Saturday, June 27, 2020

Access Business Loans Via These Alternative Business Financing Solutions

The best business loans and Canadian business financing options for business owners and financial managers aren't always the obvious ones when it comes to achieving capital needs for your company. If there is any good news in today's highly competitive business environment it is that funding options and a loan alternative are available for everything from startups, growing businesses, as well as financially challenged firms.

Why Is The Use Of Alternative Finance Growing In Canada

Three reasons by alternative lending is booming in Canada :

1.Credit Restrictions from Canadian Chartered Banks

2.Demand for Funding That Is More quickly Accessible and attuned to industry needs

3.Increased Knowledge Around Benefits of Alternative Finance - Studies show that Canadian business borrowing in the past was somewhat skeptical about dealing with non ' bricks and mortar ' financial institutions, but that is changing quickly.

In fact industry statistics from organizations such as the IVEY SCHOOL OF BUSINESS/UNIVERSITY OF WESTERN ONTARIO advise that 867 Million dollars of alternative capital were borrowed via non bank lenders for figures available just a few years ago.

Constant changes in the economy, ( pandemics included !) make it difficult for companies to access the business capital they need. Mainstream financing via Canadian banks etc is not always available when you need it, and alternative methods of financing and the ability to get a commercial loan in canada have almost become an imperative for business owners and their financial managers to inspect.

It is no secret that many industries have unique financing requirements, and even within industries, no company might have the same needs - hence our focus on ... options!

So what in fact drives the need for financing? It typically comes down to the longer-term goals of your company, the size of your business, and the overall 'risk rating' that both traditional and alternative lenders use to provide their capital to your company.

KEY POINT - When it comes to SME COMMERCIAL FINANCE options at 7 Park Avenue Financial e strongly recommend that business owners separate their business and personal credit. Although traditional banking does, in fact, focus on the reflection of your personal credit history as a measure of how you will handle business affairs it is still appropriate to have commercial lenders draw on credit info from business credit bureaus such as Dun and Bradstreet - building business credit and being able to demonstrate proper financials and a business plan and cash flow projections goes a long way to business financing success.

Business owners typically gravitate to term loans - it's a common form of loan that at its basics requires you to make monthly payments over a pre-determined period - typically 2-5 years. These days many clients we speak to are looking for short term working capital loans, typically covering temporary shortfalls or unique situations. These loans are very popular, readily available, and even more good news, quick to close, often in a matter of a week or two.

Those short term working capital loans and financing loans compete directly these days with traditional banks, who of course have better rates but harder approval criteria. Often no hard collateral is required, just the 'promise' of the business and business owner to pay. Typically these loans are for 10-20 percent of your annual sales volume, as a guideline to keep in mind.

Government guaranteed start-up loans are also popular. The government is committed to billions of dollars in these loans every year in Canada. Repayment is long, and covers 3 assets you can finance - equipment, leaseholds, and even real estate! The downside - those great rates and terms and flexibility come with an application process that can be cumbersome if you don't have the expertise of an experienced Canadian business financing advisor.

Businesses run day to day on credit lines, typically secured by receivables and inventory. Asset based lenders provide non-bank lines that offer generous borrowing margins.

Other Alternative business financing and immediate sources of business funding include:

Short Term Working Capital Loan ( Also called 'MCA's or Merchant Advances )

These loans are usually very quickly available with the main criteria for approval focusing on your years in business and loan amounts geared to your annual sales, typically in the 15-20% range. The personal credit history of the owner/owners is also a data point considered for funding. Loan repayments are typically spread out over a year and are often customized to your cash flow receipts from cash and business receivables. Interest rates are higher but flexibility and quick access to capital is the key benefit . Those are often the key benefits to any alternative lending solution .

Receivable Financing

A/R financing is a mainstay of alternative business financing. Financing is based on a high percentage of your receivables, typically 90% which is significantly higher than Canadian bank receivable margining policies. Rather than an ' interest rate ' per se commercial receivable finance funders charge a fee, typically in the 1.5- 2% range.

Firms with good gross margins who can easily absorb a 1-2% reduction in their profit margins can find themselves virtually becoming an automatic cash machine as they generate cash at the same time they create and grow sales revenues. It is generally improper to compare this type of financing to a bank business loan as the interest rates and fees are not a ' apples to apples ' comparison.

Receivable financing facilities can be stand-alone, or combined with other financing, such as an asset based line of credit that allows you to borrow under one facility based solely on your assets and sales. At 7 Park Avenue Financial we recommend that is a sole stand alone facility is used a CONFIDENTIAL RECEIVABLE FINANCING solution be implemented, allowing you to bill and collect your own receivables while reaping all the benefits of a/r financing/factoring.This financing is not a working capital loan that brings debt to the balance sheets, it's simply a monetization of your current assets.

