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.

Monday, May 31, 2010

Factoring and Accounts Receivable Financing In Canada

Most Canadian business owners and financing mangers often seek out factoring as a quick way to get out of a cash flow crunch when other more traditional methods of financing have been exhausted.

Typically clients tell us that sales or revenue generation is not the problem, with the bigger challenge simply being how to convert those sales into cash flow and working capital. Factoring comes at a higher price than traditional bank financing but most Canadian business owners recognize that other options are limited.
When you recognize that a cash flow crunch often comes as a result of your success it is often much easier to rationalize factoring as a solution.

Factoring in Canada is slowly catching on as a true financing option – many parts of the economy now view this financing method as a traditional method of financing the business – and the reality is that the big boys use it also , which many are not aware of .
When you utilize factoring you are in effect selling your receivables as you generate them (at your option of course) and receiving immediate cash for those funds. Don’t let the literature fool you though – you actually receive approve 75-90% of your invoices (depending on who you deal with) and the balance is held back and then remitted to you when your customer pays. Naturally from this final holdback amount there is a financing fee or a discount fee. Many business owners view this financing or discount fee as an interest rate, when in fact the factor finance firms always refer to this as a discount fee.

The prerequisites for factoring your receivables often revolve simply around the nature of your receivables and customers. Your final pricing or discount fee depends on several key factors. They are:
- Overall risk profile of your firm – i.e. how you are doing!
- The quality of your customer base
- The size of your receivables portfolio
- The geographical scope of your invoices - foreign, i.e. U.S. receivables can be financed also.

What do you need to know about factoring financing in Canada as it relates to the U.S. and U.K. approaches to this type of financing ? Well in Canada there are two types of invoice discounting/factoring. Under the most commonly used method the factor firm you engage works with you to invoice the customer, collect the payment, and monitor the overall credit quality of your customer.
If you view this overall business model and way of financing as somewhat intrusive and undesirable then seek out the services of a trusted, credible and experience advisor who can provide you with a factoring facility which allows you to bill and collect your own receivables.

Many business owners we meet are concerned with the perception that comes from suppliers and customers when they find out you are factoring. That comes out of the issue that in the past many firms that factoring generally was viewed as companies with financial problems. However, the new reality of financing a business in Canada in the year 2010 is that factoring is in fact a great way for healthy businesses to generate much needed cash flow and working capital.

In summary, consider the cash flow benefits of financing your receivables when you are unable to obtain the total amount of financing you need. Determine if you are eligible (most firms are) and seek out a facility that meets your business financing needs.



Sunday, May 30, 2010

Film Finance Canada – Tax Credit Film Financing

Producers and owners of Canadian content in the areas of film, television, and animation credits are not always aware that they have the ability to monetize or cash flow their Canadian tax credits in Canada.

The three types of productions that we have referenced are provided with solid financing assistance from the federal and provincial governments in Canada.Your ability to monetize these tax credits, and turn them into cash flow at time of filing, (or in some cases before) can make or break the overall financing success of your venture.

Successful results can be achieving by working with a credible, trusted and experienced finance partner for your tax credit financing in Canada.The financing of these tax credits creates, in effect premium additional cash flow to allow you to enhance your initial equity and debt and gap financing strategy.

Let’s use a simple example wherein a Canadian produce in film, TV, or digital animation is financing a venture through equity and debt, and let’s say it’s a 50/50 proportionate relationship. The non equity portion of these ventures is often balanced with some sort of distribution agreements in Canada or elsewhere in the world. One strategy you could consider is to of course ensure prior to commencement and production that you qualify for and are eligible for the maximum amount of tax credits related to your venture. Let’s say our example consists of a 1 Million dollar independent film, and there is a 500k equity and debt component respectfully. In our example, if properly qualified and document the film owner, producer, etc can qualify for a tax credit that might easily come into the 200k-250k range.

Is that the end of our example? Absolutely not – what we are saying is that you can immediately finance that claim, either at time of filing, or in some cases earlier, and utilize that cash flow for all sorts of purposes related to your venture / production.

As Canadian production and content continues to play a hefty role in the producing of Films, direct to video, pay per view, and digital products the ability to finance these ventures is always a challenge. Very few of Canada’s banks and large financial institutions play a role in this type of financing; we therefore recommend to clients that they seek out the expertise of a credible, trusted and experienced advisor in this area. Maximizing your claim value and eligible cash flow are of course the rewards of working with the right party.

Larger and well known studios require financing also, but the true challenge is for independent producers and their investors who have budgets that are often ten million dollars and under, sometimes quite significantly under that threshold we just referenced. The reality also is that the industry seems to be breaking all records in areas of growth and economic activity and new forms of content and distribution. The bottom line is that as demand increases and distribution structures improve the need for financing and tax credit financing in Canada is also increased.

If a production can be properly pre-sold and distributed, and tax credit financing utilized as an integral role in initial production cost financing – well, that simply creates a perfect formula for financial success.To be successfully financing a production must have the proper amount of leverage, different exit and distribution strategies, and the proper utilization of tax credit and tax credit financing.

Working with the proper parties can often achieve50-75% immediate financing of your tax credits in Canada. The remainder is of course simply a buffer for the lender to allow for financing costs themselves, and any time lapses in the final approval and cheque from federal and provincial players that regulate the new generous tax credits.

Tax credits are increasingly generous in Canada – just in the last year or so a number of enhancements have been made to the various programs at various levels of government. Take advantage of these credits, and further investigate monetizing those credits at time or filing of prior to maximize the cash flow and overall financing strategy of your film, TV, or animations projects.



SR&ED Sr ed Tax Credit Financing in Canada

SR&ED (SRED) tax credit financing is a solid strategy used by more and more Canadian business owners and financial managers who wish to accelerate the benefits of Canada’s Sr Ed program.Cash flowing, monetizing, or factoring ( they all mean the same thing!) your Canadian Sr edclaim can accelerate cash flow and working capital for your privately controlled Canadian business that is utilizing SR ED credits under the governments program .

In many ways the financing of your Sr ed credit actually allows you to maintain your competitive edge, as the combination of your non repayable tax credit and the immediate financing of it are a ‘ double whammy ‘ in the face ofyour competitors who might not use this strategy .A banker we deal with recently told us that current industry statistics show that many companies who are in fact eligible for the SR ED credit aren’t even applying for it, let along financing it. Therefore when your firm maximizes on the total value of your claim, and then generates instant cash flow on that claim you are clearly leading the pack in this regard.

Many clients tell us that they utilize the Sr Ed funds that they finance to assist in acquiring new equipment that allows them to maintain a competitive edge in their markets. The reality is of course that these funds can be used for an general corporate purpose , which might be things such as equipment acquisition, advertising and marketing, reduction in payables or debt, or of course the continued investing of even additional research and developmentefforts .

