Factoring Is The Secret Weapon In Canadian Receivables Financing - Here's Why!

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YOUR COMPANY IS LOOKING FOR FACTORING AND CANADIAN RECEIVABLES

 FINANCING! 

Transform Your Cash Flow with Receivables Financing: A Guide to Solutions by 7 Park Avenue Financial

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 - sprokop@7parkavenuefinancial.com

 

 

 

Exploring Receivables Financing as a Funding Alternative 

 

Bridging the Cash Flow Gap: Explore Receivables Financing with 7 Park Avenue Financial

 

Canadian business owners and financial managers can find an alternate route for financing working capital and cash flow needs in factoring, also known as accounts receivables financing of outstanding invoices.

 

This method can be particularly beneficial when your company experiences rapid growth or struggles to finance day-to-day working capital needs due to significantly larger orders or contracts. Fundamentally, factoring in Canada involves financing through good accounts receivables on the company's balance sheet. Choosing the best technical method of factoring necessitates due diligence on your part.

 

 

 

 

INTRODUCTION

  

 

In Canada's fast-paced business world, keeping cash flowing is critical to staying in the game in your industry. That's where receivables finance comes in; you might also hear it called invoice financing or factoring. It's like a life preserver for businesses, giving them quick cash from unpaid invoices when traditional bank loan financing is unavailable.

 

It's a way for businesses to keep the money rolling between when they deliver a product or service and when they get paid. But that's not all. Besides boosting your cash flow, receivable financing can give you more flexibility, less risk, and more chances to grow your business.

 

The cash flow challenge

 

 

Cash flow issues can hit any business, big or small, and managing it well is vital for survival and growth. If cash is short, a company might have trouble meeting financial needs, paying suppliers, investing in growth, or even covering everyday costs. Slow-paying customers, seasonal ups and downs, unexpected expenses, and late payments can all create cash flow gaps that disrupt business.

 

Receivables financing is a solution here. It allows businesses to turn their unpaid invoices into immediate cash. Businesses can sell their invoices to a financing company, or "factor," giving them around 80-90% of the invoice value upfront.

 

This provides the business with the cash to keep running and growing. Once the customer pays the invoice, the factor takes their fee and gives the rest to the business, ensuring a regular cash flow. This way, companies can deal with cash flow problems and concentrate on their main activities.

 

  What is receivables financing or factoring? 

 

Receivables financing, also known as factoring, is a method where a business uses its receivables (money owed by customers) as collateral in a financing agreement. In this process, a business sells its accounts receivable to a factoring company to receive immediate cash flow rather than waiting for the payment period.

 

  

  

Diving Deep into Non-notification Factoring - aka ' Confidential Receivable Financing "!   

 

One such method recommended is non-notification factoring, which puts you in complete control of your receivables and working capital.

Under this method, while you bill and collect your receivables, as always, you receive immediate cash flow and operating capital when a valid invoice is issued to your customer. This innovative approach enhances the fluidity of your business operations, contributing to seamless growth and financial stability.

 

 Balancing the Costs and Benefits of Factoring 

 

Though factoring can carry higher costs, more intelligent purchases and leveraging discounts can offset these. Traditional payment habits often stretch to 30, 60, or even 90 days. Factoring enables cash generation from these sales 2-3 times quicker, providing much-needed liquidity.

 

1. Flexibility: This type of financing is based on the value of your invoices, not your credit score or collateral. It focuses on the creditworthiness of your customers, who are responsible for paying the invoices.

2. Revolving Financing: As your business produces new invoices, you can continue to get financing. This adaptability allows companies to constantly cope with cash flow changes and grab growth opportunities without needing new loans or credit lines.

3. Reduced Risk: The risk of non-payment or late payment from customers is transferred to the factor in receivables financing. This protective layer allows businesses to focus on their core operations rather than credit and collection responsibilities.

4. Supports Growth: Immediate cash access via receivables financing allows businesses to capitalize on growth opportunities. This could involve investing in new equipment, expanding the team, entering new markets, or introducing new products.

5. Better Supplier Negotiations: Regular cash flow can improve supplier relations, potentially leading to discounts, extended payment terms, or better pricing.

6. Capability to Take on Larger Projects: With instant access to cash, businesses can confidently accept more significant contracts, knowing they have enough working capital to cover costs such as materials, labour, and overheads. This can open new revenue streams and support long-term growth.

 

Factoring as a Bridge to Growth

 

Factoring, in essence, is about working capital turnover. It may not be the ultimate solution for your firm, but it serves as an excellent bridge to your next growth level. Whether your firm is new, faces financial challenges, or grows too quickly for traditional bank financing, factoring offers a solution.

 

Factoring versus Traditional Bank Lines of Credit

 

Factoring and receivable financing (also referred to as invoice discounting) contrast with traditional bank lines of credit.

 

Factoring focuses on your business assets rather than your balance sheet or income statement. Bank lines of credit, conversely, focus on you as the owner, your balance sheet, income statement, industry, and years in business.

 

Choosing the Right Factoring Facility

 

When considering factoring, the focus should be on having financeable assets (receivables) that can be turned into immediate cash flow.

 

The challenge lies in understanding the differences among various factoring facilities, their operation, pricing, whether you prefer a contract or an open-ended arrangement, and your comfort level with the factoring business model. Ensure to engage with a trusted, experienced business advisor in this area to harness the full potential of this financing method for your Canadian firm.

 

Key Takeaways 

 

1. Problem: Cash flow issues can hamper business growth.

2. Solution: Receivables financing converts unpaid invoices into instant cash, improving cash flow.

3. Additional Benefits: Enhances flexibility, reduces risk, and enables businesses to seize growth opportunities.

4. Choosing the Right Provider: Factors to consider include reputation, terms, and fees.

5. Evidence of Success: Many businesses across different sectors and sizes have used this tool to overcome cash flow issues and fuel growth.

6. Action: Don't let cash flow challenges hold your business back. Use receivables financing to achieve long-term success.

 

 

Receivables financing, or factoring, offers an alternative method for financing working capital and cash flow needs in Canada.

 

It allows companies experiencing rapid growth or with large orders or contracts to finance their operations more effectively.

 

One method, non-notification factoring, provides companies with complete control over their receivables and immediate cash flow upon issuing a valid invoice. Factoring, while more costly than traditional methods, can speed up cash generation and serve as an excellent 'bridge' to the next level of growth.

 

The selection of a  receivable financing/factoring facility should be carefully considered, considering factors such as its type, operation, pricing, and the company's comfort level with this model. It's crucial to consult with a credible, trusted, and experienced business advisor to make the most of this financing opportunity.

 

CONCLUSION

 

So, in summary, is it that easy? Yes. And no. We say no because the challenge in setting up a proper factoring facility in Canada is simply understanding the differences in the types of facilities that are set up on your behalf, how they work, how they are priced, determining if you wish to lock into a contract or leave it open-ended, and your overall comfort level with the day to day business model of factoring receivables as you generate sales.

 

Speak to 7 Park Avenue Financial,  a credible, trusted and experienced business advisor in this area and ensure you understand how the benefits of this type of financing can be crafted into a facility that works for your Canadian firm.

 

  

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

  When might a company consider using receivables financing?

    

Companies often consider receivables financing when they need immediate cash flow for day-to-day operations or growth. It benefits companies with large orders or contracts or those experiencing rapid growth that traditional bank financing cannot support.  

 

  

What is non-notification factoring?

 

Non-notification factoring is a method of receivables financing where the company retains control of its receivables and working capital. The company continues to bill and collect its receivables as normal but receives instant cash flow and working capital as soon as a valid invoice is issued to a customer.

