Bridge Loans for SRED: Turning Tax Credits into Cash Flow

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YOU ARE LOOKING TO MAXIMIZE SR&ED BENEFITS WITH SR&ED FINANCING YOUR SRED CLAIM

Maximizing Cash Flow: How Bridge Loans Supercharge Your R&D Projects

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Let us help your firm just like our hundreds of other satisfied clients.

        Financing & Cash flow are the biggest issues facing business today

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

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Maximizing Business Growth with SR&ED Financing Bridge Loans | 7 Park Avenue Financial 

 

 

 

Accelerate Your Innovation: SR&ED Bridge Loans Demystified

 

Why consider SR&ED financing? Read on because we're about to show you how it can accelerate your R&D projects and boost your working capital

 

 

 

Unleashing the Power of SR&ED Claim 

 

Gimme a reason. That’s what clients often ask when we talk to them about the benefits of both filing an SR&ED claim and then considering SRED financing as a cash flow strategy around SRED funding for sr ed credits/sr ed projects in Canada for cash management and cash flow and working capital.

 

 

The SR&ED Program: A Valuable Resource 

 

You want reasons, and we have reasons for you to consider...Businesses of all sizes in Canada utilize the SR&ED program in Canada to be eligible to receive a huge portion of their expenses in R&D via a non-repayable tax credit.

 

  

Surprising Benefits of SRED Financing  

 

When we tell clients they can utilize an SRED financing strategy to increase cash flow and working capital via the R&D credit, well, frankly, they almost can't believe it.

  

 

Eligibility and Components of an SR&ED Claim  

 

There isn’t a day when the government issues cheques for millions of dollars on the Scientific Research and Experimental Development (aka SRED!) Program, so let’s all agree that you are eligible for your share. And if you're working on processes and products and redesign in your industry then the salaries, products and equipment and even some overheads are taken into account when you file an SRED claim.

 

  

SR&ED Claim Process  

 

The SR&ED claim process is tied to the Canada Revenue Agency. They receive your claim and process it at the same time you file your year-end tax return. If you are okay with 'waiting’... and most of our clients are not, you will get a significant cheque back from Ottawa in a number of months.

 

  

Accelerating Your SR&ED Refund  

 

Clients are always asking us how long they have to wait for a refund, and if there is any way to speed up the process. Far be it from us to be the ones to be telling someone from the government to speed up the process. But what we do advise clients to consider is to finance their SRED funding credit as soon as they file it.

 

  

 Financing Your Tax Credit   

 

Why would you want to finance a tax credit?

There are only two reasons, cash flow and working capital now! By monetizing your tax credit you are in a position to take the government rebate and put it to positive use within your company. And what are those positive uses? It's the basics - reduce your payables, buy new equipment, reinvest in your entire SR&ED claim process to increase your competitive advantage...and on it goes. Basically, use those funds for any worthwhile purpose.

 

  

Speed and Simplicity of Financing  

 

How long does it take to finance a claim and what's involved? That's not an atypical question. In our experience claims are financed within two to three weeks. And could the process be any more simple - it's all about completing a simple business financing application, utilizing your SRED claim as collateral, and undergoing any normal due diligence. Claims of any size can be financed, it typically makes sense to finance claims that are in excess of 100k... but smaller claims can be monetized also.

 

SR&ED Financing for Startups and Small Businesses

 

While larger companies often utilize SR&ED financing, it's less commonly known that startups and small businesses can benefit immensely from it. Startups can use SR&ED financing to accelerate their R&D initiatives, attract investors, and gain a competitive edge in their industries. This approach allows them to compete with more established players and secure funding while navigating early-stage challenges.

 

 Environmental and Sustainable SR&ED Financing 

 

In an era of growing environmental awareness, some businesses are focusing on R&D projects related to sustainability, renewable energy, and eco-friendly technologies. SR&ED financing can be used to support projects aimed at reducing carbon footprints, conserving resources, or developing sustainable products. This uncommon take aligns SR&ED claims with broader environmental and social goals, contributing to a greener future while benefiting from tax incentives.

 

  

Key Takeaways  

 

SR&ED financing is a working capital financing strategy that leverages the Scientific Research and Experimental Development (SR&ED) program in Canada to secure funding for research and development projects.

Bridge Loans: These are short-term loans designed to provide immediate funding while waiting for SR&ED tax credits. Bridge loans bridge the gap between filing a claim and receiving the actual credit.

SRED Claims: Refers to claims made under the SR&ED program, where businesses can recover a significant portion of their R&D expenses through non-repayable tax credits.

Cash Flow Management: Understanding how SR&ED financing and bridge loans can improve a company's cash flow, helping it meet financial obligations and invest in growth.

Canada's SR&ED Program: A brief overview of the Canadian government's program that incentivizes businesses to conduct research and development activities through tax incentives.

Collateral: SR&ED claims can be used as collateral for bridge loans, reducing risk for lenders and making financing more accessible.

Application Process: A simplified explanation of the process involved in applying for bridge loans, which typically includes completing a financing application and undergoing due diligence.

Timely Financing: The importance of financing SR&ED claims promptly to put the funds to productive use within the business.

 

Conclusion

Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor around SRED funding Canada claims for Canadian businesses.  And use that cash flow which you have achieved in a timely fashion to grow your business strategically and achieve  sales and profits.

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What is SR&ED Financing?

SR&ED financing involves using bridge loans to access immediate funds while awaiting tax credits for research and development efforts for eligible expenditures in Canada. The goal of the program is to support research and encourage Canadian businesses to invest in R&D  and overcome technical challenges in their respective industries. Software development firms are a large part of sred claims filed in Canada.


How do Bridge Loans Benefit Businesses?

Bridge loans bolster cash flow, enabling companies to invest in growth, fund material costs, and reduce payables, and stay competitive while waiting for the tax incentive and SR&ED refunds.


Can Any Business Apply for SR&ED Bridge Loans?

Yes, businesses eligible for SR&ED tax credits can apply for bridge loans, typically with claims exceeding 130k being the most viable candidates. Work in areas such as sales promotion quality control, etc does not qualify under the program and is not true ' technological advancement'.