So what is the cash flow and working capital potential in your SR ED, and how do you unlock that potential?If you are already filing for SR ED credits you are no doubt working with the assistance of your client, or, alternatively, someone that is known as a SRED consultant. Having a solid resource in one or both of these parties allows you to maximize on your potential claim.

Once you have filed you claim we recommend that you consider immediately financing the claim. Naturally you don’t have to do this, and can simply wait the3-12 months that it might take Ottawa and your particular province to review the claim, adjudicate it, and process it for payment. But, as we state, why not consider financing the claim.

Clients ask us how the actual process works. It is quite simple really. Your calim is generally financed at 70% of the total value of the amount you and your accountant and consultant have claimed. You can receive cash immediately after it is filed. In certain cases you can actually receive funds for the claim prior to financing – that whole process is called SRED accrual financing. Some of the basic criteria are simply that you must have filed a claim before, have a solid reputable party preparing it, and be prepared to demonstrate good records and accounting around those expenses you are intending to claim.

So how can we summarize in a ‘bottom line ‘manner. Its simply as follows – you should be filing Sr Ed claims if you are eligible. On filing you have the option of financing that claim, so you are bringing immediate cash flow and working capital to your firm on funds that are not repayable to the government. Funds can be used for any company purpose, and proper utilization allows you to maintain a competitive advantage on your competitors. That’s using research as a cash flow generator – a solid financing strategy!



Financing a Franchise in Canada

Financing a franchise in Canada properly allows a Canadian entrepreneur to start a business that is established and is a proven business model based on the success of your franchisors system, number of units , and general brand recognition and success .

The financing challenge that you face is often quite simply based on the amount of full financing that you need for the purchase of a new or existing franchise .In Canada franchises that require financing range all the way from 25,000.00 to severalmillion dollars .

One of the positives of financing a franchise in Canada is that in general the overall concept of franchising is viewed as having in many cases a better chance of success as opposed to an individual start up . This may or may not be the case, but just the simple fact that the Canadian banks in general in Canada are favourable to financing a franchise is a positive statement . Most Canadians know that smalland mediux sized start up operations in Canada are difficult to finance from the get go .

Sois there an exact process or method in financing your franchise . The answer is that there is clearly no one proven method utilizaed by all parties to finance a franchise .But there are a number of both proven planning methods, as well as exact financing strategies that can be employed to complete a successful acquisition of a new or existing business .

The initial process you should focus on is some simplecash flow planning around the requirements of the business that would allow you to complete the transaction and open the door for business . However , any business ,even if it’s a ‘ cash ‘ business per se requires some level of working capital financing . If you business is going to have any level at all of inventory or accounts receivable that places a pressure and demand on cash flow .

Most franchisors will assist you in determine what the initial requirements are . In many cases they will actually stipulate or strongly recommend that you don’t enter into the business without a specific level of personal investment couple with the asbility to borrow additional funds .

A critical part of your overall cash flow planning is of course to allow for the ability to pay back royalties to the franchisor every month, as this is how the franchisors themselves generate revenue and utilize these funds for additional expansion of the chain .Naturally all franchisors wantyou to be successful, because you will then be ergo making them more successful . That’s the franchise fundamental business model .

Things you need to take into consideration in your financial planning and acquisition of a franchise are the basic cash flows, the‘ ins and outs ‘ we could call them, of the business . Things to consider are your operating expenses, advertsing you might undertake, the aforementioned royalty payments, and long term cash needs for things like equipment , etc.

Clients ask us if there is a simple or recommened manner in which to sit down and plan all this . There is of course, and its utilizing a basic cash flow or business plan template that will allow you to simply enter in projected revenues and expenses, and out of that will automatically fall out your cash flow needs .The-- things you need to consider are initial monies that you will put in personally as an investment, plus funds you will borrow , and the breakdown of how these funds will be repaid .

Once you have done the proper amount of planning and analysis sit down with your funding sources, or someone who has experience , credibility, and that you can trust for solid franchising advice . In Canada franchises are financed by a special government program that works well for this type of funding, as well as your own investment , plus additional borrowed funds from commercial finance or leasing companies .Carefull planning will allow you to cobble together the right amount of financing for both short term and long term needs .


Friday, May 28, 2010

Asset Based Line Of Credit and Working Capital

Canadian business owners and financial managers are increasing optimistic about 2010. That optimism is balance with their concerns re their ability to finance both operations and growth.

An asset based line of credit is a solid working capital alternative for Canadian business. Although financing continues to be one of the most serious considerations for business in Canada the alternatives are certainly not as available and obvious as they once were.

Working capital and capital expenditures top the list. Small and medium size business naturally has the greatest challenge, as they don’t have the bench strength of larger firms. While Canadian chartered banks are certainly paying lip service and trying to, for the most part support small and medium business the reality is that the ability to finance basic growth of inventory, receivables and contracts is a challenge.

So is there a Canadian solution to additional working capital and cash flow needs when traditional bank financing can’t be finalized? The reality is that more and more Canadian businesses are considering a financing solution that is becoming more developed every year in Canada - that solution is broadly referred to as an asset based line of credit, or a ’ working capital facility ’.

Is there a special requirement for this type of financing - just one? Assets! Asset based lending is simply the provision of the maximum amount of cash flow and working capital that can be loaned against assets. We used the word loan. But this is not a loan or term loan, it is a revolving facility based on inventory and receivables, (and sometimes customer purchase orders) that your firm generates. The facilities only security is of course the A/R, inventory, and unencumbered equip that your company has available to finance.

Our clients usual ask - ’ Well don’t banks do this also?’ And the answer is of course yes they do. But traditional bank financing in Canada focus on balance sheet ratios, income statement rations, and covenants and outside collateral.

Asset based lines of credit, or working capital facilities as we have called them focus on only one thing, the collateral. These facilities are provided by independent commercial finance firms, and pricing varies by transaction facility size, the overall quality of your business risk profile, and, more importantly who you pick as a partner firm in this area. We therefore strongly recommend that since this is a newer breed of financing that you speak to and work with a trusted and credible business financing advisor in this unique area of Canadian business financing.

So what is really happening in our facility - it is simply leverage the business assets you have on an ongoing basis to their maximum monetized value. That tends to be 90% of receivables under 90 days, as well as inventory advances of 40-80%, and on top of that unencumbered equipt is valued and advanced on if required. (Real estate is also a component, although less widely used.)

Years ago a description of this financing would have come with terms such as ’ lending of last resort ’ but the new reality is that asset based lending is fundamental to thousands of businesses in Canada , and growing everyday .

Asset based lines or credit and working capital facilities - investigate them, consider the advantages, and benefit from the cash flow and working capital they bring to the growth of your Canadian business.



Wednesday, May 26, 2010

Working Capital Loans and Financing Canada

Working Capital Loans and Financing is a term that has different meanings to Canadian business owners and financial managers. One of the most popular (we actually feel it’s the best) loans for small and medium sized businesses in Canada is a loan commonly known as the Government SBL, or Small Business Loan.The essence of this loan is great rates, terms and structures – i.e.3% over prime, nominal personal guarantees and re payment terms of 5-7 years.