 

How does receivables financing compare to traditional bank lines of credit?

 

Receivables financing differs from traditional bank lines of credit in several ways. While bank credit lines focus on the business owner, the balance sheet, income statement, and years in business, factoring concentrates solely on the company's assets. This allows businesses to have unlimited access to working capital potentially.

 

What should a business consider when choosing a factoring facility?

Businesses should consider the different types of factoring facilities available, their operations, pricing, and whether a contract or an open-ended arrangement suits their needs. Considering the comfort level with the business model of factoring receivables is also essential. Consulting with a trusted, experienced business advisor can help make these decisions.

 

What are the different types of factoring?

 

A/R financing makes sense when a company has structural cash flow gaps - numerous solutions are available

 

Types of Receivables Financing Options:

1. Invoice Factoring: Businesses sell unpaid invoices to a factor at a discounted price. The factor then handles the collection, and the factoring company pays and returns the remaining balance to the business after deducting its fee.

2. Invoice Discounting: Businesses use their invoices as collateral for a loan or credit line but keep control over collections. They get upfront cash and pay back as customers clear their invoices.

3. Spot Factoring: Businesses can choose to finance specific invoices on the company's accounts receivable, giving them more control and flexibility. It's great for businesses with large invoices or occasional cash flow gaps.

4. Recourse vs. Non-Recourse Factoring: Recourse factoring means businesses are responsible for any unpaid invoices. In non-recourse factoring, the factor takes on the risk of non-payment / collect payment, giving an extra safety net for businesses.

 

 

 

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

Financing Business Acquisitions In Canada

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YOU WANT TO FINANCE A BUSINESS ACQUISITION! 

BUSINESS ACQUISITION FINANCING FOR AN EXISTING BUSINESS

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

 

 

 

METHODS OF FINANCING A BUSINESS PURCHASE IN CANADA 

 

Financing Options for a business acquisition can be challenging, and here at 7 Park Avenue Financial, we're focused on providing you with solutions and information - let's dig in.

 

Acquiring a new business can be daunting, but it is essential for future success and the ability to grow the business to do your proper due diligence around buying a business and creating the optimal financing structure.

 

 

INTRODUCTION 

 

Buying a business for growth and expansion? Securing finance for such transactions can be challenging, requiring thorough thought and strategic execution.  Let the 7 Park Avenue Financial team demonstrate different funding strategies companies, and entrepreneurs can use for successful acquisitions.

 

Businesses are commonly funded by combining debt and equity. If the buyer's cash reserves aren't enough to finance the acquisition, they may consider external debt options, including bank loans, Government small business loans, private debt, or credit lines. Equity financing, which uses the buyer's own equity, is another potential funding strategy, but most business purchases require financing!

 

  

HOW DOES BUSINESS ACQUISITION FINANCING WORK?  

 

1. Company Funds: Utilizing the company's substantial cash reserves for a wholly cash-financed acquisition. It's a rare but total-control method, though hybrid deals are often preferred to manage risk and liquidity.

2. Company Equity: A strategy where the acquiring company offers equity to the target company's owners. It allows for retention of control, creating a new entity or a separate structure under a holding company.

3. Earnout: Also known as seller finance - where a portion of the acquisition cost is linked to the future performance of the acquired firm. This method benefits sellers through future revenues and helps buyers in risk mitigation.

4. Leveraged Buyout (LBO): This strategy involves using the target company's assets as collateral for debt, with minimal upfront investment. Despite its high potential returns, it carries elevated risks around servicing debt.

5. Business Acquisition Loan: A specific type of loan taken out via a traditional funder or non-bank asset-based lender to acquire another business or asset, typically featuring certain time limits and eligibility criteria.

6. Bank Loan: A common choice, particularly for small to medium-sized enterprises, where acquired assets and cash flows are collateral to secure the loan.

7. SBL Loan: Similar to the U.S.  Small Business Administration (SBA) program, the Canada Small Business Loan  Financing Program offers attractive acquisition terms, covering a large portion of the acquisition value with competitive interest rates and repayment periods. The loan cap on the program is 1.1 million dollars - Many franchise purchases are financed under the program. A minimum credit score of 650 is typically required by the lender

8. Asset-Backed Loan: A loan based on the target company's asset value rather than its liabilities. It is a higher risk, as it depends on the liquidation value of the assets. Asset-based lenders can play a key role in financing business acquisitions.

 

  

UNDERSTANDING THE BUSINESS ACQUISITION PROCESS  

 

A business acquisition, buying an already established business instead of starting a new one, is a key strategic choice for entrepreneurs aiming to penetrate new markets, grow their existing operations, or gain a competitive edge.

 

Understanding the crucial aspects of a business acquisition, such as due diligence, valuation, and negotiations, is essential before exploring financing options.

 

The advantage of acquiring an existing business is access to an established customer base, tested products or services, and a well-known brand. This decreases the risk of starting a new enterprise and could lead to faster returns on investment. Moreover, the acquisition can provide access to the existing management team's expertise and knowledge, offering a head start in managing the business successfully.

However, arranging finance for a business acquisition can be challenging and demands solid and careful planning, thorough research, and comprehension of the various financing alternatives.

 

 It may seem like numerous finance options are available, but that will both depend on what stage of the business cycle the target company is in. Bottom line? The appropriate capital structure will position your business for more growth and help you make the transition smoother.

 

Companies and sole entrepreneurs use various methods to finance their acquisitions of an acquired business. One way is through direct acquisition financing, which provides funds for the purchase price or other related costs associated with an acquiring company's business transactions, such as fees -More commonly, there is more than one solution required to cobble together the appropriate finance package. The issue of debt and cash flow from operations is key given that acquisition loan payments must cover interest and financing costs to ensure a successful acquisition.

 

  

FINANCING ACQUISITIONS  

 

When it comes time to acquire a company, you need a financing structure that will allow for an easy transition and position the company well in the years ahead. There are several types of acquisition funding:

 

Bank loan / Term Loans ( typically five years), Operating Line Of Credit / Revolving Facility, and potentially a seller financing contribution and owner equity financing.

 

Understanding how each type of loan works can be challenging, but finding the right one or combination is critical to business acquisition success.

 

  

ESTABLISHING  THE RIGHT PURCHASE PRICE / BUSINESS VALUATION 

 

When financing a company and assessing the need for a financing package, the first step is establishing its worth.

 

The value of any business usually comes from its profitability as measured by earnings before interest, taxes, depreciation and amortization (EBITDA). Additionally, the buyer should spend an appropriate amount of time to ' normalize ' the current financials to reflect post-acquisition operations, eliminating any non-recurring expenses under new ownership - this will help accurately reflect future cash flows and profits. Proper normalization of historical financials will help eliminate financing risk around the business's assets.

 

 

  

SENIOR LENDER CONSIDERATIONS IN YOUR TRANSACTION  

 

In an acquisition deal, one senior lender typically provides a loan that is secured on assets like accounts receivable and inventory as well as the cash flows. This senior debt has priority over other more junior creditors and provides a claim on the assets to protect financing and repayment. Senior lenders are typically banks, nonbank commercial finance companies, asset-based lenders, and certain specialty finance firms.

 

A senior lender will have the most restrictive repayment terms and will often require a certain level of reporting, financial covenants, and the need to maintain certain financial ratios within the business financial statements.

 

Leveraged buyouts are financing in which the buyers use debt to purchase company assets. An adequately structured leveraged buy-out will is sometimes a higher risk strategy but eliminates the need for additional financing in some cases and can be a high-reward scenario when properly funded while allowing the company to repay the debt. With current interest rates at all-time low LBO and asset-based financing deals are popular.

