. These banks are known technically as ' SCHEDULE B ' banks, and are referred to a briefcase bankers in that they do not have the large branch networks that are the domain of our BIG 7 banks as listed above.

Capital for Canadian firms is traditionally much harder to secure in the Canadian banking system. Outside of the aforementioned CSBFL program that is federally underwritten the banks tend to secure small business loans with usually up to 100% of personal collateral. That of course has the customers pledging personal assets, savings, etc. There certainly are no ' templates ' for fast quick borrowing in the Canadian small business banking. Loan criteria is judiciously adjudicated by underwriters on a case by case basis, and as has been noted, relies heavily on the traditional three C's of credit -

- character
- capacity
- capital

As the Canadian banks have emerged from the current world economic crisis they do however seem to be placing more focus on smaller firms. For example new divisions for small business banking are being created within some players, seminars and trade shows are being offered, and they often sponsor local events.

Larger firms who in many cases do not meet the requirements of the Canadian banks when it comes to significant borrowing requirements are often forced to consider asset based lending arrangements with Canadian and U.S. commercial finance companies who have stepped in to play a role in this vital area.Even though the larger firms may in fact have been in business a number of years their balance sheets and income statements do not meet the borrowing requirements of the Canadian loan committees. During the 2009 world economic crisis and financial meltdown the Canadian banks were consistently lauded for being some of the best run in the world. However, the downside of this is that ' best run ' in many cases means risk averse and commercial borrowing in Canada is significantly more difficult than in other countries such as the U.S.

The Canadian banks have distinguished themselves by developing software and technologies that have put them at the forefront of commercial borrowing/lending.

In summary, the Canadian banking system is uniquely structured and Canadian business, both larger and small,should focus on the unique strengths of the system borrowing and banking needs. Not all companies will be successful and business owners should ensure their financial executives or advisors know who can best meet their borrowing needs.

Monday, February 22, 2010

Business Loans & Working Capital Financing Options for New or Smaller Canadian Companies

Canadian chartered banks, usually by virtue of their ‘relationship’ with business owners and entrepreneurs are in a position to pass on valuable financing tips and information on business loans and working capital for start up or smaller firms. Although the banks are a solid source of such information the banks themselves, by virtue of their charters and credit policies, are unable to directly satisfy the financing needs of the customer.

Business owners are often therefore encouraged by banks to ‘self finance ‘the venture via equity or owner capital and commitment. It is clearly a misconception that banks play a key and major role in the financing of new ventures. Possibly the only exception to this statement is the fact that the banks offer up, in their role as administrators, the Government Small Business Loan, which is a Canadian federal government program providing loans up to , in some cases 500,000.00$ for purchase of real estate, business assets, or leasehold improvements . (The more typical loan amount maximum is 350,000.00$)

We may or may not agree with Canadian banking policies on start up and young venture financing, we should however appreciate the banks stance – they are lending out our capital at very low rates, with potential to lose the entire investment if your firm can’t repay loans and financing.

How can the small or newer business succeed in financing options? Businesses of the size that we are discussing need thousands, literally millions of dollars of financing to fuel their growth in Canada. In our commentary that we are providing it is important to note that as companies develop along the ‘stage of development ‘timeline they of course have much more access to traditional bank and private equity financing. We are primarily talking about earlier stage companies, who may be still developing products and services and may not be yet profitable as they start delivering and billing for those products and services .

So what are the immediate challenges of firms that are unable to provide traditional financing and what are, more importantly, some immediate solutions?!

The challenges tend to be painfully obvious to the Canadian business owner or financial manager that has worked to get traditional bank and equity financing. They are as follows:

Perceived industry or product risk
No collateral
Uncertain financial projections
Limited Performance history

How can the Canadian business entrepreneur overcome these very traditional roadblocks and challenges? There are a number of ways.

First of all, all alternative methods of financing should be pursuing. Alternative financing methods are most non dependent on the above noted risks and challenges. Those alternative methods of financing might include:

*Business Angels or strategic partners (think suppliers!) for short term arrangements
*Equipment Lease financing
* Sale leasebacks on equipment already purchased and paid for
*Asset based lending arrangements that provide working capital facilities against initial receivables, inventory, and purchase orders (These facilities don’t have the same requirements as banks)
* Sr Ed Tax Credits – Customer who have filed claims can finance those claims for cash
* Invoice / Receivable Financing – Immediate cash for your firm’s receivables (these facilities can be of any size)

In summary, newer or smaller firms fall into the ‘ void ‘ area of financing, where very few traditional financing strategies can be implemented, at a time when cash flow and working capital are most critical .