Sounds great, right? Yes, we agree. But many business owners seeking working capital loans are dismayed when we tell them that the program only finances three things and it’s many times not the three things they are looking for. They are looking for Cash! The program only finances equipment, leaseholds, and real estate.

Working Capital loans are actually available from what people consider traditional sources. One of the Crown Corporations within the Canadian government actually focuses very significantly on cash working capital loans. These loans are structured as term loans, have fairly competitive rates, and repayment terms of 5 to 6 years. They are also unsecured, which means they rank behind and senior lender or security you might have in place. The only commitment to repay is the guarantee of the company as a promise to pay, and a full or partial guarantee by the owners personally. We point out that the majority of business loans and financing in Canada does in effect require some level of guarantees from the owner.

A great way to address why your Canadian firm requires working capital loans and financing is to address the root of the issue, which is to fully understand your receivable and inventory requirements. Those are the key drivers of any working capital need.The holy grail of working capital is when you can grow your business, reduce inventories and turn them faster, and increase receivable collections. Increasing a/r collections either via more efficient methods of collection, of selling your receivables as you generate them ( that’s called invoice discounting or factoring ) is the most optimal way to generate working capital financing .

Naturally the challenge in doing all that is to ensure you can still maintain your projected sales and profit growth.

If your company has a significant inventory investment at all times you can obtain direct loans in Canada against that inventory. Bank financing traditionally is the route many larger and established businesses take when they required working capital for inventory purchases. However when your firm can’t qualify for the full extent of financing that you need then a direct inventory working capital loan is best.

Our recommended working capital loan is actually not a loan that adds additional debt to your balance sheet. It’s a facility which margins your receivables and inventory to proper market valuations. This generates the additional cash flow and working capital you are looking for, and, as importantly, doesn’t add debt to the balance sheet.

The best way to generate your own working capital loan to your firm is to improve collections and delay payments to suppliers. The latter must be done carefully of coruse, so as not to mis manage vital supplier relationships. However, clearly it’s every man for him in business financing, so you should focus on negotiation the best payment terms you can with valued suppliers who will usually extend solid payment terms when they see you as a viable and long term customer.

So whats our bottom line summary on working capital loans and financing in Canada.It’s simply that you might not necessarily need a true loan and in fact should be accessing your working capital accounts such as inventory and receivables for financing. But true working capital loans are available in Canada – work with a trusted credible advisor to find a solution that meets your needs.



Canadian Lease Financing – Equipment Leasing Options Canada

Canadian Lease equipment financing continues to be one of the most successful means for a company to acquire assets of all types.

Unfortunately most clients we talk to are always focused on rate, which in many cases is only one small piece of the Canadian asset, based lending puzzle, and solution.

In Canada equipment of all types can be leased - that includes capital expenditure items from 5k to 50M dollars.

What should Canadian business owners focus on and seek guidance on when acquiring assets via the leasing option. We think three things are important -

- Who to lease from
- What are the key elements of a successful lease structure?
- What is required for an approval that meets your firms needs Vis a Vis rate, term, and structure.

In Canada the leasing industry is very fragmented. Like all other parts of the financial services industry the business has gone through major tumult in the last couple years, particularly the 2008-2009 global financial meltdowns.

So who are the players and why is it important to know who you are leasing with, as long as you are approved? Good question?! Let’s explore the answer.

In Canada the leasing industry is self regulated via a national association called the CFLA. The companies that make up the industry are:

- Major international conglomerates and their Canadian subsidiaries
- Canadian owned private independent finance firms
-Captive finance Companies
- Independent lease originators, also known as intermediaries

So why is it important to understand who you are dealing with? Time is money, and a significant amount of time can be spent with a lessor who you think might be able to do the transaction for you, but ultimately your firm might not fit the asset and credit criteria required .

We referenced the major international conglomerates; a well known example might be GE. The reality is that these firms predominately focus on very high ticket value transactions with commensurately high credit quality criteria. We have spoken to many customers who have invested time, commitment fees, etc only to find they were in effect dealing with a firm that was unable to satisfy the size of their transaction.

Private independent lease firms in Canada tend to have niches - in the industry the term is ’ credit box ‘. That simply means they only solicit a certain type of asset and credit quality - any transaction falling outside the box becomes not doable. Again, you may have totally wasted your time.

We are the first to advise clients that if they can get lease financing via a captive finance company or a vendor program via the manufacturer there is only one recommendation - ’ Take the Deal!" Vendor and Captive programs are highly incented to finance assets at competitive rates and sometimes overlook the rational credit quality that is required to get a deal approved.

Recall that our final lessor category is independent finance originators, aka intermediaries - we hate the term broker by the way. The key benefit of working with a trusted, credible, and experienced advisor in lease financing in Canada is simply a time/ money scenario. You can spend hours, days, and weeks negotiating with firms who ultimately can’t do your transaction. Along the way you may have laid out commitment fees as well as having your firms financials viewed by a number of different parties with whom you may never do business .

Our experience is that people prefer to deal with experts. Why wouldn’t you want to work with an expert that can assist you in achieving the optimal rate, term, structure, etc? Simply things such as a recommendation on the type of lease you choose (capital or operating) can save you firms either thousands in interest, or have a significant effect on monthly payments. That is a solid acquisition financing strategy!



Tuesday, May 25, 2010

Purchase Order and Inventory Financing in Canada

Canadian business owners and financial mangers are often challenged by the need to finance either, individually, or both, inventory and purchase orders for major new customers, contracts, etc. Is this type of financing available in Canada and how does it work?

With grown and revenue prospects come challenges. A large part of that challenge is simply the need to access cash flow and working capital now to facilitate those new orders and large contracts with either new or existing customers.

Clients we talk to normally have a very typical challenge – they have a large, sometimes huge! New sales opportunity. That opportunity requires an abnormal build up in inventory via those new contracts and purchase orders.

It is logical for every Canadian business owner and financial manager to initially survey their existing financing arrangements and determine if those financing arrangements either meet the needs of the new orders, or if additional financing is required. If you company is relatively new, or sometimes even at the start up stage that type of traditional Canadian chartered bank financing will be very difficult to achieve .

Naturally the other resources that could pull you’re financing together in this area and personal and outside resources, which most entrepreneurs either have reluctance for, or in some cases find it difficult to access and complete funding via that mechanism.The worst thing any business owner wants to do is of coruse to decline those purchase orders or contracts.

Purchase order financing, or alternatively, inventory financing, is a solid mechanism whereby you can access funds needed for your P.O. fulfillment. Depending on how you structure your transaction the P. O. financier may cobble together an assortment of receivable and inventory and equipment collateral in order to assist you in fulfilling your orders. In some cases, especially when it is demanded by your customer, the P.O. Finance firm can even issue a letter of credit on your behalf.