 

GOVERNMENT LOANS - When it comes to buying a smaller business, there are many options available. One of the more straightforward methods is with an SBL loan that comes with attractive and competitive interest rates. When looking to purchase an existing business or land, there are many options that you may not have been aware of, including the federally guaranteed Canada Small Business Financing Program. Talk to the  7 Park Avenue Financial team on how this financing, structured as a term loan, can help you buy a business or franchise in Canada. It's a great and widely used program for small businesses in Canada - allowing banks and credit unions to fund acquisitions they might otherwise choose not to. Personal guarantees and personal capital requirements are also limited under the loan program.

 

ASSET-BASED LOANS - When acquiring a company with an asset-backed loan, you are using the value of the substantial assets and certain business fixed assets generated by your target firm to acquire the company.

 

Unlike in the case of leveraged buyouts, where financing is generally provided on the basis that acquisition will generate cash flow and therefore provide profit for those who financed it (i.e., banks), this type if transaction relies more heavily upon expectations about future sale or liquidation proceedings in the event of a default.

 

Abl lenders are great providers of acquisition loans and revolving lines of credit to support the business. ABL loans are effective balance sheet financing solutions.

 

  

CONSIDER VENDOR DEBT AS A PART OF YOUR TRANSACTION   

 

A seller's earnout is a creative way to help finance an acquisition. Vendor takebacks or seller notes, where sellers agree to be paid portions of their settlement with interest over time, can cover a part of the debt you take on to buy a business.

 

In some cases, a vendor note is based on the performance of an individual company. This can be increased or decreased depending on how much cash flow is produced during repayment.

 

Vendor notes help to offset external debt and can be very creatively structured. They are helpful because they come with fewer restrictions and rank behind other external lenders - it's a patient form of financing that can even be helpful if the future business runs into challenges.

The other compelling reason is that oftentimes one or both parties want the vendor to stay involved in the business in some capacity to ensure a smooth transition.

 

  

  

  

CAN MEZZANINE FINANCING HELP YOUR TRANSACTION CLOSE SUCCESSFULLY?!       

 

Mezzanine financing, also called unsecured loan cash flow financing,  is often used to cover any gap left between the purchase price and other funding sources. It has a higher interest rate than senior debt but more flexible terms.

 

  

  

COMMON MISTAKES TO AVOID WHEN PURCHASING A BUSINESS AND FINANCING THE ACQUISITION  

  

 

Based on our experience here at 7 Park Avenue Financial here are some  common mistakes to avoid when financing a business acquisition:

 

1. Neglecting Comprehensive Due Diligence: It's vital to conduct extensive due diligence, which involves examining the business's financial statements, federal income tax returns, contracts, and legal obligations. Skipping this can lead to unanticipated financial consequences.

2. Underestimating Costs: Remember that acquisition involves more than the purchase price, including legal fees, accounting costs, valuation expenses, and working capital needs. Overlooking these can cause cash flow issues.

3. Lacking a Contingency Plan: A backup plan is essential if financing fails or unexpected problems arise during the acquisition. This could include looking at other financing methods, bringing in more investors, or renegotiating the acquisition terms.

4. Overlooking Personal Creditworthiness: Lenders consider your credit score. Maintaining a good credit score, clearing debts, and addressing credit report discrepancies are important; ignoring these can hinder your financing prospects.

5. Poor Communication and Negotiation: Effective communication and negotiation are vital to securing financing. Communicate your requirements, objectives, and financial forecasts to lenders, and be ready to negotiate financing terms.

6. Hastening the Process: Securing acquisition financing requires careful planning and time. Speeding the process or making quick decisions can lead to costly errors or unfavourable terms. It's crucial to research thoroughly, prepare the necessary documentation, and negotiate the best terms before proceeding.

 

  

  

KEY TAKEAWAYS    

 

• Traditional bank loans for business acquisitions

  • Widely used method for financing acquisitions.
  • Banks offer term loans, lines of credit, and equipment financing.
  • Requires solid business plan, financial projections, and strong credit profile.
  • Challenges: may be difficult for first-time entrepreneurs or those with limited collateral.
  • Banks require a down payment, typically 10-30% of the purchase price.
  • Additional risk: banks may require personal guarantees.

• Government Small Business loans for business acquisitions

  • Alternative for those who may not qualify for traditional bank loans.
  • Loans partially guaranteed by the government, reducing risk for lenders.
  • Many small businesses, including franchises utilize this program
  • Offers longer repayment terms and lower down payments than traditional bank loans.
  • Drawbacks: time-consuming application process and extensive documentation requirements.

• Alternative financing options for business acquisitions

  • More flexibility, suitable for unique circumstances or specific financing needs.

• Asset-based lending

  • Asset-backed financing is provided based on the value of the acquired assets, such as accounts receivable, inventory, equipment, or commercial real estate owned by the business.
  • Secured by the assets, reducing lender's risk and potentially offering more favourable loan terms.

• Seller financing

  • The business seller provides a portion of the funding.
  • It offers flexibility in terms and can facilitate a smoother transition of ownership.
  • It may not suit all business acquisitions, as terms and interest rates vary.

  •  

   

  

CONCLUSION    

 

  

Acquiring another business is a significant step towards growth and success. However, selecting the right financing method is crucial for a successful acquisition. Each deal is unique, and businesses must carefully evaluate their financial position and goals to choose the most suitable financing approach. Companies can secure financing that aligns with their growth strategies by considering the long-term costs of running the acquired business.

 

 

Properly structured acquisition financing helps fund mergers and acquisitions.  Leveraging existing assets and cash flows provides access to capital.

 

The right business acquisition finance depends on your company's needs, the type of industry, and what stage of the life cycle a company is in. Businesses come in all shapes and sizes, so you should talk to  7 Park Avenue Financial about flexible financing options that fit your needs.

 

There can be a lot of different financing options for your company, depending on the goals and needs.

 

However, you must consider an acquisition's implications before moving forward with any deals- speak to  7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can ensure your acquisition funding needs are met.

 

We will work closely with you in the most efficient way and timely way possible.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION  

 

What are the financing options to acquire a business? How does acquisition financing work?

Lender financing can come from self-funding/ down payment, seller finance/vendor takeback, and bank or commercial finance company or asset-based lending that will allow a company or sole buyer to acquire a business. Various subsets of acquisition financing might include ABL, Mezzanine Financing, Leveraged buyouts, etc. More significant transactions may sometimes be facilitated by a private equity firm, "family offices" or various online lenders.

 

In the U.S., Small business administration loans are used to fund many business purchases - the Canadian equivalent is the Industry Canada small business financing program which provides guarantees and safety measures to participating financial institutions.

 

What is the best way to finance a business acquisition?

 

The ideal method to finance an acquisition depends on factors like the acquiring company's financial position, the acquisition's size, and risk tolerance. A balanced approach involving debt and equity financing is often practical, leveraging existing resources and preserving liquidity. Creative options like earnouts or joint ventures can offer added flexibility and benefits for buyers and sellers.

 

How can a company finance an acquisition?

 

Companies have several methods to finance an acquisition:

a. Debt Financing: Using external sources like bank loans or lines of credit.

b. Equity Financing: Utilizing the acquiring company's equity by issuing stocks or offering equity to the target firm's owners.

c. Business Acquisition Loan: A specialized loan for acquiring another business or asset.

d. SBL Government Loan: A federally guaranteed loan for business acquisitions.

e. Asset-Backed Loan: Obtaining financing based on the value of the target firm's assets, using them as collateral.

