Reviewing The Situation : 6 Ways Lenders Can Finance Your Balance Sheet Via ON/OFF Strategies
OVERVIEW – Information on balance sheet financing in Canada. Balance sheet lenders enhance your working capital and cash flow needs when you understand unlocking the right assets with the right financial solution
Balance sheet financing , done properly , can remove the feeling of ' handcuffs' that business owners/financial mgrs have when they realize that proper finance solutions is in many cases what’s holding back growth.. let alone survival. There are 4 different ways in which you can ' mine ' the balance sheet with a view towards resolving the problem. We're... you guessed it... reviewing the situation. Let's dig in.
Understanding your options financing your balance sheet is critical. While the majority of solutions you have available , such as pure debt are recorded and have an effect on your balance sheet we should mention that some firms still rely on ' off balance sheet financing' .
Typically this is done via an ' operating lease' strategy although international accounting rules have certainly put a damper on the popularity of this financing mechanism. The essence of the transaction is as follows - the lease is shown as having no debt, or equity, just expenses via the monthly payments.
The flexibility of end of term operating lease choices allow you to either return the asset or purchase it at that time. Some of the largest name corporations in the world have used this strategy for decades to enhance the leverage they need to show to owners/shareholders
Some more sophisticated methods of off balance sheet financing include R&D partnerships and joint ventures. Typically these are not for SME COMMERCIAL FINANCE needs.
The other ' OFF' balance sheet strategy is the sale leaseback - allowing you to ' sell back ' an asset (typically equipment or real estate). This monetizes your equity in the asset, allowing you to reduce other debt or to simply use the strategy for cash flow/working capital needs.
We've covered off 2 methods of ' off balance sheet financing' - the operating lease and the sale leaseback. Now let's turn our focus to the ' ON ' button!
Knowing your balance sheet accounts allows you to both unlock and manage cash.
Strategy 1? Asset turnover. Your ability to better turn over receivables and inventories is key. This lowers your required investment in these two accounts... and geneates cash! We would note that the tremendous popularity in A/R Financing is in effect an ' off ' balance sheet finance solution - taking your receivables and turning them into instant cash as you generate sales.
A quick example? Take a company that has a million dollars in sales and receivables of 125k. That equates to a 45 day turnaround in collections. If you were able to get that to a 35 day turnover the extra cash generated is 27.5k.
Strategy 2? It's all about financing long term assets properly. Your ability to buy equipment, technology, even real estate puts a tremendous cash drain on your business. Never, we repeat never, should you finance these assets with short term operating cash. Equipment leasing and term loans should be considered
Strategy 3? Manage your payables by making maximum use of vendor terms and discounts and pricing.
Strategy 4? Manage your term debt properly. Ensure you have the cash flows to support loan amortizations and finance long term debt by investigating types of leases (capital/operating) and loans (secured/unsecured).
If you're interesting in financing solutions such as:
A/R Finance
Inventory loans
Bank and non bank ( abl ) credit lines
Sales leasebacks
Equipment leasing
PO Finance
Securitization
Royalty finance
seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you with your balance sheet (ON/OFF!) financing needs.
7 Park Avenue Financial :
http://www.7parkavenuefinancial.com
http://www.7parkavenuefinancial.com/balance-sheet-financing.html
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
' Canadian Business Financing With The Intelligent Use Of Experience '
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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