Business owners should review non alternative strategies which can be of great assistance in early growth periods.

Thursday, February 18, 2010

Canadian Business Financing /Business Loans in the 2010 Economic Environment and Me

Despite a lot of pessimism out there many Canadian Business owners are still fairly optimistic about the business environment as we forge into 2010... Small business and middle market type firms in Canada clearly face the largest challenges for business financing – the larger firms; a la Financial Post 100 etc seem to be doing quite well, thank you.

The theme of last year can certainly be summed up in one word, and that’s survival. It clearly was a year of business and financing crisis and challenge for many firms. Business owners in the SME ( Small and Medium Enterprise ) market can clearly feel that if they made it through the 2008-2009 timeframe that they should be ok this year ; paraphrased I guess that means ‘ it cant get any worse ‘! What terrible economic times do for many businesses is to make them tougher, leaner and smarter.

A favorite expression of ours is that revenues and good times can mask a lot of flaws. When those revenues and profits and good times in previous years ended last year many firms saw real weakness in various financial and operational parts of their companies. That forced much business to adopt new strategies to address those financial and operational issues.

We have heard of the expression (I think it’s an old blues song?) that ‘I have been done so long everything looks up to me ‘! Most Canadian businesses are seeing sales grow again, some in fact significantly.

So is it all good news. Not really of course, a lot of the challenges are still there. Many a business owner can be forgiven, given what we went through in 2008-2009 for doubting their commitment and their skills in their business.

What continually amazes many readers is the fact that the SME engine is in fact the growth engine of the economy for business and employment. God knows they aren’t hiring at GM and Toyota we would think!

We keep reading about the entire stimulus that the federal government has put into the Canadian economy. I am assuming its there , but most business owners, like myself , certainly cant name one direct benefit of that stimulus , particularly in the area of business financing, business loans, operating lines of credit, etc.

While in fact the revenues and profits are starting to climb a bit lack of solid business financing is still a huge challenge for Canadian business owners. While the business owners and financial managers rely heavily on their ability to access financing naturally the challenges can sometimes be approached at the other end – i.e. operating more efficiently! Yet entrepreneurs being entrepreneurs, business owners should would like to market more, take on new product lines, and buy equipment to grow their business.

Cash flow is clearly one of the largest challenges for Canadian business. Financial reserves have dwindled, assets have been re mortgaged, and alternative financing has been sought. Most businesses, quite frankly, opted to reduce headcount and cut back expenses, thinking that a trip to the bank would not be successful.

Are Canadian businesses more optimistic this year, we think so? Are the challenges still there? We know so!

Tuesday, February 16, 2010

The Big Squeeze - and Me

Front page of Globe and Mail today - Headline = ' SMALL COMPANIES / BIG SQUEEZE '

The article highlights the fact that the recession ended, but not the Small Business Credit Crunch !

The article, by Joanna Slater, talks about even ' the healthiest' of small firms not being able to get business financing .

The article has the usual info that we all know of course, that small and medium sized business is the employment engine of the economy - also highlights a new OBAMA fund of 30 Billion to help fund small business .

Naturally as the small and medium sized firms struggle to get a couple hundred thousand dollars
of credit line the Kraft Foods of the world are floating 9 Billion Dollar bond deals to buy their competitors . The big get .. bigger ..

The article is dead on in saying that as bank health is in the spotlight that small business feels it worst - One business owner is quoted in the article saying ' Based on what I have heard I haven't even bothered to go into a bank ' ..

Can we all agree Canada is in the same position - Lets let good small and medium sized firms in Canada get the financing they need !


Tuesday, February 9, 2010

The More thing change , the more they stay the same, and me ..

Interesting article today on BNET.COM ; I wish I was creative in my titles - it was ' CIT/JOHN THAIN PLAN ESCAPE ' .