How Quickly Can I Secure SR&ED Financing?

In most cases, the SR&ED financing process takes two to three weeks, offering a swift solution to cash flow challenges. Accrued sr ed work can also be financed prior to a final filing of your claim with your income tax return.


What's the Role of Collateral in Bridge Loans?

SR&ED claims often serve as collateral for bridge loans, reducing risk for lenders and making financing more accessible to businesses.


Are there tax implications for SR&ED financing?

SR&ED financing is generally tax-neutral for Canadian controlled private corporations,  as it involves accessing your own tax credits early, but consult your tax advisor for specifics.

What is the typical interest rate for bridge loans?

Bridge loan interest rates can vary but are often competitive, and they provide valuable benefits to many businesses beyond traditional loans via the tax refund itself.


Can SR&ED financing impact my eligibility for future tax credits?

Generally, SR&ED financing doesn't impact eligibility for future credits, but it's wise to consult with experts for tailored advice around your work in sred and scientific and technological uncertainty to ensure you have furthered technical knowledge in your r&d efforts to achieve technological advancement and avail your business of tax refunds.

Are SRED  bridge loans only for large companies?

No, bridge loans can benefit businesses of all sizes, especially those with substantial R&D expenditures seeking cash flow optimization.


What if my SR&ED claim is smaller? Can I still apply for financing?

Yes, even smaller SR&ED claims can be financed under the sr ed investment tax credit program for work in scientific and technological advancement-   it depends on your business's unique financial needs and goals.




 

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

How Does Receivables Finance Work?

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Accounts Receivable Factoring: The Secret to Steady Cash Flow

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        Financing & Cash flow are the biggest issues facing businesses today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

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Cash Flow Factoring Accounts Receivable For Cash Flow | 7 Park Avenue Financial

 

 

Transforming Business Cash Flow with Receivable Factoring

 

 

Understand the intricacies of AR finance because this article offers actionable insights to maximize your cash flow

 

 

Introduction to AR Finance 

 

Accounts receivable AR Finance isn't as much a 'secret strategy' as opposed to a method to turn your company sales into a virtual cash flow machine; in effect, past obstacles of cash flow have now become a working capital/cash solution.

 

The Importance of Cash Flow

 

You only have to look at some 'search engine' stats to find that thousands of Canadian businesses search every day for what they hope is valuable real-world assistance around their business financing needs.

 

From early-stage companies to mature medium-sized and even larger corporations ... it's always about unlocking cash flow in their sales and receivables.

 

Debunking Misconceptions and Concerns  

 

When clients of 7 Park Avenue Financial talk to us about their financing challenges, we've found it is easy. Clients can be forgiven for getting bogged down in such issues as the cost of this financing, how it works, and even more importantly, dispelling what they may have heard about 'factoring' and 'invoice discounting'.

Business owners and their financial managers are of course, all for a 'good thing'; and they want to know how accounts receivable financing works, as well as wanting to avoid the pitfalls and negative perceptions that come with this method of cash flow finance.  

 

 

Comparison with Other Financing Methods: 

 

 

Factoring stands out distinctly when compared to traditional financing options like bank loans or lines of credit, as well as other alternative financing methods.

 Cost:

 


        Factoring: Generally, the factoring fee might be perceived as more expensive than traditional financing, with fees typically ranging between 1-5% of the invoice amount, depending on various factoring companies' view volume, industry, and the creditworthiness of the business's clients.

Bank Loans & Lines of Credit:

These often come with lower interest rates than factoring, especially if the borrowing entity has a good credit history. However, there are often additional costs, such as origination fees, service charges, and potential penalties.

Alternative Financing: Methods like merchant cash advances or peer-to-peer lending might have varying costs, sometimes higher than traditional loans, depending on the risk assessment of the business.

Flexibility:


Factoring: Offers high flexibility as it's based on the business's sales. As sales grow, the amount of financing available generally increases. Plus, businesses can choose which invoices to factor.
Bank Loans & Lines of Credit: These have set limits. While lines of credit offer some flexibility in terms of when and how much to borrow, they still have a cap. Loans provide a lump sum, which must be repaid according to the agreed-upon schedule.

Speed:


Factoring: One of the fastest ways to get financing. Once set up with a factoring company, businesses can often get cash within 24-48 hours of submitting an invoice.
Bank Loans & Lines of Credit: The approval process can be lengthy, sometimes taking weeks or even months, especially if it's the business's first time borrowing.

Qualification Criteria:


Factoring: Mainly based on the creditworthiness of the business's clients, not the business itself. This can be beneficial for startups or companies with limited credit history.Bank Loans & Lines of Credit: Require a thorough credit check of the business and often its owners. Collateral might also be necessary.
Alternative Financing: Criteria vary widely. Some methods might focus more on business performance than credit history.

 

Financing Challenges for SMEs

 

We're focusing our discussion here on smaller and medium-sized firms; safe to say that larger corporations have access to a lot more financing possibilities in the realm of traditional bank financing. Some firms that are public companies can utilize working capital strategies and business funding that SME (small to medium-sized) companies can't access.

These smaller firms, which of course, make up a huge part of the Canadian business landscape, have to rely on their internal cash flow management as well as utilizing any external finance they can access to fund ongoing operations, growth, and working capital.

The worst irony in business finance may be that many companies have to give up growth prospects simply because they can't access external business capital. That might mean new clients, new markets, foreign expansion, new product lines, etc.

 

 Understanding Cash Flow Factoring 

 

What is Confidential Cash Flow Factoring / How Does It Work

 

Cash flow factoring of accounts receivable is the ongoing sale, in whole or in part, of your sales invoices as you generate them and deliver products and services to your customers.

 

The invoices are purchased at 1-2% % discount from your company, and you receive cash, 99% of the time, the same day, for those sales. So, in effect, all your sales now fuel that cash flow machine we spoke about previously.

 

So far, so good, right? Where complications arise, especially in Canada, is the fact that this type of financing requires your client to be notified of the process, directly or indirectly, and payments are required to be forwarded to your factoring finance firm.

 

Canadian business, in our eyes, is reluctant to involve their customers in their internal financing policies and challenges. As a result, many firms are skeptical of entering into accounts receivable finance in this manner.