 

What is the cheapest way to finance an acquisition?

 

The most cost-effective means of financing an acquisition is often using the company's or buyers' funds or equity. Larger business purchases would use partners such as venture capital firms or private equity firms. This approach eliminates interest expenses linked to external debt.

Moreover, if the target firm's owners accept equity as part of the deal, it reduces the requirement for significant cash payments. Employing innovative financing methods such as earnouts or joint ventures can also offer cost-effective solutions by tying payments to the acquired firm's future performance.

 

Where Can A Buyer Find a Business to Buy?

 

In Canada, commercial agents and brokers typically advertise the sale of companies through print and electronic media. However, individuals can also utilize their personal or business network to discover new investment opportunities. Many business owners prefer acquiring existing companies, which are often franchised or independently operated.

 

What is Vendor financing?

Vendor financing, also known as seller financing or owner financing, is a method of financing a business purchase in which the seller provides financial assistance to the buyer. In this arrangement, instead of the buyer obtaining the entire purchase price from traditional sources like banks or investors, the seller agrees to receive payment over time from the buyer.

The process typically involves the following steps:

1. Business Purchase Agreement: The buyer and seller negotiate the terms of the business purchase, including the purchase price, payment schedule, and other relevant details. The agreement outlines the terms of the vendor financing arrangement.

2. Down Payment: The buyer usually makes a down payment upfront to the seller. This down payment is a portion of the total purchase price and is paid when closing the deal.

3. Installment Payments: After the down payment, the remaining balance is paid to the seller in installments over a specified period, typically through regular monthly payments. The payment schedule and interest rates, if any, are outlined in the purchase agreement.

4. Security Agreement: A security agreement may be created to secure the seller's interest in the business and protect their investment. This agreement may include collateral, such as the purchased company's assets, which the seller can reclaim if the buyer defaults on payments.

Vendor financing can be beneficial for both buyers and sellers:

Benefits for Buyers:

• More accessible Financing: Buyers with limited access to traditional financing may find it easier to secure a business acquisition through vendor financing.
• Negotiable Terms: Buyers may have more flexibility in negotiating payment terms with the seller, such as interest rates and repayment duration.
• Reduced Upfront Costs: The down payment is typically lower than the total purchase price, which helps preserve the buyer's capital and reduces the personal guarantee and equity investment  component of business financing

Benefits for Sellers:

• Attract More Buyers: Offering vendor financing can make the business more appealing to potential buyers, increasing the pool of potential purchasers.
• Steady Income: Sellers receive a steady stream of income from the installment payments, potentially yielding a higher return than other investment options.
• Faster Sale: By providing financing, the seller can expedite the sale process and complete the transaction more quickly.

It's essential for both parties to carefully evaluate and document the terms of the vendor financing arrangement in a legally binding agreement to protect their interests and ensure a smooth transaction.

 

What are the key steps to successfully finance a business purchase?

 

1. Assess your financial readiness by evaluating your credit score, history, and assets.
2. Prepare a comprehensive business plan that outlines your vision and financial projections.
3. Research and compare financing options, considering pros and cons.
4. Gather all required documentation for the chosen financing option.
5. Submit your application with accurate and complete information.
6. Negotiate financing terms to suit your needs.

 

What are some tips for negotiating financing terms?

 

Tips for Effective Negotiation of Financing Terms for Business Acquisition:

1. Know your numbers: Understand financial projections, valuation, and ROI to support your negotiation arguments.

2. Highlight your strengths: Emphasize experience, industry expertise, customer base, or unique advantages.

3. Be prepared to compromise: Find a balance that benefits both parties for a successful deal.

4. Seek professional advice: Consult with financial advisors such as 7 Park Avenue Financial, lawyers, or accountants experienced in acquisitions.

5. Consider long-term implications: Evaluate cash flow, profitability, and growth potential under the negotiated terms. Choose options aligned with your business goals.

 

 

 What are the Pros and Cons of Different Financing Options for Business Acquisitions:

 

1. Traditional Bank Loans:

   • Pros:
     • Lower interest rates compared to alternative financing options.
     • Established and reputable lenders.
     • Potential for building a long-term relationship with the bank.
   • Cons:
     • Strict eligibility requirements.
     • Lengthy application and approval process.
     • Need for collateral and personal guarantees.

2. SBL Loans:

   • Pros:
     • Government guarantee reduces the risk for lenders, similar to U.S. sba acquisition loans
     • Longer repayment terms and lower down payments for business acquisition loans
     • It can be suitable for entrepreneurs with limited collateral or credit history.
   • Cons:
     • Complex application process.
     • Requires thorough documentation and financial statements.
     • Longer processing times compared to traditional bank loans.

3. Alternative Financing Options:

   • Pros:
     • More flexibility in terms and conditions.
     • It can be suitable for unique circumstances or specific financing needs.
     • Potential for quicker approval and funding.
   • Cons:
     • Higher interest rates compared to traditional bank loans.
     • Limited availability and options.
     • It may require additional collateral or personal guarantees.

Remember to carefully assess these factors and consider your business needs and circumstances before selecting the right financing option for your business acquisition.


 

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

Working Capital Financing – Why Asset Based Credit Lines Work

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL

 FINANCING VIA AN ASSET-BASED LINE OF CREDIT! 

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 – sprokop@7parkavenuefinancial.com

 

LOOKING FOR WORKING CAPITAL FINANCE CREDIT LINES?

 

Does your company have healthy revenue but can't access traditional bank financing due to your company’s performance and industry?

 

7 Park Avenue Financial helps companies through their working capital challenges via asset-based credit lines.

 

INTRODUCTION 

 

In a challenging economic and financial landscape, businesses should always be actively pursuing flexible and dynamic financial options.

 

Asset-Based Lending (ABL), is a viable alternative to conventional business financing,  and it offers a compelling way to access more funds with fewer limitations in areas such as personal guarantees, covenants, outside collateral, etc!  ABL solutions' ' covenant light structure ' is a significant appeal to Canadian business borrowers.

 

For asset-rich companies, ABL presents an opportunity to secure substantial financing while enjoying unparalleled flexibility compared to traditional loans. 

 

 

UNDERSTANDING ASSET-BASED LENDING 

 

Asset-Based Lending (ABL) is a business loan that uses the company's assets as collateral. These assets can vary, including accounts receivable, real estate, intangible assets like brand names and valuable assets such as intellectual property. ABL's core concept is to leverage the inherent value of a company's physical assets / other assets to obtain essential capital. This financing solution proves particularly valuable for asset-rich companies facing inconsistent cash flows, as it offers an alternative to traditional cash-flow loans.

 

Stringent rules, restrictions, and a lengthy approval process mean that traditional financing is not always accessible for Canadian SME/SMB companies. Many small to mid-sized companies have been turned down for business lines of credit because they don’t fit the profile of the average borrower – even when they are financially capable of repaying a loan!

 

Let 7 Park Avenue Financial demonstrate a  banking alternative and business line of credit solution to achieve cash flow AND growth goals via asset-based loans. Do banks and other financial institutions not understand your business, nor care to?

 

How can Canadian business owners and financial managers secure working capital financing and cash flow financing for their businesses when it seems that access to business financing provides significant challenges?

 

  

HOW DO ASSET-BASED CREDIT LINES DIFFER FROM TRADITIONAL BUSINESS LOANS   

 

• Traditional business loans primarily assess overall creditworthiness, relying on factors like credit score, financial history, revenue projections, cash flow, and profits.