Note that you can even finance a business purchase with an asset based loan.

Purchase Order funding / ABL Asset Based Lines Of Credit - These credit line and sales financing solutions are focused on business sales revenues and current and fixed assets. Much less reliance is placed on balance sheet ratios, covenants, outside collateral, personal guarantees, etc, often demanded by more traditional lending institutions.

Equipment Leasing / Equipment Loans / Sale leasebacks

Equipment loans and lease financing solutions are utilized by the majority of North American businesses to acquire both new and used assets. Business owners are sometimes surprised that used assets can also be financed, as long as they are acquired from another business or distributor, not via a ' private sale '. Business borrowing via Sale leasebacks can generate working capital for assets your firm owns outright, including real estate.

Equipment lease approvals are based on your ability to meet the monthly payment with respect to your cash flow, as well as being able to demonstrate the asset financed is a benefit to your business. The asset/equipment is of course the main collateral for the le assets. It is often recommended that you discuss with your accountant the lease vs. buy and the lease vs. loan business financing decision.

Government Of Canada Small Business Loan Program - Small Business Loans Canada

Although a mainstay of traditional banking many business borrowers are not familiar with the program and have a challenge in locating a banker who will work with them on this government-guaranteed loan. The formal name for the program is the Canada Small Business Financing Program
and allows small businesses, including startups to get 'traditional bank loans ' based on a guarantee the federal government, via INDUSTRY CANADA, provides to the banks.

Loans are up to $1,000,000.00 which is hardly ' small ' and over the last decade over 60,000 loans have been made under the program. Any new or established businesses under 10 Million in revenue can apply. AT 7 Park Avenue Financial we work with clients to ensure a speedy approval without missteps typically associated with bank borrowing - so we work with clients on a business plan, cash flow, company history, management overview, etc.

That business plan and other info help assure a speedy response and approval. Business owners borrowing under the program must have a decent credit score in the 650 range per Canadian credit bureaus such as Equifax.

It is very important to note that these ' SBL ' loans ' can only be used for equipment and leasehold interests and real estate. Unlike the U.S. counterpart in the U.S. it is only focused on those 3 asset categories and can't be used for cash flow, working capital, r&d, inventory, etc. Loans to buy a business in Canada are often utilized under the Govt SBL program.

Many franchise financing needs work very well in this program. As well rates are comparable with Canadian bank interest rates and terms vary from 2-5 years. A business start up loan is often the best way to utilize the program.

Statistics show that more and more Canadian business owners are understanding the various business finance options available to them. As opposed to taking to numerous commercial lenders it makes more sense to talk to a proper business advisor around types of financing, costs, and conditions. Canadian business has been somewhat slow to adopt alternative financing compared to ur U.S. counterparts but for those willing to investigate options there are numerous opportunities to finance your growth and operating needs.

Similar to bank loans for businesses and other mainstream financing alternative funding sources all have their benefits and potential drawbacks if not accessed properly, and for the right reasons - so investigate the options that best suit your firm's immediate needs. Seek out and speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of success.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !

7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.

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.

' 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. He is an experienced

business financing consultant

.

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 financing 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.

Click here for the business finance track record of 7 Park Avenue Financial

Stan Prokop
7 Park Avenue Financial/Copyright/2020

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

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. He is an experienced

business financing consultant

Stan Prokop
7 Park Avenue Financial/Copyright/2020

Access Business Loans Via These Alternative Business Financing Solutions

Thursday, June 25, 2020

Looking For A Bank Financing Alternative ? We've Got One Several !

Bank Financing alternative solutions are, in many ways, the new normal. Canadian business owners and financial managers are constantly seeking bank alternatives as they start and grow their businesses. Traditional bank loans seem more difficult to achieve for thousands of business owners and their financial managers in Canada, and we're not talking about just pandemic time.

KEY POINT - It's interesting to note that all alternative finance mechanisms we discuss are in fact available from Canadian chartered banks. But it will always come back to the criteria in place as to your ability to access the above solutions at low bank rates. The traditional pre-requisites for accessing bank credit are the length of time in business, balance sheets that reference positive equity, profit history, cash flow coverage, and owner personal credit history and collateral.

Alternative finance solutions when sourced and used properly take the uncertainty out of financing your business and that's what business owners are looking for. While not widely regulated by the government many of the industry is self-regulated by their own trade associations and are governed by Canadian borrowing laws.

The good news is there are numerous options to consider, all the way from invoice finance techniques to short term working capital loans and online lending 'p2p' solutions known as commercial merchant advances.

WHO ARE THE ALTERNATIVE LENDERS?

Generally these are what's known as non bank lenders that serve SME commercial finance needs. They are usually not banks and typically are not deposit takers.