 

Under non-notification accounts receivable confidential financing the company bills and collects its own receivables, while achieving all the benefits of traditional factoring.

 

 

 

 

Customer Perception and Business Relations

 

Common Take: Factoring, especially if not confidential, might sour the relationship with customers as they might perceive the business to be in dire financial straits.

Uncommon Take: Smart businesses can frame factoring as a proactive financial strategy that ensures continuous and robust operations without any disruption. Instead of a sign of weakness, customers might see it as a mark of a business that plans ahead, ensuring that product or service delivery is never compromised due to cash flow issues.

 

The Best Solution In Financing Sales

 

Is there a solution? We told you there was a breakthrough called Confidential Invoice Discounting!

This type of financing comes at the same cost as 'old school' factoring, and allows you to bill and collect your receivables!

Your company gains all the benefits of that cash flow factoring machine we've turned your company into. This type of facility can easily be a part of a non-bank business line of credit known as an 'ABL' - that's an asset-based line of credit that allows your company to have a credit line that functions like bank credit lines.

Let those competitors, customers, and vendors remain precisely where you want them to be, outside your financing strategies and challenges! Let your competitors try and figure out how you're doing so well in both growth and profits.

 

Types of Factoring:

 

Factoring, a financial solution for businesses to improve cash flow, comes in various forms to cater to specific needs. Recourse and Non-recourse Factoring are two primary classifications. In Recourse Factoring, the business selling its invoices remains liable if the debtor (the business's customer) fails to pay.

 

This means that if the customer doesn't settle the invoice, the factoring company can "recourse" to the original business to recover the funds, often making this option cheaper since the factoring company's risk is lower. On the other hand, Non-recourse Factoring frees the selling business is when the factoring company assumes bad debt and collection risk.

 

If the debtor fails to pay, the factor absorbs the loss, making this a safer, albeit often more expensive, option for businesses.

 

 

Key Takeaways

 

Factoring is a financial transaction in which a company sells its accounts receivable (invoices) to a third-party factoring company at a discount. This is done primarily for the purpose of obtaining immediate cash flow.


Process:


Invoice Sale: Businesses deliver their products/services to their customers and then sell these invoices to the factoring company.
Immediate Cash: The factoring company provides the original business with around 80% to 99% of the invoice amount upfront.

Collection and Final Payment: The factoring company is then responsible for collecting the full invoice amount from the customer. Once collected, they will pay the remaining balance to the original business, minus their fees (typically 1-2%).

Confidential Invoice Discounting:


This is a variant of factoring where the customers aren't aware that the invoices have been sold. The business still manages the sales ledger and collects payments from customers, making it confidential. The benefit is that relationships with customers remain undisturbed, and businesses can still get immediate financing.


Benefits:


Immediate Liquidity: Businesses get access to immediate cash instead of waiting for clients to pay invoices, aiding in consistent cash flow and capital for investments or operations.


Risk Transfer: The risk of non-payment or late payment can be transferred to the factoring company, depending on the agreement.


Challenges:


Cost: Factoring can be more expensive than traditional forms of financing due to the fees involved.


Customer Relationships:

In traditional factoring (non-confidential), customers are made aware that invoices have been sold, which may affect business relationships.

 

Conclusion

 

Call 7 Park Avenue Financial,  a trusted, credible, and experienced Canadian business financing advisor with a track record of business finance success, putting your firm into a proper Receivable finance facility, allowing you to reap the benefits of cash flow invoice financing.

 

 

   

  

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION     

 

What is factoring in the context of accounts receivable?

It's a process where businesses sell their accounts receivable (invoices) to an accounts receivable factoring company at a discount to obtain immediate cash flow.

How does Confidential Invoice Discounting differ from traditional factoring?

Confidential Invoice  Factoring  / Discounting allows businesses to receive financing without notifying their customers, ensuring the sales and collection process remains undisturbed.

What percentage of the invoice amount can a business typically receive upfront?

Businesses usually get a cash advance between 80% to 90% of the invoice value amount immediately when factoring - The factoring company pays you the remaining balance, less a factoring fee when the client pays.

Are there any risks or downsides to factoring accounts receivable?

One challenge is the cost, as factoring can be pricier than other financing methods. Also, in traditional factoring, customers are informed of the invoice sale, which might affect relationships.

Why would a business choose factoring over a traditional bank loan?

Factoring provides immediate liquidity, transfers the risk of non-payment, and doesn't add debt to the balance sheet, making it an attractive option for many SMEs.


Are there different types of factoring beyond Confidential Invoice Discounting?

Yes, besides Confidential Invoice Discounting, there's recourse and non-recourse factoring. Recourse factoring means the business is liable if the invoice isn't paid, while non-recourse transfers this risk to the factoring company.

Is it common for all industries to use factoring as a financing method?

Factoring unpaid invoices is more common in industries with long invoice cycles like manufacturing, textiles, or wholesale, but any industry can leverage it based on their cash flow needs to finance commercial business-to-business accounts receivables.

Does factoring impact a business's credit score or rating?

Factoring receivables typically doesn't affect a business's credit score directly as it's not a loan, but it can improve the company's financial health by boosting liquidity.

Can a startup business use factoring for financing?

Absolutely! Startups often use factoring since they may not qualify for traditional bank loans due to a lack of credit history. Accounts receivable factoring works for any company that has commercial invoices to finance.

By utilizing accounts receivable factoring, companies can offer more adaptable payment options and decrease the time and resources needed to receive customer payments from customers and fund daily business operations.

How long does the factoring process typically take?

The initial setup with many factoring companies might take a week or two, but once established, businesses can usually receive funds within 24 to 48 hours of invoicing after a factoring agreement and factoring fees / receivable factoring cost are established.

 

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

Business Financing Alternatives In Canada : Ignore Cash Flow & Working Capital At Your Own Peril!

 

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YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS! 

Boost Your Business's Financial Health: Understand Cash Flow & Capital

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?