 

• This approach can be challenging for businesses with limited credit history or temporary financial difficulties.

 

• Traditional loans often have strict repayment terms and restrictions on the use of funds and credit limits

 

• Asset-based credit lines focus on the value of the assets used as collateral, such as accounts receivable, inventory, or equipment and commercial real estate if applicable.

 

• This allows businesses to secure financing, even with limited credit history or difficulties obtaining traditional loans.

 

• Asset-based credit lines provide a reliable source of working capital, supporting business growth and objectives.

 

• Unlike traditional loans, asset-based credit lines offer flexibility in borrowing against assets as needed.

 

• Businesses can use the funds to expand, manage cash flow fluctuations, or cover unexpected expenses.  In many cases, these facilities can also be a part of an acquisition financing strategy to purchase another business

 

• The flexibility of asset-based credit lines allows tailored borrowing to meet specific business needs and drive sales growth

 

  

 

WORKING CAPITAL FINANCING ASSET-BASED CREDIT LINES   

 

The Process of Asset-Based Lending  

 

When securing an Asset-Based Credit Line, an  "ABL" loan, the focus shifts from traditional cash-flow evaluation to assessing a company's assets.

Lenders prioritize the value of these assets based on market value and liquidity - Business assets will serve as collateral for the loan.

 

Critical assets, including accounts receivable, inventory, machinery, equipment, real estate, and intellectual property, undergo evaluations to determine their quality and worth. The outcome is a comprehensive understanding of eligible collateral and the loan rates that can be offered based on these assets.  

These assets become the ' borrowing base ' for the facility.

 

Asset-based lines of credit are one of the fastest-growing sources of financing for small businesses. ' ABL '  a superior way to keep your business cash flowing. However, this type of financing is also riddled with misconceptions. Let the 7 Park Avenue Financial team show you the many advantages of an asset line of credit and why every company should consider this a financing option.

 

The answer is that a potential solid solution is an ‘asset-based line of credit' or a ‘working capital facility. What is this type of financing? Is it new to Canada, and more importantly – how does it work, and what are the benefits and risks?

 

ASSET-BASED LENDING BANKS IN CANADA?  

 

Although asset-based lenders tend to be specialized independent finance firms, many business people are surprised to find that deep in a few Canadian banks; there exist small,  somewhat boutique divisions that specialize in asset-based lending. Ironically, they often compete with their peers in more traditional commercial, corporate banking.

 

WHY YOUR BUSINESS NEEDS BUSINESS CREDIT

 

The most active assets these firms finance tend to be ongoing receivables and inventory, but in many cases, by utilizing an expert advisor or partner, you can structure a facility that also includes a component of equipment and real estate.

 

 

QUALIFYING FOR A BUSINESS CREDIT LINE 

 

Generally speaking, a good way to think of an asset-based line of credit is one that, for a temporary period, typically a year or so in our experience, allows you to margin up and get higher advances on receivables and inventory. That translates into more cash flow and working capital.

 

One of the main attractions of an asset-based lending facility (insiders call it an ABL facility) is that your firm's overall credit quality doesn’t play the largest role in determining if you can get approved for this type of financing.

 

As its name suggests, financing is on your ‘assets‘ and doesn’t focus on debt-to-equity ratios, cash flow coverage, loan covenants, and outside collateral.  Business owners who borrow from Canadian chartered banks on an operating or term loan basis are, of course, very familiar with those terms - in some ways, we could call them ‘restrictions.'

 

Most lawyers and accountants will tell you that any business borrowing should be entertained only with a trusted, credible business financing advisor who can guide you through the roadblocks and pitfalls of any commercial financing arrangement.

 

YOUR PROBLEM?   OUR PROMISE!

 

Your business is growing, and you need a commercial loan or credit line, but your bank isn’t willing to lend it.

You need working capital to survive, but getting traditional financing is impossible.

Finding funds for machinery or equipment to help grow your business can be difficult, even if your cash flow is strong.

You want to grow your business, but getting a loan from traditional banks is hard because banks want to see a proven track record and collateral.

 

The 7 Park Avenue Financial promise? Business Lines of Credit and Working Capital for companies that can’t achieve traditional financing.

 

BENEFITS OF THE ASSET-BASED CREDIT LINE

 

A business line of credit for companies that can't achieve traditional financing options.
 

Businesses will have greater access to funds and therefore be able to focus on their core business activities.

Able to use existing assets as collateral, reducing the chance of running out of cash

Get your business the working capital or line of credit you need for rapid and profitable growth.

Commercial Lines of Credit can assist you with working capital needs and seasonal fluctuations in sales and operational expenses, allow you to acquire property and facilities, expand and grow your business, and improve technology and equipment.

Missteps in business financing can lead to long-term adverse effects around such issues as being locked into a facility, giving up too much collateral, or being locked into pricing that isn’t commensurate with your overall asset and credit quality.

 

KEY ISSUES TO CONSIDER WHEN ASSESSING BUSINESS CREDIT LINES

 

What are the key issues you should consider when considering different types of asset-based financing? Primarily they are:

 

- Advances rates on each asset category (Accounts receivable and inventory/equipment) - An ongoing borrowing base is established monthly as your sales grow, providing short-term cash needs

 

- How is pricing defined (asset-based lines of credit and ABL lending, in general, is more generous in overall facility size, but you should ensure you are only paying for what you use

 

- Contractual obligation - in a perfect world (we know it's not!), you should be focusing on the ability to payout at any time, or a minimum with some form of nominal breakage fee

 

- Ensure that the asset-based lending facility, which generally costs more, will allow you to remain or focus on profitability; we spend a significant amount of time with clients on how that can defer the additional costs of ABL facilities by several different strategies

 

   

 KEY TAKEAWAYS    

 

 

1. Asset-based lending is less restrictive: ABL offers borrowers more freedom than cash-flow lending, as it does not come with burdensome covenants related to debt service coverage and leverage levels on the balance sheet.

2. Asset Safety Net: ABL uses your business's assets as collateral, reducing the lender's concerns about defaults and minimizing the need for rigid financial covenants imposed by traditional financial institutions such as Canadian banks

3. Ideal for Asset-Rich Companies: Companies with substantial assets but varying cash flow can benefit from ABL to access significant capital for their operations and growth.

4. Dealing with Cyclical Demands: Businesses experiencing cyclical demands, such as manufacturing or distribution companies, can utilize ABL to ensure operational continuity despite cash flow fluctuations in times of seasonality in their business or industry.

5. Resilience for Retailers: Retailers with sizeable inventory and potential earnings volatility can use ABL to navigate unforeseen disruptions, such as economic downturns or pandemics like COVID-19.

6. Flexibility in Credit Line Access: A key advantage of ABL is the freedom to access your credit line without seeking lender permission, allowing for rapid responses to dynamic business needs. Asset-based lending solutions in areas such as a line of credit will enable a business to increase financing when sales and assets grow automatically.

   

 

CONCLUSION - COMMERCIAL FINANCE FINANCING SOLUTIONS   

 

Asset-Based Lending (ABL) emerges as a practical financing option for businesses in diverse sectors of Canadian industry.

With the ability to offer significant funding based on a company's assets and the added advantage of being less restricted than traditional loans, ABL becomes an appealing choice for businesses looking to utilize their assets for growth financing. To fully grasp the potential of ABL, businesses should engage with financial advisors such as 7 Park Avenue Financial to determine how they can fulfill their capital requirements effectively.

 

ABL is more than just a financial product; it is a strategic financial approach. For asset-rich businesses, ABL has the potential to unlock growth opportunities and enhance financial flexibility significantly.

