Your Revenue Based Financing Solution Is Here

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Revenue Based Loans & Financing For Saas Companies In Canada - A Great Venture Debt Solution

  

REVENUE FINANCING IS ALL ABOUT SCALING YOUR BUSINESS! 

WANT TO AVOID *EQUITY FINANCING  *( FOR THE TIME BEING !)

 

It's no secret ! The main attraction of recurring revenue financing is the ability of your Saas firm to obtain the capital you need today to focus on your future technology investments.  The ability of a software company to access additional cash is what SAAS Revenue-based financing is all about.

 

'The spread of the computing grid will finally establish the idea of software as a service ' ( Source - economist.com )  Let's dig in on how to finance your SAAS revenue growth rate via a monthly revenue formula solution that works!

 

  

THE POWER OF YOUR COMPANY'S SAAS SOLUTION & SUBSCRIPTIONS BASED BUSINESS MODELS  

 

It's no secret why your company provides significant advantages to your customers via your cloud/internet solution. Your clients can also ' scale ' allowing them to utilize your services to the extent they need it, with growth or downsizing readily attainable. With the need for hardware and infrastructure gone your clients save in numerous ways including labour and tech investments.

 

The concept of pay per use drives Saas companies such as yours to allow clients to budget for growth capital and ' scale ' without major setup costs or the challenge of downtime

 

HOW DOES SAAS FINANCING WORK? REVENUE BASED LOANS 101!

 

A properly structured recurring revenue financing facility allows you to access funds on a regular basis, creating a borrowing base that is calculated by establishing a multiple of anywhere from 5-7 times your monthly revenues. That deferred revenue in the Saas business model is a tough nut to crack from a financing perspective and accessing a fixed percentage of fund inflows is a solid way to beat that challenge.

As we noted, this in effect creates an established predictable borrowing base for cash flow and working capital needs to run the business. Those needs are typically in the area of salaries and wages, technology investments in your infrastructure,  and general working capital needs.

The ability to access business capital without the need for future private equity capital or other types of equity investments is by far the great attraction of funding those recurring revenue streams!

 

WHAT ARE THE BENEFITS OF A PROPERLY STRUCTURED

Is your Saas firm eligible for simple and effective revenue-based financing loans? You only need to demonstrate the firm's contracts and the cash payment terms from your contracts - which as we noted might be based on monthly, quarterly, or in some cases annual payment.  Let the 7 Park Avenue Financial team ensure your funding needs are covered and tailored to your finance and cash flow needs as required by changes to the growth of your revenues - all the time delivering a non dilutive form of funding.

 

7 Park Avenue Financial technology financing expertise can benefit your firm from your infrastructure and platform financing needs for upgrades and purchases to your client solutions.

 

How can your company access the cash flow you need today without waiting for tomorrow! Let's dig in!  The challenge of growing a  ' Saas ' business is the need for additional capital for new and or larger contracts to grow the client base, and of course your firm's valuation. In today's lightening speed competitive environment no software firm can afford to lose out on new business and growth of your client base.

Similar to other types of venture debt such as SR&ED Financing the  Saas  business model is all about unlocking cash flow by monetizing contracts in the case of Saas, and  r&d in the case of sr&ed development & finance. 

 

Many Saas businesses also file SRED Funding claims to accelerate cash flows - Refundable tax credits are key factors for many Saas firms. If your business bills your client base on a monthly, quarterly, or longer-term basis the potential challenge to your business is the timing of cash flows to run your business.

 

LET'S MAKE SURE WE UNDERSTAND WHAT RECURRING REVENUE IS!

Recurring revenues arise out of contractual arrangements you have in place for your service/application.  Contracts and client agreements like these allow your firm to have predictability in stable cash inflows for the length of your client agreement.

CHALLENGED ON HOW TO FUND AND INCREASE RECURRING REVENUE?

Recurring revenue finance solutions allow you to borrow today against those future cash inflows from customers. The availability for finding in advance of customer payments is what Recurring Revenue financing is all about.

For example, if you are billing on a monthly basis we could call that financing a current  MRR LINE OF CREDIT - ( MRR = monthly recurring revenue ), establishing a maximum loan amount is easy after that.

 

HOW DOES SAAS FINANCING WORK? ( RECURRING REVENUE LOANS )

 

A properly structured recurring revenue financing facility allows you to access funds on a regular basis, creating a borrowing base that is calculated by establishing a multiple of anywhere from 5-7 times your monthly revenues.

