Unlocking the Power Of Business Financing Cash Flow: Discover Cutting-Edge Business Financing Solutions and Finance Alternatives

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YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!

Beyond Traditional Loans: Exploring Innovative Finance Options for Your Business

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the biggest issues facing  the business owner today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

 

BUSINESS FINANCING ALTERNATIVES IN CANADA 

 

 

Business financing ensures small business owners have the 'fuel' to operate and grow their companies.  But do some owners/financial managers sometimes fool themselves by thinking their current cash flow and finance alternatives work? We believe that might be the case regarding bank loans, cash flow lenders, and business finance.  Many options In cash flow based lending might be a good choice for your company. Let's dig in.

 

 

INTRODUCTION  - CASH FLOW BUSINESS FINANCING ALTERNATIVES IN CANADA

 

Whether you are bootstrapping your business for cash flow, every business owner knows that cash flows are vital to long term success - Understanding your alternatives that can help your business run smoothly and knowing what is available is key.

 

Companies with different types of assets require a complete understanding of how those assets can be liquidated, acquired, or monetized.  Sometimes, traditional bank loan lending might give your firm the lending solution you need. That's up to the bank and other lenders, for the most part, based on the overall financial condition of your business. In the long run, you might find that your financing is best suited to a non-bank alternative lender.

 

WHY ALTERNATIVE FINANCING? ALTERNATIVE BUSINESS FINANCING VS TRADITIONAL FINANCING

 

Business owners view banks as the go-to solution for secured and unsecured loans. However, banks will often require collateral to secure financing at the low rates provided by banks. However, banks typically only lend to companies with solid credit history, profits, and cash flows for repayment. Business owners also know that accessing approval on bank financing is very time-consuming.

 

Traditional business financing includes term loans and lines of credit from a bank or credit union. Commercial banking approval rates from banks are lower than those of alternative lenders. Approvals from banks may take a longer time.

 

Alternative lenders charge a higher premium if they offer funds to underfunded businesses. These lending methods are easier to apply for online. A business loan from a bank usually has a lower interest rate and a longer repayment term than alternative lending. You typically need at least two years in business to get a bank loan.

 

For those that can't access all (or any?!) of the finances, they need a revolving line of credit from an asset-based lender that will allow your firm to secure the type of cash flow/working capital you need.  It should also never be forgotten that simply managing payables and maximizing supplier credit is a key to overall cash flow management.  Companies with the potential to secure new large orders/contracts should also consider export guarantees or PO financing as an alternative to a small business loan.

 

There are some more esoteric and not always-considered options that, in the past, have been more exclusive and reserved for larger companies. These include 'securitizing' your sales or considering a convertible debt solution. That's another example of how alternative lenders provide business finance solutions to capital and cash flow needs.

 

A more commonly accessed type of funding for a cash flow loan is mezzanine finance, essentially unsecured cash flow loans. They are often reviewed as a 'bridge'; between debt finance and the dreaded 'equity' dilution that is not desired by owners wishing to retain full ownership and control.

 

 

 

HOW TO INCREASE CASH FLOW WITH ALTERNATIVE FUNDING  - ALTERNATIVE  SMALL BUSINESS LOANS 101!

 

Some individual and unique 'subsets' of asset-based alternative loan  strategies include:

 

Confidential Receivable Financing / Invoice financing for outstanding invoices/accounts receivable- this financing method is one of the most popular and accessible business funding solutions in Canada and a solid alternative to lines of credit for business.

 

It's a financing option that is paid back based on sales growth and helps to build business credit  - no debt is added to your balance sheet. Significantly less time in applying and approval is a big plus, unlike bank loans, which might take several months for many common types of bank financing.

 

The amount of money you can borrow under this funding method is unlimited and related to your sales growth and asset turnover in accounts receivables. Factoring is a practical solution for businesses with unpaid invoices - allowing the company to gain immediate cash flow. Invoice discounting/invoice factoring is Canada's most popular accounts receivable financing method.

 

Non-Bank Asset-Based Lines of Credit - Asset-based lines of credit via asset based lending is another popular non-bank option - providing revolving credit facilities and allowing the business to pay interest only on funds borrowed, given that the credit line fluctuates and replenishes with cash inflows. Asset-based lines of credit are secured by business assets such as receivables, inventories, fixed assets and commercial real estate - unlike a bank business line of credit which is typically unsecured.

 

Purchase Order Finance - Purchase order financing allows businesses to access capital when they receive large purchase orders or contracts - Business lenders provide funds required to fulfill orders, and lenders are repaid when customers pay. Supply chain financing and purchase order funding / Order fulfillment loans are creative ways to fund growth.

 

Inventory  Financing  - Financing inventories allows a business to leverage inventory to secure business funding - inventory financing for stock-based loans is often combined with receivables in a line of credit facility.

 

Revenue Based Financing - Revenue-based financing is a flexible approach to capital - Funding is based on a percentage of future revenues, giving a business a revenue-sharing financing approach without taking on debt on the balance sheet. Revenue-driven loans are prevalent in the ' software as a service industry.

 

Equipment Financing - The best acquisition tool for financing long-term assets for the small business owner - the most common leases are capital ' lease to own' options or operating leases signifying more of a short-term rental situation.

 

Royalty finance

 

Merchant Cash Advances  / Short Term Working Capital Loans for Small Businesses are a solid alternative to traditional loans with long amortizations - Poor credit history/credit score of owners can derail this type of funding -

These loans are lump sum loans typically repaid from sales or credit card sales over a 12-24 month period while covering business expenses - Small loans in the 25-150k range are typical under the merchant cash advance. These future ' sales-based loans ' evolved from retail merchant funding around credit card and debit card sales and are popular and accessible online. They provide a quick injection of funds for a percentage of future daily sales. A minimum personal credit score of the business owner is required.

 

Business Credit Card -  credit card financing is a convenient short-term solution to finance small business expenses under a revolving credit concept with predetermined credit limits, along with offering various awards

 

ALTERNATIVE FINANCING FOR SMALL BUSINESSES

 

Big Canadian banks approve only a portion of loans for small businesses, so it is prudent for business owners to explore financing solutions and funding alternatives.

Alternative lenders approved a large share of SMB loan applications. Alternative fintech lenders grew despite dwindling customer interest in traditional banking.
 

It should always be remembered that higher interest rates on alternative funding solutions are always more costly but provide access to capital.

 

Funding for startups can often be accessed through the Government Of Canada Small Business Loan program. Industry Canada delivers and sponsors. This solid program which is somewhat similar to a traditional bank loan. This program was modelled around the Small Business Administration ' SBA ' loan. Excellent credit, i.e. typically, a credit score of 650 is required by the

 

Interest rates/interest payments under the program are very competitive. Many entrepreneurs use the program for startup funding in the early stages of their business idea /project. Talk to the  7 Park Avenue Financial team to determine whether your local bank or credit union participates in the government-guaranteed loan and how to identify potential ' bad credit ' issues.