 

 

Business credit lines exist to help a business with its day-to-day cash flow. These are often more flexible than term loans that bring debt to the balance sheet.

 

So what's the bottom line? Let the 7 Park Avenue Financial team help your business grow faster by providing asset-based, short-term financing backed by accounts receivable, inventory, equipment, and real estate at advance rates and loan-to-value borrowing that maximizes capital.

 

7 Park Avenue Financial specializes in asset-based loan solutions,  solving the problems faced by companies that can’t get financing from traditional sources such as banks or business credit unions. Our business lines of credit and working capital loans are customized to meet your unique needs. Our goal?   Letting you get on with running your company!

 

As always, it’s simple – consider asset-based financing and an ABL facility as a solid alternative for financing your business. Work with a trusted advisor as this financing type is generally understood or not well known in Canada. Be selective in structuring your facility around issues that work best for your firm re benefits derived. That’s solid business financing sense.

 

FAQ: FREQUENTLY ASKED QUESTIONS

What is asset-based finance?

Asset-based finance is a specialized method of providing companies with working capital and term loans that use accounts receivable, inventories, fixed assets /equipment or real estate as collateral. It is essentially any loan to a company that is secured by one of those assets.

 

 What types of assets can be used for an asset-based credit line?

 In an asset-based credit line, various types of assets can be utilized as collateral. These typically include accounts receivable, inventory, machinery, equipment, and real estate. Even intangible assets such as brand names and intellectual property can be used. It's the inherent value in these business assets that makes them suitable for securing necessary capital.

 

How does an asset-based credit line differ from traditional business financing?

 

Traditional business financing via unsecured loans, etc. primarily focuses on a company's cash flow for existing line approval and renewal, while an asset-based credit line leverages the value of the company's assets to determine the maximum credit limit. This type of credit facility provides financial flexibility, especially to asset-rich companies, allowing them to access significant financing without the strict covenants and financial ratios associated with cash-flow lending from a traditional lender for a revolving line of credit.

 

How is the value of assets determined for an asset-based credit line?

 

Asset value for an asset-based credit line is determined through a detailed process that includes field examinations and, in some cases, third-party appraisals to substantiate secured loans. This rigorous process assesses the quality and financial value of assets, thereby determining the eligible collateral and the rates that can be advanced against them.

 

What type of business could benefit from an asset-based credit line? Who should consider an asset based line of credit?

 

Companies that have significant assets and face variations in cash flow can significantly benefit from an asset-based credit line. Manufacturing companies, distribution businesses, and retailers, especially those with significant inventory but earnings volatility, often find ABL a useful tool to maintain operational continuity and navigate through market fluctuations when they need additional working capital

Is your company in turnaround? Taking out unsecured credit can be an unsatisfactory solution in a turnaround situation. Companies risk to reverting to covenants unless they are fully prepared to deal with them. Financing sales via a/r financing and abl lending generally have more ease of qualification and lighter covenant requirements.

 

What are the potential risks associated with asset-based credit lines?

 

Like any financial instrument, asset-based credit lines come with a set of risks. These include the potential for over-leveraging, reliance on asset valuations which may fluctuate, and the possibility of restrictive covenants imposed by lenders. It's crucial for businesses to consider these factors and consult with financial advisors to ensure that an asset-based credit line aligns with their financial strategy and risk profile. Interest rates are generally, but not always, higher in asset-based financing.

Note also that an unused loan/credit line facility is not a cash equivalent, as the facility is a liability on the balance sheet when drawn down.

 

 

What are Some Types Of Types of Assets Used in A Broad Range Of  Asset-Based Credit Loans:

 

1. Accounts Receivable:

   • Businesses with outstanding invoices leverage highly liquid assets such as accounts receivable to access working capital.
   • Lenders evaluate the quality and collectability of the accounts receivable to determine financing.

2. Inventory:

   • Businesses with substantial inventory value use it as collateral to secure financing.
   • Lenders assess the marketability and market value of inventory to determine financing.

3. Equipment:

   • Valuable equipment, such as machinery or vehicles, can be used as collateral for financing.
   • Lenders evaluate equipment condition and market value to determine financing.

4. Real Estate:

   • Some asset-based credit lines use real estate as collateral for businesses that own property.
   • Lenders assess the value and marketability of the real estate to determine financing.

5. Intellectual Property:

   • Businesses with valuable intellectual property can leverage it to secure financing.
   • Lenders evaluate the worth and market potential of the intellectual property.

6. Contracts:

   • Some ABL financing  asset-based credit lines consider contractual agreements as collateral for the company's ability to pay future drawdowns
   • Most Lenders assess the contractual terms and value for determining financing.
   •  

Note: The types of assets that can be used in asset-based credit lines may vary depending on the lender and the specific industry of the business. It is crucial for businesses to work with a firm such as 7 Park Avenue Financial which understands their industry and is capable of providing financing based on their unique assets and the ability to choose asset-based lending in multiple forms of financing as the right working capital solution for their business.

 

 

 

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

Successful Business Funding Via Loans & Finance Options You Can Access Today !

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COMMERCIAL LENDING SOLUTIONS  & FINANCING OPTIONS YOU CAN ACCESS TODAY

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 - sprokop@7parkavenuefinancial.com

 

 HOW FINANCING & FUNDING CHOICES PROPEL BUSINESS FORWARD FOR GROWTH AND SUCCESS

 

Business Loans & Finance Options: Funding & Financing Businesses In Canada

 

 

Business loans and financing for their company must surely make some owners/financial managers feel like there is some 'conspiracy theory' out there relative to their ability to successfully access finance options and small business loans &  funding solutions.

 

Our point of view? That doesn't have to be the case for small businesses in Canada, so when it comes to ' how to get a business loan ' and raising capital.. let's dig in!

 

INTRODUCTION

 

Business owners know that financial resources can be the driving force propelling your company's expansion and prosperity. External funding can't be overstated in the pursuit of your objectives. This article delves into distinctive financing alternatives that cater specifically to Canadian businesses, each presenting its unique benefits and pathways to acquiring the capital you need to run and grow a business and meet business expenses with relative confidence.

 

 

By the way, small businesses aren't as small as you think - for infomatiion on what Canada's government considers  ' small ' click here for that info.

 

Understanding your business's overall cash and capital needs is often the root issue in small business financing  - how to finance outstanding accounts receivable and inventory via suitable commercial loans.

 

Those are the key drivers of any working capital loan need. 

 

 

A HOLY GRAIL OF SUCCESSFUL BUSINESS FINANCING?

 

The 'holy grail' of financing and funding your business? Growing your business, reducing inventories and turning them faster, and increasing receivable collections.

 

Cash flowing your accounts receivable either via more efficient methods of collection or selling your receivables as you generate them (invoice discounting or factoring) is the most optimal way to generate working capital financing.

 

Naturally, the challenge in doing all that is to ensure you can still maintain your projected sales and profit growth!

 

If your company always has a significant inventory investment, you can obtain direct loans in Canada against that inventory. Traditionally, bank financing via bank loans is the route much larger and established businesses take when they require working capital for inventory purchases.

However, when your firm can't qualify for the full extent of financing that you need from a bank loan, then a direct inventory working capital loan is best. It's as essential to understand that you have options as alternatives to bank loans for small businesses.

 

 

  

TRADITIONAL FINANCING / BANK FINANCING  

 

Bank loans have traditionally been a primary funding source for small and medium-sized businesses (SMEs) in Canada.