Purchase order and inventory financing can be applicable for all size of firms; however clients we meet with are either in start up mode, have had some financial challenges, and area unable to access what we would term as traditional working capital.

It should be stated of course that the actual purchase orders and inventory requirements that are being financing must come from reliable firms, either here in Canada or elsewhere. Their general reputation and stability must be able to be confirmed. That is of course done through areas such as public records, commercial credit reports, etc. In some cases our clients providing you with the purchase order might be a large well known public entity – all the better of course.

The benefit of purchase order financing is that it places emphasis on the overall quality of the deal, and your ability to fulfill the contract. Unlike traditional financing your balance sheet and income statement, with all those banker ratios, covenants, etc do not necessarily come into play in this type of financing. For that reason purchase order and inventory financing is a ‘boutique ‘‘specialized ‘type of financing that is more expensive than traditional financing. Business owners can significantly offset that expense by ensuring they have good gross margins on the transactions.

Manufacturers, wholesalers, and distributors are probably the best candidates for purchase order financing. When you meet with a credible, experienced and trustworthy advisor in this area that initial focus is simply document ting the transaction, i.e. info on your firm, the transaction, and the standard application and due diligence that comes along with any type of business financing in Canada .

Your firm should investigate purchase order and inventory financing if you feel you are a strong candidate for this type of financing based on your inability to access traditional financing to meet your sales goals. Work with an experienced partner, ensure you understand the application and diligence process, and you should then be able to successfully capitalize on this great alternative financing strategy.



Film Tax Credit Financing – Cash Flow your Canadian Film Tax Credits!

Canadian productions continue to enjoy increased tax credit benefits in the film, television, and animation industry in Canada.Aside from other financial benefits of ‘Hollywood North ‘the federal and provincial governments in Canada have significantly increased tax credit incentives

Financing these tax credits, either when they are filed and eligible, or, in advance of your filing can add significant cash flow and monetization to your projects in the area of film, televison, and digital media can be the make or break point in your overall financial success in any initial production.

The reality of the current environment in this industry as a part of Canada’s business landscape is very compelling. Filmed productions are increasing, and the Canadian government has very publicly stated and realized that it recognizes the revenue and tax benefits to Canada of this industry. They clearly have stepped up to the bar and show that commitment by increasing in the past year tax credits in almost every major category , and at the same time implanting first time tax credits in other aspects of the industry, i.e. the new digital media and animation sectors . Employment has started to grow again in the industry, and hundreds of projects are on the go.

Key to the financial success of your productions is the ability to monetize, either now, or later the key tax incentives that the Canadian federal and provincial governments have provided.

To highlight these tax credits as aggressive in some ways is almost an understatement. Production and labour credits have been increased – and several nuances have even further added to the mix. As an example, productions outside of major centres such as Toronto can add additional financial backbone to your tax credit. Just changing the locale of some you’re your shootings to outside suburbs and other towns and cities in Ontario (we will use Ontario as an example) simply increase your tax credit refund.

It goes without saying that all the government tax credits in this area have simply assisted the private sector to come back strongly into the picture. In some cases even our famously conservative Canadian banks have stepped up to the plate a created some niche departments within the banks to address film financing.

Let’s focus back in on the financing of our tax credits. Film tax credit financing in Canada is a boutique niche industry and we would recommend that you seek out and utilize the services of a credible and experienced financing partner in this area of business financing in the entertainment industry.

Your Canadian tax credits can be financed as soon as they are filed, that’s simply a strategy of ‘why wait for your cheque? In many instances if you can document a track record in the industry, solid budget and financial records, and certification eligibility then you can be considered for accrual financing. That is a very powerful financing strategy, allowing you to receive fund along the way prior to final tax credit filing. That’s a solid cash flow and working capital strategy for your production.

In summary, the current tax credit environment in Canada is very conducive to tax credit financing assistance. Tax credits can be monetized significantly in advance of your final approvals and cheques from the federal and provincial governments. Productions with strong validation can be financed on an interim accrual basis. Investigate film, televison and animation tax credit financing today.



SR ED Financing -Canadian SRED Financing

The only thing worse , we think than not knowing about Canada’s SR ED grant program is probably the fact that Canadian business owners and financial manager don’t know that their claims can be financed immediately to access cash flow and working capital now .

Yes, SR ED claims in Canada can be financed. Clients are always asking us how these claims are financed, what amount can they receive, and how can a SR ED claim be financed when it fact it could be challenged by a SR ED reviewer. Let’s cover off some of those issues.

First of all your Sr Ed claim is generally financeable a 70% loan to value. That technical jargon of course for simply meaning that if you can receive, as an interim cash flow and working capital loan approximately 70 cents on the dollar now for your claim. You of course are fully entitled to the other 30% - we are simply saying that portion is not financed – It essentially works as a buffer for any reduction in the claim by Ottawa. Those reductions in your claim might be a simply temporary clarification that is needed by CRA in Ottawa to approve that claim in its entirety.

Clients ask us if there is a sure fire way of allowing their claim to be approved in full. Probably the best answer we can provide is simply to say that by working with a good SR ED claim preparation consultant you are of course ensured more integrity in your claim. Your accounts can in fact submit a claim on your behalf, but we caution Canadian business owners and financial managers to ensure that they have a solid understanding of their accountant’s specialization in this very boutique area of accounting and business.

Quite often if a claim is temporarily clawed back and credible and experienced SR ED advisor can submit additional proper back up on your behalf to help ensure FULL approval of the claim!

All Sr Ed claims can be financed – however it is a bit easier to obtain full financing of your claim if you have successfully filed in the past. That’s just simple logic which indicates that your firm has a higher ability of being approved. However the bottom line is that a first time SR ED claim can be financed- if properly documented and preparedit is fully eligible for the 70% loan to value – in some cases the first time claim might be financed at a lower loan to value ratio . The bottom line, cash flow and working capital are still accessible for that claim!

The total advantage of financing your SR ED claim is very simple. You have the choice of waiting for your cheque from Ottawa. (That might also involve delays in the final adjudication of the technical aspects of your claim). Alternatively, you can access cash flow and working capital now for your Sr Ed claim.

The process for financing your claim is simple. We strongly recommend you work with a trusted, credible, and experienced financing advisor. The overall process simply involves a standard business financing application, proper documentation of your claim and its filing, and then standard legal doc’s surrounding collateralization of the claim being financed.

In summary, if you are filing SR ED claims take advantage of financing those claims. Cash and working capital are available now. Monetize your claim and use that cash flow to further increase your sales and reduce business liabilities. That is a solid financial strategy!



How to Be A Success in Financing a Franchise in Canada

Financing a franchise in Canada should be an integral part the entrepreneurs business planning when acquiring a franchise in Canada. Our shared information here is applicable to franchisees who are buying a new unit directly from the franchisor, or alternatively an established business opportunity from an existing franchisee.