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

EMAIL - sprokop7parkavenuefinancial.com

 

Mastering Working Capital, Cash Flow & Business Financing in Canada | 7 Park Avenue Financial

 

 

The Canadian Business Owner's Guide to Efficient Financing 

 

Tackle the complexities of business financing head-on by reading this article because it offers vital insights into Canadian working capital and cash flow

 

 

The Importance of Keeping the Pump Primed 

 

Business financing in Canada requires that you ensure that the pump is primed! Ignoring the alternatives you have for cash flow and working capital is done at your own peril, especially in today’s ultra-competitive environment. We thought that the priming of the pump is a great expression and a good analogy. Let's dig in.

 

 The Origin of the "Priming the Pump" Phrase  

 

Humorously Donald Trump actually said he invented the phrase! (“Have you heard that expression used before?" Trump continued. "Because I haven't heard it. I mean, I just ... I came up with it a couple of days ago and I thought it was good. It's what you have to do."

 

But the term is most often associated with 20th-century economist John Maynard Keynes, a giant of the field and a favourite of liberals who favoured government spending. 

 

Key Role of Working Capital and Cash Flow

 

Access and management of your working capital and cash flow play a key role in business financing and your firm's growth and overall well-being. No one ever argues with us on that one.

 

Understanding Business Growth Financing

 

Your ability to get financing on items such as fixed assets, a/r, and inventory will ultimately depend on how successful and how fast your company can grow.

 

Clients are somewhat amazed when we tell them that we can pinpoint the exact time when they will stop being successful!

 

What do we mean by that? Simply that you have a great little tool to determine when you need that extra capital in your business. Most small and medium-sized businesses haven't heard of it, but we can assure you that larger more sophisticated corporations have a total handle on this one.

 

The Sustainable Growth Ratio

 

So what’s the tool - it's called the Sustainable growth ratio and it's a simple formula that shows you the most your firm can grow without bringing in new capital.

 

For example, if you want to get a shareholder return on your total capital in the business of 20% you can reinvest all your earnings and keep your relative overall financial position the same. Want to grow faster, and then access more outside capital? Simple as that.

 

 Challenges in Accessing More Capital 

 

However accessing more capital from the viewpoint of our clients is either difficult or undesirable - Most owners don't want to reduce or dilute their ownership interests, etc.

 

Monetizing Business Financing Assets

 

The choice? It's simply monetizing your business financing assets such as receivables, inventory and unencumbered assets and creating working capital and cash flow via asset turnover.

 

You create cash flow financing internally by addressing how you both manage and turnover receivables, inventory, and accounts payable.

 

  

Accounts payable you ask?! Yes, simply because as you slow your payables you generate real cash flow progress. Naturally, there is a fine line here between generating that cash and alienating your valued suppliers!  

 

Real World Solutions to Canadian Working Capital Financing

 

We never want to be accused of talking about the problems and not the solutions, and we mean real-world solutions, not textbook solutions to Canadian working capital financing.

 

Available Alternatives for Cash Flow Financing

 

• Accounts Receivable Financing
• Working Capital Loans / MCA Merchant cash advances
• Equipment Leasing
• Sale leasebacks
• Asset based non-bank line of credit
• SR&ED Tax credit financing
• Mezzanine financing
• Business credit cards
• Purchase order financing
  

    

 

Key Takeaways

 

Working capital is the difference between a company's current assets and current liabilities.

Measures operational efficiency and short-term financial health; ensures the company can fund operations and pay debts.


Cash Flow:

Net amount of cash and cash-equivalents transferred in and out of a business.
Positive operating cash flow indicates increasing liquid assets and financial health; negative cash flow may signal insolvency.

Business Financing:

Ways companies secure funds for business growth, asset acquisition, or covering a company's working capital shortfalls.
Enables businesses to operate, invest in growth, and handle unexpected costs.

Sustainable Growth Ratio:

Formula indicating a firm's growth potential based on current finances without needing extra financing.
Helps businesses gauge growth rates without depending on external funds.

Monetizing Business Financing Assets:

Converting business assets into cash or cash equivalents through sales, financing, etc.
Generates cash quickly, especially when traditional financing is limited.

  

 

  

Conclusion    

 

In summary, we spoke of your desire or inability to attract long term capital to your business, the solution being short-term working capital decisions around how you finance on a day-to-day basis.

  

Call 7 Park Avenue Financial,  a trusted, credible and experienced business financing advisor on how to access the Canadian business financing you need. Today!  

 

  

FAQ  

 

What are some common proactive steps a company can take to avoid working capital issues and a cash crunch?

Here are some proactive steps to avoid common working capital issues:

Regular Cash Flow Forecasting and review of the cash flow statement

Efficient Inventory Management:

Speed up Receivables:

Extend Payables without Straining Relationships:

Maintain a Reserve:

Reduce Unnecessary Expenses:

Manage Debt on the balance sheet:

Monitor Key Financial Ratios:

Diversify Customer Base:

Implement Efficient Systems:

Review Pricing Strategies:

Negotiate Bulk Discounts:

Regularly Review Financial Statements:

Consider Seasonal Needs:
 

 

Why is cash flow so crucial for a business?

Positive cash flow indicates increasing liquid assets, enabling a company to invest, settle debts, and handle unforeseen expenses.

How does business financing benefit my company?

It offers funds to grow your business, buy essential assets, and manage unexpected financial shortfalls.

What is the Sustainable Growth Ratio?

A formula showcasing a firm's growth potential based on its current financial stance without additional financing.

Why should I consider monetizing business financing assets?

It’s a swift way to generate cash, especially when facing challenges in accessing traditional financing.


What are some common sources of business financing in Canada?

Apart from working capital, businesses often explore options like bank loans, venture capital, angel investors, and government grants that can aid in achieving positive working capital.

Are there risks involved with relying too much on external financing?

Yes, over-reliance can lead to significant debt for many businesses, potential loss of equity, or increased financial strain during economic downturns.

How can I improve my business's cash flow?

Strategies to avoid negative working capital scenarios include timely invoicing, efficient inventory management, renegotiating contracts, and exploring quick financing solutions like factoring as a working capital loan solution

What are the differences between equity financing and debt financing?

Equity financing for small business owners involves selling shares of your company to raise funds, while debt financing is borrowing money to be repaid with interest.