As we noted, this in effect creates an established predictable borrowing base for cash flow and working capital needs to run the business. Those needs are typically in the area of salaries and wages, technology investments in your infrastructure,  and general working capital needs.

The ability to access business capital without the need for future private equity investments is by far the great attraction of funding those recurring revenue streams!

Interest rates for Revenue financing are mezzanine type rates - the attraction is access to capital versus the cost of capital for savvy entrepreneurs who understand the value of equity!

 

WHAT ARE THE BENEFITS OF A PROPERLY STRUCTURED

Is your Saas firm eligible for simple and effective revenue-based financing loans? How do Saas financing companies assess your application!  You only need to demonstrate the firm's contracts and the cash payment terms from your contracts - which as we noted might be based on monthly, quarterly, or in some cases annual payment depending on your company's business model.

 Let the 7 Park Avenue Financial team ensure your funding needs are covered and tailored to your finance and cash flow needs as required by changes to the growth of your revenues and to delay the risk of equity dilution.

Business owners and financial managers of small businesses can only imagine the benefits of ARR lump-sum financing for those annual contracts.

 

That's the Saas debt financing promise when a few key factors around what stage your business is in come into play and can place stress on your company's cash flow under the subscription based revenue model, even if you have good gross margins which are desirable in this form of finance.

 

The early stage of every Saas firm is somewhat predictable :

 

Higher cash needs/cash burn

Larger investments in r&d

Mastering beta releases/upgrades

Increasing revenue and funding the cost of customer acquisition in your market/industry via digital channels, etc

7 Park Avenue Financial technology financing expertise can benefit your firm from your infrastructure and platform financing needs for upgrades and purchases to your client solutions.

 

CONCLUSION - SAAS REVENUE BASED FINANCING IN CANADA

  

If your software firm has a recurring revenue model and proven revenue streams equity-free Saas funding is a great financing tool that avoids ownership dilution in your business at a time when revenue is grown and your valuation increases. That's the promise of 7 Park Avenue financial and other debt providers who, unlike most banks,  don't focus on personal guarantees, balance sheet ratios, etc.

 

Angel investors and VC's will also require board seats! Let's not forget that one.

 

Let the  7 Park Avenue Financial team deliver a revenue-based financing term sheet that meets your growth and capital needs. Saas revenue financing is the solution you have been looking for while you focus on job #1 - customer acquisition.

Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with the challenges of waiting for future cash payments from your clients based on multiples of your monthly, quarterly or annual (ARR financing ) contracts with customers.

 

It's a subscription-based software finance solution you've been looking for. Consider the benefits of having long-term clients that comes with a financing solution via loans for annual recurring revenue financing for your growth initiatives. Saas capital can be utilized over a long period of time while your company uses these funds to grow sales and increase the value of the business.

 

Whether you are an established firm or looking for sales royalty financing for startups we've got the solution you are looking for!

 

 Saas businesses have tremendous growth potential. Growing valuation multiples for SAAS growth companies is job #1! Let's get started!

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is Software As A  Service ( Saas )?

Saas is a software solution based on the cloud computing model. It allows a software firm to deliver its solutions and application via the internet via a website or other applications.  Infrastructure can also be delivered under the Saas model.

 

What is Recurring Revenue Financing?

 

Recurring revenue finance loans provided capital to offset the time required to recognize future recurring sales contracts. If a Software as a service company  ( ' SAAS' ) receives monthly, quarterly, or annual payments from clients the SAAS company can monetize these contracts for cash flow needs.

 

What is venture debt?

Venture debt is financing via loans or lines of credit firm firms that have a history of operations but are still at a point where they don't have operating cash flows sufficient to sustain or grow the company's revenue and are unable to access bank loans and traditional financing. ' Tech banks ' are virtually non-existent in Canada which is the appeal of MRR based loans. With a solid advance rate and no restrictive covenants venture debt works! While Canadian banks of course offer lower interest rates the typical emerging Saas firm cannot access the low-cost bank capital they need.

 

More Information? 

Check out the ' Startup Genome Report ' which identified to the industry that ' premature scaling of Saas businesses led to the majority of business failures in Saas - underlying the importance of critical financing solutions along the way.