Many of the new clients we meet at 7 Park Avenue Financial find their bank arrangements have been rescinded and in more severe cases find themselves in special loans and workout categories at their bank. The good news is there are independent lenders/commercial finance companies that are very able in providing business financing to the SME sector in Canada.

Alternative lenders focus predominantly on sales and assets and can provide niche solutions ranging all the way to full-scale business lines of credit. These facilities support both growth and daily operations. Numerous types of ' factoring ' solutions are a keys source of financing for thousands of businesses in Canada. They are the new alternative to the traditional ' bank loan '. Other solutions as we have noted include equipment leasing, sale leasebacks on assets owned, and loan advances based solely on future sales projections.

While large corporations have access to all sorts of capital, in some ways unlimited, businesses in the SME COMMERCIAL sector struggle to find options that make sense and are balanced against what is usually a higher cost. Let's dig in.

One author in the U.S. recently offered up that business owners must ' spank their banks ' when it comes to access to business capital. While we suppose there are a hundred reasons to ‘spank’ U.S. banks (anyone remember 2008), those reasons don't really exist in Canada, as we're known to have probably the strongest banking system in the world, pandemics included.

So our banks tend not to go bankrupt, they don't go to jail, they do provide safe investment vehicles... and they have all the capital in the world - IT'S JUST DIFFICULT TO ACCESS BUSINESS CAPITAL AND QUALIFY FOR FINANCING.

So what's our point? Simply that the owner/manager in SME starts to look outside the box at non-bank alternatives.

What Are Some Popular Utilized Alternative Funding Sources In Canada?

Those alternatives include:

Accounts Receivable Financing - Commonly called factoring, or invoice discounting this is one of the most efficient and quick ways for a company to generate cash based on sales. In North America alone billions of dollars are financed every year according to industry statistics from FACTOR CHAIN.

A/R Financing fundamentals are easy to understand. Instead of the typical waiting period for commercial collections, which these days is anywhere from 30-90 days companies can enter into a financing arrangement to ' sell ' their receivables as they generate sales. Financing can be for some or all of their a/r portfolio, at the company's choice.

There are some key differences in bank credit lines and a/r finance via a commercial lender - the commercial finance company looks mainly at the quality of your receivables while the bank look at overall risk in dealing with your firm. Traditional bank lending is focused on your balance sheet and cash flow generation while the a/r financing firm focuses on your invoices as the collateral.

A/R Financing has a ' fee ' attached to it, not an interest rate, often a key misunderstood point in commercial receivables finance. That fee is typically between 1.5-2%, but if your firm has good profit margins and can sustain that reduction in profit a very strong case can be made for financing receivables.

Inventory Finance - A wide variety of inventory financing solutions are available through asset backed lenders who specialize in the valuation and financing the turnover of inventories. Most common is the combining of inventory financing into an asset based business credit line allowing your company to borrow on the combination of a/r and inventory.

Short Term Working Captial Loans/Merchant Advances- The growing popularity of short term unsecured loans for businesses cannot be denied. This ' peer to peer ' lending solution provides upfront capital based on a simple formula of your annual sales. The two main criteria are your ability to demonstrate your sales revenues through either your financial or bank statements, as well as a requirement for the business owners to have decent personal credit histories, the proverbial ' credit score '.

Typically small business owners with credit scores under 600 have a challenge in obtaining this financing, simply demonstrating that commercial lenders of all size look at how you run your personal finances as a reflection of your business.

The amount you can receive under these loans is typically 15-20% of your annual revenues so a business with revenues of 1 Million dollars will qualify for a 100-150K loan. Rates are generally quite high in this type of financing but the quick and easy approval and access to working capital have garnered great appeal to many businesses, retailers included. The online borrowing totally focuses on cash flow and sales revenue.

Equipment Financing

Sale/Leaseback / Bridge Loans - If your company owns equipment that has no liens on it and is generally unencumbered the sale-leaseback financing solutions provides immediate cash value for these assets, simply by entering into an arrangement to ' sell ' the equipment back to the finance firm, and then leasing it back, and naturally your retain full use of the equipment/asset. The lease payments become a monthly expense on your income statement and your firm generates immediate cash flow for working capital purposes.

Tax Credit Financing - ( SR&ED & MEDIA Tax Credits - Both Film/Media tax credits, as well as the Federal SR&ED tax credits which is a refundable tax credit that is financeable via a short term sr&ed loan cand provide valuable cash flow for newer firms focused on putting cash into their r&d efforts.

Asset-Based Lines Of Credit - Business credit lines, or more appropriately ' asset based lines of credit are full operating revolving credit facilities from the asset based lender. This product offering competes with the standard bank revolver line. The benefit of the 'ABL' credit line is that it provides all of the cash flow you need by combining the borrowing power of your receivables, inventory, and even equipment into one margined borrowing facility that your firm draws down as needed. Credit limits are extremely flexible and tend to grow with your assets and sales.