Is it advisable for startups to dive deep into external financing?

Startups should weigh the pros and cons. While external financing can fuel growth, it might also entail loss of control or high-interest repayments that don't withstand financial challenges

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

Purchase Order Financing In Canada : Made To Measure Trade Finance Solutions For PO & Contract Funding

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Unveiling the Power of Purchase Order Financing in Trade Finance

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Financing & Cash flow are the biggest issues facing business today

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CONTACT:

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Oakville, Ontario
L6J 7J8

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Email = sprokop@7parkavenuefinancial.com

 

Mastering Purchase Order Financing in Trade Finance | 7 Park Avenue Financial

 

 

Step into the world of Purchase Order Financing because it offers transformative solutions for businesses facing traditional financing barrier

 

The Game-Changer in Trade Finance: Purchase Order Financing Explained

 

 

The Challenge Of Growth & Business Financing

Purchase order financing in Canada solves a bad business nightmare. What nightmare? You got the PO / Contract! Now what? We're discussing trade finance solutions in your supply chain process- so let's dig in.

Understanding Purchase Order Financing

Purchase order financing is a great tool for firms that have an unusual purchase order and contract sales financing needs but are potentially unable to access traditional financing via banks or their own capital resources within their firm. In many cases, firms are smaller, or sometimes early stage - in some cases it's just too much success via that large order/contract!

How Does Purchase Order Financing Work?

So how does it work? And does your firm qualify? Other client questions include:

Great questions, now let's explore some answers!

Which Firms Benefit Most?

Typically Canadian firms looking for this type of financing are distributors, manufacturers, or perhaps wholesalers. A variety of industries in Canada have access to this type of financing, but those certainly tend to be the typical firms needing assistance from a purchase order financing company.

The Classic Working Capital Gap

Your need for purchase order financing arises out of what we call the classic working capital gap. What do we mean by that? It's a case of your suppliers requiring payment either upfront or within 30 days, with your firm unable to generate those funds for payment and therefore unable to fill large purchase orders and contracts in your favour. That's the classic working capital conundrum.

Meeting Traditional Finance Requirements

The obvious solution for low-cost large amounts of funds are Canadian chartered banks, but our observation is that many firms simply can’t satisfy the banks' requirements for this type of financing to occur. If your firm is growing, profitable, has a clean balance sheet and strong historical cash flows and history you of course have a solid chance of meeting bank requirements. But, as we said many firms can't satisfy all those requirements of traditional finance.

Key Aspects of Purchase Order Financing

Application Process

When you access PO financing you can have the comfort that your suppliers will be paid, and at the same time you generally have access to all the funds you need. Typical purchase order financing applications take anywhere from 2-4 weeks to complete and involve basic financial due diligence on your firm's ability to fulfill the order, who your customer is (they must be creditworthy), and your proper supplier sources must be identified and vetted.

Who Qualifies?

So, who exactly qualified for this type of financing? Naturally, your company must be in possession of a contract or order that is not cancelable by your client. The PO finance firm arranges to pay your suppliers directly via a cash advance, which alleviates all your cash flow and working capital concerns.

Cost Considerations - Purchase order financing cost

Let's cover a couple of tips and secrets around the cost of purchase order financing - It generally is in the 2-3% per month range in Canada, and that means you have to have solid gross profit margins in order to be able to sustain the finance charges in the purchase order financing agreement.

The Bigger Picture

Clearly, the higher cost of this type of financing covers the complexity and risk that the P O finance firm takes in paying for goods, waiting to get paid, and having the belief that your firm will fulfill the contract order.

Intangible Benefits

It has been our observation with certain clients that your successful completion of a purchase order finance deal typically significantly enhances your relationship with your major suppliers and of course customers, that's a secret benefit that is intangible but invaluable at the same time.

 

 

Key Takeaways 

 

Purchase order financing is a financial solution where businesses get capital to pay suppliers upfront for verified purchase orders. This ensures that firms lacking funds can fulfill large orders and contracts.


Why It's Needed - The Working Capital Gap:


Businesses often encounter a working capital gap, where suppliers require payment either upfront or within a short timeframe (like 30 days), but the business may not receive payment from their customers for a longer duration (60-90 days or more). This creates a cash flow problem, especially for growing firms or those with large orders.

How It Works:


A PO financing company pays the suppliers directly for supplier costs, raw materials, etc on behalf of the business. Once the supplier ships and goods are delivered and the final customer pays, the business then pays back the PO financing company, typically with some interest or fees added.

Costs and Qualifications:


The costs associated with PO financing generally fall in the range of 2-3% per month in Canada. To qualify, a company must have a non-cancelable order or contract, and the customer they're selling to must be creditworthy. There's also due diligence done on the firm's ability to fulfill the order.



The Role of Traditional Banks vs. PO Financing & Supply Chain Advance


While traditional banks as a traditional financial institution provide low-cost funds, many businesses, especially smaller or early-stage ones, might not meet the banks' stringent criteria. PO financing fills this void, providing the necessary funds even if the business doesn't have a strong balance sheet or long credit hist

 

Conclusion  

 

Is P O financing for everyone? Maybe not. Could it be possibly the solution to major working capital needs if your business is growing and can't be financed traditionally - we certainly think so.

 

Call 7 Park Avenue Financial, a trusted, credible and experienced purchase order finance expert to explore financing options for small business owners. 

 

 FAQ 

 

What exactly is Purchase Order Financing?

It's a financial tool that allows businesses to get capital to pay suppliers upfront for verified purchase orders, ensuring they can fulfill large contracts even if they lack the funds in their target markets.

How does it aid businesses facing the working capital gap?

This financing method addresses the challenge where businesses need to pay suppliers quickly but may not receive payment from their customers for a longer period, thus ensuring smooth operations.

Are there any specific qualifications to avail Purchase Order Financing?

Yes, firms should have a non-cancelable order or contract, and the end customer should be creditworthy. Also, there's a due diligence process to verify the company's ability to fulfill the order.

How is this different from traditional bank financing?

While traditional banks offer low-cost funds, they have stringent criteria. Many businesses, especially smaller ones, might not qualify. Purchase Order Financing fills this gap, providing necessary funds even without a strong balance sheet.