 

Grants and Subsidies: 

 

Governments and some other organizations often provide grants and subsidy programs to support businesses in specific industries or promote innovation. These non-repayable funds can be a valuable source of financing, allowing companies to fuel their growth, develop new products, or engage in research and development. Canada's Sr&ed program is a popular government funding program, and sr&ed refunds can also be financed.

 

Let the  7 Park Avenue Financial team help you with a winning business plan that meets and exceeds the requirements of banks and other commercial lenders.

 

These solutions distinguish themselves for many business owners because they provide billions of dollars of capital for SME COMMERCIAL FINANCE needs in... are you ready???... A very short period!

 

It's all about quick access to cash as far as most firms are concerned. At least, that's what business folks tell us. They hate it when financing stifles their ability to 'seize the moment' regarding new sales opportunities.

 

THE PERSONAL GUARANTEE ISSUE FOR SMALL BUSINESSES 

While personal owner guarantees are required for traditional bank loans and in almost all Canadian business financing for private firms, there is less emphasis on these guarantees regarding various alternative finance solutions. But for the most part, it's all about 'timelines' and the ability to access cash.

 

 

BENEFITS OF ALTERNATIVE FINANCING  

 

Alternative financing options offer several benefits, including more flexible borrowing requirements and faster approval. Many companies that can't access the financing they need from traditional financial institutions have access to numerous funding options in the alternative lending landscape in Canada. While many forms of alternative funding have higher rates, they can provide the capital access a company needs to fund day to day operations and access growth opportunities.

 

 

CONCLUSION - SOLVING YOUR CASH FLOW & BUSINESS GROWTH  

 

Boosting your cash flow is essential to the success of your business. Whether you choose a traditional or alternative financing option, evaluating each option carefully and considering the pros and cons is necessary.

If you're unsure which financing option is right for your business, consider speaking with an experienced Canadian business financing such as 7 Park Avenue Financial.

Managing cash flow is crucial for the survival and success of any business. By exploring cash flow financing solutions and finance alternatives, companies can optimize their cash flow, overcome financial hurdles, and position themselves for long-term growth.

 

Canada's business owners have several ways to secure business financing.  There are plenty of different options in terms of financing. Therefore your research on this will help determine the best solution for you. The good news is you never need only a traditional bank to get the funding for your business. Venture capital, peer-to-peer marketplace lending, and a crowdfunding platform are out of reach for ' raising money ' credit options.  They probably are!

 

Even traditional business loans are often not attainable for many firms. Funding small businesses in Canada can often be challenging - If your company is looking for some cash flow 'fuel' from forms of finance that will help you grow and run your business and for more information, speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you in taking your business to the next level. Stop pretending that newer financing options for business aren't for you!

 

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  

What is alternative lending?

Alternate lending describes loans that occur not within a conventional financial institution. Alternative loans are more flexible and often have a fast application turnaround. Alternative lenders often offer loans in smaller amounts than banks which often specify minimum loan terms that are too high for a small business.

 

Alternative lenders also offer unconventional lending options that enable businesses to leverage the assets like the account receivable or the sale of credit cards instead of borrowing on credit. Many types of alternative loans are available. Hence there will likely be an alternative loan out there that matches your situation, and many types of alternatives are available to banks and traditional lenders.

What are the benefits of alternative lending?

Every business needs working capital to flourish. With poor funding options, startup enterprises will likely be forced into a slowdown quickly. Avoiding traditional bank loan routes may seem impossible, but there is a whole range of small business financing options accessible for entrepreneurs. Understanding the most competitive financing options will increase a  company's longevity and chances of survival. Have the right analysis that helps you get the proper credit options to suit your business needs.

  

What exactly is cash flow business financing?

  

Cash flow business financing refers to various strategies and methods businesses use to manage and optimize their cash flow. It involves accessing funds to cover operational expenses, invest in growth opportunities, and ensure smooth day-to-day operations from the business bank account.

 

 Why is cash flow financing important for businesses? 

 

Cash flow financing is crucial for businesses because it helps ensure a steady inflow and outflow of funds. It allows businesses to meet their financial obligations, manage working capital, seize growth opportunities, and maintain a healthy financial position in the business's cash flow.

 

 What are some common finance alternatives to traditional bank loans for businesses? 

 

 Finance alternatives include invoice financing or factoring, non-bank business line of credit, merchant cash advances, crowdfunding, angel investors and venture capital, peer-to-peer lending, grants and subsidies, and bootstrapping. These alternatives provide businesses different avenues to secure funds based on their specific needs and circumstances.

 

 How can cash flow financing solutions help businesses in challenging times? 

 

Cash flow financing solutions versus a traditional business loan can provide businesses quick access to funds during challenging times, such as economic downturns or unexpected expenses. They offer flexibility, speed, and tailored approaches to address immediate cash flow needs, helping businesses weather financial uncertainties and maintain stability.

 

What factors should businesses consider when choosing between different finance alternatives?

 

Businesses should consider factors such as their specific funding requirements, repayment terms, interest rates or fees, eligibility criteria, long-term implications, and the alignment of the financing option with their growth plans. It's crucial to assess the pros and cons of each alternative and determine which option best fits their unique situation and goals.
 

 What are some Alternative options for financing?

Alternative financing options for small businesses include cash flow lending solutions such as peer-to-peer lending, business credit cards, crowdfunding, microloans, invoice financing, and merchant cash advances. These options are becoming increasingly popular, especially for businesses not qualifying for traditional financing.

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

Factoring and Invoice Cash Can Boost Your Business

 

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING!

Unlocking the Benefits of Factoring and Invoice Cash: A Comprehensive Guide

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing businesses today

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

 

SOLVING THE CHALLENGES OF BUSINESS CASH FLOW

 

 

INTRODUCTION 

 

Businesses often face  numerous challenges when it comes to managing their cash flows and the ability to maintaining a steady cash flow is vital for any business to stay afloat.  With often limited resources, many businesses may struggle to secure loans or lines of credit from traditional financial institutions.

That is when invoice financing / factoring comes in as a viable solution - allowing a business to cash flow their receivables / unpaid invoices , thereby improving cash flow without the need to take on any balance sheet debt .

 

  

WHAT IS  INVOICE FACTORING AND HOW DOES IT WORK?  

 

Invoice cash - can a factoring or working capital facility actually reduce your financial expenses and allow your business to grow at any rate profitably?  Invoice factoring involves 3 parties - the company , the customer, and the factoring company.