Purchase Order Financing - Many companies find themselves in the position of being able to receive large orders and contracts that would be a significant growth factor in their business, but they often have to decline this business as they are not in a position to have the working capital in place to fulfill those orders and contracts.

Under this alternative financing method, your supplier is paid directly by the commercial finance company allowing you to fulfill orders and sustaining the 30-60 day period between supplying your client and waiting for payment.

The order and receivable are taken as security for the P O financing solution. The transaction is closed when the final payment is made to your firm by your client. In many cases suppliers are located in Asia so the ability to fund these transactions is a very creative way to grow business. Similar to factoring and a/r financing solutions you must have very good gross margins to cover the 2-4% fee on this type of financing.

Absence of any one of those bank criteria can quickly derail your bank application. We almost find it humorous that business owners or their financial managers go from bank to bank only to be told the same response.

Bank alternatives in Canada are offered by commercial finance firms. They might be small, large, Canadian, U.S. owned, and in some cases geographically focused. They provide all the solutions offered by banks and typically have a much higher risk appetite as they are motivated by profit and growth also. Almost all firms only specialize in certain loan/finance segments, so it’s important to seek out an advisor who can help you navigate the waters and speak the lingo!

WHY ALTERNATIVE FINANCING?

Although some may consider alternative financing solutions as ' outside' the system industry statistics tell us they are becoming more mainstream than ever. You can call it ' FINTECH ' non-traditional but it is more utilized than ever before . Some have called it an ' improvement ' on traditional business financing. These solutions cover a wide range of business needs, including lender finance/ funding for lenders, SME Commercial Finance funding, acquisition financing, etc.

Many of the alternative lenders utilize newer forms of technology that enable transactions to happen quickly with greater improvement to the customer borrowing experience. Cash flow and invoice financing solutions are widely available to ease the cash flow crunches that many businesses in the SME sector face daily outside of their bank relationships. It's very safe to say the rise of the internet made a lot of this happen!

Technology and internet marketing allows Canadian businesses to access business capital that were previously the exclusive domain of the Canadian banking system. The wide variety of financing solutions available allows Canadian commercial borrowers the option to choose from a wide range of niche financing solutions.

Access to capital is faster than ever, and previously underserviced Canadian commercial borrowers
are finally finding business credit accessible whereas before they were considered ' underbanked'. Access to cash flow is faster than ever and borrowers are now able to, for the most part get all the funding they need based on their sales and assets.

Business owners will perhaps be surprised to know that many alternative lenders have partnerships and funding relationships in place with Canadian banks. Unlike the banks though they do not require historical financial strength and the strong credit history that is associated with the bank borrower. Many of the alternative lending players are funded by private investors, private equity firms, and rely on these investments to fund their loans.

Canadian business borrowers should view alternative lenders as specialty lenders who typically are focused on one unique financial offering, allowing them to have significant expertise in key niche areas. Banks of course offer a broad array of financing products and it is sometimes challenging to locate a banker specific to your needs.

So, bottom line. The Canadian business owner / financial manager can spend all their time blaming (spanking) their bank or they can choose to seek out real world solutions that exist for the financing they need.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in the evaluation of a bank financing alternative via alternative funding that will allow you to grow or start a business.

Click here for the business finance track record of 7 Park Avenue Financial

Stan Prokop

7 Park Avenue Financial/Copyright/2020

Sunday, June 21, 2020

Financing A Business In Canada Here's Some Golden Rules For Working Capital and Loan Solutions

Alternative Lending Cash Flow Solutions And Tips For Canadian Business Financing

Financing a business in Canada. A challenge? Let's just say that's an understatement when it comes to working capital, debt, and ongoing management and recognition of financial problems and opportunities. Are there some ' Golden Rules' we could follow. We here at 7 Park Avenue Financial think so so lets cover off some loans for business in Canada.

In some cases your firm might be growing too fast, and just at the time that when you are ready to either expand or take on larger orders and contracts your operating capital and business capital needs replenishing without having the funding you need to address growth challenges. Every company, small and large eventually needs more access to capital, for small and medium firms making a financing error can lead to impaired financials and even business downfall.

Firms with poor working capital typically are poorly managed and unable to meet cash flow needs, but on the other hand a constant reliance on new working capital often has the company demonstrating that it is investing all their cash to grow the business and increase return on investment.

Here is where expert advice and right choices come in, as the wrong debt must be matched to your cash inflows, and even more challenging is the fact that uncertain economic times, pandemics included making it very difficult to find business capital.

The amount of financing you need to run a business depends on how you operate it within your industry . Finance experts call that the ' operating cycle ' and it's simple, namely the amount of time it takes for a dollar to flow through your company from order to collection of the sale via your receivables. The ability to maintain positive working capital throughout that process dictates the amount and type of financing you need.