 

These loans offer several advantages, such as allowing ownership via financing that is non-dilutive, attractive interest rates, and tax-deductible interest payments. However, getting approved for a bank loan can be difficult for some business owners, particularly those lacking a solid business plan or credit history. Enhancing your prospects of getting a desirable bank loan involves careful preparation, including maintaining current financial statements.

 

 

THE TREMENDOUS RISE OF ASSET-BASED LENDING SOLUTIONS  IN CANADA 

 

When conventional bank financing loan solutions are hard to secure, alternative financing methods can offer a solution. A/R Financing and short-term workings capital loans are notable among these options, delivering rapid approval.

 

While alternative finance solutions may involve higher charges and interest rates, they can provide a crucial financial boost for companies wrestling with cash flow troubles or navigating slow business phases, seasonality and business cyclicality challenges.

 

Because asset-based loans focus on your assets versus cash flow or profit-based lending rules, the rise of ' ABL ' has been tremendous in Canada when businesses need to retrench and sometimes restructure.

 

Using your sales  ( via accounts receivable )and assets as loan collateral appeals to many business owners when they are challenged regarding access to business capital. The form of financing is the ultimate in maximizing liquidity, allowing them to recover, even during pandemic/covid times !.. and focus on the re-growth of their company via the benefits of alternative lending compared to potentially inaccessible solutions from traditional financial institutions.

 

Our recommended working capital loan does not add debt to your balance sheet.  The business owner's ability to manage the balance of debt and equity is key to long-term success. While business loan rates are higher in alternative finance, they provide all the capital you need to succeed  if you have the following: 

 

 

Assets

Sales Revenues

 

It's a facility which margins your receivables and inventory to proper market valuations. This generates the additional cash flow and working capital you are looking for and, as significantly, doesn't add debt to the balance sheet.  Companies that can't access any or all of the operating cash need these 'Asset-based Non-Bank Lines Of Credit' - the golden solution for finance for entrepreneurs.

 

The best way to generate your working capital loan for your firm is to improve collections and delay supplier payments. The latter must be done carefully to avoid mismanaging vital supplier relationships.

 

However, it's every man and woman for themselves when it comes to business financing, so you should focus on negotiating the best payment terms with valued suppliers who usually extend solid payment terms when they see you as a viable and long-term customer.

 

  

GOVERNMENT FUNDING   

 

The Canadian government provides numerous financial support mechanisms to aid businesses in diverse sectors. Specific grant programs and tax relief initiatives are designed for different purposes.

A  benefit of government grants is the absence of repayment or equity relinquishment requirements, which strengthens your business reputation and improves possibilities for subsequent funding.

Moreover, the Canada Small Business Financing Program assists businesses in procuring loans from financial establishments through government risk-sharing loans with banks. Canada's largest

Business owners should also investigate Canada's SR&ED Program - which provides business capital for research and development.

 

 

 

GOVERNMENT SMALL BUSINESS LOANS

 

Some business folks, particularly start-up and earlier-stage companies (including franchises), should check out the Canadian Government Small Business Loan Program, which has the federal government guaranteeing the central part of your loan.

 

It's a great solution when a business borrows money for the business needs of early-stage companies in Canada. If you need a startup business loan, this option is a solid solution versus a traditional bank loan.

 

  

THE SHORT RECAP ON GOVERNMENT LOANS : 

 

Attractive  rates

Nominal personal guarantees

The loan can be paid back at any time without penalty

Fluid structures and repayments re terms, etc.

 

It's no secret that thousands of new and emerging private companies successfully access this program every year - it's also solid financing to buy a business in Canada for smaller acquisitions or franchises.

 

Financing a business is one of the most important things a company needs to succeed, but not all startups or early-stage firms have the option to work with traditional banks. That's why small business financing options that replace traditional bank solutions work!

 

The downside to the Government loan program is that many businesses are not seeking the asset or leasehold financing the Government ' SBL ' loan program provides. They're looking for cash flow and working capital sources as a commercial loan solution at a reasonable interest rate.

 

Startup business loans extensively use the ' SBL LOAN' in Canada. New business loans in traditional banking heavily emphasize the owner's personal net worth and credit score.

 

The credit history of small business owners is always key when applying for traditional financing. Unsecured business loans don't collateralize specific assets but are guaranteed to lenders through personal guarantees and blanket security agreements.

 

Believe it or not, working capital loans are available from what people consider traditional sources. One of the Crown Corporations within the Canadian government focuses very significantly on cash working capital loans. These loans are structured as term loans, not as a business line of credit, and have fairly competitive rates and repayment terms of 5 to 6 years. They are also unsecured, which means they rank behind any senior lender or security you might have in place.

 

A business plan is both recommended and almost always required for the govt ' SBL business loan '  - Business plans prepared by 7 Park Avenue Financial are focused on conservative financial projections and are laser-focused on loan approval.

 

Businesses often consider ' government loans' cumbersome and challenging to apply for - At 7 Park Avenue Financial; we're here to guide you through those programs and ensure you are working with the right financial institution.

 

The only commitment to repay is the company's guarantee as a promise to pay and a full or partial guarantee by the owners personally. We point out that the majority of business loans and financing in Canada does in effect, require some level of guarantees from the owner and a generally positive personal financial history of the owner(s).

 

To apply for a business loan is often daunting and time-consuming for business owners - let the 7 Park Avenue Financial team walk you through the loan process - we also prepare, when required, business plans that are focused on funding approval based on conservative and realistic financial projections and strong business and industry overviews.

 

UPDATE!

 

Significant changes came to the program in 2022 -  Types of financing available under the program were enhanced, and loan limits increased! 

Here is an updated recap of the program

The Canada Small Business Financing Regulations and Act were updated on July 4, 2022. These changes provide businesses and lenders with enhanced financing options, lower administrative burdens, and improved loan conditions. The program is now much closer to the U.S. equivalent under the U.S. Small Business Administration -

Here are the key amendments:

 

1. Increased loan amounts: Borrowing limit increased from $1 million to $1.15 million, including:

   • $1 million for term loans, a max of $500,000 for equipment and leasehold improvements (up from $350,000), and $150,000 for intangible assets and working capital.
   • Additional $150,000 for lines of credit for working capital.

2. New financing classes: Term loans can now finance intangible assets and working capital costs.

3. Extended loan terms: Loans for property, leasehold improvements, equipment, intangible assets, and working capital payments can be made for up to a term of 15 years.

4. Expanded eligible expenditures: The time frame to finance expenditures or commitments increased from 180 days to 365 days.

5. Adjusted appraisal timing: Appraisal timing has changed from 180 days before loan approval to 365 days before loan disbursement.

6. More extended registration period: Term loans can be registered within six months from the date of the first loan disbursement.

7. Updated security requirements: Lenders must take security in any assets of the small business for leasehold improvement, software, website, intangible assets, and working capital costs.

8. Simplified default process: Upon default, lenders only need to demand repayment, not provide a notice of default.

9. Adjusted claim documentation requirements: Documentation supporting cost and proof of payment reduced from 100% to 75% of the principal amount outstanding on the loan.

10. Line of credit introduction: Lines of credit for working capital costs can be made, with maximum term of 5 years.

11. Line of credit renewal options: Renew the line of credit for a new 5-year period, convert to a term loan, or repay with a conventional loan.

12. Updated line of credit security: Lenders must take security in any small business assets for the authorized amount of the line of credit.

13. Line of credit default process: Similar to term loans, lenders only need to demand repayment upon default.

14. Line of credit claim process: Lenders are not required to substantiate the cost and proof of payment for expenditures on the line of credit.