Factoring is a business financing solution that allows business to finance accounts receivable in exchange for immediate cash . Under traditional ( we can call them old school ) invoice factoring companies can also assume responsibility for payments to the company -  At 7 Park Avenue Financial our recommended solution for factoring finance is Confidential Receivable Financing, allowing a company to bill and collect  its own invoices, with no notification to clients.

Businesses that have good quality receivables can receive approx 90% of the invoice value as invoices are generated - ie the factoring company pays same day! The balance of 10% is returned to the company when the client pays, less financing factoring cost.

 

 

 

TRADITIONAL FINANCING OPTIONS FOR BUSINESS  

 

Traditional financing options for businesses / small business owners in Canada  include term  loans, lines of credit, business credit cards, etc.However, these options may not be suitable for all  businesses and  bank loans require collateral and a strong business  credit history as well as a good personal credit history from owners . Some traditional finance options take on additional debt to the balance sheet which can add an additional layer of risk for the business.

 

 

 FACTORING / FINANCING ACCOUNTS RECEIVABLE A GREAT SOLUTION  FOR BUSINESS CASH FLOW?

 

When is comes to  understanding the challenges of business cash flow it often becomes an issue of being unable to predict  sales revenue and cash inflows. 

 

Businesses will experience fluctuations in sales revenue for a variety of factors - Some of those factors include:

 

Seasonality or Cyclical trends in the business and industry

General economic downturns in the economy

Unexpected expenses

Inability to access  working capital loans or business lines of credit from traditional financial institutions due to their limited financial history or lack of collateral.

This can make it difficult for small businesses to access the capital they need to grow and expand their operations.

 

FACTORING FINANCING IS A GROWING TREND IN A BUSINESS FINANCING STRATEGY

 

Canadian business owners and financial managers keep hearing about firms that 'factor' their accounts receivables, their 'invoices. ‘  This is a growing trend in Canada that has caught on to a financing strategy that has been successful in the U.S. for several years. Any company with outstanding invoices and  good receivables can qualify for invoice factoring , aka invoice discounting and can use invoice factoring profitably.

 

WHAT DOES  INVOICE FACTORING  COST?

 

Is there a ' perfect ' financing solution for your firm that provides you with unlimited working capital and is actually cheaper than bank financing when you realize that you are carrying receivables 30, 60, and 90 days on your balance sheet? 

 

While we might agree there is no 'perfect' financing solution for all Canadian firms everywhere, we strongly feel that we can very EASILY demonstrate that invoice cash, known as factoring or receivable discounting, will take your firm to the next level of sales and profits.

 

IS FACTORING A CHEAPER ALTERNATIVE TO BANK FINANCING? YOU DECIDE

 

Let’s get back to our statement of how you can reduce your financial expenses and grow your sales at any growth rate. We will even add that you can 'profit' from this financing strategy.

 

HOW FACTORING CAN REDUCE FINANCE EXPENSES AND GROW SALES REVENUE AT ANY RATE PROFITABLY

 

We have to get a little technical here, but bear with us! --

 

AN EXAMPLE OF A FACTORING  TRANSACTION

 

Let’s say your firm has sales of 1 Million dollars, you have 40% gross margins, and you have operating costs of 38%, leaving you a 2% net income on your sales. Included in those costs are your bank financing costs from, for example, a Canadian chartered bank. We would point out that your bank credit line has a limit, and at a certain point, your customers are paying you in 30, 60, and 90 days. You are fully utilizing your line of credit.  Are you able to take new orders and contracts without new external financing - we don’t think so!

 

DOUBLED SALES / NO EXTERNAL FINANCING / INCREASED PROFITS

 

So what's the solution?! We have one for Canadian business owners or their financial managers. Let us set up a working capital factoring facility for you. The kind that we prefer is 100% non-intrusive - that is to say, you will continue to bill and collect your own accounts receivable.

 

We call it non-notification. Ask any other firm if they like how their factoring facility works. If they don’t have a non-notification facility, they will tell you they don’t necessarily like it for several reasons, mainly customer intrusion, etc.

 

So we have our facility set up. You take on new orders and contracts and double your sales to 2 Million dollars.

 

 Your competitors start talking about you!

 

Using the factoring or invoice cash facility, you get paid the same day that you invoice clients.. At the end of the year, your sales are 2 million, they have doubled! Your net profit would be 130k, not 20k; you would have paid 70k in factoring and financing costs and still have made a lot more profit - in our example 110k more profit.

 

  

THE CASH CONVERSION CYCLE - FACTORING AND ASSET TURNOVER IMPROVE RETURN ON ASSET / RETURN ON EQUITY AND NET PROFIT !

 

  

Again, we realize we're getting a little technical and accounting oriented in our example and explanation - so what is the layperson's bottom-line explanation of what just happened - It is as follows -

 

You doubled your sales, you had no concerns about external financing or taking on new debt, and your profits went up a lot!

 

Technically what happened is what KPMG calls on their website the ' Cash conversion cycle ' - you have turned over assets much quicker. Therefore you have a greatly improved return on assets, return on equity, and net profit.

  

BENEFITS OF FACTORING FOR  A BUSINESS FINANCE SOLUTION  

 

Benefits of factoring for business include

 

Improved working capital  - companies can meet short term obligations and avoid temporary cash flow shortages

No additional debt or financial obligations - Factor Finance does not add debt to the balance sheet

Access to capital - companies unable to access traditional financing can secure business capital to grow and expand

Reduced administrative burden -  Businesses who utilize notification type factoring  can transfer credit and collection responsibility to the factoring finance company

 

 

 CONCLUSION - 

 

Factoring offers several benefits -  including improved business  cash flow, access to capital, and reduced administrative expenses around the credit and collection cycle . Factoring is not a loan per se , so small businesses do not take on additional debt or financial obligations. Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. Factoring can be a viable solution for small businesses that are experiencing working capital shortages or need access to capital to grow their operations.

 

In summary, invoice cash, factoring, receivable discounting, or whatever you want to call it (at our firm, we call it a working capital facility) works. It can work for you.

 

Call  7 Park Avenue Financial,  a trusted, credible, and expert business financing advisor, and run the numbers. You will find you just got off the cash flow merry-go-round, and that’s a good thing.

 

 

FAQ:FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION 

 

 What are Common misconceptions about factoring 

There are several common misconceptions about factoring - so it is important to understand how to use this financial tool -

Factoring  business receivables is expensive -

Factoring fees can vary depending on the size of the accounts receivable and the creditworthiness of the customers as well as the size of the credit facility However, factoring fees are typically lower than the interest rates charged by traditional financing options such as long term loans - In some cases factoring can be less expensive than bank financing

Factoring will damage customer relationships -

Factoring companies are experienced in handling customer relationships and will work to maintain positive relationships with the customers. Additionally many companies have the option of considering non-notification factoring financing solutions - allow them to bill and collect their own invoices -  factoring can allow a  business to offer more flexible payment terms to their customers, which can improve customer satisfaction and increase sales Slow paying customers can also be financed, as long as the  unpaid invoice is less than 90 days old.