 

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/2021

Recurring Revenue Financing Saas Financing | 7 Park Avenue Financial

Buying A Business In Canada : Acquisition Financing

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HOW TO FINANCE A BUSINESS ACQUISITION 

Buying a business in Canada. Talk About Temptation! We’re talking about acquisition financing solutions for private companies and purchasing an existing business that's already profitable, or, on the other hand, a firm that is challenged and due for your turnaround. In both cases, current owners might be motivated to sell, but for different reasons!

 

ARE YOU CONSIDERING BUYING A TROUBLED BUSINESS?

 

How do firms for sale get themselves in trouble? Often it's lack of funding and too much existing debt, as opposed to operating problems which are a whole different kettle of fish. It might be an obvious solution to use your own funds in financing a business acquisition. Those funds typically come from personal savings and investments, equity lines of credit on homes, etc.

 

WHAT ARE THE FINANCING COMPONENTS OF A FINAL BUSINESS PURCHASE

 

However, as a business purchase gets larger in size, it is less probable you will use all or a large part of your personal savings; therefore, a combination of some owner investment, as well as business financing and possible participation from the seller (seller financing ) will most likely be the route you choose to pursue. That combination certainly allows the buyer to consider larger transactions via a third party finance solution.

 

With a solid capital structure, the transition post your purchase will position the business for growth a successful acquisition finance go-forward plan.

 

CAN YOU BUY A BUSINESS WITH NO MONEY DOWN? * SPOILER ALERT - YOU CAN NOT!

 

AT 7 Park Avenue Financial, we often receive queries around the concept of ' 100% Financing ' in financing the purchase of an existing business. In general, this does not exist in the Canadian marketplace for business acquisitions -  ( we can't speak for our more risk-oriented friends in the U.S. ! ) Your owner equity/down payment contribution is your proof of commitment to the deal.

 

Both sellers of companies, as well as commercial lenders, want to see the proverbial ' skin in the game, 'demonstrating the purchaser's commitment to the transaction. Large transactions in Canada make use of private equity funding and equity financing  - this type of financing is not really applicable to the SME/SMB business landscape in Canada.

 

 

THE BUSINESS OF VALUING YOUR ACQUISITION - ESTABLISHING  THE VALUE OF YOUR ACQUISITION TARGET COMPANY

 

Some immediate issues to look into are arrangements with current lenders. This is often the scenario of working capital is extremely limited due to the current financing structure. There are numerous ' valuation techniques ' in business acquisition loans when establishing the right price for the business purchase and ways to finance the purchase.

If a business is already losing money and has poor or negative cash flows, it's time to take a hard look at the assets. There is no perfect method for establishing the value of the business you are buying, and by the way, profits are not the same as cash when evaluating financing an acquisition.

 

A good valuation strategy is to spend the proper amount of time ' normalizing ' the business's financials. That process allows you to take out or add in expenses not currently reflected in the business and look at how revenues are generated and recognized. Review both past sales and profits as well as your ability to estimate reasonable going forward projections.

 

Many firms turn to ' CBV's ' - Chartered business evaluators for valuation advice for the right price around the finance to purchase a business for larger transactions. The good news about existing assets is there are numerous financing strategies around the type of financing needed  to assist in finalizing a transaction with the right business acquisition loan.

 

 

CAN YOU BUY A BUSINESS WITH A GOVERNMENT LOAN? ( YES YOU CAN!) 

 

These solutions include: The Govt of Canada Guaranteed Small Business Loan (It finances assets and leaseholds and has a new maximum borrowing cap of $1,000,000.00 - the interest rate on the government loan, aka the ' SBL LOAN ', is very attractive, as well as delivering on flexible terms via its term loan structure.

 

Sale Leasebacks - Equipment financing and leasebacks preserve cash and allow you to purchase new or used assets with minimum cash outflows - It is a solid way to match the useful life of assets with cash outflow.

 

 

ASSET-BASED LENDING SOLUTIONS

 

Asset-Based Bridge Loans and Business Credit Lines - Leveraging the assets of a business allows the buyer to consider a commercial asset-based lender to facilitate financing the transaction. Not only does this minimize the number of funds you have to invest personally, but it also allows you to capitalize on the true value of the business you are looking at; those assets typically able to be leveraged include fixed assets, real estate, inventory, and receivables. This is true use of the leveraged buyout concept.