The excitement often pales a bit after the entrepreneur has chosen a franchise opportunity to focus on and then realizes that he now has to focus on financing that business. Typically clients ask us if financing a franchise in Canada is different from starting up any other business opportunity.The reality is that there is some pro’s and cons to financing a franchise, and the basic premise of our advice is to ensure that the business owner is well informed about his financing options .

Depending on the type and size of the franchise that you purchase you will have to make some sort of personal investment in the business. Naturally clients are always asking us to quantify how much they must put up as owner equity. You can perhaps guess the answer, and it is of course, “It depends!”

That is simply because each franchisor must insist upon, based on their own experience in their multi unit business experience, that a certain specific amount of owner investment helps to guarantee success.The other side of the coin is simply this, which is that the type of financing that you choose will in many times dictate what amount you are required to put in as owner equity. The final piece of the puzzle simply that depending on the overall breakdown of assets and intangibles in your business that will play a large role in what can be financed and what cannot.

In Canada various different options exist for Canadian franchise financing. The most popular method by far is a loan program that is underwritten by the Canadian government; the formal acronyms for the program are BIL, or alternatively CSBFL. In our experience 90% of franchises in Canada, in some manner are underwritten within this program.

By spending some time and working with a recognized franchise financing expert who has credibility, experience and success in franchise financing will pay a multitude of benefits for the budding Canadian entrepreneur.

As challenging and difficult it might seem to both purchase and successfully finance a franchise in Canada it simply often is a questions of sitting down either on your own or with a trusted advisor and determining how cash flow works in the franchise business you are considering purchasing .

The most successful franchisees that we work withare in a position to make at least a ‘ reasonable ‘ investment in the new franchise and have carefully considered the cash flowsinn’s and out’s of the business they are acquiring .

The optimal position you should be in is to be in a relatively solid personal financial position, have a decent personal net worth, and have some financial ‘buffer ‘in place to ensure the franchise investment can get off to a good start. In Canada, generally speakingyou need to have a Credit Bureau beacon score of 650 to ensure financing approvals.Higher is better of course.

In summary, Canadian franchise financing is both a business opportunity as well as a challenge. The majority of franchises in Canada are financed under a special government program. Other forms of financing such as equipment loans and working capital loans often supplement the entire process. Work with a trusted, credible financing advisor to ensure you understand your options and have planned well from a financial perspective.



Wednesday, May 19, 2010

Working Capital Financing for Canadian Business

Canadian business owners and financial managers know that working capital planning and assessment are key any businesses growth. The term working capital is used in various contexts, and at the end of the day is simply a synonym for operating liquidity.

Text books tell us that there is a clear definition of working capital, namely going to your balance sheet and subtracting current liabilities from current assets. That’s a great textbook definition, but let’s visits the real world together on what that means.

Your working capital allows you to plan and pay for your daily operating needs, plus of course to reduce your long term obligations that you might have in leases or loans. The absolute number of dollars in your net working capital as defined by our definition above does not really matter. (Although positive working capital is better than negative working capital!)

What is important is the turnover and management of your working capital accounts – those accounts are:

Account Payable

Simple business logic tells us that if your inventory and receivables are turning over properly, and you’re managing your payables (by delaying them to the maximum amount possible per your terms with suppliers) you will be achieving working capital management success.

When you business is building up receivables and inventory the pressures on liquidity are increased. They can only be addressed by injecting permanent working capital into your business via a working capital term loan, also called “subordinated debt ‘when it’s a larger loan, or by implanting traditional or alternative financing strategies to increase cash flow turnover.

So what are those options to managing and improving your short term working capital and cash flow requirements? The most traditional one is of course an operating line of credit from a Canadian chartered bank or credit union. This type of facility has the lowest overall cost and can be accessed anytime on an ongoing basis.

Many clients tell us that they address some of their working capital needs through use of Business Visa credit cards. This clearly adds additional capital, you are paying for what you use, but in our opinion does a poor job of separating the owners personal credit from the business – as these types of cards are closely tied to personal net worth’s and credit scores of the owners.

Two other very viable solutions come into play for consideration of working capital gaps. They are the use of factoring, which allows you to generate same day cash flow for your invoices, although you pay a discount fee to get the money immediately. While somewhat unheard of in previous years this method of financing gains more traction everyday.

The other solution in a more traditional sense is to ensure you are using lease financing or sale leaseback financing to minimize cash flow out when you are considering purchases of assets. Solutions such as this save the business owner from committing additional funds into the business via owner equity which he may not be able to, or not want to do. It certainly isn’t unusual in Canada to see business owners ‘lend ‘their company money in times of need, often with no fixed repayment schedules. However, as we have noted, the better solution is effective turnover of receivables and inventory or accessing alternative working capital solutions such as factoring, inventory financing, as well as purchase order financing for large contracts.

In summary, business in Canada always has working capital challenges. Those challenges are diminished when you are focusing on proper turnover of A/R and inventory. When additional funds are required you should turn to operating facilities to meet your needs, which can be traditional or alternative in nature. Speak to a trusted and credible business advisor to understand which options make sense for your firm.


Stan Prokop is founder of 7 Park Avenue Financial. Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :

Tuesday, May 18, 2010

Equipment Leasing – Canadian Solutions

Equipment leasing in Canada is a trusted and well worn way to acquire assets for your Canadian business.Leasing has always been popular in Canada – it continued to be a dominant method of equipment acquisitionduring the 2008-2009 economic woes because it was an alternative form of financing to many traditional areas of business financing that had temporarily dried up, or in some cases ‘ disappeared ‘!

We can’t think of any business asset that can’t be financed via leasing. It goes without saying that your firm has to demonstrate the ability to pay for that asset over the period of the lease.In many case acquisition of assets through lease financing is part of a long term strategy for Canadian business owners and financial managers who wish to ensure they have productive, up to date assets that are being acquired at the lowest cost method, including flexibility that often comes with lease financing.

What is that flexibility? It comes in various forms – some of the basics are flexible payment arrangements,a term in the lease that meets your firms anticipated use of the asset, and, probably as important as anything, a lower cash outlay for the acquisition of the asset.

As bank lines and term loan facilities in Canada tightened up a lease financing strategy become ‘job one ‘for many Canadian firms who wished to continue to remain competitive within their industry.As analysts and bankers focused on a company’s ability to generate cash and working capital leasing became a tool that allowed them to do that. Cash flow is probably better used to allow your firm to build up receivables, inventories and generate profits from same.

When clients share their stores about equipment financing one of the key points they continue to make is that lease financing is simply easier to arrange and get approved. That is true for a variety of reasons, but simply speaking it’s that lease firms are in one business only, they know their collateral, and they are focused on optimizing rates, terms and structures that work for themselves and the customer. A large amount of emphasis is always placed on collateral, while a similar application at your bank or term lender might focus more on overall balance sheet and income statement health.

That is simply why in many cases Canadian business owners and financial managers should assume that a decline from a bank or term lender will mean the same from an equipment financing firm. In some , perhaps most cases leasing actual overall interest rate will be higher than a bank or term lender, but cash outlay, credit covenant restrictions,and flexibility structure make that higher rate generally worth it !