Factoring is only for businesses with poor credit -

Factoring is used by companies of all size, including large corporations - Factor finance is based on the creditworthiness of the accounts receivable base , so any company with good customers can benefit from receivable finance.

 

 How do business owners  choose the right factoring company for a business?

Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. When choosing a factoring company, small businesses should consider the following:

 Fees - financing costs  vary, so small a company considering a/r finance  should compare fees from different lenders  to ensure they are getting a competitive rate.

Customer service  - Businesses should choose a factoring company that offers excellent customer service, including prompt  same day payment and efficient collection of accounts receivable.

Industry experience

Some factoring companies specialize in certain niche industries, for example trucking and staffing agencies - Businesses should choose an invoice  factoring company that has experience working with businesses in their industry and is properly geographically located

Companies should carefully review the contract terms offered by the factoring company, including the length of the contract, the termination clause, advance rates,  and any miscellaneous  fees that occur when comparing invoice factoring vs other types of working capital financing or bank loan financing.

 

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

Condo Corp Loan Financing In Canada: Condo Term Loans Make Absolute Sense In Numerous Circumstances

 

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YOUR CONDOMINIUM CORPORATION NEEDS A FINANCE SOLUTION!

CONDO CORPORATION FINANCING 101 -

Surviving the Special Assessment: A Condo Owner's Guide to Unexpected Costs

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

CONDOMINIUM CORPORATION LOANS CANADA

 

Condo corp loan financing is a growing need arising out of numerous situations confronting the condo corporation directors and the owners they represent. 

 

 

 

INTRODUCTION - CONDOMINIUM CORPORATION LOANS  

 

Condo association /Condo corporations can borrow money to fund major repairs and upgrades to the condominium corp - Talk to the 7 Park Avenue Financial team about making this process easy and ensure the proper steps are in place to avoid any complexity around the loan and ensure financing reflects condo fees paid by owners.

 

 

  

BENEFITS OF CONDO CORPORATION LOANS   

 

The condominium corporation has many benefits from taking out a condo loan. The first is maintaining a  healthy reserve fund, which will help them if any project or building unit repairs go wrong.

Maintaining strong finances helps keep the functioning of a condo corp going more smoothly while also protecting investment in unit owners' condominium property values via effective condo corp term financing solutions. Adequate financing via properly structured condo loans eliminates a special assessment and prevents owners from paying a  large lump sum.

 

Repairs and upgrades can be addressed immediately as required without waiting to reserve funds to accumulate.

Financing costs are competitive, and the cost of the financing can be amortized over the life of the project - it's a common sense financing strategy to match the useful life of assets with the term of the financing - that helps minimize the impact on condo fees to the owners.

 

While it may well be that cash and reserves cover needed investment to repair the common property or to address major repairs/upgrades and renovation costs, the condo board and the property management firm must consider borrowing via condo term loans when funding major maintenance et al.

 

INSURANCE

 

In numerous cases, some damages or repairs may be covered by the insurance policy of the condominium corp. This will depend on policy coverage and the types of damages, repairs, and upgrades the board may require.

 

 

 

BREAKING DOWN CONDO FINANCING AND UNDERSTANDING  SPECIAL ASSESSMENTS, RESERVE FUNDS  

 

The financing of Condo corps has long been an underserved market sector for their funding needs for necessary repairs when traditional business banking solutions are not available for providing term loans for the growing demand in this real estate sector via funding of majors repairs to the common elements  Let's dig in on a deep understanding of this subject.

 

 

 

 

WHY DO CONDOMINIUM CORPORATIONS BORROW? 

 

Loans for registered condo corporations make funds available and finance capital expenditures related to major repairs or replacements from things such as plumbing fixtures down through exterior finishes and whatever affects the general living conditions within these premises via replacements, add ons and repairs and alterations.

 

Long-term care and upgrades of existing condominium supply will remain essential to Canada's high-profile housing situation around individually owned units and exploding condo developments on the Canadian landscape.

 

Condo loans work and can assist projects that are either primary residences, vacation homes, or investment properties.

 

 

SPECIALIZED CONDO TERM FINANCING 

 

There are numerous reasons, many of which we will cover for condominiums to seek special financing. Of course, financing is the alternative to depleting the condo corp reserve, or... Heaven forbid, issue a special assessment to each condo owner.

 

WHAT IS  A SPECIAL ASSESSMENT

 

The condo boards and property managers will have to approve a special assessment for any repairs needed if financing is unavailable if the reserve has no or does not have enough money, and when owners pay or have to pay special assessments to replace or repair common property. Owners have a key interest in the ongoing resale value of their property.

 

The condo boards and property managers will have to approve a special assessment for any repairs needed if financing is unavailable or if the reserve has no or does not have enough money, and when owners pay or have to pay special assessments to replace or repair common property. Owners have a vital interest in the ongoing resale value of their property.

 

 

Special assessments are the funding that is required when the condo corp's reserve fund is either unable to bear the cost of a significant repair or upgrade to common elements  - That involves the board of directors of the condo corp levy a specific assessment to individual condo owners to cover the costs of repairs of upgrades - It is common to spread the cost of the repairs and upgrades equally among unit owners relative to their proportionate interest ownership.

 

In any case, while many condominium owners and their management might maintain a positive and healthy reserve, the full depletion of that reserve is highly undesirable.

 

FINANCING CONDO CORPORATIONS  / CONDOCORP TERM FINANCING

 

While good planning, cash flow forecasting, and reserve analysis are the essence of any solid condo mgmt owner/mgmt team, surprises often occur, as they do in any business. That's when a condominium corporation loan might make sense to save the day.

 

Condo repair and upgrade financing is a specialized form of financing. In many cases, the transaction certainly isn’t ' collateralized' in the same manner as a typical business corporate entity might be. So it's clear that solid loan application expertise is required for the condominium corporation to borrow effectively. That ability to translate the condo corps' payment ability into the real world of cash flow is critical.

  

 

 CRACKING THE CODE OF CONDO CORPORATION FINANCING   

 

In many cases, Canadian chartered banks don't offer this type of financing; it's highly specialized, as we have noted. Considering that the individual owners move and the board and condo mgmt company can also be in flux over the years, the term 'specialized finance ' makes tremendous sense.

 

What documents are critical to a solid borrowing plan from a lender's perspective? Key elements include a budget and cash flow forecast, historical and current financials, and specialized docs specific to a condominium, such as a reserve study.  That cash flow analysis is reviewed carefully as with any other regular business operating entity.

 

While in theory (and law!), the condo corp can issue special assessments and ' liens' on the property. Those actions are highly undesirable and not how the boards of condominiums like to operate. By the way, boards that intend to borrow require a solid bylaw to be in place, ensuring the board of directors has full authority to borrow.