The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating cycle, and the business owners’ goals for future growth. However, while very large businesses can get by with negative working capital because of their ability to raise funds quickly, small businesses should maintain positive working capital figures. Even issues such as seasonality of a business can greatly affect cash flow needs.

Regardless of the product name, all financing solutions consist of either debt, equity, or a hybrid combination of both. Keep in mind that there are no “good” or “bad” solutions. The best solution for you depends on your specific circumstances and requirements.

One of those golden rules of business finance is to ensure that you properly match short term debt and long term debt appropriately. Each of these two has its own benefits and potential disadvantages. Is one better than the other? Not really, it’s just that it’s a case of making adjustments and staying ' in tune ' with what needs are appropriate or required at the right time.

Working capital loans , whether they be a term loan to inject permanent working capital into the business,or alternatively a short term loan, typically 12 months in duration are used to cover off short term operating needs such as payables, financing your investment in accounts receivable, salaries and wages, etc. It is improper to use shorter term working capital facilities for long term needs such as financing fixed assets/equipment, or real estate, etc,

From an understanding point of view we don't want to go too far down the textbook route in explaining working capital but it's important to simply know that its calculated by subtracting current liabilities from current assets on your balance sheet. Let's leave it at that.

But if there is a shortfall in that number, or the ratio is really tight you need short term liquidity financing of some sort - The good news is that more and more there are some new, creative and alternative financing options available to business owners seeking SME COMMERCIAL FINANCE. That SME " small to medium enterprise " segment in Canada is one of the largest parts of the entire Canadian economic landscape.

How to Get a Working Capital Loan

Numerous traditional and alternative lenders have the financing options you probably need to run your business. In general the same fundamental criteria apply to their level of due diligence into your business - i.e. years in business, annual revenues, is the business preparing proper financial statements that accurately reflect the state of the business, etc. Businesses that are smaller should realize that their personal financial affairs and how they are managed are viewed by the lender as a reflection of how the business finances are managed. Therefore decent credit bureau/fico scores are important.

HOW IS A WORKING CAPITAL LOAN REPAID?

In selecting a financing facility for your business you and your commercial lender should have a sense of repayment ability. Short term working capital loans are widely popular these days, in many cases online portals are used to apply, and lenders use algorithms to determine the amount of loan and repayment timing. Many business owners and their financial managers don't realize that the loans may sometimes be asked to be repaid weekly, but monthly is also common.

The loan amount for these facilities often called ' merchant advances ' is based on a formula of your annual sales, typically 10-20%, as well as factoring in your time in business. Interest rates and cost of financing tend to be some of the highest in Canada for these loans. The appeal is of course speed and flexibility of approval.

We have mentioned the need to separate short term borrowing for long term investments in your business. So for acquiring fixed assets equipment leasing and commercial mortgages are proven options to acquire assets/real estate. In some cases a firm might be looking to invest in leasehold improvements.

On' catch-all ' for financing assets, leasehold improvements, or real estate is the Government of Canada Small Business loan program, providing up to a $1,000,000.00 of financing with a government guarantee behind the majority of the loan. Seek out the services of an experienced Canadian business financing advisor who can help you acquire this loan. Key benefits are attractive interest rates, repayment flexibility, nominal personal guarantee, and financing for investments such as leaseholds that are typically harder to finance as they are intangible assets.

It is the perfect loan solution for building acquisition or modernization via leasehold improvements, as well as covering the purchase of new and used equipment. Since the largest portion of your loan is guaranteed by the Canadian government through this Industry Canada program that allows banks to lend to businesses that might not otherwise qualify for the funding they need.

So in financing a business it is really about what the finance experts call ' sources and uses ' of funds and what type of financing suits your firms specific company or industry needs.

Canadian Bank Financing

Often seen as the ' go to ' solution for general working capital, operating loan, and other financing needs the Canadian banks offer unlimited funding and flexibility for firms that qualify. The attractiveness of a bank revolving line of credit is that it is low cost and can be used only when you need to draw done funds. The banks are very focused on repayment !; so you must be able to demonstrate historical and present cash flow generation. Loans are structured to meet your business needs but borrowers quickly become aware of the more stringent credit qualification and criteria for firms to access bank financing. Those criteria include established businesses for the most part, and focus on the size of the business, quality of the balance sheet, debt to equity ratios, and personal covenants and outside collateral requirements.

The vast majority of businesses in Canada can qualify for both Factoring, as well as the related type of facility, Purchase Order Financing. Factoring financing is probably the fastest growing type of working capital financing when it comes to how to finance a business in Canada. While some call it a receivables loan it is in fact just monetizing your a/r for cash flow.