Are there any hidden costs associated with PO Financing?

Costs generally hover around 2-3% per month in Canada. It's essential to be aware of these charges and ensure that your profit margins can accommodate them.


How does Purchase Order Financing benefit start-ups or newer businesses?

For start-ups lacking an extensive credit history or balance sheet strength, Purchase Order financing pros include the way PO Finance offers a way to secure necessary funds to fulfill large contracts establish a track record in their industry and maintain a sustainable debt structure in their business while addressing key cash flow gaps.

Is Purchase Order Financing only available in Canada?

While the article focuses on the Canadian context, Purchase Order Financing is a global financial solution. Its availability and terms might vary depending on the region or country.

How long does the PO financing process typically take?

The application process of vetting the customer's purchase order usually takes a week or so, which includes financial due diligence on the customer's creditworthiness and verification of order details.

What happens if the end customer does not pay on time or defaults?

If the end customer doesn't pay, the business availing the financing is typically still responsible for repaying the PO financing company. It's crucial to ensure that the end customers are creditworthy before entering such agreements.

Can any business apply for Purchase Order Financing, or is it industry-specific?

While distributors, manufacturers, and wholesalers are common beneficiaries, PO financing is not strictly industry-specific in global trade. Various sectors can leverage this solution, provided they meet the qualifications.

 

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

How to Finance Working Capital – Imagine Your Canadian Company Had the Credit & Financing It Needed

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You Are Looking for the Best Method to Finance Working Capital! 

How to Ace Your Business's Working Capital Needs

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Mastering How To Finance  Working Capital: Unlocking Cash Flow Solutions | 7 Park Avenue Financial

 

Beyond Bank Loans: Diverse Ways to Finance Your Working Capital

 

 

Stay with us because we're addressing Canadian firms' most pressing questions about working capital and offering actionable insights.

 

  

 

 

The Challenges of Working Capital Financing  

 

 

It is no secret to us here at 7 Park Avenue Financial  that  the Globe and Mail  Oct 16/2023 article on SMEs in Canada bemoaned the fact that traditional commercial banking capital for small and medium-sized companies is shrinking with more and more businesses having a hard time securing loans' ( ' CANADA MUST IGNITE SMALL BUSINESS SECTOR ' )

 

 

It almost seems like a pipe dream. Having the cash flow and financing you need. And yes, don’t take it personally; even the big guys have that same challenge. Let’s examine how your company can assess and address methods to finance net working capital, accessing credit and financing in a manner that works.

 

Internal and External Perspectives

 

An excellent way to look at things is both externally and internally. From the internal perspective, it’s a question of knowing the amount of working capital you need and managing your day-to-day current assets on the balance sheet(primarily A/R and inventory) to optimize cash flow.

And from the external perspective, it’s about assessing solutions, but more importantly, solutions that work. It's those inflows and outflows that count. Probably the simple way to look at it is simply knowing your operating costs while at the same time collecting sales, i.e. your A/R, as efficiently as possible.

 

Common Mistakes in Financing Working Capital

 

When clients tell us they have made mistakes in their decision to finance working capital, we can almost guess what happened. They have mismatched funds, meaning that cash flow and working capital from operations may have been used to pay for fixed assets.

 

Traditional and Alternative Financing Options

 

It's easier said than done, but the 'normal' way to finance your business is short-term lines of credit, typically through your bank. However, credit and financing are difficult for small and medium-sized firms that can’t meet all the criteria a chartered bank requires.

 

Permanent Working Capital Injection

 

One solid option is injecting what we can call permanent working capital into the business. It’s a cash flow loan, payable in fixed monthly installments. This type of transaction is typically available through Canada's government-owned business bank, and you have to have solid proof of historical cash flow to show you can repay the term loan, which is typically unsecured!

 

Asset Purchase Considerations

 

We spoke of matching funds correctly. That’s important. So, if you are considering asset purchases, utilize lease financing, minimizing your cash outflow, of course, and allowing your company to structure a long term lease payment that matches the useful life of the asset you're purchasing.

 

Mixing Personal and Business Finances

 

Smaller and medium-sized businesses, mostly smaller, tend to mix the owner's personal finances with the business. That has positive and negative effects. The merchant cash advance loan has become popular as a working capital loan for many smaller businesses in the last few years, particularly retail. It allows you to monetize future sales, or 'cash flow ' today.

 

 

Tools and Calculations for Working Capital

 

When addressing the need to finance working capital, you should have a handle on the assessment tools. It's not as complicated as you might think. Calculate your day's outstanding sales and a similar calculation for inventory. Those two calculations will show the total time it takes for a dollar to flow through your company. You have to bridge that gap now with cash flow financing.

 

The Receivables and Inventory Ratio

 

General rules of thumb indicate that you need 2 dollars of receivables and inventory for one dollar of payables. That’s never been our favourite calculation because it simply reflects the build-up of those current assets. We're more concerned about turnover.

 

Assessing Working Capital Solutions in Canada

 

So, how do Canadian firms assess working capital solutions? In many cases, it all comes down to two issues: the size of your cash flow needs and your firm's overall credit quality. Large firms with solid financials can access bank credit to address negative working capital as required.

 

Financing Solutions for Smaller and Medium-sized Firms

 

Smaller and medium-sized firms have numerous options; some are short-term in nature, and many times they come with a higher cost, but, and it's a big but, it allows you to generate all the cash flow you need to grow your business.

 

 

Types of Financing Solutions 

 

So, what are those solutions? They are receivable financing, inventory financing, purchase order financing, tax credit financing, and asset-based lending. Some, or a combination of these solutions, will allow you to finance your company's working capital adequately and access the credit you need to grow and profit.

 

Key Takeaways

 

Working capital is the difference between a company's working capital  current assets (like cash, accounts receivable, and inventory) and its current liabilities (like accounts payable). It represents the liquidity available to a business for day-to-day operations.

Importance of Working Capital:

Adequate working capital ensures that a company can maintain its operations and meet its short-term debts when they come due. It directly indicates a company's operational efficiency and short-term financial health.