 

Seller Financing - At 7 Park Avenue Financial numerous, numerous new clients looking to buy a business do not consider the vendor financing scenario. This is a very viable component of your financing package, and the amount of the loan from the  ' seller note ' and the terms can vary significantly. It's one more tool in your financial toolkit to fund and finalize your transaction.

 

Suffice to say that the seller finance component reduces the amount you will have to finance, which is positive from both purchaser and business lender perspectives. In many cases, the seller will be more open to sharing very detailed and critical information on the business as the seller has a vested interest in closing the deal and preserving the legacy and reputation of the business.

 

Since the seller is not a commercial lender, the terms and rate structure around the ' VTB ' are often more generous than those obtained from banks or finance companies. It should be noted that traditional banks and finance firms will always insist on their financing security ranking ahead of the seller finance component! Nice try, seller!!

 

It would be unusual for the seller component to be larger than what is financed through external commercial lenders, but it still is sometimes a good portion of the final transaction. We can assume that almost all sellers will want full disclosure from the buyer on credit history, business experience, plans for the company, etc. Given they have a vested interest in you, their ' new partner ' for at least a period of time.

 

Naturally, the quality of the assets is key, whether they are fixed ' hard' assets or the assets that represent working capital components - i.e. accounts receivable & inventories.

 

Key point - book values don't tell the true value of the assets, and in some cases, you might need to invest in new technology - i.e. computers/software, etc. (Equipment Leasing is almost always the best way to acquire tech assets given their cash outflow flexibility);This area of ' assets ' should be a top priority in your due diligence.

 

Service companies that have few assets are always more challenging to finance given lack of hard assets. While new owners will almost always be required to put some of their own cash into the business, many financing solutions will also drive the minimum and maximum amount they need to put up.

 

Asset-based lending strategies will often help minimize owner equity investment. While Canadian chartered banks are a great source of financing for acquiring existing profitable businesses, they are somewhat more than reluctant to finance firms with obvious financial challenges.

 

 

BANK FINANCING

 

Banks will almost always focus on a business plan, mgmt experience, the balance sheet and owner personal financial statements. Most purchasers of an existing business will often experience difficulty in accessing total bank financing for the transaction. In a bank transaction for buying the business the bulk of the financing will usually be a term loan that ranks as the senior debt of the company.

Banks will of course place a large emphasis on financial covenants and debt to equity ratios on your acquisition deal via various types of cash flow and 'EBITDA' analysis. Bank financing is always the lower cost alternative if bank lending criteria can be met .

 

Mezzanine financing can be complementary to a small business  term loan and operating line of credit structure - it's very cash flow  based and requires solid proof of historical and present cash flows. Financing is often structured with a mix of senior debt, revolving credit lines, and sub-debt of seller financing making the final buyout structure work!

 

While your business plan and future cash flow projections might be impressive, the banks have a total focus on ' assets ' and ' cash flow. ' They will also place a large reliance on business experience in the industry in question and will be looking for borrowers to demonstrate good personal credit history combined with a reasonable net worth. On certain transactions, you may have to, or choose to, assume the debt of the existing company as part of the financing package.

 

This typically is more advantageous to the seller than the owner for liability-type reasons and should be reviewed carefully if this is a part of your strategy. Suffice to say. Current lenders must also approve the buyer for any assumption of debt. While it is not a ' direct ' bank loan per se, many purchasers of small businesses should consider the Government of Canada Small Business Loan program.

 

This program also works extremely well on franchises. While there are some minimal conditions around the loan program administered by Industry Canada, the program offers good interest rates, flexible repayment, and minimal personal guarantees. All of those should be very attractive to the potential borrower.

 

Prospective purchasers should not forget that a business can be purchased from an accounting and tax and legal perspective as a ' share sale ' or an ' asset sale. ' Purchasing a company from a share sale perspective entails certain risks as you may be acquiring hidden liabilities. Also, buying a business has certain legal fees and miscellaneous costs associated with your transaction. These should be included in your cash flow assumptions, and they might include expenses such as appraisals, legal fees, business advisory fees, etc. 

 

TRANSACTION CLOSED! WHAT'S NEXT? OPERATING THE BUSINESS EFFECTIVELY VIA THE RIGHT TAKEOVER FINANCING STRATEGIES  

 

In the rush and stress to close an acquisition, we find that many prospective purchasers don't give full consideration to the financing of ongoing day-to-day operations. While a firm can be self-financing if its ' cash conversion cycle ' is less than thirty days, it is certainly the most unlikely of circumstances.