Since cash flow problems often stem out of a company's inability to collect it's receivables in a timely fashion any commercial or government-related receivable can be financed for immediate cash. At 7 Park Avenue Financial our recommend factor finance solution is ' Confidential Receivable Financing ', allowing you to bill and collect your own receivables without any intrusion by a third party.

If your firm had very good gross margins and can sustain the 1.5-2% fee associated with the financing your firm can become an ATM machine, generating cash as fast as you generate sales revenues. The flexibility and faster access to cash are the great appeal of receivables finance.

Another type of specialty finance related to your ability to take on larger orders and contracts is purchase order financing. This type of financing pays your supplier directly, allowing you to fulfill orders and contracts that might otherwise be lost to competitors for lack of working capital. Similar to factoring finance P O Financing has a higher cost but if your firm has good gross margins it allows your company to grow substantially larger without owners having to put up more equity. Alternative lending in Canada via solutions such as we have described is very much on the rise .

It certainly hasn’t escaped us that not only is it difficult when it comes to financing a business in Canada to manage internally, you of course have to stay in tune with what’s happening in the economy, your industry, and dare we say, politics! Talk about a full-time job.

A lot of your financing for loan capital of any type will probably come from external financial solutions. They might include a line of credit, bank debt, working capital term loans, receivable finance, inventory finance, equipment leasing, and monetization of tax credits. Those tax credits typically are covered under Canada's SR&ED program and if you have refundable tax credits they can be easily monetized under a SR&ED Loan facility. That accelerates the refund of your valuable investment in r&d capital.

However, you also generate cash internally, and you need to know how to measure that.

When you assess working capital or debt needs you need to be in a position to focus on cost, risk, and what that financing does to your balance sheet? All of those must be taken into consideration.

Also consider your current capital and debt structure and how your balance sheet will look after financing is completed. As an example, something to think about is that working capital and cash flow can be generated through monetization of assets - this doesn't really bring debt to the balance sheet, so you've achieved your goal without increasing debt.

On occasion it’s important to discuss any taxation impact on your financials with your accountant, as there are both positive and negative aspects to debt and tax.

If your firm is mature and operating efficiently you’re in a position to access all sorts of traditional financing. The other side of that is alternative finance, which works just as well but might be more costly on occasion - not always, but sometimes.

It's hard enough to access financing but choosing the right partner is a struggle in itself sometimes, ensuring that the funding source will be with you in tight markets and good times. Apparently, those two fluctuate over time. The 2008 worldwide debacle caused many finance firms to disappear or implode, causing havoc among thousands of businesses in Canada, whether you were a start-up or large corporation!

One solid Golden rule of business finance is to be proactive when it comes to access to debt solutions and working capital. You might even have to make the tough decision around diluting equity when there is too much debt on your balance sheet. That’s a costly one.

Another of those Golden rules is to have a solid sense or understanding of how outside forces, pandemics included, can affect your company's financial viability! If market conditions are continually volatile you clearly need to focus on longer term stable financial solutions.

WHAT ARE YOUR BUSINESS GOALS ?

Constantly stay on top of your cash flow planning, and consider the need for a proper business plan that accurately reflects the true growth and profit potential of your company. You might be focusing solely on growing sales, in other cases you might be going into new product lines or geographies, or investing in r&d. If you want to more clearly understand what business financing solutions are available for financing a business in Canada speak 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

Direct Line = 416 319 5769

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. He is an experienced

business financing consultant

Stan Prokop
7 Park Avenue Financial/Copyright/2020

Financing A Business In Canada Here's Some Golden Rules For Working Capital and Loan Solutions

Saturday, June 20, 2020

Business Credit Line Needs ? ABL Is The Bank Alternative

The business credit line in Canada. Clients we meet to can visualize it... they sometimes just can't access it - it's almost as if it’s an ancient art they haven’t quite perfected. As a result... cash flow and working capital challenges. Does it have to be that way? We think you know the answer already... it doesn't and here's why. Let's examine the ABL bank alternative.

Clients at 7 Park Avenue Financial find asset based lending is the perfect credit line when traditional financing is not a good alternative or an alternative at all! This type of business credit line has some cost benefits to is, as well as having a large amount of flexibility. Additionally you self manage the facility to a large degree with no intrusion required into your suppliers or clients. Many companies have a measure of seasonality to the business, so ABL, ' asset based lending ' addresses that very well as limits are quite flexible and can be adjusted to your needs.

Alternative funding via ABL asset based loans is clearly becoming the bank alternative and is widely used in the United States where this type of business financing originated. Focusing on the liquidity of key current and fixed assets these credit facilities have become the business finance alternative for borrowing for operating facilities. Some business owners will be surprised to know that ABL LENDERS can also be banks, as these unites operate as smaller boutique financing lenders within the traditional banking system, both in the U.S. and certainly in Canada.