Methods of Financing Working Capital:

Short-term Financing: Includes bank overdrafts, short-term loans, and trade credits.

Long-term Financing: Equity, long-term loans, and retained earnings. They're primarily used for fixed assets but can also fund working capital.

Mismatch of Funds:

Avoid using short-term funds for long-term requirements and vice versa. For instance, using working capital to purchase fixed assets can strain day-to-day operations.

Alternative Financing Options:

Alternative solutions like receivable financing, inventory financing, and merchant cash advances can be explored for businesses that can't access traditional bank credit.

 

 Conclusion: Seeking Expert Advice 

 

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor, on how these solutions work, what they cost, and how they can, either singularly or grouped, solve the Canadian working capital and credit enigma.

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

 

What exactly is working capital?


Working capital is the difference between a company's current assets and current liabilities, signifying the liquidity available for daily operations.


Why is working capital crucial for my business?


It ensures your company can maintain its operations and meet its short-term financial obligations, reflecting its operational efficiency and financial health.


Can I rely only on traditional bank loans for working capital?

While bank loans are common, there are alternative solutions like receivable and inventory financing, especially if you can't meet bank criteria.


What's the risk of mismatching funds in working capital?


Using short-term funds for long-term needs (or vice-versa) can strain daily operations and lead to financial instability.


Are there tools to help me manage working capital better?

Yes, by calculating day's sales outstanding and inventory turnover, you can understand how money flows through your business and where to bridge gaps.



How does seasonality affect my business's working capital needs?


Seasonal businesses might require more working capital during peak periods to stock up on inventory and less during off-peak times. Planning ahead is essential.

Are there risks associated with alternative financing options?

Yes, while they offer flexibility, alternative financing can come at higher costs, and some might have less favorable terms than traditional loans.

How can I improve my business's working capital ratio?

Boost sales, speed up invoice payments, efficiently manage inventory, and renegotiate with suppliers for extended payment terms.

Does working capital affect my business valuation?


Yes, adequate working capital indicates good financial health and operational efficiency, which can positively impact your business's perceived value.

Can startups also benefit from working capital financing?

Absolutely! Startups, though they might have limited access to traditional bank loans, can explore alternative financing to support initial operations and growth.



 

Surviving a Working Capital Cash Crisis – Real World Solutions & Techniques

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Working Capital Cash Solutions: A Comprehensive Guide for Businesses | 7 Park Avenue Financial

 

Read this article because it uncovers real-world techniques to navigate working capital challenges, ensuring your business thrives even in financial crunches.

 

  

Solutions in Sight: Overcoming Working Capital Cash Crunches  

 

The Consequence of a Working Capital Cash Crunch

 

The alternative to surviving a working capital cash crunch, temporary or permanent, is not surviving it and losing control of your business from a financial perspective.

 

Let's examine real-world (we like those the best - the academic guys are very nice, though) techniques and solutions to your company's working capital and cash flow challenges via effective working capital management.

 

In today's dynamic business environment, understanding and efficiently managing working capital can be the key to sustaining growth and navigating financial challenges.

 

Working capital, the lifeblood of every business, ensures smooth day-to-day operations, helping companies meet their short-term liabilities. However, a cash crunch can derail these processes, often leading to severe repercussions. This article delves deep into the nuances of working capital, offering real-world solutions to cash flow challenges.

 

From recognizing the underlying issues to exploring modern financing techniques, we provide comprehensive insights to empower Canadian businesses. Whether you're a seasoned entrepreneur or just starting, our guide on working capital cash solutions is essential reading to master the art of financial agility.

 

Recognizing the Problem

 

You probably know you have a working capital problem; the turnaround strategy for that problem is challenging. When you think about it your constant sufficient cash flow challenge is the most obvious sign that you need a survival plan.- Take careful note of the following:

Monitor Cash Flow Statements:

        Review cash flow statements regularly.
        Check cash conversion cycle.
        Decreasing cash inflow or increasing cash outflow could hint at potential issues.

Accounts Receivable Aging:

        Monitor if customers take longer to pay - increased DSO ( days sales outstanding)
        Increasing days of receivables outstanding suggests potential liquidity problems that impact free cash flow

Increasing Expenses:

        Watch for sudden or consistent cost increases.
        Problems arise if no corresponding revenue increase.

Declining Sales:

        Consistent sales decline is worrisome.
        Seasonal declines not planned for can cause cash shortages.

Inventory Levels:

        Excess inventory ties up funds.
        Monitor inventory turnover ratios.

Rising Debt Levels:

        Consistently increasing short term debt without revenue growth is concerning.

Decreased Gross Margins:

        The rising cost of goods sold without a sales price increase affects cash flow and requires the need to manage cash flow prudently

Unplanned Capital Expenditures:

        Unexpected large expenses and those short term operating costs can deplete cash flows, requiring more working capital funding for short term obligations.
Loan Covenant Violations:

        Violating loan terms can lead to faster repayment or extra fees.
        Impacts cash flow negatively.

Economic Indicators:

        External factors like economic downturns or new regulations affect cash flow.

Feedback from Suppliers:

        Quicker payment requests or shorter credit terms hint at perceived financial risks.

Employee Turnover:

        Increased turnover may suggest operational problems affecting finances.

 

  

Differentiating Growth, Profits, and Cash Flow  

 

Many business owners also equate growth profits and cash flow on the same terms; in reality, they are all VERY different! To be fair to the Canadian business owner, sometimes the factors affecting your working capital cash are external and out of your control. However, they still could lead you to insolvency of some sort.

 

Understanding Bank Operating Lines of Credit

 

Question - would you, as a business owner, ever consider your bank operating line of credit (assuming you have one?) as 'dangerous'?

 

More traditional bank lines give you an advance against your receivables and inventory, those two most liquid assets after cash. If you are committed to a bank facility, you have a pre-set borrowing limit; it’s as simple as that.

 

So if your business has good operating performance, is profitable, and you are expanding or growing, all that works carefully. So, how could a bank facility precipitate a working capital crisis? If your business shrinks or grows too quickly, you are locked into pre-set borrowing power. Your receivables and inventory go down or up if you're lucky enough to explode with growth, but your credit facility is still the same!