 

If your firm does not have a positive cash flow, management can undertake numerous ways to refocus efficiencies - that might include improving days sales outstanding and focusing on better inventory turnover and better payables management with the risk of alienating key suppliers.

 

That need for constant working capital and cash flow replenishment will often focus the business owner and financial manager on looking at a business line of credit. The business line of credit is the cornerstone of operational financing.

These revolving facilities provide cash as you maintain your investment in accounts receivable and inventory. Naturally, service-based industries do not have to concern themselves over the inventory component on the balance sheets of many industrial companies.

 

 SOLUTIONS FOR THE BUSINESS LINE OF CREDIT REQUIREMENT 

 

Various subsets of asset-based lending provide solution funding for ongoing day-to-day operations posts the acquisition phase.

 

 BUSINESS PURCHASE FUNDING SOLUTIONS 

 

Asset-Based Non-Bank Lines of Credit - These credit lines are based on all the business's collateral and usually imply a larger amount of financial leverage. These borrowing facilities are usually a bridge to getting a company back to traditional bank financing and don't come with the often more severe covenants and ratio requirements required by our chartered banks.

 

Invoice Factoring / Confidential Receivable Financing - A/R financing strategies are probably the most popular cash flow solution in current times; they allow a business to cash flow their sales immediately and assist in avoiding the waiting period to collect receivables which can easily run anywhere from 30-90 days - At 7 Park Avenue Financial we will often recommend Confidential Receivable Financing, allowing you to get all the benefits of factoring as well as being able to bill and collect your own invoices

 

Equipment Financing / Sale-Leaseback Equipment leasing and leaseback strategies minimize cash outflows to purchase new and used equipment, including technology finance requirements.

 

Purchase Order Financing / Inventory Loans - P O Finance solutions allow your suppliers to be paid directly by the commercial lender for large orders and contracts that your firm might otherwise not be able to finance based on the current working capital structure. Inventory financing can be a standalone finance solution or combined with various a/r and working capital solutions such as factoring.

 

Financing Refundable Tax Credits - For firms in Canada that utilize the federal government SR&ED program, companies can cash flow their refundable credits via an SRED loan, allowing the company to recoup valuable r&d capital through the programs refundable tax credits

 

Supplier Credit - Many purchasers neglect to investigate the potential of supplier financing, which generates cash flow given that extended payment terms delay the outflow of cash

 

For purchasers and businesses not focusing on a larger transaction that might benefit from private equity, mezzanine financing, venture debt etc., it is important to consider all financing options available. Various combinations of alternative finance and traditional Canadian bank lending must be investigated.

 

In any type of business, purchasing leverage is the ultimate double-edged sword. A solid financing package will ensure you are not over-leveraged with debt while at the same time assuming you will have operating financing facilities in place to fund the merger or acquisition.

  

CONCLUSION  

 

It is challenging to recover from over-leverage in any environment, especially when sales are declining. The bottom line?  By considering acquiring another company, and when buying an existing profitable or challenged business, have a strong understanding of your opening balance sheet and the proper mix of current assets and debt.

 

Understand the value of your hard assets and ensure you have a strategic plan and financing in place to cover working capital needs to finance an acquisition properly as well as ensuring you understand options and the competitive state of the market.

 

Looking for a loan to buy a business in Canada and finance an acquisition? Seek out and speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor to assist you in the resources needed and the financing to buy an existing business and ensuring the company's management team is positioned properly with solid financing for sale of it's good and services.

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

How difficult is it to finance an acquisition?

Business acquisition financing can be potentially challenging based on a number of factors that banks and commercial lenders take into account - The overall financial viability of the business, as well as management experience, are key factors for buying a business successfully with a combination of debt, credit lines, and owner equity.

 

What happens to debt in an acquisition?

Buyers will normally either assume existing debt with the permission of current lenders, or they may choose to structure new debt and credit facilities. In share sales, buyers are responsible for all debts even if they are not known at the time of the purchase.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Buying A Business Acquisition Financing | 7 Park Avenue Financial

Factoring Financing In Canada - Reasons To Consider Factoring

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How To Crack The Code In A/R Cash Flow Financing 

( Immediately ) !