 

  

Funding majors Repairs To Common Elements Of Condominium Property 

 

Lenders will also want to ensure proper use and disbursement of funds vis the reserve and operating expenses. Characteristics of a good condo cor loan are that they are for proper repairs warranted in  ' common element' areas. Condominium repair loans are typically structured as term loans with fixed interest rates. Larger projects might be funded in stages via ' progress payments.'

 

Careful care should be taken by the board (and the lender!) to ensure cash outflows match the asset or improvement's useful life or repair.

 

  

 CONCLUSION - FUNDING MAJOR REPAIRS IN THE CONDO CORPORATION  

 

If you're looking for financing for registered condominium corporations and expertise in condo finance for repairs and improvements that bring financial flexibility and health to your condominium corporation, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who has a long successful track record and who can assist you with condo term loans that make sense.

 

Let the 7 Park Avenue Financial team show you how providing tailored financial services and effective condominium corporation financing for Canadian condominium corporations helps and increases the equity/ownership value of your property and the health of condo financials. We're a boutique financial services company that can help you with your economic challenges.

 

   

 FAQ: FREQUENTLY ASKED QUESTIONS /  PEOPLE ALSO ASK / MORE INFORMATION    

 

 What is a reserve fund?

Financing significant repairs to the condominium corporation invoices the spending of reserve funds.

Also called a  ' sinking fund, this is a savings account into which a condominium corporation regularly contributes. The fund is intended to cover the cost of significant repairs or replacements of the condominium's common elements, such as roofs, elevators, boilers, and parking garages. The amount to be saved is typically determined by a reserve fund study, which is an in-depth analysis of all the major components and systems of the condominium, their remaining lifespan, and their  replacement cost.

 

 

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

Acquisition Financing In Canada - How To Finance A Business Acquisition

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YOUR COMPANY IS LOOKING FOR  FINANCING TO BUY A BUSINESS

FINANCING A TAKEOVER VIA  DEBT FINANCING AND CASH FLOW FINANCE

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

FINANCING AN ACQUISITION

 

Business acquisition financing of another company, appropriately done, plays a crucial role in helping to grow a business. Profitably!

 

INTRODUCTION

 

Financing your business acquisition with the proper financial planning plays a crucial role in purchasing an established business - Proper financing allows the entrepreneur to expand operations and leverage existing assets.  It is important to understand financing options and the various implications that come with those funding options, and whether they are available for entrepreneurial success in buying a business.

 

 

While there are some common ' go to ' solutions when buyers seek acquisition funding, such as lines of credit, traditional loans, etc., other financing options are available to enhance business operations. Specialized financing via non-bank private lenders is often a final solution, and these alternative solutions come with less strict criteria than those requirements by traditional financial institutions.

 

Bank financing for an acquisition focuses heavily on stable sales revenues, good cash flow, profits, and collateral. In some cases, those aren't always all available!

 

 

DO YOU HAVE THE INFORMATION YOU NEED TO BUY A COMPANY?

 

We're talking about the proper buy-side strategy in acquisition financing in the Canadian market,  whether that's m&a financing, a management buyout, or simply loans to buy a business in Canada. Let's get you to the goal line in your business buyer letter of intent to purchase a business and that final sale and purchase agreement.

 

Your purchase might sometimes be part of a succession planning process in transferring business ownership and a management buyout. Let's dig in on business acquisitions and the various types of acquiring a company with alternatives suited to your specific needs! Think of it as your buying a business checklist from 7 Park Avenue Financial.

 

ESTABLISHING VALUE IS  CRITICAL TO A SUCCESSFUL FINANCING OF A BUSINESS PURCHASE

 

Buyers can use various business valuation methods to determine the target company's value. In some cases, buyers can analyze the amount of time and cost it would take to start a similar business in areas such as technology, sales costs, financing costs, acquiring assets, hiring staff etc.; that is a lot of work!

 

Some purchases can use analytical techniques such as the company's net asset value or compare comparable prices to earning ratios of public companies in a similar industry.  Other methods, such as net present values of future cash flows in the analysis of the financial statements are more technical and might require the help of an experienced business valuation professional,

 

The Harvard Business Review has an excellent article on ' paying too much '  when buying a business - Click HERE for the article.

 

WHAT IS ACQUISITION FINANCE

 

Acquisition finance is all about the different types of capital that can be sourced to buy a business or, in some cases, merge with another. Funds can come from a variety of sources in Canada. Given the potential complexity of any deal, successful acquisitions and financing services will always have a plan attached to them.

 

In most cases, one type of financing may not provide the total solution, so a ' cobbling' together of different financings will ultimately lead to a successful transaction.

 

In some cases, established businesses might be looking for what is known as a tuck-in or bolt-on acquisition - considered for augmenting an existing business.

 

The question? What are the best sources of financing and business capital to complete your transaction based on financial flexibility and the cost of capital? The buyer can focus on the best acquisition financing solution to establish the target company's value.

 

CONSIDERING THE  ' DEBT VERSUS EQUITY ' QUESTION IN BUYING A BUSINESS

 

Financial professionals tell us debt is cheaper than equity  - a reasonable debt level will ensure no risk of diluting owner equity  - Naturally, debt levels are always a concern. Long-term debt can be a challenge to the financial health of a business. The key  benefit of more owner equity in a transaction is that it does not require repayment and will allow a company to assume more debt under the right circumstances,

 

 

WHAT ARE THE KEY WAYS TO FINANCE YOUR TRANSACTION 

 

Sales of business are completed by either a share sale or an asset sale, naturally for public companies, a significant share transaction.  Cash may also fund your transaction, often unlikely in the private sector, given the potential deal size. Most firms are acquired through debt and the cash flow monetization of assets - and in some cases, an acquisition bridge financing solution as a path to a complete transaction.

 

Most transactions are a combination of senior debt via a term loan based on assets or cash flow financing ability, which typically is the bulk of the total solution and complemented by an operating credit line or unsecured mezzanine cash flow loan.

 

Mezzanine loans/mezzanine financing is cash flow-based, and historical and present cash flows are analyzed carefully. Mezzanine finance is unsecured debt and ranks behind other secured lenders, meaning a higher risk level for the ' mezz ' lender.

 

Debt is much less expensive than equity, a financial point not always contemplated by many business purchasers. Cash flow financing, or mezzanine finance, might include a smaller equity component. Mezzanine financing provides additional flexibility to your transaction.

 

Key elements of your acquisition analysis include the target firm's profitability, overall cash flow potential, and the amount of debt it can manage post-acquisition.

 

When a transaction cannot be completed on a 'cash flow ' basis, the ability to assemble a proper asset-based finance solution is key. Asset-based finance - ' ABL' used the key assets of the target company to complete the transaction.

