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You're looking for sources of capital for business and financing solutions. A Loan? An equity arrangement? A monetization of assets ? What works best is of course the nagging question that continuously faces Canadian business owners and financial managers.
Many Canadian businesses who contemplate equity type arrangements simply aren’t ready, and it’s also the most expensive form of financing when you consider the ownership dilution that comes with that strategy.
There is usually never an easy or obvious method to get rid of financial challenges. In fact if you're looking at bank financing, which is of course ' debt ' you may well find that the bank feels that more equity from yourself is in fact required in order to obtain that debt. That's a bit ironic sometimes!
Are there any tools available to help the Canadian business owner understand both the cost of debt and equity? There are, of course.
Whenever any Canadian firm looks for financing outside the business there is a cost to the owners. Naturally if you borrow in terms of term debt the additional interest financing costs reduce profits. Selling equity of course reduces no profit, but, and it’s a big one, ownership is proportionately reduced.
We are always preaching to clients that many forms of business financing outside of equity in act do not reduce earnings if in fact you're monetizing assets and have a healthy turnover in key areas such as receivables, inventory and fixed assets relative to overall sales. That’s why we're big proponents of strategies such as A/R financing, supply chain financing, asset based lines of credit, etc.
Earnings and cash flow analysis is a solid way of evaluating debt and equity alternatives. They can also point to the sources of working capital you need for your business.
What then are the key areas you should always focus on when it comes to debt vs. equity analysis? Some solid ones are overall risk with respect to your ability to make payments under any debt scenario.
And whether its debt or equity consider what flexibility you have with respect to any covenants the lender or equity partner might insist on. Always watch your leverage, there is only so much debt your firm can manage and handle.
The irony in either borrowing or looking for some equity is that you're usually in one of two positions, success, or failure! That one never escapes us, as we meet clients who are successful and have a need to finance new growth or expansion, of alternatively, they are currently losing money and have some real deficiencies in their company that need to be fixed.
When you are looking for debt you can be sure the lender will focus on working capital coverage, leverage, and operating efficiencies. Equity lenders will focus on management, growth potential, and why your business is unique.
If you want to properly understand available sources of capital when it comes to business financing, a loan, or an equity arrangement consider speaking to a trusted, credible and experienced Canadian business financing advisor .
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
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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