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Business Financing At The Speed Of Light? You Decide!
Business finance in Canada, according to most business owners and financial mgrs we talk to, doesn’t seem to happen at the speed of light! So when the type of loan and cash flow needs your firm requires isn't happening as quickly as needed are there alternatives. These alternatives include bridge loans and other specialty lending solutions. Let's dig in and look at some of that finance for businesses and business lending.
In most circumstances specialty lending and bridge financing refers to non-bank borrowing, business loans that banks can't or otherwise won't make. A lot of that comes back to the ' credit box ', somewhat of a slang term for the ' risk appetite ' that any commercial lender is willing to take. There are, of course, numerous reasons why traditional bank financing can't accommodate your business financing needs - reasons such as lack of substantial profits, poor balance sheets, low owner equity, unsatisfactory collateral... and on it goes! Traditional lenders such as Canadian chartered banks, insurance companies, et al are in fact regulated around the types and amounts of loan risk they can take.
Specialty lending from a finance company takes up where those traditional lenders leave off. Often only self-regulated they are prepared to take additional risk commensurate to the interest rates they will charge. Not in all cases, but certainly in the majority specialty lenders focus on collateral value and how you run your operations. Their ability and expertise in both valuing and realizing on their security if need be is the key to specialty lending and the specialty lender profile. In certain cases their business loan might be complimentary to another senior lender you might be working with.
Why Bridge Loans? What is Bridge Financing?
Although the specialty lending solution is always more expensive it provides the ability to do a deal, save a company, etc when that otherwise might not be accomplished via banks. Therefore the business owner/financial mgr. must be in a position to weigh the ' cost of capital ' against ' access to capital '! We recommend to clients they view the commercial lender bridge loan as a path to operational success and growth. Canadian business financing access is always viewed as a potential obstacle to success.
'Short term' is always the key in bridge loans, whether its a restructure scenario, a cash crunch, or supporting new business/orders/contracts for financing capital.
WHAT DO BRIDGE LOANS COST? HOW DOES PRICING WORK IN ALTERNATIVE FINANCE COMMERCIAL LOAN ?
Numerous factors come into play around the cost of bridging financing and alternative finance solutions. Key factors include the quality and value of assets, the ability of the borrower to utilize the funds properly and for the right reason, potential exit strategies by the lender, and of course the overall size of the facility relative to the equity of the borrower company. We can of course make the blanket statement that alternative lending/bridge loans, etc always cost more than traditional finance solutions.
As a borrower in the bridging loan process, you must be able to clearly identify the use of the financing and your ability to repay based on term requested. Many bridge loans have balloon payment scenarios/options. At 7 Park Avenue Financial, we always focus on the need for both a business plan and a cash flow projection that identifies where the business is going. As a commercial borrower you should be able to identify how and when you will exit alternative financing solutions.
The alternative to shorter-term bridge loans and specialized financing solutions might sometimes be equity investments, but that type of solution comes with longer timelines and ownership equity dilution.
Typical Uses for Bridge Financing & Specialty Lending Solutions
A firm can benefit in numerous ways when consideration is given to business financing solutions around the bridge loan and alternative finance.
Many times a company is looking to simply refinance existing credit arrangements. In other cases you or your firm might be looking to acquire a business or to replenish existing working capital and cash flow needs. In other cases key management might be looking to a management buyout or leveraged buyout utilizing the assets of the company.
In more challenging scenarios a company might find themselves in ' Special Loan ' at the bank and trying to satisfy the workout team at a bank. In the most severe circumstances, a firm with assets and a business plan will be looking for a ' debtor in possession' financing or exiting from a receivership. Traditional commercial lenders not always capable to work on those sort of circumstances.
Alternatives To Bridge Financing
A/R Financing facilities
Inventory Loans
Sale/leaseback loans on unsecured assets
Working Capital loans
SR&ED Tax credit loans
Asset based non bank credit lines
Purchase order financing
Commercial mortgages are very common in the bridge loan environment. They allow your firm to refinance the commercial mortgage at more favourable rates at a future point in time. In commercial loan and mortgage financing in Canada non-bank lenders are typically called ' B ' or ' C ' lenders, reflecting where they are in the credit risk profile. Those ' B ' lenders, for example, are typically ' one notch ' down from traditional Canadian chartered banks. These ' B ' and 'C' business lenders are looking to fill out the story when your financing needs don't match that bank ' credit box ' we've talked about.
The majority of term loans, as we've noted are usually on a 1-year term. That timeframe usually ( but not always !) allows the business to achieve the main purpose of the business finance need that arose, such as buying a company, refinancing, etc.
Business owners should expect to be asked for a first lien on any unencumbered enterprise asset. Perhaps even a second lien on working capital and other fungible resources. Also, you may request a personal guarantee as a sign of the owner’s intention to work with the lender in good faith to repay the loan. The guarantee may, in some cases, be limited to the amount of the financing.
Most bridge loans are ' secured' so they must take into account any existing financing your company has in place with any other lenders, which might often include a Canadian chartered bank.
Financing rates for specialized lending solutions will almost always come with higher financing costs. That is usually the case, but not always; larger firms who are more stable can often obtain bridge loans at more normal interest rates from commercial lenders.
Typical bridge loans are more often than not provided by commercial finance companies/niche lenders. These firms serve the SME COMMERCIAL FINANCE / MIDDLE MARKET needs of the Canadian business borrower.
Startup companies rarely fit the profile of companies who qualify for bridge financing, which typically is based on assets such as receivables, inventory, equipment, real estate, etc.
WHAT TO LOOK FOR IN AN EXPERIENCED BUSINESS FINANCE ADVISOR / COMMERCIAL LOAN BROKER EXPERIENCED IN BRIDGE LOAN / SPECIALTY LENDING
Your firm should be looking to access solutions that are tailored and flexible to your particular situation, taking into account your overall capital structure and the amount of time you require to put appropriate financing in place. In most cases financing needs around the bridge loan process might be complex and speed and expertise are the key requirements. Numerous industries have unique requirements around how they run and finance their business.
If you're focused on an interim ' bridge ' solution to capital and cash flow needs seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your specialized lending needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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.
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
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