If you speak to your account or lease advisor you will also find there are a number of balance sheet, income statement and tax advantages to leasing equipment. We find that each firm wants to maximize those benefits but some are more important than others. More sophisticated and larger firms tend to gravitate toward operating leases – in this case transaction tend to be larger, the debt on the transaction is not on the balance sheet, and the company has the right to return, upgrade, or purchase for fair market value the equipment at end of term . That is true flexibility!

Your firm should always consider a lease financing strategy when your asset acquisitions involve technology. That technology is changing and your ability to buy the best, newest, as and when you need it is why lease financing is such a driver in technology asset acquisitions. Those assets tend to be computers, medical equipment, etc.

Down payments are often required in leasing, but they tend to be minimal – 10% is a common number, and that certainly beats an outlay of valuable cash and working capital of 100!

The main challenge and focus of your firm should be to ensure you, or your trusted lease financing advisor position your application properly. That involves a solid identification of who your firm is, what asset you wish tot acquire, the structure desired, and most importantly, the ability to show that the weight of evidences suggests you can pay for the asset over the desired term. Solid financial statement presentation is key.Working with credible lease advisors and lease firms is also key – fostering a long term relationship in that area will reap many benefits over the years.

In summary, equipment leasing in Canada provides a multitude of solutions for asset acquisition. It’s a direct way of acquisition without utilizing your bank and term loan credit lines. Flexibility is key in leasing, and you should focus on which benefits and structures work best for your firm as every company and industry has different business models and challenges.


Stan Prokop is founder of 7 Park Avenue Financial. Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :

– Sale Leaseback Financing Canada

Canadian business owners and financial managers realized in 2008-2009, despite economic and financial challenges, that they had significant equipment and assets that were available to generate additional working capital and cash flow for their firms.In essence they were equipment rich and cash poor, as a significant amount of assets was tied up.

How can your firm free up the cash flow and working capital in these assets and put those funds to work for sales and profit generation? The answer is a sale leaseback strategy.

In many instances if you owe money on the equipment those payments can be stretched out to lower amounts, and at the same time improve working capital and liquidity.

Is it difficult to engineer a sale leaseback financing. The answer is categorically no if you employ a trusted, credible and experienced advisor in lease financing in Canada.

The one caveat that we warn clients on is that the sale leaseback should not be greater than the book value on your financial statements of the asset being financed.

If in fact that value was greater you would incur a tax on the financing which might negate the positive aspects of the sale leaseback.

So how do you get your sale leaseback financing completed? In effect you are selling your equipment back to the lease company, so you are required to prepare an invoice and a bill of sale. That invoice of course means that you are warranting that the equipment is free and clear of liens and that you have valid title to the asset.

So how does the lease company register their interest in your asset? In Canada they do this under a simple filing under the Personal Property Security Act – ‘PPSA ‘.

There are a large number of assets that actually hold their value, sometimes increase in value, and in some circumstances only depreciate a modest amount. In that case we recommend to clients that they invest a nominal amount in an appraisal – this may well generate a larger amount of working capital and cash flow coming back into your firm. Prudent customers will generate an appraisal known as a fair market value appraisal – unfortunately many lenders will focus on a liquidation value appraisal, which is of course much more conservative .

Are there different documents used in a sale leaseback transaction? No! They are the same lease type of documents that you would expect in any type of equipment financing transaction.

Carefull attention should also be paid the ‘type ‘of lease that you consider in such a transaction. You essentially have two choices in Canada regarding such a structure; they are capital leases and operating leases. If you choose the former you have a stated intention to own the equipment again when all payments have been made; an operating lease signifies your intention to use the equipment, upgrade it, or return it at the end of term. Each of these two types of structures has different balance sheet and income statement effects.

In summary, sale leaseback financing allows you to generate working capital and cash flow from unencumbered assets. It can be done for any asset, including real estate by the way. Work with a trusted, credible, and experienced lease advisor to ensure you structure your transaction properly for maximum cash flow and working capital gain.



Monday, May 17, 2010

Factoring in Canada – Receivables Financing that works!

Factoring in Canada is four things:

-New and increasingly accepted


-Different than in the U.S.

-Growing more popular every day as an alternative vehicle to business financing

Canadian business owners and financial managers keep hearing about factoring , and when we talk to clients who are pursuing this financing option it is increasingly clear there is a lot of mis information and‘ noise ‘ about this unique type of financing that needs to be clarified .

So why is there so much mis information about factoring and how can business owners in Canada get the ‘real story ‘. Part of the problem is that factoring, in our opinion, means different things to different people, both within the industry itself, and also to the Canadian business owners. Similar to the terms ‘ cash flow ‘ and ‘working capital ‘the use of the term is interchanged in a variety of ways .Also, factoring isn’t a home grown solution, and migrated to Canada from the U.S. and Europe, where it has been in place for hundreds of years.

Factoring, also know as receivables financing, or ‘ invoice discounting ‘ is best utilized when firms are growing rapidly, have sales and verifiable invoices, and require injections of working capital for that a/r investment that otherwise might not be available through traditional sources such as the bank .In 99% of cases that we deal with where a client is a ‘ start up ‘ the initial financing through a factoring facility is a critical and valuable tool in the early growth of the company .

Let’s get back to the confusion around factoring. Traditional factoring in Canada is in fact simply the sale of your receivables, and their purchase to a factor firm. The most immediate benefit is the immediate receipt of cash, which eliminates the need to wait for anywhere between 30-90 days for payment from your customer. Over the years it is inherently obvious that every firm out there recognizes that delaying payments to your suppliers is an instant form of cash flow. However, when you are on the receiving end of that, waiting for your money, that is poor consolation!

Does your business receive 100% of the invoice value when you sell your invoices either individually, or bundled in a larger amount of invoices? The answer is ‘no’ – You generally receive on the same day anywhere form 75-90% of the invoice value. The balance is held back as a hold back or buffer, and paid to your firm immediately on final receipt of payment from your customer. At that point factoring would be ‘free ‘, but it isn’t, there is a further deduction for the commission or financing cost by your factor firm. That cost is one of the greatest issues facing Canadian business owners, because it is anywhere in range from 9%/annum to 2-3% / month.

The costs associated with factoring in Canada have to be viewed in the context that although they are higher than traditional bank financing that point becomes moot because your firm probably cannot qualify at this point for a true Canadian chartered bank operating facility. So factoring simply allows you to grow your firm when you can’t obtain sufficient financing otherwise.

So now we have understood what factoring is, and why it has become a tool within the Canadian business financing tool kit.That’s the easy part. The challenge for Canadian business then becomes –

-What type of firm is the best one for my company and industry

-How does this financing work on a daily basis

-Am I comfortable enough to let the factor firm notify my customers regarding invoice verification and payment

-Is there an alternative to involving my suppliers and customers into this financing process

We advise clients that the best factoring facility in Canada is one in which your firm can bill and collect its own receivables. That type of facility is called non notification and is as close to traditional financing mechanics as one can get.