We can make the business case that ABL Lenders are more comfortable in lending to many firms when banks either won't or cannot simply because they are experts in collateral value and have the ability to adjust the line against the credit lines they have set. One expert has called it ' real-time ' lending!

Business credit lines via ABL finance lending are attractive to Canadian businesses seeking financing for a variety of reasons in almost any economic time, pandemics included. In fact, asset based lenders for the most part continue to fund business which has significant value to firms looking to access cash flow or to achieve more financing than they could otherwise achieve through traditional sources. Even companies that are restructuring are able to source business credit line arrangements based on assets.

The ability to have a source of credit that is creative and flexible will almost always provide greater liquidity to your company, with less reliance on the banking covenant based lending championed by Canadian banks. That's the business lending that 7 Park Avenue Financial clients tell us they want. The trade-off to the typically higher cost of an ABL line is increased access to capital, notwithstanding your obligation to be in a position to report more regularly on asset values such as a/r and inventory, which most firms should be looking at anyway, right?

For this type of business credit line to be successful your company has to have the ability to create the usual management reports that highlight your asset accounts so that typically would be aged receivables, payables, and inventory lists. That allows you to successfully manage and access this creative way of financing your business.

Part of the challenge of those business credit lines is simply the fact that the majority of business owners and financial managers are fairly focused only on one solution - which is of course the commercial bank line of credit.

That is definitely one solution. The other (What? There's Another?!) is a non bank asset based credit line facility. Both facilities monetize your receivables and inventory... the difference then? ... The Asset based credit line often monetizes and equipment and real estate also; as part of your overall borrowing power. The big difference is the real key point here - lending is more generous in a non bank asset credit line. Receivables and inventory are margined more aggressively, and in bank scenarios rarely are your unencumbered fixed assets monetized into credit lines.

Why Should Your Company Consider An Asset Based Lending Business Credit Line?

Most small and medium-sized companies in Canada recognize that Canadian banks cannot meet all their borrowing needs. This might be for a variety of reasons which include profitability, an industry being ' out of favour ', or the actual financial results of a company which might not have the balance sheets and income statements they require to lend against, given the banks are both regulated and somewhat risk-averse relative their fiduciary responsibility to shareholders and depositors. It is a true irony of Canadian business that banks generally do not like a firm growing, for example at 25% per year, which then requires constant working capital needs.

Because non bank business credit lines have your borrowing against sales and assets there is not the concern of higher growth, which is in fact: Encouraged ! More cash availability than standard bank offerings is the cornerstone of borrowing against your sales and core assets. It's not about the financials, it's about sales/assets.

As we have noted the thousands of companies using asset based credit lines in Canada use it for different purposes. Some companies might be early stage, some might be in high growth mode, while other companies that are in fact bank worthy utilize it because rates in the case of high quality companies can be very competitive to low bank rates. Naturally, the current low rate environment for business borrowing in Canada is a plus for all borrowers.

Some firms that are experienced a level of distress might be using the facility simply based on the amount of their assets that still qualify for borrowing under a credit facility. These companies might find themselves in the ' Special Loan ' category of the bank. This can be a stressful transitionary period on the road to business financial recovery - asset based financing works very well to correct the financing and allows a company to get back on track.

At this point customers would already be reporting on their financial more often and assessing a workout plan that might get them back into traditional banking, or on the other hand, transition their senior lending facilities into asset based business credit lines. They might still well be 100% financeable with having to raise additional equity or outside collateral. It allows troubled firms to protect the company with a workout refinancing that makes sense, often paying out the bank in the process.

The options and financing flexibility alternative your firm now has allows you to successfully operate on a daily basis. As your revenues grow your receivables and inventory will always fluctuate relative to business grwoth and how you manage your current assets. Those daily changes drive the ABL credit line. Many firms that are in high growth / hyper-growth find they cannot satisfy traditional bank requirements, with the asset based facility focusing on your sales and assets, not financial statement ratios within your balance sheet or income statement.

By allowing your financing partner to properly assess asset values and growth potential, allows you to borrow effectively on the true market value of your sales and assets. As an example receivables are typically financed at 90% and inventories are margined based on the type of inventory your firm has. It should be noted that many industries are different when it comes to quality and type of assets, your facility will resemble the industry norms around types of assets. Both banks and asset based lending firms recognize specific aspects of your industry.

The two main sources of borrowing in this type of credit line are your receivables and inventory. They are the main drivers that determine the amount of your facility but there can easily be a fixed asset/equipment component to the borrowing for all the hard assets your firm owns.

The true strength of this type of revolving credit is that it can grow as your sales revenues and other assets grow - they in fact determine the amount of the credit line. There are some very simple formulas around how these assets are margined for lending. As your sales grow and you collect your receivables the ABL business credit line fluctuates, allowing you to borrow less .. and finance less, or, more importantly, borrow more if you need it!