Factoring  Financing in Canada has a limited number of options, and factoring is certainly becoming one of them. When we meet with Canadian business owners and financial managers to discuss their working capital and cash flow problems, customers are either self-financing or requiring cash flow assistance, or their current financing needs do not provide them with the working capital and cash flow they require.

Although invoice factoring has a long history and is the way many businesses acquire short-term capital, a ' factoring loan ' does not bring debt to your balance sheet. Here's what you need to know.

 

THE CHALLENGE OF ACCESSING BANK FINANCING IN CANADA

 

Canadian banks are among the strongest and most successful in the world - part of that reason is their somewhat conservative stance to Canadian business financing - That conservative stance serves shareholders very well, but certainly doesn’t help small and medium-sized business owners achieve their financing needs.

So where does your business get the cash flow it needs?  Long-term borrowing, i.e. what the finance people call 'term debt' is not really the solution for day-to-day operating and working capital needs.  Companies generate cash from the 'current assets' portion of their balance sheet. That involves the following asset categories:

 

Cash

Inventory

Accounts Receivables

 

Invoice Factoring via commercial factoring companies in Canada focuses on turning receivables into immediate cash.  And Yes, there is a cost and a process but those costs and that way of doing business can be properly justified with the help of a trusted and credible advisor in this area of Canadian working capital finance.

When we meet with business owners to discuss their working capital needs it is essential they understand their working capital situation and requirements.  You don't need to be a full-fledged chartered accountant to measure your working capital situation and needs.

 

HOW  TO ASSESS YOUR WORKING CAPITAL AND CASH FLOW NEEDS

 

By taking a few numbers from their financial statements customers can monitor the level of working capital to fund the business, and make payments on any debt the company has i.e. loans, leases, etc.

Those calculations are very simple but not always properly understood or monitored by our customers.  For example, determine your current working capital by taking your current assets and subtracting current liabilities - it’s as simple as that. Then monitor this number against the following items:

Sales

Total assets

Total liabilities

By - at least on a monthly basis - analyzing these very basic numbers will show your trends in your working capital needs and any deterioration that might be setting in.

 

 

IS INVOICE FACTORING THE SOLUTION TO YOUR BUSINESS CAPITAL NEEDS?

 

Well, to this point we have discussed the problem - Is ' discount factoring ' the solution? It can be as long as the business owner understands what it costs and how it works. Would the business owner prefer to access cash immediately on making a sale, or wait 30 days to .. yes.. 90 days to collect a receivable? The fast application process and fast funding are why thousands of businesses, including your competitors, use third-party a/r finance via invoice factoring companies.

 

 

 FACTORING COST? HOW MUCH DO FACTORING COMPANIES CHARGE

 

Factoring works as follows if you have properly structured a facility for your own particular business model and way of doing business. You simply sell, or ‘factor’ accounts receivable invoices as you generate them. You receive 80-90% of the money immediately, the balance on payment from your customer.

 

There is of course no 'free lunch' in Canada so a financing fee, or 'discount fee' is deducted from the funds due you. In Canada this can be in the range of 1 to 2 1/2% on average- that is known as the factoring discount. Your ability to negotiate the best fee and the type of facility that suits your daily paperwork is probably going to come from working with a trusted and credible advisor in this area of Canadian Finance.

 

RECOURSE VERSUS NON RECOURSE FACTORING

 

 

How does accounts receivable factoring work when it comes to your credit policy? Canadian businesses can choose to maintain their current bad debt and credit risk policy via a standard recourse factoring agreement, or they can choose to access a non recourse facility which allows the company to transfer the risk to the factoring company at a higher facility cost.

 

 

 

How Factoring Can Make Your Company More Successful

 

Understanding the basics of factoring in Canada revolves around understanding why a Higher turnover of receivables, i.e. via factoring, is a great indicator of a successful company.  Your company is in a better position to invest funds, pay creditors in a timely fashion, and grow and profit your business.

If your firm could sell more because it had the working capital to finance receivables and inventory and purchase more goods you are turning over assets constantly and generating more profit. Therefore the 1-2% cost of the factoring is hardly what the Canadian business owner should focus on.