So whats our bottom line summary – it’s simply as follows. Factoring in Canada is only mis understood because business owners don’t have access to solid unbiased information on how it works, what it costs, and how it benchmarks as an alternative to traditional financing. Certain factoring facilities in Canada exist that are very transparent to your firm and its customers. Factoring has higher costs, but those costs can grow your sales and profits considerably. Seek out the advice of a trusted, credible and experience advisor in this somewhat misunderstood area of Canadian business financing.



Film , Television, and Animation Tax Credit Financing Canada

Growth in film, TV and animation productions in Canada is very strong in 2010. The planets have aligned via an improving economy, a generous increase in the tax credit themselves, and more access to cash flow and working capital for these productions via creative financing.

Although the Canadian dollar is as strong as it has every been the reality is that talent continues to migrate into Hollywood North.

How can your tax credits be financed? Why should you consider financing them? We can categorically say that there is financing available for your Canadian productions and in some cases co-productions. Owners of these productions, often set up as SPE ( Special Purpose Entities ) should consider financing when they see a need for interim working capital to complete the current project, and , in some cases, to monetize the tax credit , allowing the owners to move on to another project . Both cases make good business sense!

The changes by the federal and provincial governments in Canada have been viewed unanimously as very positive for the industry. Grants and tax credits have been increased, and these vehicles have become an important add on to the traditional debt, equity, and distribution financing for Canadian productions. To some extent some of the Canadian banks have also started to get involved.All of these financing vehicles are the alternative to previous strategies such as tax shelters, which are no longer in vogue, and in fact not even currently legislated .

To finance your film, TV and digital media credits it is important to seek out the resources of an expert, which will save your production time, and at the same time allow you’re to maximize the cash flow of the tax credit. Utilizing the appropriate party can also potentially allow you to finance your credits on an accrual basis, which simply means that eligible productions can be financed all along the way – providing an even more immediate monetization of your future claim . That in it can be extremely valuable as a cash flow ‘super charger ‘to your Canadian production.The huge amount of new content in Canada via Canadian productions, co-productions with other countries, and the massive amount of new cable channels, etc bodes well for financing availability.

How do you go about financing that credit? The basics have to be followed. And, as noted seek out the services and expertise of a solid advisor in this area. Ensure your production is properly incorporated and that your have a system, infrastructure, and resources available to document your project from an accounting, payroll, and tax credit filing point of view. Also, ensure you appropriate tax filings for your productions are up to date.When these key elements are all in place you can receive financing, either after your tax credit has been filed (and potentially before) for up to 80% of the final claim value. Financing amounts differ based upon traditional analysis of management, owner’s background, quality of your actual filing, etc.

In summary, owners of individual productions in Canada should make an all out effort to ensure they qualify for and file for any one of the 6 tax credits available. Credits and filings vary a little from province to proving. Bottom line is they are generous. Your credits can be monetized to generated immediate cash flow and working capital for your production. If you need additional or interim financing is needed seek an expert to finance your claims.



Sunday, May 16, 2010

SRED Financing – SR&ED Finance Loans in Canada

SRED Financing is your firm’s ability to take immediate cash flow and working capital advantage of our SR&ED tax credit claim. This program, (formal name = Scientific Research and Experimental Development) is bar none the best tax incentive program in Canada. Other than being taxable as income the refund you receive from the government is a non repayable grant. What could be better than that?

The irony in this great program is simply that almost 70% of companies in Canada that are eligible for the program do not even apply, let alone receive their funds!! It clearly is a source of untapped cash flow and working capital for your Canadian business that should be maximized to the hilt.

The other 30% of Canadian firms who use the program utilize it around their efforts to develop new products and services, building prototypes, and solving technological challenges.

So your Canadian controlled private company utilizes and files Sred filings. Did you know your claim can be financing immediately after you file it, literally the same day. Specialists that work as ‘SR&ED consultants are experts in preparing your claim and in Canada your sred calim can be prepared at your cost – and you keep all the proceeds of the government grant, or alternatively, your claim can be done on a contingency basis, at no cost to yourself, and the consultant usually keeps anywhere from 10-30% of the total refund received.

However most Canadian business owners and their Sred consultants do not know that your claim can be financing, either during the preparation of your claim, (yes, before your file, if you qualify!) or immediately on filing of your claim.

Generally with this type of financing you receive immediately approximately 70% of the value of your claim. The other 30% still comes back you of course,but its simply a bit of a buffer to cover financing costs and any risk that a portion of the claim will be disallowed or clawed back .

When we think in terms of specialty financing we can categorically state that SRED financing is specialty financing in Canada. We urge clients to locate a business financing advisor who has credibility, experience and background in this area.

The SR ED financing process is not as complicated as you seem if you are well prepared and have access to good assistance. Its as simply as completing a basic business financing application, ensuring proper back up is in place and valid . That includes info on your company, the Sr Ed claim itself, your previous Sr Ed claims if you have filed previously etc.

The reality is that SR ED financing can be completed within 2-3 weeks of starting the process. The beauty of this type of financing is that no payments are made on the sred loan. In effect you can say that you have factored or discounted the Sr Ed claim. You are simply waiting for your cheque from Ottawa, and are making use of the working capital and cash flow now. That’s a solid interim financing strategy for many firms, and that cash can be used for reduction of payables, investments in new equipment, additional staff, etc. The bottom line = any general worthwhile corporate purpose.

In summary, of course ensure you are taking advantage of Canada’s Sr&Ed program. Once that is the case you have the option of financing your claim, allowing you to maximize the true benefits of the program, i.e. the recovery of your R&D expenses in the most time efficient manner possible. That’s a solid financial strategy.



Financing a Franchise in Canada

Clients who are contemplating purchasing a new or existing franchise in Canada are always asking how financing a franchise works in Canada.The Canadian franchise industry is of course huge and covers almost every type of business in Canada. Certainly the majority of franchises seem to be in the Hospitality and QSR (Quick Service Restaurant) industry, but in actuality every type of business has some sort of franchise model attached to it. The franchise concept is many an entrepreneurs’ answer to the Canadian dream of growth and profits through business ownership and self employment.

It should not come as a surprise to Canadian entrepreneurs that there is no one single option of solution for financing a franchise in Canada. The reality is that a number of possibilities exist, and in some cases you must use a combination of these sources to complete the financing successfully.

The main source of financing in Canada for franchising is a government ‘subsidized’ and ‘guaranteed ‘loan from the Federal government. The program has two names, the CSBFL, and the BIL. These are acronyms for the government’s formal name for the program.

We firmly believe that this is the best program, bar none, for rates, terms, and loan structures in Canada. While the program is available and applicable to all Canadian businesses the majority of businesses in Canada that are franchised fall under this program.