We have referenced those other assets you can borrow against within your credit facility, with those two asset categories being equipment and, if applicable, real estate. Those amounts have a value assigned to them at the start of your facility working, which might include an outside appraisal to determine maximum borrowing power. Naturally these two categories of assets are typically not in Canadian chartered bank business credit facilities, so they highlight the benefit and flexibility of revolving ABL facilities.

Many companies that are unable to satisfy bank covenants, ratios, outside collateral etc find they can easily double their borrowing power using the high borrowing leverage of a/r, inventory, and equipment/real estate. That becomes the ABL business credit difference, a business finance solution that is tailored to your company's specific needs. Your credit line availability is calculated on an ongoing basis, allowing you to plan for your business cash flow needs - at the end of the day is ' quicker borrowing '.

Accounts receivable plays a major role in the asset based business credit line model. Your financing firm will focus on the type of receivables you have, average size, major account concentrations with any one customer, account contras with suppliers that might be in place, as well as your a/r days sales outstanding turnover and bad debt.

Businesses should also be prepared to demonstrate that CRA and provincial HST is not in default, but borrowers in default will be happy to know that these type of debts are often paid out of the first advance in ABL business credit lines by asset based lenders.

The use of your business credit line in Canada, whether it's a bank line of non bank in nature can be viewed as a ' replenishment ' of cash from funds your firm has invested in working capital and fixed asset accounts. That need becomes even more acute when your business is growing. The simple reason - you've got more sales tied up in still uncollected receivables, inventory, and the need for some fixed asset or technology replacement here and there!

Whether you disagree or not, all banks have very specific rules in Canada around business credit lines. Bank credit lines for start-ups or very new businesses in Canada essentially... Don't exist! That’s because of our strong banking system in Canada places a large emphasis on historical strong financial history, solid profits, and squeaky clean balance sheets. So while corporate credit risk at banks for the middle market companies in Canada at banks focuses on profit, cash flow generation and shareholder equity ABL has a focus on asset turnover and turning business assets into cash. We can say that the shorter-term operating cycle of a business is what drives asset based loans.

Business owners if not familiar with The Cash Conversion Cycle would benefit from checking it out.It is really tied into the concept of cash flowing your working capital assets and how turnover affects liquidity and the need for more outside business credit. The continual revolving ability of a credit line works without your firm being tied to any type of installment and loan debt. Here the power of ABL kicks in because as sales revenues grow cash flow via the abl line increases and receivables and inventory are liquidated.

If your firm is offside on banking requirements it's still exceptionally very safe to say that you qualify for an asset based credit line from a non bank commercial finance firm. And that higher leverage and borrowing power is still there of course - it’s another major appeal of the ABL (Asset based Line)

By the way, if you are in fact 'off side' with your bank on their key metrics, ratios, covenants, and collateral issues the ABL line rides to the rescue more time than you think. So while your business may have temporarily stumbled the non bank asset based line of credit steps in to keep cash flowing and working capital working! Their are different credit types and credit risk and the asset finance underwriter is well positioned to take the time to understand your firms situation.

It's not pure roses and sunshine all the time with your business credit line. You should always be prepared to supply proper reporting and updates on your business assets, even more so with ABL type facilities which in some cases might even require due diligence visits, appraisals, etc.

There are several supplementary / complementary solutions to the asset based credit line - These can be used with or separate to your business credit line facilities in asset based finance .

One of these is Purchase Order Financing. This solution becomes extremely valuable if your firm is in a position to receive large orders or contracts that in the normal course of your business you would be unable to finance due to the working capital component of the transaction, namely having to pay suppliers, facilitate your order or service, and then wait for the collection of your receivable related to that order/contract. The financing works as follows - your supplier is paid directly by your P O financing firm asset based lender. The receivable that is attached to that order or contract can then be financed under your already in place asset based lending facility, or in some cases a separate P O Finance arrangement if you do not have either a bank credit line or an asset based line in place. Purchase order financing rates are higher and your firm must have good gross margins to absorb the 2-4% fee on the order but can be invaluable to firms looking to grow larger with access to traditional finance,

If there is a bottom line here in corporate finance its that the business owner/financial manager needs to understand both the alternative to credit lines, as well as the nuts and bolts of how and why they work best. That will lead to a better capital structure and a more guaranteed level of long term success.

If you want to consider revolving credit lines based solely on collateral value or new and replacement alternative credit facilities seek out and speak to a trusted, credible, and experienced Canadian business financing advisor. Your want a finance partner/advisor that has a solid knowledge of the ABL lending market and has the capabilities and expertise and track record of finance success to facilitate business credit line needs.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

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. He is an experienced

business financing consultant

.

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 financing 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
7 Park Avenue Financial/Copyright/2020

Business Credit Line Needs ? ABL Is The Bank Alternative