THE COMPETITIVE ADVANTAGE IS BEING SUCCESSFUL VIA FACTORING SOLUTIONS

Does factoring make sense for your business? You can also extend credit terms to major customers or new potential customers, which becomes a major competitive advantage - like your firm your customer also views 'cash as king' and will probably reward you with new business.  Offering larger amounts of credit to good customers, with great payment terms is a great way to increase your competitive presence via the factor companies solution.

 

 

 CONCLUSION

 

Want to take your business further with the experts in small business lending in Canada. It's important to know what to look for in a factoring company in Canada!

At 7 Park Avenue Financial we offer the best factoring company solution to clients - Confidential Receivable Financing - it allows your firm to bill and collect your own receivables on a full or selective basis - Talk to our team for more info.

Factoring might not be the solution for every firm in Canada, most certainly it is not - BUT - if you can't get the financing you need it's a solid working capital Canadian alternative. For Canada factoring solutions speak to 7 Park Avenue Financial, a trusted business financing advisor to get the facility that suits your business and needs.  Learn the main reasons why factoring is a good choice for your companies growth finance needs.

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is Factoring -

The process of factoring invoices allows a company to sell its invoices to an invoice factoring finance company and access cash immediately for the investment they hold in outstanding A/R. The transaction removes invoices from the balance sheet and adds cash to the bank account. Businesses can factor finance all their receivables or selective invoices.

 

What factoring companies do?

 

A factoring company specializes in invoice factoring, or purchasing outstanding invoices from businesses that have slow paying customers and are looking to boost cash flow. This allows a business to access cash immediately after issuing an invoice, instead of waiting 30-90 days for the customer to pay

 

Is a factoring company worth it?

Invoice factoring and financing  works for business owners that require cash and who can demonstrate they have reliable customers that have a history of paying invoices on time - A company should be able to demonstrate good gross margins to afford the 1-2% factoring fees that come with selling invoices to a third party.

 

ADDITIONAL RESOURCES:

 

Here's a great article from Inc. Magazine on the business of factoring - Click here for the article

 

 

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/2021

Factoring Financing In Canada | 7 Park Avenue Financial

How To Use Factoring Financing In Canada For Cash Flow Needs

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Your Working Capital Needs Just Got Solved By Factoring Finance

FACTORING AS A SOURCE OF FINANCE IN CANADA

 

Factoring  Financing in Canada for Canadian small and medium-sized businesses is somewhat limited due to the financial alternatives available to Canadian business owners and financial managers.

 

Also, the overall structure of our banking system, although conservative and strong, by its own nature limits working capital and debt options, especially for assets like commercial accounts receivable. Small and medium-sized businesses in Canada need a form of financing to achieve growth objectives when addressing the future of business funding.

 

WHAT IS ACCOUNTS RECEIVABLE FACTORING FINANCING?

 

If your company is trying to grow significantly, or in some cases, survive, your company needs access to business capital. Using invoices as collateral is a way to achieve that via factoring financing companies.

 

 

 

WORKING CAPITAL FINANCING SOLUTIONS 

 

 

When we meet with Canadian firms to discuss their working capital arrangements and needs, the meeting generally starts with discussing the working capital need. Receivable financing is where the majority of that financing comes from. We can, of course, discuss the matter ‘technically‘ also. Finance analysts and bankers looking at your financial statements can quickly calculate what is known as the ‘Quick Ratio' :

 

 

That is simply taking our cash on hand and receivables, adding them up, and dividing by your current liabilities. As accounting-like and technical as this may seem, we strongly recommend to business owners that they monitor this figure quarterly, monthly, and annually – it’s a great investment in understanding your cash needs as well as your days sales outstanding performance.

 

 

"WHEN THE BANKS SAYS NO" 

 

When business owners are faced with cash flow and working capital challenges, owners must address what solution is available to increase cash flow; and invoice factoring via a commercial factoring company is one solution.

 

Factoring financing institutions are usually non-bank commercial finance companies in Canada, who unlike the bank finance your company while the focus is not dependent on your balance sheet.

 

 

If your company does not have traditional Canadian chartered bank financing, the concept of ‘factoring' has the ability to remedy your working capital challenges. A/R Financing does not focus on the credit history of owners, unlike how an owner's credit score is a key focus in Canadian business banking. That's one of the key advantages of factoring financing in Canada.

 

Receivables finance vs factoring comes down to the issue of either assigning your receivables to a bank of selling them on a selective basis to suit your cash needs. Businesses have to have decent gross profit margins to absorb the factoring finance cost and receive immediate financing upon approval of the facility.