 

Those assets include equipment, real estate, accounts receivable, and inventory.  A strong asset-based will always help in a transaction with more leverage than typical.

 

As a potential business purchaser, you need to focus on financing your deal and converting that purchase price into a successful transaction within proper due diligence in m&a financing.

 

 

 

REASONS FOR PURCHASING A BUSINESS OR FINANCING A TAKEOVER

 

Why would you consider purchasing an existing business?  Reasons vary but are not limited to:

 

- Growing revenues faster

- Expanding into new markets or geographies

- To eliminate some existing costs and therefore increase profits

-  capitalize on new technologies /products/clients

 

 

Naturally, firms can grow ' organically' via various means, such as the introduction of new revenue sources, marketing strategies, and new clients - That takes time, of course, which is part of the appeal of buying another firm, allowing you to reach synergies and economies of scale. In some cases, real estate acquisition loans can be a part of a transaction, requiring additional expertise.

 

Various critical parts of the existing balance sheet can play a vital role in the financial acquisition of your purchase correctly. A solid example of this is to table the issue of a  ' vendor take-back / seller note ' that can alleviate the amount of capital you have to either put in... or borrow.

 

Those elements will shape your final financing structure and your equity investment in the business. That becomes your proof of commitment to your bank or commercial business lender.

 

Naturally, not all sellers are motivated to stay in the deal. Still, a fair vendor take-back note has two great advantages in financing the transition to new ownership  - reducing the amount you need to borrow and enhancing some of the cash flow requirements that a lender might be concerned about.

 

It might be opportune to mention to a seller that, in some cases, a higher sale price can be achieved with a Vendor take-back type deal.

 

The existing accounts receivable must be addressed in transactions we have worked on. Putting some... or all of the existing A/R into the deal may offer particular advantages to you as a buyer.

 

So let's get to the ' nub ' of our issue -  Funds can come from various sources!

 

WHAT FINANCING STRATEGIES AND LENDING SERVICES ARE MOST COMMON IN ACQUISITIONS FINANCING

 

The most commonly used and almost always successful (if done properly!) include these solutions from acquisition financing lenders ->

 

 

 

ACQUISITION FINANCE STRATEGIES IN CANADA / BUSINESS ACQUISITION FINANCING OPTIONS

 

Government Business Loans ( The SBL Guarantee Loan now has a limit of $1,000.000.00 )   Remember that this type of loan only finances equipment and leaseholds, so another form of financing may be required to complete your transaction.

 

Nonetheless, it's a classic small business loan for smaller companies with the help of the Government of Canada.  The federal government loan guarantee allows many small businesses to be purchased successfully - The program is similar to the U.S.  SBA loan under America's Small Business Administration. It provides a lower down payment requirement and competitive interest rates.

 

Borrowers must meet minimum requirements regarding net worth, income, good personal credit scores, etc. Ask the 7 Park Avenue Financial team if this loan program works for your business purchase.

 

The interest rate and flexible payment terms are a key part of the success of this program which is utilized by thousands of entrepreneurs every year. Buying a franchise in Canada is a common use of the Canada Small Business Financing Program. Talk to the 7 Park Avenue Financial team if this loan makes sense for your business purchase.

 

The vast majority of business purchases with government loans tend to be a small businesses or a franchise, given that the term loan portion of the transaction has a limit of 350k. A real estate component is often handled separately from an operating business.

 

Bank Term Loans/ Revolver and lines of credit facilities - These are critical elements of finance to buy a business - Receiving financing through your bank as the financing institution involves understanding the requirements of traditional bank loans to secure the funding you require via a bank financing term sheet. Canadian banks will, of course, strongly emphasize financial covenants and final debt ratios / EBITA calculations, etc.

 

Asset-based loans / leveraged buyouts:  These loans finance all or parts of receivables, inventory, and equipment, as well as provide revolving credit lines for the ongoing business. Asset-based lending via lender financing can help solve some of the traditional challenges of buyouts and acquisitions as an acquisition financing ' lbo model. '

 

Asset-based financing acquisitions are a solid solution for business purchases that don't meet criteria around cash flows. Using the target company's assets, such as accounts receivable, inventory, real estate, and even potentially intellectual property, allows for a business purchase that relies less on covenants and guarantees. Any business acquisition around a solid asset base can use those business assets to unlock capital versus a ' cash flow analysis' type of valuation in due diligence.

 

Utilizing ' ABL ' via leveraging assets is a reliable method to maximize the potential financing needed. Structured or  Leveraged acquisition finance via an asset finance solution can shorten the timeline of your transaction as alternative finance solutions tend to be arranged much more quickly. However, financing rates and fees can be higher than a bank solution.

 

Focusing on the actual value of assets such as accounts receivable, inventories, and equipment maximizes finance potential. Asset-based lending is higher cost but can help you achieve business purchase success.

 

It's essential to consider the share purchase vs asset purchase choice as the transaction has positive and negative aspects for both the buyer and seller depending on which deal closing is agreed upon.

 

Unsecured cash flow loans and Term Loans

 

Franchise Loans (Franchising is a huge part of the Canadian economy)

 

Let's not forget seller financing/owner financing, sometimes known as ' vendor take-back financing ', allows the buyer to reduce the funding required to complete the transaction.  A Properly crafted vendor take-back loan will reduce the amount you are required to finance and are a common way of engineering a successful deal when the seller agrees to participate in your transaction. In some cases, a creative earn-out payment with the seller might be able to be negotiated.

 

Seller financing is, in effect, a deferred purchase price deal.

 

Owner financing, aka a ' seller note, 'can be a very creative way to complete an acquisition - The strategy also helps sellers to sell a business more quickly via their participation in the transaction- Buyers benefit from reduced costs of financing and seller finance strategies often come with more flexible terms and reasonable interest rates.

 

When buying a business, questions should always include whether the seller would help with vendor finance.

 

At 7 Park Avenue Financial, we get many inquiries around  100 percent acquisition financing on an acquisition deal,  which is generally not available in Canada as Canadian commercial lenders/banks, etc., require your proof of personal commitment to the transaction.

 

That equity financing commitment will not be the lion's share of your transaction but still varies based on various factors, including the type of transaction, industry, deal size, and overall perceived credit quality.  A potential solution might be a third-party investor or partner.

 

Large Canadian transactions might consider private equity firms, although this is rarely an option in the ' small business' SME/SMB company regarding a leveraged buyout.

 

CONCLUSION - BUSINESS ACQUISITION LOANS CANADA

 

Acquisition financing is a required tool for buyers looking to purchase a company. Understanding how it works and ensuring you are up to date with various business finance options helps the business owner make informed decisions and allows for leveraging the benefits of different traditional and alternative business financing methods. Whether it's conventional loans from banks, government loans, alternative loans via asset-based lending, or a combination of own equity and seller financing will allow the business purchase to realize financial objectives.