That’s the good news, the less than good news is that in many cases you cannot totally complete your business franchise purchase with this loan financing on it own. Why is that? Simply because the program is structured and has limitations on what can be financed.

What can be financed under this program? The answer is 3 items only-



Real Estate

So if your acquisition of a new franchise involves anything other than these three items additional financing sources are needed.Those additional financing sources tend to come from your own personal resources, otherstructured term loans, and in some cases a vendor take back from either the franchisee you are buying theexisting business from,or potentially the franchisor itself . Don’t focus too much on the latter because in case you haven’t guessed by now, franchisors or master franchisors are interested in selling you a franchise so they can build another franchise unit into their network! They aren’t in the finance business per se.

The benefits of the franchise loan structure of the BIL/CSBFL program are significant. For a starter they carry only a 25% personal liability, and secondly the rates (3% over prime) (In 2010 Canadian primes continues to be very low!) are excellent. Under the spirit of the program the loan finances 90% of your eligible expenses. But don’t think that only a 10% equity or personal investment by yourself is going to get you approved. You should in general be thinking of anywhere between 25%+++ as your own personal contribution to the business.

In summary, financing a franchise in Canada is a unique specialty type of financing.You don’t want to do it wrong the first time and endanger your prospects of success by poor planning and mis information. Speak to a trusted business financing advisor who has credibility, experience and background in this area of Canadian business financing. With proper planning and assistance you will be on our way to achieve the Canadian dream of business ownership through the franchise model.

Friday, May 14, 2010

Asset Based Line Of Credit vs. Factoring in Canada

An asset based line of credit and factoring are terms that are becoming increasingly well known in Canadian business financing. These are two types of financing once considered non traditional and mis understood by Canadian business owners and financial managers are becoming more and more popular.

What is the difference between these two facilities and which one might be best for your firm?

Small and medium sized businesses in Canada continue to be challenged by working capital needs. That is simply the cash flow that’s required to run your company on a daily basis. As your current assets (receivables and inventory mostly) build up you find they cannot be liquidated as fast as they might be able to. Naturally some of that cash flow is required to service your long term debt also.

When Canadian business has too much money tied up in accounts receivable and inventory it must consider financing alternatives to address that issue. Two of those financing alternatives are asset based lines of credit (we like to also call those ‘working capital facilities ‘, as well as factoring.

Clients are always asking us which one is best for their firm. We believe that a true working capital facility is probably better than factoring, but the reality is that many firms cannot qualify for a true working capital facility.

However, both types of financing facilities will indeed have the same effect on your cash flow, namely improving it! , and at the same time reducing the need to borrow funds on a long term basis.

It is very important to note that both an asset based line of credit and a factoring facility is not ‘ debt ‘ – you are not borrowing at a fixed rate and increasing the overall debt load of your company . Both facilities simply ‘cash flow ‘or ‘monetize’ your current assets in a more efficient manner.

The reality is that when you do free up that additional cash flow by using one of these two facilities you, as we noted, reduce your dependence on external funding or equity needs. Your firm now has the flexibility to address day to day issues, and grow.

Clients ask then what the main difference is between these two financing facilities. It’s actually quite simply – a factoring facility is simply the sale of your accounts receivable for immediate cash on an ongoing basis. On the other hand an asset based line of credit provides that same level of immediate cash, but your firm hasn’t ‘sold ‘the receivables, you have simply provided them as collateral. The other main difference is that in many cases a true asset based line of credit will also cover inventory also, in many cases increases your cash flow availability by 50% or more.

We recommend that you speak to a trusted, credible and experienced business advisor in these matters to determine which facility is best for you. In many cases a smaller firm might not be able to qualify for a true asset based line of credit so factoring will be the only solution.

In summary, asset based lines of credit and factoring is coming into their own in Canada as true business financing facilities. Both facilities have different criteria for approval, and overall an asset based line of credit, or working capital facility, is probably the best facility for your firm – if you qualify. Investigate carefully and determine which type of financing might be right for your firm


Stan Prokop is founder of 7 Park Avenue Financial. Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :

Thursday, May 13, 2010

Best Leasing Rates in Canada via a Leasing Specialist

Savvy Canadian business owners and financial managers know that leasing is not always about price, it often should focus on issues such as structure, terms, covenants, etc. However, having said that, how does the business owner ensure that he is in fact getting a rate that is very competitive, if not ‘the best ‘that his firm can achieve?

Let’s look at the factors that affect lease pricing. Lease financing in Canada is a specialized industry, and we encourage clients to ensure they seek out and work with a trusted, credible, and experienced lease financing advisor in this area of acquisition financing.

So what factors affect your lease rates – first and foremost it is overall credit quality. But let’s review some of the inherent math of leasing to ensure you can make that overall credit quality work for you.

The overall amount of the asset you are financing affects the rate in many cases – larger transactions with higher credit quality also play a large component in the overall final rate. Lease financing in Canada can range from five thousand dollars to 50 million dollars and of course everything in between. The other key factor you should realize is that the term of the lease (in other words the length or amortization of the lease) is also a critical factor in final lease pricing. Longer terms tend to drive better rates. Why is that? Simply because the lease firm is locking in a guaranteed yield on the transaction, and when that yield is even longer in term that affects you’re pricing – usually for the better.

Realize though that in certain cases your overall credit quality of your financial may necessitate a shorter term being offered or approved. In that case lease pricing tends to go up. So a Canadian business who thinks they can get the best rate for a 2 year lease is often mistaken – lessors in Canada tend to prefer lease terms of three to five years.

Many of our clients are unsophisticated financially, so when it comes to lease financing and pricing them also do not fully understand how some structuring features in leasing affects their pricing. When you are asked to provide a lessor with either a down payment or a security deposit this increases the overall yield to the lessor – so you are laying out cash and financing less, therefore driving the rate up.

Utilizing a financial calculator (not a regular calculator) will allow you to exactly determine the exact rate you are being quote. By simply entering values for:

- term
- value of your deal financing
- monthly payment quoted
- end of term obligation

Will allow you determine the exact rate you are being quoted.

If you think the rate is too high you of course have the option of calling every lease company in Canada, revealing your financial information, and negotiating a rate. By the way, we don’t recommend that! The best solution is to work with an experienced leasing specialist to ensure he or she feels you have a ‘competitive ‘best rate. The dangers of doing that on your own are that your financial condition is quickly spread all across the industry, and secondly credit reports on yourself and your firm are potentially drawn and lowering your overall credit scores for your firm and yourself as a potential guarantor

We also advise clients that working with larger more established firms will generally drive the best rate for your transaction. Why is this? Simply because these firms themselves are funded in a more cost effective manner than small firms who are capitalized from private type sources.

In summary: rate of course isn’t everything, but it’s important. Understand the key elements of how a lease price is calculated; work with a trusted advisor to ensure you understand how your firm’s credit quality will be adjudicated. We also note that the type of asset and its overall collateral value play a role in your best lease pricing.


Stan Prokop is founder of 7 Park Avenue Financial. Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :