Business Financing Sources In Canada : Funding Options Unveiled

Tweet

 

YOUR COMPANY IS LOOKING FOR SOURCES OF  BUSINESS FINANCING

Unlocking Business Growth: Traditional Financing vs. Alternative Solutions in Canada

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

 

The Evolution of Business Financing in Canada: Traditional vs. Alternative Solutions

 

 

Canada's Business financing sources come with various solutions and costs associated with these loans and cash flow monetization strategies to secure funding. For SME/Small business owners, Is it important to understand these costs and alternatives? We think so! Let's dig in.

 

INTRODUCTION

 

Securing adequate financing is essential to a business's effective operation and expansion, enabling vital functions such as investment, daily operations, and growth.

 

In Canada, companies enjoy a broad spectrum of financing avenues. This article intends to juxtapose traditional financing—largely facilitated by banking institutions—with alternative financing models, including receivable financing and asset-based lending. By delving into the pros and cons of each method, business owners can derive insights to guide their choice for funding, ensuring they align optimally with their specific requirements.

 

 

CONSIDER CASH FLOW FINANCING WHEN YOUR BUSINESS NEEDS CAPITAL! 

 

Typically (in a perfect world - and we know it's not), business owners & financing managers want to know that they can access cash and loans on an ongoing basis. Knowing and understanding the costs and benefits associated with those different types of financing.

 

Working capital needs are often the main driver in seeking supplemental financing. When you understand working capital, you are in a better position to source it!

 

 

  

HOW DOES YOUR COMPANY GENERATE CASH FLOW FROM FINANCING  

 

Therefore, you need to know how to measure working capital regarding your overall business needs.  That’s part of the problem and challenge because when we sit down and work with clients on operating capital and cash flow needs, we quickly determine that working capital and cash flow mean different things to different business owners.

 

The problem usually starts with the business owner assessing his working capital needs and business growth plans by looking at the cash in the company bank account.  That amount doesn’t reflect the 'near cash' tied up in receivables, inventory, prepaid, etc.

 

We can go to the textbook definition also (not our favourite way of doing things) and find out that working capital is simply current assets minus current liabilities, calculated by a quick look at your balance sheet.  We are not a big fan of that calculation simply because it doesn’t give you a true sense of the turnover of those critical balance sheet accounts such as A/R and inventory.  Cash flow is all about the asset turnover of your sales revenue!

 

By the way, don't assume bigger is better in your total working capital amount. The more funds you have tied up in A/R and inventories will put stress on your cash flow needs. That's where constant asset turnover helps - turning inventories and collecting receivables. You should regularly, at least monthly, calculate your day's sales outstanding and inventory turns.

 

 

By the way, even effective payables management will increase cash flow - much to the chagrin of your suppliers! Don't over-manage and ruin vendor relationships which are key to a successful business. Deterioration in supplier/creditor relations is one of the worst things to happen to your business.

 

So now you have a better handle on working capital, what next? You recognize that cash on hand and growing inventory and A/R aren’t helping your cash flow - you need external financing.

 

 TRADITIONAL VERSUS ALTERNATIVE FINANCING 

 

While both traditional and alternative methods are potential paths for business financing, several significant distinctions exist between them. Here is a list of critical factors to consider when choosing:

 

1. Eligibility Criteria: Traditional financing requires a strong credit history and established financial standing. In contrast, alternative financing solutions might be more attainable for businesses with minimal credit or collateral but valuable assets or potential.

2. Funding Speed: Traditional financing might involve a lengthy process, encompassing extensive paperwork and evaluation processes. Conversely, alternative financing solutions often expedite access to funds, enabling businesses to grasp opportunities or promptly resolve urgent needs.

3. Cost and Interest Rates: Traditional financing may offer more favourable interest rates for businesses with strong credit profiles. In contrast, alternative funding often comes with increased costs or fees to offset the risk or enhanced flexibility and access to capital.

4. Flexibility and Control: Traditional financing may impose restrictive covenants or requirements around balance sheet ratios, personal guarantees, and outside collateral, constraining a business's flexibility. On the other hand, alternative financing can offer more freedom, allowing companies to customize their financing strategies to align with their unique needs.

 

 

TRADITIONAL FINANCING SOURCES

 

In choosing between traditional and alternative business financing methods, several key distinctions should be noted:

 

1. Eligibility: Traditional financing typically demands robust credit history and financial stability for financing such as bank loans. However, alternative financing could be more accessible to businesses with limited credit or collateral but with significant assets or potential.

2. Speed of Access to Funds: Traditional financing can involve a protracted process with considerable paperwork and assessments. Man business owners have found that alternative financing often opens access to funding, assisting businesses in seizing opportunities or addressing immediate needs.

3. Cost and Interest Rates: Traditional financing can provide better interest rates for creditworthy businesses. In contrast, the increased costs or fees associated with alternative financing typically balance the risk or flexibility it affords.

4. Flexibility and Control: Traditional financing may enforce strict requirements, limiting a business's manoeuvrability. Conversely, alternative financing allows for more customization, enabling businesses to tailor their financing approaches to specific circumstances.

 

 

 

You achieve external financing by the profits you generate from your business and working capital facilities via a bank loan or business line of credit or solutions via an independent commercial finance company. Your needs might be seasonal or ongoing, depending on your industry.

 

Other more traditional alternatives are bank operating lines of credit. These come with the best rates, currently in Canada's 6-7 % range in early 2023. The only problem?  Great rates but difficult financing to achieve as Canadian chartered banks demand solid financials when granting this facility. A better way to achieve full liquidity via this method is to consider a factoring or asset-based facility.

 

 

  

ALTERNATIVE LENDING FINANCING COSTS  

 

Rates in Canada range from 9% / annum to 1-1.5% per month based on your overall financial position and the size of the facility. But they offer you 100% working capital for all your business financing needs, so that’s a good trade-off. 99% of the time you will have increased your available credit availability by 100% as your receivables are margined at 90%. Inventory financing is also a key part of a non-bank business credit line.

 

So back to our sources of financing and the costs associated with those sources. Of course, you can either generate a working capital term loan or, if it’s a larger facility, it might be called a Sub debt or mezzanine loan. Mezzanine capital comes with a higher interest rate as it is viewed as high risk compared to financing backed by collateral.

 

Essentially they are unsecured cash flow loans with rates in Canada ranging from 10-15% - they are traditionally on a fixed term / fixed-rate basis on principal repayments - 5 years is common. Large corporations issue bonds.

 

CAPITAL FROM DEBT OR EQUITY?

 

You can also put more permanent equity into your business via the equity route injection of bringing in a new shareholder. We are clear with clients that this is the most expensive form of financing because you are giving up future ownership when you access additional equity capital via angel investors, or a venture capitalist/venture capital solution,  or some other source of equity.

 

  

  

FINANCING YOUR COMPANY'S BALANCE SHEET - CASH FLOW LOANS VERSUS ASSET-BACKED LOANS 

  

Other miscellaneous sources of business financing come with various costs but a significant upside to your funding chances. These include:

 

Sale leasebacks - refinancing existing owned assets for cash flow

 

A/R Factoring / Confidential accounts receivable financing - accelerating cash flows via receivable finance solutions which reverse negative cash flow via financing sales revenues - this is not debt financing - it simply monetizes your most liquid asset - accounts receivables!

Small business in Canada is a huge users of factoring solutions. Cash generated via factoring is used for day-to-day business expenses - The risk is especially high for growing businesses. They tend to have higher accounts payable and receivable and greater sums in inventory and other assets.

 

Bridge loans - helps minimize cash outflows via effective refinancing of business-owned assets or existing loans.

 

SR&ED Tax credit loans - The Scientific Research and Experimental Design (SR&ED) program serves as Canada's R&D tax credit scheme and is notably generous. Businesses can recover up to 64% of their eligible expenses through this program, either as a tax credit or a cash refund.

 

Using research tax credits can significantly boost your company's cash flow, lessen your dependence on borrowing—from friends or financial institutions—and increase your available capital. In turn, this facilitates company growth and reduces debt accumulation.

 

SR&ED refundable tax credits provide cash inflows from your r&d investments -  repayment terms are flexible, with no monthly payments being made during the period of a Sred loan - SR&ED and the Federal government guaranteed loan program are the two most popular government financing programs in Canada.

 

Merchant advances for retailers/business credit cards /short-term working capital loans / small business loan solutions for increased cash flow management - a positive credit report on owner/owners is required.

 

Equipment financing - for new and used assets - monthly principal and interest payments on equipment and technology - a finance lease/capital lease is the most commonly used vehicle for acquiring assets via a ' lease to own ' finance strategy - equipment lease payments are tax-deductible as a business expense

 

Non-Bank Credit Lines - asset-based lending business credit lines for short-term loans and covering day-to-day business expenses - as a business grows, credit facilities can be increased almost automatically.

 

Government Guaranteed Loans  - SBL loans benefit startups and businesses with limited collateral or credit history. By guaranteeing a portion of the loan, the SBL reduces the risk for lenders, making it easier for companies to qualify for financing.

 

However, the application process for SBL loans can be intricate and lengthy. Entrepreneurs must supply comprehensive financial details and business plans and demonstrate their capacity to repay the loan. Despite these challenges, SBL loans represent a feasible financing solution for many small businesses. The Canada Small Business Financing Program is sponsored by Industry Canada, our Canadian version of the U.S. small business administration and the SBA LOAN  - transactions are term loans that bring long-term debt to the balance sheet.

 

Commercial Mortgages: Commercial mortgages present a long-term financial solution for enterprises aspiring to buy or develop real estate. These loans, backed by the property, generally come with competitive interest rates.

 

 

GOVERNMENT GRANTS

 

Business Grants and Competitions From Private and Government Agencies For Small Business Financing & start-up funding

 

Entrepreneurs can tap into business grants and competitions as alternative sources of funding. Generally offered by government entities, non-profits, or foundations, grants support specific sectors or initiatives. These non-repayable grants can serve as a valuable source of non-dilutive financing. However, they often come with stringent eligibility requirements and require detailed proposals outlining the proposed utilization of funds.

 

On the flip side, competitions provide entrepreneurs with a platform to present their business concepts to a jury, with the potential of winning monetary awards or investments. Academic institutions, accelerators, or venture capital entities typically organize these contests.

 

Involvement in such competitions can offer funding, invaluable visibility, and networking possibilities. Nevertheless, the competition can be intense, requiring entrepreneurs to deliver a persuasive pitch and a robust business plan to differentiate themselves

. Talk to 7 Park Avenue Financial about financing for matching funds on grants and eligibility criteria.

 

 

 

Talk to 7 Park Avenue Financial about which financial institution offers the program - Typical loan request size is to a maximum of 350k - More money, up to 1 million dollars, is available if real estate is purchased under the program - Leasehold expenses and other assets and technology can be financed under the program which also has very competitive interest rates.

 

  

CONCLUSION - FINANCING SALES & BUSINESS ASSETS  

 

Obtaining adequate financing is pivotal to your business's growth and prosperity. Given the wide array of financing sources, it's crucial to probe and assess each option to pinpoint the one that aligns best with your needs.

 

Conventional financing sources like banks and credit unions may offer lower interest rates, albeit with more stringent eligibility criteria.

 

You can make a well-informed choice by comprehending the advantages and drawbacks of each financing source and contemplating factors like funding volume, repayment conditions, and eligibility requisites.

 

Develop a strong business plan, foster relationships with lenders and investors, enhance your credit rating, brace for due diligence, and solicit expert advice to boost your odds of successfully locking in business financing. With the appropriate funding, you can elevate your business and realize your entrepreneurial ambitions.

 

In the Canadian business financing landscape, traditional financing options through banks have long been the go-to choice for many businesses. However, alternative financing solutions such as receivable and asset-based lending have gained traction, offering greater accessibility, flexibility, and speed.

 

Small businesses, and for that matter firms of all sizes, need proper financing - Want some help in determining what your financial statements say about your financing needs and how much cash is required, as well as identifying what solutions are available? Most businesses almost always require capital.

The decision between conventional financing and alternative options hinges on a business's unique situation, objectives, and preferences. Businesses can identify the best-fit funding sources for their unique needs, fostering growth and success, by meticulously examining eligibility, funding speed, costs, and adaptability.

To help assess the appropriateness of various financing alternatives for specific business needs, seek advice from financial professionals or experts.

Speak to 7 Park Avenue Financial, a  trusted, credible and experienced Canadian business financing advisor who can assist you with positive cash flow and overall business funding needs for more cash for your new or established business venture.

 

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION  

 

What is a cash flow statement?

A cash flow statement tells you how much money enters and leaves your business in a given period. The cash-flow statement, a component of a business's financial statements, shows the changes in a business's available cash over time. A company's cash flow statement will highlight the business's operating cash flow. It is one of the three sections of a firm's financial statement.

 

 

 

 What is the main difference between traditional financing and alternative financing solutions?  

 

 

 

Traditional financing typically involves banks and includes options such as business loans and lines of credit. Alternative financing solutions, on the other hand, offer non-traditional avenues like receivable financing and asset-based lending, which may be more accessible, flexible, or tailored to specific business needs.

 

Are alternative financing solutions only suitable for small businesses or startups?

 

While alternative financing solutions can benefit small businesses and startups, they are not limited to these categories. Businesses of various sizes can explore alternative financing options based on their specific requirements, including those related to cash flow management, asset utilization, or growth opportunities.

 

How does receivable financing (factoring) work, and what are its benefits?

 

 Receivable financing, or factoring, involves selling outstanding invoices to a third-party financing company at a discounted rate in exchange for immediate cash. The benefits include improved cash flow, accelerated revenue cycles, reduced credit risk, and the ability to focus on core business operations rather than collections.

 

What assets can be used for asset-based lending, and what are the advantages?

 

 Asset-based lending allows businesses to use assets such as accounts receivable, inventory, or equipment as collateral for obtaining a loan. The advantages include increased borrowing capacity, more flexible terms, improved liquidity, and the potential to unlock the value of remaining idle assets.

 

Is crowdfunding a viable option for business financing in Canada? 

 

Yes, crowdfunding has gained traction as a viable option for business financing in Canada. It involves raising funds from a large number of individuals through online platforms. Crowdfunding can benefit startups or businesses with unique products or services, as it provides capital, helps build a customer base, and creates brand awareness.

 

 What are Factors to Consider When Choosing a Financing Source

 

When deciding on a financing source for your business, it's important to consider various factors that can impact your decision. Some key considerations include the amount of funding required, the purpose of the funds, the repayment terms, the interest rates, and the eligibility requirements. It's also crucial to assess the potential impact on ownership and control of your business. Each financing option has advantages and disadvantages, so it's important to evaluate them carefully and choose the one that aligns with your business goals and needs.

 

 What Are Some Tips for Successfully Securing Business Financing

 

1. To access debt financing, develop a comprehensive business plan: Highlight your industry knowledge, market understanding, and growth potential with a robust business plan detailing your objectives, strategies, and financial forecasts.

2. Cultivate connections with financiers: Increase funding opportunities by networking and fostering relationships in the financial sector. Engage in industry events, join professional groups, and gain insights from seasoned entrepreneurs.

3. Boost your credit score: Enhancing your credit score can greatly increase your chances of securing funding. Regular bill payments, minimizing outstanding debts, and correcting credit report errors can help.

4. Be ready for due diligence: Maintain readiness for rigorous assessments by lenders and investors. Keeping all financial, business, and legal documents well-organized can expedite this process.

5. Engage financial professionals: Contemplate seeking help from financial advisors, accountants, or attorneys who are experts in business financing. They can offer invaluable advice and help simplify the funding process's intricacies.

 

 

 What is Private Equity

 

Private equity, a form of venture capital, involves an investor acquiring an ownership stake in your company in exchange for money. These investors aren't interested in running your business; they focus on companies on the verge of profitability, which possess robust business plans and solid ownership structures.

They require precise financial statements and projections to evaluate potential business development opportunities. This type of investor is often equated with terms like equity financing or equity funding.

This option could be suitable for entrepreneurs who have conducted thorough industry research, are prepared for an infusion of capital, desire the perks of an expanded network, and are searching for financial and resource support. They have a range of methods to finance your business, including repayable loans, debt financing, debt programs, equity financing, or providing capital in return for stock or ownership, among others.

 

 

What Are Angel Investors

 

An angel investor invests in early-stage businesses rather than offering a debt capital solution. They comprehend the inherent risks, are adept at evaluating potential, and can offer valuable advice and networking opportunities to augment your success, considering your investment in the business.

Your potential for high growth is intrinsically linked to your network, execution ability, and comprehension of your circumstances. Angel investors excel in partnering with you in these domains. They supply resources, capital, research, industry connections, programs, services, financing, investment, and focus, among other things, to aid you in expanding your initiative or accelerating your growth.

Consider seeking a local angel investors club or organization for assistance. Engage with successful entrepreneurs, inquire about their early stages, and find out who they might know in the angel investor community or those who invest their funds in businesses.

 

 

 

What is a VC / VENTURE CAPITAL INVESTOR

 

Venture capitalists use other people's money (sometimes their own) to invest in early-stage businesses through common or preferred stock. Typically, they don't engage much with very early-stage (angel) investments; they focus on firms poised for high growth or potential.

They anticipate acquiring an ownership stake in the company in return for their investment. They are interested in profits, understanding that these might come later. They desire to contribute to the company's success, although they don't intend to operate the business.

Angel investors might be better suited to funding opportunities for small businesses, whereas venture capitalists tend to invest in startup companies. Conversely, a venture capital investment could be more appropriate for later-stage or high-growth companies. Most small business owners do not meet the criteria for venture capital funding.

 

 

 

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

Maximizing Potential: Understanding Working Capital Funding for Canadian Businesses

 

Tweet

YOU WANT ALTERNATIVES TO DEBT FINANCING AND WORKING CAPITAL FUNDING SOURCES! 

Unlocking Business Growth: Working Capital Funding Sources & Debt Financing Solutions in Canada

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

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

        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

 

 

Bridging the Gap: Working Capital Funding Solutions in Canada

   

 

 

We're not shocked - You won't be either - a recent U.S. survey by CFO Magazine stated that cash flow and working capital and accessing working capital funding sources was the biggest concern of any owner / financial manager.

 

So let’s get right to the point, what are your alternatives to cash flow success? The good news is there are a handful of other options, including operating lines of credit from your bank or your non-bank lender.

 

You can employ accounts receivable financing or invoice discounting if you are a smaller firm. If done properly (and many times, it is not), it can turn your firm into literally an ATM cash flow machine, as you generate instant cash flow for all your sales. This type of facility comes at a cost, and we find there are many misconceptions about the cost of this type of financing and, most importantly, how it works.

 

 

INTRODUCTION

 

 

Accessing the right working capital funding is essential for success in today's fast-paced business environment. Whether you're a small startup or a larger company aiming to grow, having sufficient funds is vital for sustainable expansion. However, navigating the world of business financing can be overwhelming due to the numerous options and terms involved.

 

In the complex world of business operations, it is crucial to understand the concept of working capital and the importance of securing adequate funding. Operating capital is the financial lifeblood that keeps the business running smoothly daily.

 

It allows enterprises to meet short-term obligations such as purchasing inventory, paying employees, and managing day-to-day expenses. Companies often seek external funding sources to enhance their working capital, highlighting the necessity of financing options for startups and established corporations.

 

Welcome to Canada! We are pretty sure we are in the same boat as we talk to clients who seek alternatives to debt financing and liquidity for their companies.

 

 

THE IMPORTANCE OF WORKING CAPITAL FOR CANADIAN BUSINESS 

 

Working capital is vital for the functioning of any business as it represents the available funds for day-to-day operations. These funds handle expenses like supplier payments, payroll, and inventory management. Insufficient working capital can impede a company's ability to meet financial obligations, hindering growth and profitability.

 

Maintaining a healthy level of working capital is crucial for several reasons. Firstly, it provides a safety net during unexpected expenses and economic downturns, enabling businesses to endure challenging times.

 

Secondly, it empowers companies to seize growth opportunities, such as expanding into new markets or introducing new products. Lastly, having adequate working capital enhances stakeholder confidence, including that of investors, lenders, and suppliers, thus bolstering the overall reputation and credibility of the business.

While businesses can generate working capital from profits and equity, many rely on external funding to bridge the gap between cash inflows and outflows.

 

The other key item in the study was that business, in general, was dissatisfied with their banking relationships - again, no real surprise.

So we all agree there is a gap in working capital solutions for Canadian businesses. Let’s discuss why that gap exists and, more importantly, there are alternatives to taking on more debt financing while increasing cash flow in your firm.

 

ASSESSING YOUR WORKING CAPITAL NEEDS

 

Before choosing a working capital funding option, assessing your business's specific needs is essential.

• Assess your business's cash flow patterns, considering seasonal or cyclical fluctuations.
• Analyze your working capital cycle, including inventory conversion, accounts receivable collection, and supplier payment time.
• Evaluate your current working capital position by calculating the current ratio and comparing it to industry benchmarks.
• Determine your growth plans and future working capital requirements, such as expansion, product launches, or entering new markets.
• Understand your long-term working capital needs to select a funding option that aligns with your business's growth trajectory.
•  

  

TYPES OF WORKING CAPITAL FUNDING OPTIONS  

 

Traditional Working Capital Funding Sources

1. Bank Loans:

• A common source of working capital funding via working capital facilities
• Requires collateral and a lengthy application process.
• Offers competitive interest rates and flexible repayment terms.
• Suitable for established businesses with strong credit history and collateral.

2. Lines of Credit:

• Flexible financing option with a predetermined borrowing limit via commercial banks under a revolving credit facility
• Interest is only paid on the borrowed amount.
• Useful for managing short-term cash flow needs.
• Beneficial for businesses with fluctuating working capital requirements.

3. Business Credit Cards:

• Provides convenient access to more working capital funds.
• Offers a revolving line of credit for various business expenses.
• Business owners can earn rewards and build a credit history.
• Requires careful management to avoid high-interest rates and overspending.

 

 

GOVERNMENT LOANS

 

As we have written in the past, we always tell clients the best program in Canada, bar none in our opinion, is the government small business loan program, which is underwritten by our good friends in Ottawa.  Great rates, terms and structures; what more could you ask for?  Historically the program only offered financing for equipment, leaseholds and real estate - debt financing via long term loans.

 

In 2022 changes to the program added working capital loans/cash flow solutions -  Government loans are available via participating financial institutions. Some business credit unions are also a lending institution for the program.

 

BDC, Canada's non-bricks and mortar government crown corporation, also offers a permanent working capital loan solution via a long-term loan working capital finance solution that can help a business with seasonal variable working capital business needs.

Companies also have the ability to cash flow their Government refundable tax credits for r&d via Sr&ed financing bridge loans.

 

ALTERNATIVE WORKING CAPITAL FINANCING OPTIONS

 

1. Invoice Factoring: Invoice factoring is a financing option where businesses sell their accounts receivable to a third-party company, known as a factor, at a discount. The factor then collects payment from the customers. This provides businesses with immediate cash flow to meet their working capital needs. Invoice factoring suits businesses with outstanding invoices and may be an option for those with less-than-perfect credit who wish to improve net working capital.

 

2. Merchant Cash Advances: Merchant cash advances, also known as a short-term working capital loan, provide businesses with temporary working capital via a lump sum payment in exchange for a percentage of future credit card sales. This option is prevalent among retail and hospitality businesses with a high volume of credit card transactions. Merchant cash advances offer quick access to funds but can have higher fees and interest rates than traditional financing options.

Clients are increasingly more interested in hearing about non-bank lenders as sources of working capital because these firms can more readily approve financing for your inventory and receivables. The 'buzzword' around this industry is asset-based lending, and we advise clients to check it out because, in many cases, it’s the ultimate solution to working capital success.

 

3. Asset-based lending involves using a company's assets, such as accounts receivable, inventory, or equipment, as collateral for a loan.

• Businesses can access a revolving line of credit based on the value of their assets.
• This funding option suits businesses with valuable assets but may have stricter borrowing terms and requirements.
• Asset-based credit lines provide flexibility and support working capital needs by leveraging existing assets to secure financing. Businesses pay interest only on funds drawn down under the credit facility.
•  

So let's summarize -  if you qualify for bank financing, employ it!

 

Many of our clients don’t, so consider great alternatives for working capital funding sources, such as asset-based lines of credit, receivable financing, or sometimes even securitization.

 

 CASE STUDIES - THE SUCCESSFUL USE OF WORKING CAPITAL FUNDING SOLUTIONS

 

Case Study 1: ABC Manufacturing

• ABC Manufacturing, a small manufacturing company, utilized a line of credit for working capital funding.
• The flexible funding helped the company purchase raw materials and meet payroll obligations.
• Access to the line of credit also allowed ABC Manufacturing to take advantage of supplier discounts.
• Improved cash flow management enabled the company to invest in new equipment.
• The investment in new equipment led to increased productivity and profitability.
•  

Case Study 2: XYZ Tech

• A technology startup, XYZ Tech, faced cash flow gaps due to delayed customer payments.
• To address this challenge, XYZ Tech opted for invoice factoring to bridge the gap.
• By selling accounts receivable, the company received immediate funds for operational expenses.
• The funds obtained through invoice factoring also supported product development initiatives.
• XYZ Tech continued its growth trajectory and secured new contracts without cash flow constraints.

These case studies demonstrate the significant impact of working capital funding in supporting business growth and overcoming financial challenges. Utilizing a line of credit and invoice factoring helped these businesses manage their cash flow, seize growth opportunities, and succeed in their respective industries.

 

 

  

TIPS FOR MANAGING WORKING CAPITAL EFFECTIVELY  

 

 

Securing working capital funding is only the first step. To maximize its benefits, businesses must also effectively manage their working capital. Here are some tips for managing working capital effectively:

 

1. Cash Flow Forecasting:

• Develop a cash flow forecast to anticipate inflows and outflows.
• Identify potential shortfalls and take proactive measures.

2. Inventory Management:

• Optimize inventory levels to avoid tying up excessive working capital.
• Implement just-in-time systems and negotiate favourable terms with suppliers.

3. Accounts Receivable Management:

• Implement strategies to improve collections and reduce aging of trade credit offered to clients
• Offer incentives for early payment and consider invoice factoring.

4. Accounts Payable Optimization:

• Negotiate favourable payment terms with suppliers around current liabilities on the balance sheet
• Maintain good relationships by paying on time.

5. Expense Control:

• Regularly review expenses and identify cost-saving opportunities.
• Implement measures without compromising quality.

 

 

 

CONCLUSION   

 

Accessing the right working capital funding is crucial for businesses, regardless of size. Evaluating your business needs and considering the advantages and disadvantages of various funding options, including traditional bank loans and alternative financing solutions, is important.

 

By understanding your working capital requirements, selecting the appropriate funding option, effectively managing your operating capital, and drawing insights from successful experiences, you can propel your business to new levels of success. Remember, working capital funding is not merely about surviving but thriving and achieving remarkable growth for your business.

 

In summary, when utilized effectively, working capital funding can provide the necessary fuel for growth and enable your business to reach unprecedented heights.

 

Whether you opt for traditional or alternative financing, you must comprehensively understand your unique requirements and make informed decisions accordingly. Keep in mind that working capital funding goes beyond mere survival; it has the potential to drive your business toward unparalleled success.

 

 

 

So if your firm has a thirst for liquidity (!), call  7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who will work with you to solve your cash flow challenge.

  

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK  MORE INFORMATION  

 

 

What are the Pros and Cons of Traditional and Alternative Working Capital Funding

 

• Lower interest rates compared to alternative financing options.
• Longer repayment terms provide businesses with more time to repay the loan.
• Established relationships with banks can lead to future funding opportunities.
• Traditional financing options are often more suitable for larger businesses with established credit history and collateral.

Cons of Traditional Working Capital Funding:

• A lengthy application process and strict eligibility criteria can make securing funding challenging for small businesses.
• Collateral requirements may limit the accessibility of traditional financing options.
• Banks may be more risk-averse, making it difficult for businesses with less-than-perfect credit to obtain funding.

 

 

 

What are the  Pros  and Cons of Alternative Working Capital Funding

 

• Quick access to raise funds allows businesses to address immediate working capital needs.
• Less stringent eligibility requirements compared to traditional financing options.
• Suitable for businesses with less-than-perfect credit or limited collateral.
• Some options, like invoice factoring, can help improve cash flow management.

Cons of Alternative Working Capital Funding:

• Higher fees and interest rates compared to traditional financing options.
• Limited funding may not be sufficient for businesses with substantial working capital needs.
• Some options may require businesses to relinquish control or ownership.

 

How Can A Business Choose the Right Working Capital Funding Option for Your Business

 

Choosing the right working capital funding option for your business requires careful consideration of various factors. Here are some key considerations to keep in mind:

1. Cost:

• Evaluate interest rates, fees, and charges associated with each option.
• Calculate the total borrowing cost to compare affordability.

2. Repayment Terms:

• Assess repayment schedules and their impact on cash flow.
• Consider the ability to meet other financial obligations.

3. Accessibility:

• Determine eligibility criteria based on credit history and collateral.
• Some options may be suitable for businesses with imperfect credit or limited collateral.

4. Speed of Funding:

• Consider the urgency of accessing funds.
• Evaluate approval and funding processes for different options.

5. Flexibility:

• Evaluate the usage and repayment flexibility of each option.
• Options like lines of credit may offer more flexibility.

By carefully evaluating these factors and aligning them with your business's needs, you can choose the working capital funding option that best suits your requirements around internal and external sources of business capital.

 

 

 

 

 

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

Asset Based Lending – Non-Bank Revolving Credit Facilities

 

Tweet

YOUR COMPANY IS LOOKING FOR CANADIAN ASSET BASED LENDING AND NON-BANK REVOLVING LINES OF CREDIT  FINANCING! 

Transforming Business Finance with Asset-Based Lending Non-Bank Revolving Facilities

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

 

Capitalizing on Your Assets: The Power of Asset-Based Lending and Non-Bank Revolving Facilities

 

Asset based lines of credit are a unique way for Canadian business owners to achieve operating liquidity outside the chartered bank environment. How does the asset-based loan work compared to other types of funding,  and is it right for your business to address issues in cash flows? Let's dig in!

 

 

INTRODUCTION 

 

Are you a business owner aiming to optimize your cash flow and expand your business? If that's the case, asset-based lending might be the solution you've been seeking. In today's highly competitive business environment, conventional loan options might not always align with your financial requirements.

 

This is where asset-based lending " ABL' comes into play. By utilizing your company's assets, such as accounts receivable, inventory, or equipment, you can obtain the working capital necessary to drive your growth.

 

Unlike traditional lending, ABL  emphasizes the value of your assets rather than solely relying on your creditworthiness. As a result, it presents a viable alternative for businesses with less-than-perfect credit. In this article, we will explore the advantages of asset-based lending and how it can assist you in strategically managing your cash flow while bolstering your liquidity.

 

Understanding Cash Flow Challenges for Businesses

 

Maintaining a healthy cash flow is vital for business success, yet many businesses struggle with effective cash flow management. One common challenge is the timing gap between accounts receivable and accounts payable. While you've completed the work or delivered the product, it takes considerable time for customers to settle their invoices, straining your working capital as you need to cover expenses and payroll.

 

Another hurdle is the uncertainty of sales and revenue, influenced by seasonal variations, market trends, and unforeseen costs. These factors make it challenging to plan for the future. Traditional lending options may not offer the flexibility and expedited access to funds businesses need to navigate these obstacles.

 

Asset-Based Lending vs. Traditional Lending

 

While the traditional bank loan and business line of credit established options for borrowing, they may not always be the ideal choice for businesses seeking to optimize their cash flow. Traditional lenders heavily rely on owners' business and personal credit scores and healthy financial statements to evaluate creditworthiness. This can pose challenges for companies with limited operational history or previous financial difficulties and cannot meet traditional bank lending standards for approval.

 

In contrast, asset-based lenders offer an alternative approach by prioritizing the value of your assets over your credit history in the asset-based lending facility. This makes it a more accessible option for businesses that may not meet the criteria for traditional loans. Furthermore, asset-based lending provides greater flexibility in loan amounts and repayment options, enabling companies to customize the loan to their specific requirements.

 

 Demystifying Asset-Based Lending and Non-Bank Revolving Facilities 

 

 

Asset based lending, aka  'ABL' financing in Canada, is not debt financing, and is also not cash flow based, and should not be confused as such. It is operating and working capital financing via revolving facilities.

 

Asset based lines of credit are used by medium-sized firms and larger firms throughout Canada and are growing in popularity when compared with traditional commercial banking. They are inappropriate and difficult to structure for small firms and start-ups. In those two cases, it might be more advisable for firms with those overall credit ratings to focus on straight accounts receivable financing solutions or consider a working capital term loan.

 

One example is factoring for firms without significant sales or physical assets / fixed assets on the balance sheet. To learn more about factoring, click here.

 

A traditional lender may take measures to protect themselves against loan losses if they lend money, such as using the ability to increase interest rates - In 'ABL, ' your assets minimize lender risk.

 

As a credit facility, Canadian asset-based lines of credit are structured around some of the following parameters- including a focus on a ' covenant light structure.'

 

-  Industry fundamentals such as asset quality and perceived industry risk

- Your general credit profile

- Size of the financing facility and who is offering the facility (the industry is somewhat fragmented in Canada)

 

We noted your firm's 'general credit profile' as a key consideration. Probably the most surprising of our clients are those who now understand that while overall financial statement strength is one factor in a financing facility such as this, it is not the most important factor. Why? That is because an ABL facility focuses more on assets than operational performance.

 

We are not telling clients they can get an asset-based line of credit if their firm is in a serious death spiral. However, if your firm has challenges such as temporary operating losses or an extenuating circumstance setback, you still are a strong candidate for asset-based financing business credit.

 

HOW DOES THE ABL FACILITY WORK

 

How do these facilities work? Very simply, it's a similar version of a bank operating line of credit via traditional financial institutions, but without many of those restrictions, covenants, additional collateral requirements, etc.

 

Receivables, inventory, and sometimes equipment and real estate are margined to their proper values. Typically that is receivables at 80-100% of invoice face value, inventory at 40-80%, and equipment and real estate per acceptable appraised values.

 

Are there any drawbacks to such a facility - we can think of two discussion points, and they aren’t necessarily hard and fast disadvantages for many companies- those two points are:

 

- Pricing

- Reporting

 

Asset-based lines of credit traditionally have higher pricing than bank lines, and you are more often than not required to do detailed reporting of A/R, inventory values, etc., every month. We point out to customers that additional reporting can sometimes benefit you as it helps you better understand your business!

 

In summary, asset-based lines of credit are financing facilities that provide alternative funding to typical banking-type arrangements. They almost always give you more capital, you do not incur debt, and in many cases, can help your firm regain its financial footing or grow more quickly.

 

CASE STUDIES

 

Case Study 1: Manufacturer

ABC Manufacturing is a medium-sized company specializing in the production of industrial equipment. Despite having a solid reputation in the industry and a steady stream of orders, ABC Manufacturing faced a common challenge: limited cash flow due to extended payment terms from their clients and the need to maintain sufficient inventory levels.

 

Due to stringent credit requirements, traditional bank loans were not readily available to ABC Manufacturing. Recognizing the potential of their valuable equipment and accounts receivable, ABC Manufacturing approached an asset-based lender for financing. The lender assessed the company's assets, including their production machinery, inventory, and outstanding invoices, and offered them an asset-based loan.

 

With the asset-based loan, ABC Manufacturing could leverage its machinery and inventory to secure the necessary working capital. The loan allowed them to purchase raw materials, cover operating expenses, and invest in new equipment. As a result, ABC Manufacturing was able to fulfill large orders, expand its production capacity, and improve its cash flow management. The flexibility of asset-based lending helped the company navigate their financing challenges and support its growth trajectory.

 

Case Study 2: Distributor

 

XYZ Distributors is a wholesale distribution company specializing in electronics products. As the business grew, XYZ Distributors faced a significant challenge in managing their cash flow effectively. The company often had to make large upfront payments to suppliers but had to wait for extended periods for their customers to pay their invoices.

 

XYZ Distributors sought a solution to their cash flow gap and turned to asset-based lending. The company had a substantial amount of valuable inventory and accounts receivable that could be leveraged to secure financing. An asset-based lender assessed their inventory and outstanding invoices, offering them an asset-based line of credit.

 

With the asset-based line of credit, XYZ Distributors had access to a revolving source of working capital directly tied to the value of their inventory and accounts receivable. They could borrow against their eligible assets to finance operations, pay suppliers promptly, and bridge the gap between their payments and collections.

 

Asset-based lending gave XYZ Distributors the flexibility and liquidity necessary to support their operations and growth plans. By using its assets as collateral, the company overcame their financing challenges. It reduced the strain on its cash flow, enabling them to seize new business opportunities, expand product lines, and strengthen its market position as a distributor.

 

WHAT ARE COMMON MISCONCEPTIONS ABOUT ASSET BASED LENDING  

 

Misconceptions about Asset-Based Lending include :

1. Only for businesses in financial distress: Asset-based lending is not limited to businesses facing financial difficulties. It is a strategic tool for growth and expansion, offering working capital to seize opportunities and invest in new initiatives.

2. Suitable only for large businesses: Asset-based lending benefits companies of all sizes, including small and mid-sized businesses. It can be particularly advantageous for smaller businesses that may not qualify for traditional loans due to limited operating history or credit challenges.

 

KEY BENEFITS OF ASSET BASED LENDING

 

1. Unlock the value of your assets: Asset-based lending enables businesses to convert assets like accounts receivable, inventory, or equipment into working capital, providing access to funds as needed.

2. Asset-based evaluation: Unlike traditional lending, asset-based lending considers the quality and value of your assets rather than solely relying on creditworthiness. This makes it a viable option for businesses with less-than-perfect credit or those in higher-risk industries in the borrowing company's operations for firms with collateral value assets.

3. Flexibility in loan structure: Asset-based loans offer flexibility, allowing businesses to tailor the terms and repayment schedules to their specific needs. This flexibility provides better control over cash flow and the ability to adapt to market changes. Financial covenants are typically not part of an asset-based credit line compared to the types of covenants and balance sheet ratios banks require.

 

  

 CONCLUSION - ASSET BASED FINANCE   

 

Optimizing cash flow is crucial for success and growth in today's competitive business environment. Asset-based lending offers a strategic solution to enhance cash flow, boost liquidity, and drive business growth.

 

Regardless of creditworthiness, leveraging company assets allows access to necessary working capital.

 

Asset-based lending provides the flexibility, speed, and accessibility that traditional lending options may lack, making it an invaluable tool for maximizing cash flow. Business owners seeking financing solutions aligned with their growth goals should consider asset-based lending as a strategic approach to fuel success and efficiently manage funding needs.
 

 

Asset Based Lending is already in use for many decades. Asset-based loans are generally designed to protect booming businesses from financial distress. Still, some Canadian banks have been slow on the uptake, and ABL funding largely remains not marketed by them either.

 

However, there has recently been an increase among companies wanting more capital than traditional bank lending offers.

 

Talk to 7 Park Avenue Financial,  a trusted,  credible, experienced financing expert for information on this unique type of financing for the needed capital to run and grow your business.

 

 

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION  

What is asset-based lending?

 

Asset-based lending allows companies to borrow money using their assets as collateral. Asset-based loans are secured by collateral.  A company's assets such as the business's accounts receivable,  inventory, machinery and equipment, real estate and potentially even intellectual property can be financed. Interest rates tend to be higher in asset-based lending but provide more access to business credit.

 

The ABL lender establishes A monthly borrowing base, allowing a firm to draw down funds as needed. Firms experiencing rapid growth or those can cant meet the demand of the financial covenant requirements of banks can benefit from this type of Canadian business financing.

Firms expanding into global markets or taking advantage of an economic downturn can also use this credit line.ABL facilities are typically not term loans but are structured as revolving facilities- providing greater liquidity to borrowers.

 

What is cash flow lending?

 

Cash Flow Lending is a popular and effective way to receive business funding versus traditional bank lenders. Not all borrowers have sufficient collateral, but that is not necessary with unsecured loans via cash flow-based lending! Lenders look at projected revenues, the company's cash flow,as well as the overall credit rating of the business.

This type of financing has many advantages: companies get more money faster since there isn't any need for security, and low rates are often associated with cash flow loans for firms that qualify under a bank's lending process.

 

  

 How Does A Business Maximize Cash Flow with Asset-Based Lending  

 

1. Quick access to working capital: Asset-based lending provides swift access to funds, allowing businesses to seize opportunities and meet financial obligations promptly, unlike traditional lending with lengthy approval processes.

2. Flexibility to borrow against various assets: Asset-based lending enables businesses to leverage different types of assets, such as accounts receivable, inventory, or equipment, to access necessary funds. This flexibility optimizes cash flow according to unique business requirements.

3. Bridging the gap between accounts receivable and accounts payable: Asset-based lending helps businesses manage the timing mismatch between accounts receivable and accounts payable. By utilizing the value of accounts receivable, companies ensure a steady cash flow to cover operational expenses, payroll, and other financial obligations. This is particularly advantageous for those with extended payment cycles or industries affected by seasonal fluctuations.

4.  

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

Bridging the Cash Flow Gap: The Value of SR&ED Tax Credit Loans

Tweet

 

YOU ARE LOOKING FOR  SR&ED TAX CREDIT FINANCING

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

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

Check Our Financing Track Record:

        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

 

 

Transforming Tax Credits into Cash: An Exploration of SR&ED Financing 

 

Your business success hasn’t been based on doing what your competition does, but if they are utilizing SR&ED financing to grow their business, doesn’t it make sense to investigate why CRA SRED claims, when financed, might put you a step ahead of the competition?

 

We think so, and if the Scientific Research and Experiment Development Program aka 'SR&ED') pours billions of dollars into Canadian company coffers every year to encourage Canadian businesses in r&d and to advance scientific knowledge in their industry - So why wouldn’t you want to accelerate the access to cash for those claims and maintain your competitive posture in your industry?

 

 

INTRODUCTION

 

In the rapidly changing business world, innovation is paramount. Yet, it can often be challenging, particularly for small and medium-sized enterprises (SMEs), to fund these innovation projects. The financing of Canada's Scientific Research and Experimental Development (SR&ED) solves this hurdle.

 

This government initiative offers tax incentives to businesses via eligible sr ed and who are engaged in research and development, fostering a culture of innovation.

 

But what if you need funding immediately for your projects? This is where SR&ED financing shines. It allows you to convert your tax credits from eligible expenditures into funding upfront, enabling you to expedite R&D projects, attract top-notch professionals, and embrace advanced technologies. This article will delve into the advantages of SR&ED financing tax incentive program,  highlighting its pivotal role in fostering growth and innovation for all businesses.

 

SR&ED program encourages Canadian businesses to undertake R&D activities by offering cash refunds or tax credits on qualifying expenditures. SR&ED financing allows access to these benefits upfront instead of waiting months for the Canada Revenue Agency (CRA) to process your claim.

 

This process typically involves lenders advancing a portion of your expected SR&ED refund upon claim submission, even before the CRA has reviewed it. Once the claim is processed and the refund issued, the loan is settled from these proceeds, with any leftover funds going to the business. This approach bolsters your cash flow and fuels your research, operations, and overall business requirements.

 

 

WHAT IS SR&ED FINANCING  

 

SR&ED financing is a unique approach enabling businesses to tap into their prospective SR&ED tax credits earlier. Rather than waiting for the government to process tax credits, firms can secure immediate funding to bolster their innovation efforts.

 

Providers of SR&ED financing assess a company's eligibility for these tax credits and typically offer a 75% loan to value of the anticipated credits as a bridge loan upfront.

 

This capital can be leveraged for various needs, including research and development projects, hiring of specialists, equipment acquisition, or business expansion and working capital.

 

This form of financing proves especially advantageous for small and medium-sized enterprises (SMEs), which might struggle to access conventional funding from traditional financial institutions such as bank loans or venture capital due to their size, inadequate collateral, or lack of a verified track record. SR&ED financing offers a solution geared towards their innovative operations, providing the necessary funds to drive their growth.

 

SR&ED financing is non-dilutive venture debt and does not affect owner equity!

 

DO BANKS FINANCE SR&ED REFUNDABLE TAX CREDIT CLAIMS

 

Conventional financing methods, like bank loans or equity financing, might not be the best fit for funding innovative ventures. Banks typically demand collateral and might be reluctant to back projects with unpredictable results. Simultaneously, equity financing requires parting with a degree of company ownership and control, a step many entrepreneurs may not prefer. It is in this context that SR&ED funding comes into play.

 

  

WHAT ARE THE BENEFITS OF SR&ED FINANCING  

 

There are several key benefits to consider when it comes to SR&ED financing:

 

• Quick Fund Accessibility: Bypass the long approval processes typical of traditional funding sources with SR&ED financing. It allows businesses to promptly commence innovation projects, keeping them competitive and ready to capitalize on market opportunities.

• Equity Retention: SR&ED financing facilitates companies to keep full ownership and control. Unlike equity financing, which demands a share of ownership for funding, SR&ED financing relies on tax credits, thus preserving business ownership.

• Flexible Funding Use: The freedom to allocate funds as required is a major advantage of SR&ED financing. It can be directed towards research and development, hiring skilled professionals, procuring equipment, or expanding operations, depending on what best serves their innovation goals and business needs.

• Improved Cash Flow: Accessing SR&ED tax credits early enhances a company's cash flow, allowing them to settle immediate financial commitments, pay employees and suppliers, and manage operational expenses. A healthier cash flow can also cushion unexpected costs or market changes.

• Lower Financial Risk: SR&ED financing curbs the financial risk related to innovation projects. By utilizing anticipated tax credits for funding, businesses can lessen the risk of project failure or financial hardships, fostering peace of mind and focusing on driving innovation and growth.

 

WHAT  ARE THE ELIGIBILITY CRITERIA FOR SR&ED FINANCING

 

To qualify for SR&ED financing, companies must meet certain eligibility criteria. While the specific requirements may vary depending on the financing provider, there are some common criteria to consider:

 

• Qualified SR&ED Activities: The business must undertake scientific research and experimental development tasks that meet SR&ED tax credit qualifications. This typically involves systematic investigation and experimentation to create or enhance products, processes, or technologies.

• Residency in Canada: Eligibility for SR&ED financing requires businesses to be Canadian-owned and physically situated in Canada. This ensures that the funds support local businesses and the Canadian economy.

• Financial Stability: Financing providers might evaluate a company's financial solidity and creditworthiness to ascertain its capacity to repay the financing. Startups or firms with limited financial history may still qualify, but they must present a viable business plan and show growth potential.

• Documentation and Compliance: Firms must maintain adequate documentation and abide by SR&ED program's reporting prerequisites. This includes keeping track of eligible activities, costs, and providing supporting documentation for their SR&ED claims.

 

It's worth noting that while SR&ED financing providers assess a company's eligibility, the final determination on the amount and terms of the financing can vary. Companies are recommended to engage experienced financing providers who can guide them through the process and help optimize their funding potential.

 

 HOW THE SR&ED LOAN WORKS - SPOILER ALERT - NO PAYMENTS!

The financing of your SRED claim via what we could call an SRED bridge loan is a recognized and solid manner to recover working capital faster. The very essence of having an SRED claim filed, of course, means you will recover your funds, but doesn’t it make sense to recover them sooner, putting cash flow and working capital back to work for your company?

 

In business, it’s all about timing, and in case you haven’t noticed, things aren’t exactly moving slower in Canadian business today. So is it advantageous to get immediate cash for your sr&ed  claim instead of waiting several months, sometimes up to 9 or 12 months, for your funds? 

 

You probably don’t need e cash flow these days - therefore, we strongly recommend waiting for your cheque from the feds; it’s 'in the mail! However, if you're among the many clients we meet that could use additional cash flow today, you should consider financing your claim.

What are the mechanics of having your claim financed? Ask clients such as yourselves. To say that SR&ED financing is a niche industry requiring knowledge and expertise is a bit of an understatement. That is why we strongly suggest you work with a trusted, credible and experienced business financing advisor who will walk you through a fundamental process.

 

Unleashing Your Business Potential with SR&ED Tax Credit Loans

 

SRED financing will, nine times out of ten, get you approximately 75% of your total SR&ED filing as a cash flow bridge loan. Why 75%? It is simply because the remaining 25 %, which still belongs to you, is held back as a buffer to cover any adjustments the good folks in Ottawa might make to your claim, and it also helps to cover the actual financing charges.

 

However, it’s easy to see that if you have a claim, for example, of 300k, an immediate cash flow loan of 75% generates some real cash back into your firm. Which, of course, per the program, is, in effect, a non-repayable grant.

Could the benefits be any clearer - The Canadian government is reimbursing you with your R&D funds, and you are accelerating that reimbursement straight back into working capital. Use the funds for whatever general corporate purpose - pay payables, buy new equipment, reinvest in more R&D, it’s your call!

The mechanics of SRED finance are simple - have a claim prepared by a credible consultant or accounting firm via a final project report. Complete a simple business financing application, go through standard due diligence as you would any financing, and execute a financing document which, in effect, collateralizes the SRED tax refund for your SR&ED loan. The entire process can be completed within a few weeks with the right amount of commitment.

If your SRED claim was prepared by a consultant who did it on contingency, you could even pay them out of the financing - at that point, everyone is happy!

 

  

CASE STUDIES   

 

At 7 Park Avenue Financial, we have worked with many firms working on groundbreaking technology in areas such as the environment, healthcare, and software development. Their ability to access sr&ed financing and secure additional business capital and cash flow allowed them to accelerate research and build company valuation.

Software companies we have worked with often use these funds to attract technical talent and sales and marketing staff.  

The bottom line - sr&ed funding helps fuel innovation!

These case studies demonstrate how SR&ED financing can provide the necessary funding to fuel innovation and help companies achieve their growth objectives. Whether you're a startup or an established organization, SR&ED financing can be a game-changer in accelerating your innovation initiatives and staying ahead of the competition.

 

  

 CONCLUSION  

 

Innovation fuels business growth, but funding such endeavours, especially for SMEs, can be daunting. Here, SR&ED financing emerges as a solution. By converting your SR&ED tax credits into upfront funding, you can expedite R&D projects, recruit skilled personnel, and invest in advanced technology.

 

The benefits of SR&ED financing include immediate access to funds, equity preservation, funding flexibility, improved cash flow, and reduced financial risk. It's a powerful tool for companies aspiring to propel innovation and growth.

 

To fully leverage SR&ED financing, understanding its eligibility criteria, application process, and benefits is crucial. Collaborating with reputable financing providers, maintaining documentation for SR&ED activities, and crafting a robust business plan can help maximize your funding and drive your innovative initiatives. Keeping abreast of program updates and exploring complementary funding sources to SR&ED financing is also advised.

 

Whether you're a startup or an established firm, SR&ED financing could be instrumental in funding your innovation and staying competitive in today's dynamic business environment. Harness the potential of funding SR&ED to power your innovative pursuits.

 

Choose an experienced SR&ED financing provider with a comprehensive understanding of the program requirements. They can guide you through the application, help you optimize your funding, and ensure you comply with the SR&ED program.

 

 

Your competition probably finances their CRA SRED claim - why not increase your cash flow and maximize your refund for the best uses your company can utilize? That’s a competitive financing strategy that works! Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian Business Financing Advisor who can assist you with your sr&ed financing and other business finance solutions.

 

  

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

  

 What is The application process for SR&ED financing

The application process for basic research funding in  SR&ED typically involves the following steps:

 

• Initial Consultation: Companies can engage with SR&ED financing providers to grasp eligibility requirements, funding alternatives, and the projected financing amount. This preliminary discussion assists companies in determining if SR&ED financing aligns with their needs and objectives.

• Application Process: Should a company opt for SR&ED financing, it needs to apply to the financing provider, detailing the company information, its SR&ED activities, financial history, and forecasts. The application is then reviewed to assess the company's eligibility.

• Assessment and Due Diligence: The financing provider performs an evaluation and due diligence procedure to scrutinize the company's eligibility, financial soundness, and growth potential. This could involve reviewing financial statements, income tax return, and SR&ED documents, and potentially conducting interviews or site visits.

• Finance Agreement: Once the company fulfills the eligibility criteria and completes the evaluation, a funding agreement detailing the financing terms and conditions is drafted. This agreement outlines the financing amount, repayment terms, interest rates, and any additional applicable fees or obligations.

• Fund Disbursal: Post the signing of the funding agreement, the financing provider disburses the agreed funds to the company. These funds can be immediately deployed to bolster the company's innovative initiatives and growth strategies.

 

What are typical  misconceptions about SR&ED financing?

 

Despite its benefits, several common misconceptions about the sred investment tax credit and how  SR&ED financing of sr ed tax incentives can deter companies from exploring it. Let's address some of these misconceptions:

 

• Exclusively for Large Companies: SR&ED financing isn't limited to big corporations. It's particularly beneficial for SMEs, any Canadian controlled private corporations,  providing them with funding avenues that might be inaccessible through traditional methods, thus enabling them to compete with larger industry counterparts via their work in scientific or technological advancement.

• Complex and Time-Consuming Procedure: The SR&ED financing application process may require certain documentation and due diligence, but seasoned financing providers can simplify and navigate the process for companies. They are well-versed with the SR ED credit program prerequisites and can aid companies through the complexities and assist in documentation around payroll records, purchase invoices for the sr ed  project  etc.

• Limited to Specific Industries: SR&ED financing isn't industry-specific. Firms from various sectors engaging in innovative activities, including software development, manufacturing, biotechnology, clean energy, and others, are eligible for SR&ED tax credits and can access financing based on those credits for their work around scientific and technological uncertainty. Note that the commercial production of new or improved material does not qualify for sr&ed, as do not sales promotion, quality control, market research, etc

• Prohibitively Expensive: The cost of SR&ED financing depends on factors such as the financing provider, company eligibility, and the specific terms of the funding agreement. Despite potential costs, the advantages and immediate funding access to conduct research often surpass these expenses in sr ed projects.

 

However, it's important also to consider potential downsides:

 

Cost: SR&ED financing can be pricier as interest rates may exceed those of traditional bank loans due to the inherent risks involved.

• Dependence: There's a risk of companies becoming excessively reliant on SR&ED financing, which could lead to issues if their SR&ED claim is scaled back or rejected.

• Reduced Net Benefit: Given that the loan is paid off using the SR&ED refund, the company ultimately derives a lesser net benefit from the SR&ED program.

•  

It's vital for businesses to thoroughly weigh their options and consult with financial advisors around sr ed eligibility criteria before opting for SR&ED financing. They should also ensure a strong SR&ED claim and a comprehensive understanding of the program's requirements.

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