 

Financing is often a factor in the proper preparation of a transaction. If you're focused on obtaining financing and a commitment letter on the acquisition of a business and if you need expert advice on business acquisition and the right financing solutions properly.

 

Speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with buying and financing a business properly with acquisition debt financing that makes sense. Grow your new business with proper financial solutions to make a successful acquisition.

 

We'll work closely with you to finance an acquisition and determine the best acquisition finance structure and the methods of valuation you might employ to complete your transaction and understand earnings quality to achieve your desired future growth strategy in financing acquisitions.

 

That final capital structure and company recapitalization is your key to entrepreneurial success. In many cases, the more information you have, the better prepared you will be to succeed with a loan to buy a business in Canada when financing a takeover.

 

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

 

What is acquisition financing, and how does acquisition financing work?

 

Acquisition finance refers to business capital used to purchase another business via debt and equity finance. The financing provides the resources required to close a transaction between a buyer and seller on favourable terms for both parties. All cash deal transactions are rare in SME acquisitions, and typically, a bank loan /alternative debt funding and owner down payment make up a final capital structure.

 

  

What are the common choices for acquisition financing?  

 Common choices include lines of credit, traditional loans, Government Small Business loans, debt security, and owner financing, and each type of financing requires a risk assessment.

 

  

How can companies secure acquisition financing from traditional banks or specialized lending services?  

 

Companies can apply for loans through traditional banks or specialized lending services by meeting their requirements, such as demonstrating steady revenues and profitability.

  

 What happens to debt in an acquisition?   

When a company acquires, it will either assume the target company's debt on its balance sheet, deduct it from the total sale price, or repay it before closing the deal. The buyer can negotiate with the lender and reduce the target company's debt to lower the total acquisition cost.

 

How does a bridge loan work in acquisitions?

 

Bridge loans are types of acquisition financing acquisition loan that are a means of quick funding to fill a gap until a company can obtain long-term financing or if the transaction requires more equity capital. These are short-term loans for companies to secure and fund a business acquisition or a leveraged buyout with asset backed financing or mezzanine debt, or subordinated debt based on the company's cash flow when there is enough free cash flow to support debt.

 

What is an earnout?

An earnout in the acquisition financing process on target companies is a financing mechanism that provides additional payments to the seller's shareholders if the business achieves specific financial metrics or milestones. An earnout is used when the acquiring company wants to buy the target firm for a lower price, but the seller believes the valuation should be higher based on projected cash flow and profit margins.

In case of an earnout, both parties will agree to the transaction at the lower price, but the seller is guaranteed they will "earn" a portion of sales and profit after the acquisition is closed. The earnout period is typically between 1-3 years but can last up to five years.

 

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

How To Obtain Business Financing In Canada / From Capital to Success: How Debt Financing Fuels Business Expansion

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YOUR COMPANY IS LOOKING FOR  BUSINESS FINANCE SOLUTIONS!

Business Financing: Exploring Debt Financing and Cash Flow Solutions

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CONTACT:

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

Direct Line = 416 319 5769

  

The Path to Financial Freedom: Exploring Debt Financing and Cash Flow Strategies

 

Business financing in Canada has never been as important as in recent times. A company can fail in the best of times, whether it's poor finance practices around your existing financing strategy or simply the inability or lack of knowledge around business capital, cash flow, and working capital solutions. At 7 Park Avenue Financial, we believe any firm can benefit from a better overall financing strategy.

 

INTRODUCTION

 

Business financing plays a  key role in how your business grows and operates on a daily basis. One aspect of financing your business is taking on debt - Debt finance works in different ways and has implications around costs and pros and cons around balance sheet debt.  We'll take a look at managing debt and costs and look at cash flow and asset-based lending solutions as well. The question of ' How much debt is right for your company is important - here is an article from the Harvard Business Review on the subject.

 

And boy, have things changed! Long gone are the days when funding a company simply revolved around low-interest long-term bank loans, when approval seemed cumbersome but ultimately successful.

 

HOW DEBT FINANCING WORKS  

 

Debt financing is a business financing mechanism that allows companies to raise capital - and requires repayment of a combination of principal and interest. It differs from equity financing which requires giving up partial ownership in the business. Debt financing is generally regarded as a less expensive form of financing than equity.

 

 
THE COST OF DEBT FINANCING   

 

Taking on debt financing that requires principal and interest payments has a substantial influence on a company's cost of capital - Ensuring the business owner understands the relationship between the cost of debt and how this capital is deployed is key to ensuring ongoing profit of the business.  Also, lenders and owners measure the relationship between debt and equity and the amount of debt relative to the company's capital stack- Lower debt is preferable and helps the company ensure future funding will be available for growth and the financing of day-to-day operations. 

 

7 Park Avenue Financial's vision was founded specifically on that landscape that changed. No secret that these days, not all business borrowers fit the mould of traditional financiers such as the Canadian chartered banks.

 

 

DEBT FINANCING AND THE COST OF FINANCE / INTEREST RATES

 

Safe to say that interest rates play a key role in taking on debt in your business. Overall business creditworthiness will always affect the cost of financing and the lowest rate that can be achieved. The ability of the company to ensure it can maintain appropriate covenants and balance sheet ratios is key to how lenders view debt financing.

The right combination of debt and equity will ensure access to capital and the ability to grow cash flow and maintain ownership and control of the business.

 

 

PROS AND CONS OF DEBT FINANCING  

 

Debt financing has several advantages including the ability to use capital for accelerated growth of the business - Interest payments are a business tax deduction and the lower cost of debt financing is preferred over the owner having to give up equity ownership to raise capital.

The challenges of debt funding include the business risk associated with cash flow not being sufficient to make payments which have several negative consequences.

 

CASH FLOW VERSUS ASSET-BASED LENDING SOLUTIONS

 

 

Many cash-flow financing solutions are available withing the asset-based lending business landscape in Canada. These solutions differ from cash flow-based financing and don't rely heavily on projected cash flows - instated they focus on monetizing the business assets on the balance sheet - accounts receivable, inventories, fixed assets, commercial real estate, etc.  Each business will have to determine which option may be preferred over the other.

 

THE ONLINE LENDER OPTION -  BUYER BEWARE!

Many businesses try online lenders - yet while the applications and loan process is viewed as online, there is a distinct lack of personalization that your company and industry might need. Even worse, the multitude of online lenders confuses the business owner, if not downright deception, in a few circumstances.

In the case of the short-term working capital industry, which evolved out of the U.S. Merchant cash advance loans, many Canadian borrowers have found they can approach and get approved by several lenders.. in effect, they ' stack ' new loans on top of each other

When investigating online solutions, we encourage clients to ensure they are dealing with a trusted, credible and experienced Canadian business financing advisor with a track record of business financial success to eliminate any disastrous financing.