 

 

Factoring in Canada provides you immediate cash for your receivables that you otherwise would be waiting for 30, 60, and yes, unfortunately, sometimes 90 days for your funds from customers. If we go back to our ‘Quick ratio'  example, we can see that your cash and receivables on hand might clearly not be able to cover your current liabilities, most notably accounts payable, Government source deductions, etc.

 

  

FACTORING COMMERCIAL ACCOUNTS RECEIVABLES IS CASH FLOW MONETIZATION AND NOT DEBT ON THE BALANCE SHEET  

 

We can't overemphasize that factoring as a solution is not ‘borrowing‘ or term debt as the bankers like to call it. It is simply a method of liquidating your current assets earlier than you anticipated, giving you the cash flow to pay supplies, employees, etc. That is the solution delivered by factoring companies.

 

 

The basics of ‘factoring’ in Canada vary widely. That is partly because, in our opinion, factoring in Canada is viewed much differently than where it originated in the U.S. and England. We, therefore, encourage customers to understand what the Canadian factoring environment is all about so they do not lock themselves into a financing strategy that is contractual in nature, has too high a cost, and is not productive from a daily paperwork point of view.

 

 

Many businesses in Canada have major misconceptions about factoring as alternative financing. When we meet with customers, we continually find we are clearing up those misconceptions by discussing the following points:

 

The Canadian Factoring landscape is very different than in the U.S.

 

Canadian businesses in Canada generally have the perception that factoring is both intrusive to their customers and that the overall credit quality of their customers limits the amount of funding that your firm can receive under a factoring facility. When we talk to customers, we can show them ways to offset most - sometimes all! - of the costs of factoring.

 

  

WHAT DOES FACTORING COST   

 

Many customers view the actual factoring cost as an ‘interest rate. ‘ This is a poor way of looking at the cost – a better way is to view your ability to get unlimited cash flow financing at the expense of a 1-2% reduction in your gross margins. Prompt collection of your accounts receivable will reduce your financing costs.

 

 

  

 

EXAMPLE OF HOW FACTORING WORKS  ON A DAY TO DAY BASIS   

 

 

Many Canadian firms also don’t understand the day-to-day basics of factoring – we can, for explanation purposes here, simply say that it is the selling or 'discounting‘ of your receivables in two steps.

 

You receive 80-90% of the cash for the invoice the day you generate the invoice, and it is a true earned or ‘owing' invoice. You receive the balance when the customer pays you, less the 1-2% discount fee that we talked about earlier.

 

 FACTORING VERSUS PURCHASE ORDER FINANCING:  CAN PO FACTORING FINANCING AND RECEIVABLE FINANCE BE USED TOGETHER 

 

Clients at 7 Park Avenue Financial sometimes confuse factoring in Canada with Purchase Order Financing. They are not the same. The factor/a/r financing solutions is a method to cash flow your invoices from creditworthy clients - Attached to that is a fee in the 1.5-2% range, so a client should have typically good gross margins to absorb the financing charge. For more information on how P O FINANCING works, click here.

 

CONCLUSION

 

Are factoring services  Canadian business the panacea and ultimate solution for every Canadian firm? Definitely not. Can it help thousands of small and medium enterprises in Canada fix their funding challenges? Absolutely yes!

 

Work with 7 Park Avenue Financial,  a trusted and experienced advisor in this area to ensure you have the best facility, the right asset based finance factoring company at the best rate that suits your business model and way of doing business over the long term via a factoring financing solution. Let our team be the growth strategy funding experts you have been looking for.

 

 

 

 

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

 

 What is factoring?

 

Factoring is a business finance transaction and is a method of selling accounts receivable/outstanding unpaid invoices at a discount. The factoring of accounts receivable allows a company to meet its short-term debt obligations by using this customized flexible approach method of ' debtor finance' as a type of line of credit.

 

How does factoring finance a company?

 

Factoring debt financing works for business when a financing company, known as the ' factor ' provides business capital to a company by purchasing and paying for outstanding invoices for creditworthy clients of a business. Typical advances on the receivables are in the 85-90% range and funds are advance promptly, usually same day or the next day. Companies receive the balance of the invoice advance when the debtor pays, less a factoring fee.

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

Factoring Financing In Canada | 7 Park Avenue Financial