 

Solutions to the Working Capital Crunch

 

We never want to be accused of just reminding you about the crisis; we'd instead provide solutions and techniques to eliminate the working capital crunch.

 

Techniques and Solutions for Cash Flow Survival

 

So, let’s address some techniques and solutions for cash flow survival. These focus on accounts receivable and inventory. Think about it: if you have A/R and inventory, these amounts are one step away from liquidity. So, how do you monetize these assets on an ongoing basis, whether they going up or down?

Asset Based Lending

In Canada, the most logical solutions to restoring your cash flow normalcy are asset-based lending, a working capital facility, and combinations of receivable and inventory and purchase order or contract financing.

 

Actual asset-based lending facilities are typically for larger facilities of several million dollars or more - they can double, if not triple, your access to working capital. How do they do that? Simply because they margin on an ongoing basis all your A/R and inventory at very high margin rates, and the facility grows as those two asset categories grow. They are the 'best bet' for surviving a working capital crunch.

 

Working Capital Facilities for Small and Medium-sized Firms

 

Small and medium-sized firms should look toward working capital facilities that combine A/R and inventory lending, have no fixed upper limit, but usually come with higher financing and borrowing costs.

  

Financing Contracts and Inventory Programs  

 

Finally, the average business owner and financial manager may not even be aware that contracts and large 'one-offs' purchase orders  can be financed, and inventory financing programs can be implemented on a stand-alone basis.

 

Short and Long-Term Strategies

 

Surviving the working capital cash crunch comes with short-term solutions as we have noted, that provide immediate relief; as well... owners can consider long-term strategies such as working capital cash term loans and sale-leaseback of equipment or property.

 

 

Key Takeaways

Working capital is the difference between a company's current assets (cash, accounts receivable, and inventory) and current liabilities (accounts payable). It represents the funds available for daily operations and is a key indicator of a company's short-term financial health.

Significance of Cash Flow:

Cash flow refers to the inflow and outflow of money in a business. Positive cash flow ensures a business can sustain its operations, pay its obligations, and invest in growth. Conversely, cash flow challenges can lead to operational hiccups, inability to meet financial commitments or even insolvency.

Bank Operating Lines of Credit:

Banks provide This facility allowing businesses to borrow up to a specific limit to manage their working capital needs. It's based on liquid assets like accounts receivable and inventory. However, it's crucial to understand that these lines have limits and can become problematic if a business grows too quickly or faces a downturn.

Monetizing Accounts Receivable and Inventory:

These are the most liquid assets after cash. Businesses can convert these assets into cash by leveraging tools like asset-based lending. This approach provides a flexible way to address cash flow challenges by using existing assets to generate liquidity.

Asset-Based Lending & Other Financing Solutions:

Asset-based lending allows companies to borrow against their accounts receivable, inventory, and sometimes equipment or real estate. It's a way to get immediate cash based on the value of these assets. Other solutions include working capital facilities that combine A/R and inventory lending and techniques like contract financing or purchase order financing.
  

  

  

Conclusion  

 

Call  7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor, for advice and techniques for better financial performance and a working capital solution for cash flow survival.

 

  

 FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION   

 

What is the primary purpose of working capital cash solutions?

The primary purpose is to help businesses manage their short-term financial obligations, ensure smooth day-to-day operations and cash flow management, and prevent insolvency during cash flow challenges.


Why are bank operating lines of credit considered a double-edged sword?

While they provide businesses with immediate cash based on their assets, they have borrowing limits. This can be problematic if a business grows too quickly or faces a sudden downturn, restricting liquidity.

How can asset-based lending benefit my business?

Asset-based lending allows you to borrow against your most liquid assets, such as accounts receivable and inventory. It provides flexibility in accessing funds based on the value of these assets, offering immediate liquidity.

Is working capital only about cash flow?

While cash flow is a significant aspect, working capital encompasses the broader difference between current assets and liabilities, ensuring a company's short-term financial health.

Can growth lead to working capital challenges?

Yes, paradoxically, rapid growth can lead to cash flow challenges if the business needs flexible financial solutions to accommodate increased operational demands.



How does working capital differ from net working capital?

Working capital represents the difference between a company's assets and liabilities. Net working capital, on the other hand, is the actual amount of current assets remaining after current liabilities have been paid.

Are there risks involved in asset-based lending?

While asset-based lending offers immediate liquidity, there's a risk of over-leveraging, which might lead to losing control of the collateralized assets if the loan isn't repaid.

What role does inventory management play in working capital solutions?

Efficient inventory management ensures you don't have excess stock tying up funds, thus optimizing your liquidity and working capital.

Can a positive cash flow business still face working capital challenges?

Absolutely! A business might have positive cash flow but still face short-term financial obligations that exceed its readily available resources.

Are there industries that benefit more from working capital cash solutions for the company's financial health?

While all businesses can benefit, industries with seasonal operations, long receivable cycles that impact the working capital ratio, or high inventory turnover often find working capital solutions especially valuable.

What are the benefits of sale lease-back options?

 

• • Provides immediate cash from owned assets.
  • Boosts cash flow, aiding balance sheet strength and funding growth without new debt.

• Capital Efficiency:

  • Deploy sale capital into core operations or higher-return areas.

• Off-Balance Sheet Financing:

  • Lease liability might not appear on the balance sheet.
  • Can enhance financial ratios and borrowing potential.

• Tax Benefits:

  • Lease payments can be tax-deductible.
  • Potential to avoid some property taxes by not owning the asset.

• Fixed Payments:

  • Leaseback agreements typically have predictable costs.
  • Assists in accurate budgeting and forecasting.

• Preserve Business Operations:

  • Continuity in operations as businesses retain asset access.

• Potential for Profit:

  • Asset appreciation can lead to profit when sold and leased back at market rate.

• Flexibility:

  • Lease terms can be tailored to the seller's needs.
  • Negotiable lease duration and payment structure.

• Avoidance of Ownership Risks:

  • Avoids risks like property depreciation.
  • Maintenance and repairs may be the new owner's responsibility.

• Improved Return on Assets:

  • Selling non-essential assets boosts the return on assets ratio.

 

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