A proven solution towards the path of solid business financing is to analyze short and long-term cash flow needs ( a cash flow plan ) that allow your company to understand where liquidity is needed.

An  ' informed ' business borrower armed with proper knowledge of the types of financing and the cost of their financing needs is the best scenario to strive for. In many cases, your industry will typically benefit from many of your competitors' financing types, which can assist your own firm's funding journey.


While many owners/ managers and entrepreneurs in general focus on sales revenue growth as the key metric to success, that motivation has to be complemented with good cash flow management & financing solutions geared to your cash flow and asset monetization needs.


Sales will drive a lot of your financing choices and will, in many cases, dictate or suggest what type of debt finance or asset monetization you will utilize.  While it's important to be optimistic about sales growth, that same revenue issue can be a source of stress regarding cash flow.


One reason why? Simply because building inventories and receivables and investing in new assets are cash uses, not sources, as our good friends accountants would say.

While cash flow and sales budgets are important  and reflect good management  the real world dictates that  Murphy’s law will often kick in, which might mean:

Large New Sales or Contract Opportunities

Seasonal cash flow needs

Loss of a major customer

 

WHAT IS THE BEST SOLUTION TO FINANCE SALES GROWTH

 

ANSWER:  A traditional or alternative business line of credit ( traditional = non-bank)


1. Canadian Chartered banks


2. Non-bank commercial finance asset-based credit lines



It often takes new/used assets to build and grow a business, i.e. equipment, machinery, rolling stock, technology a la computers, software, etc. In that case, equipment lease financing is your best bet as it conserves cash flow and matches the benefits of the asset in question to cash outflows. From start-up to mega-corporations, 80% of all-size businesses utilize lease-based asset financing.

 
 

BUSINESS FINANCING FOR SMALLER/NEW COMPANIES IN CANADA

Newer businesses and smaller businesses, including startups, should consider the Canadian Govt Small Business Loan - aka the  ' SBL ' loan. That loan is guaranteed by the govt and only requires a 10% personal guarantee against the loan, which can be anywhere up to 1 Million dollars depending on the asset you wish to finance. A good owner personal credit score is required.


Cash flow concerns boil down to liquidity.  The 2nd most liquid asset you have on your balance sheet is receivables. Collecting them promptly and financing them properly is key to business success.


For those firms that can't access or get approval for the amount of business credit line, they need numerous solutions are available, the most popular often being  A/R financing via a ' factoring' or 'Confidential Receivable Financing ' invoice financing program. This solution monetizes sales as you generate revenues - instant cash. Key advantages include instant liquidity and no additional debt on your balance sheet and the ability to forecast cash flow needs.


Businesses in Canada's SME sector (small to medium enterprises) will never have too much cash. Increasing sales, buying assets, and hiring people drain cash- sometimes slowly, other times not so slow!


Some other solid real-world solutions to cash flow and loan needs include:

SR&ED Tax Credit Financing


Sales Leasebacks


Unsecured cash flow loans


Short Term Working capital loans

Mezzanine Financing  ( Unsecured cash flow term loans )

 

 

 

CONCLUSION - UNLEASHING THE POTENTIAL OF DEBT FINANCING AND CASH FLOW FINANCE SOLUTIONS  

 

Debt financing of some amount is a critical tool for companies that want to grow - allowing the business to leverage business capital and maintain control of ownership of the business. Accessing business financing at reasonable rates is always more beneficial than equity financing - but the business owners must ensure repayment and debt load can be managed effectively.

 

Many cash-flow financial solutions and asset-based lending combined can help the business manage finance costs and ensure the relationship between debt and equity is optimal and can help sustain the company's growth ambitions.

 

Businesses can achieve these goals by managing cash flow on a day-to-day basis via cash flow planning and sales projections.

Financing a business in Canada, in ordinary or extraordinary times, takes some time, knowledge and access to funding solutions that are in your firm's best interest. Stay educated and ensure you are working with someone on your side when it comes to maintaining finance solutions tailored to your business health.

 

At 7 Park Avenue Financial, we call that ' Financing With The Intelligent Use Of Experience '!

 

 

  

  

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION   

 

 What is the difference between debt financing and equity financing? 

 

 Debt financing involves borrowing money that must be repaid, while equity financing involves selling ownership stakes in the company. Debt financing allows the company to retain ownership control without diluting ownership while leveraging capital.

 What are the advantages of debt financing? 

 

Debt financing allows businesses to leverage a small amount of capital for growth, the interest payments on business loans come with tax deductibility, and the company retains ownership control. It is also generally less costly than equity financing.

 What are the risks associated with debt financing? 

 

One risk of debt financing is that interest must be paid to lenders regardless of business revenue and financial performance via the company's expected cash flows.  This can be particularly challenging for businesses with inconsistent cash flow. Additionally, taking on too much debt can increase the cost of capital and reduce the value of the company when wrong investment decisions are made.

 How does cash flow-based lending differ from asset-based lending? 

 

Cash flow-based lending relies on credit terms around projected future cash flows of a company to determine loan eligibility, whereas asset-based lending considers the balance sheet assets as collateral. Cash flow  lending is suitable for companies with strong projected cash flows but limited physical assets, while asset-based lending is often preferred by companies with valuable assets but potentially tighter margins or unpredictable generated cash flows around cash flow projection.

 What are the factors to consider when choosing between cash flow-based and asset-based lending? 

 

 When deciding between cash flow-based and asset-based lending to borrow money, companies should consider their future cash flow stability, availability of collateral, and their specific financing needs around sustainable growth  Cash flow-based lending may be faster and require less collateral, but asset-based lending can provide access to larger loan amounts based on valuable assets. Companies with consistent cash flow and strong balance sheets may opt for asset-based lending, while those with strong projected cash flows but limited assets may prefer cash-flow-based lending.

 

 How does debt financing affect cash flow

Debt financing can have both positive and negative effects on positive cash flow:

Positive Impact: Debt financing can provide a boost to cash flow in the short term. When a company secures a loan through debt financing, it receives an infusion of capital that can be used to fund operations, invest in growth opportunities, or meet immediate financial obligations. This injection of funds can help improve cash flow by ensuring that there is sufficient liquidity to cover expenses and maintain a healthy working capital position reflected in the cash flow statement

Negative Impact: On the flip side, debt financing requires regular interest payments and eventual repayment of the principal amount. These financial obligations can put a strain on cash flow, especially if the company's revenue streams are inconsistent or there are challenges in meeting the scheduled payments. The outflow of cash for interest payments can reduce the amount of available cash for other operational needs, potentially affecting the company's ability to invest in growth initiatives or respond to unexpected expenses.

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