No its not a murder mystery, or a prison escape, but an update on CIT emerging from bankruptcy and hiring John Thain as CEO . Thain ran Bank OF America and was turfed over the Merrill Lynch fiasco .

It never surprises me as to how the cast of charachters never change, they just re-surface and start all over , tarnished reputations and all . We see it everywhere.


Monday, February 8, 2010

Look, and Me..

Very interesting article today by Barry Critchley @ The National Post . It was on LOOK COMMUNICATIONS , and shareholder disapproval on management compensation.

The LOOK COMMUNCATIONS saga would make any spy novel boring - its really an incredible story of good, bad and ugly . I first worked with Look when they emerged in the 1990's , mid 1990's, and were owned by several Canadian Corporate heavyweights . They floundered a bit on technology, dot com impaled, and their corporate stakeholders abandoned them . They did a CCAA filing, re emerged and went public via some sort of RTO . Along the way there was a major cast of charachters, some very interesting people . I had a great relationship with their CFO / COO , who ultimately left and did a great job in stabilizing the company . In 2005 I founded my own financing firm, and Look was my first customer !!

Along the way I became a paying customer also . They did a customer mailer awhile back and said they were closing shop - Myself and many thousand others scrambled to get new satellite and internet at home .

The whole financial scenario seems very unbelievable - they close shop, have millions in the bank and assets for sale , etc .

Where it all ends I don't really know, but what a very uncomfortable story .


Grants , & me

Interesting article today in the Financial Post by Brad Cherniak - Sapient Capital - Toronto

The article talks about business clusters - geographic focal points for business - he uses the example of Silicon Valley .

I worked in Kanata when for ten years in the 80's and it clearly was the first ' Cluster' area in Canada from my perpspective - Kitch/Waterloo seems a current incumbent .

The gist of the article is of government support and resources for these clusters .

I strongly disagree when Cherniak says the good new is that grant monies and resources are flowing to small business - working in the SME landscape everyday I certainly don't see that .

He is dead on though when referring to government intervention in the credit crunch as being somewhat undesirable - we should allow ' capital to flow freely where it wants ..' .

Anyway, I will let you know when Small and Medium business are getting all the capital they want - for health reasons don't hold your breath.

Tuesday, February 2, 2010

So What Else is New and Me - Nothing

A great short article today on BNET.COM - I have attached it below, bottom line summary is that the TARP funds in the states didn't stimulate Small Business Lending. I would point out that when the U.S. press talks about a Small Business that in Canada that's probably a pretty impressive business .

Did the same thing happen in Canada . I sure think so . The Federal Govt Secured Credit facility , viewed as a saviour of small business lending seems to have not completed one deal, the recession is over, and most lenders , if not all, are as cautious as ever . The mega bucks seems to have gone into ' infrastructure ', although I still count 20 potholes on the way to work . At the end of the day it will probably be small and medium business that takes us back to where we need to be.


TARP Fails to Spur Small Business Lending

By Alain Sherter | Feb 1, 2010

The good news coming out of the federal government’s latest assessment of TARP is that the financial system is alive, big banks are raising money and the final tab for the program might be less than initially estimated.

Not small potatoes. But the financial industry bailout is failing in two key respects: reigniting bank lending to U.S. consumers and businesses, and helping homeowners avoid foreclosure, concludes special inspector general Neil Barofsky in his office’s quarterly report to Congress. More broadly, he expressed concern that financial reform efforts are falling short:

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

TARP’s failure to stimulate bank lending to small businesses is particularly regrettable. In March 2009, the Treasury Department announced the “Unlocking Credit for Small Businesses” program and later earmarked up to $30 billion for small-business lending. As of Dec. 31, however, no funds had been disbursed under the program. Barofsky doesn’t explain why.

Yes, demand for credit by smaller companies is down. It’s also fair to ask whether community banks really need taxpayer money to boost lending for commercial customers. And there’s a risk in pumping funds into some businesses that, barring a sharp economic recovery, might go bust.

But now isn’t the time to reel in aid for such enterprises (and their lenders). Small Business Administration lending is finally showing an uptick, an encouraging sign. And as everyone knows, the key to reviving the economy is to create jobs. That means taking a chance on small businesses and small banks, just as the feds have taken a chance on big companies and big banks.