 

The program can also be used to purchase an existing business/franchise.

 

These changes are designed to improve the financing landscape for Canadian businesses, providing them with greater access to capital and increased flexibility in managing their financial needs.

 

 

 

EQUIPMENT FINANCING

 

If your business is looking to procure crucial machinery or equipment, or technology, equipment financing can be an excellent strategy. By distributing expenses over the lifespan of the assets, this form of financing helps to minimize the impact of substantial initial investments, thereby allowing entrepreneurs to reserve capital for other business-related necessities.

 

Whether the requirement is for updating assets or upgrading technology, or obtaining rolling stock, equipment financing allows businesses to maintain competitiveness and stimulate expansion.

 

For more information from 7 Park Avenue Financial equipment financing solutions, please  click HERE

 

  

 

CONCLUSION :

 

In Canada, entrepreneurs have various financing options, including traditional bank loans, alternative financing, equipment financing, government loans and grants.

Each option addresses different business needs. To obtain the necessary capital for growth and prosperity, Canadian businesses must carefully assess the advantages and drawbacks of each method and plan accordingly. 

 

Talk to the 7 Park Avenue Financial team about choosing the right financing option to realize your business ambitions and secure prosperous growth financing.

 

Bottom Line? Whether you are starting a business or already established and focused on high growth and those options from angel investors/family and friends have dried up, and venture capital funding that was never in reach is gone, the type of financing you need is available if you understand different choices in traditional and alternative lending. Choose the right financing for your business via finance tailored to your needs.

 

Whether you are looking for short-term financing or long-term viable business finance strategies, business owners should understand that ' Real-world ' accessible financing is no conspiracy theory.

 

Speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor in financing for small businesses who can assist you with your funding and financing success needs in term loans, asset-based loans, and cash flow/working capital business needs - Let's achieve the growth potential you're capable of with business advice you can trust.

 

 FAQ: FREQUENTLY ASKED QUESTIONS 

 

Who is eligible for the Government Small Business Loan?

Businesses applying for the govt small business loan should have under 10 million dollars in revenue. Owners should be able to demonstrate a positive credit history and be legally allowed to borrow in Canada via either citizenship or landed immigrant status as a key business loan requirement.

 

What is asset-based lending?

 

Asset-based lending is secured lending when loans are focused on your first assets. Asset-based business lenders' loans are based on the current value of your sales and assets - the most common asset categories are accounts receivable, inventory, equipment, and even real estate. The focus on collateral versus cash flow liquidity provides much more borrowing power for business borrowing.

 

Do banks give loans to startups?

 

Banks will lend to startups unsecured because business owners can provide an acceptable personal guarantee and demonstrate sufficient net worth and good personal credit history. Banks will secure these loans via a personal guarantee and a blanket security agreement over the entire business. Interest rates will be determined by the type of financing the bank provides.

 

How do I qualify for a business loan?

Businesses should have good overall credit quality, and owners must have good personal credit scores and credit history. Knowing the types of financing available through traditional and alternative sources is essential, as is understanding requirements. A good loan package application should include a strong business plan.

 

 

How do I get financing options for my business?

 

Steps to Secure Financing for Your Business:

1. Assess Your Financing Needs: Determine the amount of capital required and the purpose of the funds.

2. Review Your Credit and Financial Health: Check your credit score and gather financial documents for evaluation by lenders.

3. Explore Traditional Financing Options: Approach banks and credit unions with a comprehensive business plan and loan proposal.

4. Research Alternative Financing: Consider online lenders, peer-to-peer platforms, or venture capital firms if traditional loans don't meet your requirements.

5. Look into Government Funding and Grants: Check for available government programs or grants specific to your industry or business type.

6. Explore Angel Investors and Venture Capital: Present a compelling business plan and pitch to potential investors for equity funding.

7. Network and Seek Recommendations: Seek advice and referrals from your professional network and experienced entrepreneurs.

8. Prepare a Strong Loan Application: Organize all required documents and clearly explain fund usage and repayment plans.

9. Be Open to Negotiation: Be flexible during negotiations with lenders or investors for mutually beneficial terms.

10. Exercise Caution: Research potential lenders to avoid scams or predatory practices.

Remember to be patient and persistent during the process, as securing financing may take time. Careful planning and preparation will increase your chances of finding the right financing option for your business needs and goals.

 

 

What is the most common type of business loan?

 

Summary of Key Features of Traditional Term Loans:

• Offered by banks and financial institutions.
• Repaid over a fixed term with regular monthly installments.
• Comes with a predetermined interest rate for predictable payments.
• Involves a fixed loan amount given to the borrower.
• Collateral may be required to secure the loan.
• Credit history and financial health are considered during the approval process.
• Borrowers need to provide a detailed business plan and financial statements.

Other Financing Options to Explore:

• Lines of credit
• SBL loans under a defined credit limit under the CSBF program
• Equipment Financing
• Invoice financing

Business owners should consider various financing options to find the best fit for their needs and circumstances.

 

 

What are the 3 main types of financing for businesses?

 

Summary of Main Types of Financing for Businesses:

1. Debt Financing:

• Borrowing money from external sources with an agreement to repay with interest over a specific period.
• Examples: term loans,  business lines of credit, equipment financing, merchant cash advances via a term loan monthly installment credit limit solution - The application process is very quick for most lenders in fintech

2. Equity Financing:

• Raising capital by selling ownership shares to investors or a venture capitalist
• Investors share in profits and losses; no repayment is required.
• Commonly used by startups and high-growth companies.

3. Self-Financing / Personal funds (Bootstrapping):

• Using personal savings, assets, or business profits to fund operations versus taking on debt under startup loans
• Retains full control and avoids debt or equity obligations.
• May limit growth for capital-intensive ventures.
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Businesses often use a combination of these financing methods based on their stage of development, financial health, growth objectives, and risk tolerance of the business owner.

 

 

How can an entrepreneur obtain startup financing?

 

Common Ways Entrepreneurs Can Secure Financing:

1. Self-Financing (Bootstrapping): Using personal savings, assets, or business profits to fund the venture.

2. Traditional Bank Loans: Borrowing a lump sum from banks with fixed repayment periods and interest rates.

3. Online Lenders: Utilizing online platforms for faster approval and flexible criteria.

4. SBL Loans Via the Canada Small Business Financing Program: Government-guaranteed loans with favourable terms and flexible

5. Angel Investors: Getting funding from affluent individuals in exchange for equity.

6. Venture Capitalists: Securing funding from investment firms for high-growth startups.

7. Crowdfunding: Raising funds from many individuals contributing small amounts.

8. Family and Friends: Seeking financial support from close contacts for the business's success

9. Government Grants and Subsidies: Exploring non-repayable funding from governmental programs versus personal loan financing solutions

10. Accelerators and Incubators: Joining programs that offer funding, mentorship, and resources.

11. Business Competitions: Participating in competitions for cash prizes or investments.

To succeed in obtaining financing, entrepreneurs should have a well-prepared business plan, understand their funding needs, and demonstrate growth potential and profitability. Building relationships with investors and actively seeking funding opportunities can increase their chances of success.

 

What is the least costly source of financing?

 

Advantages of Self-Financing - Also known as "bootstrapping."

1. No Interest Payments: No borrowing means no interest expenses, reducing overall financing costs.

2. No Equity Dilution: Entrepreneurs retain full ownership and control without sharing profits or decision-making.

3. No Debt Obligations: No regular loan payments, beneficial for businesses with limited cash flow who cannot pay interest on the debt  - Interest rates and other business lender requirements tend to be higher for startups.

4. Flexibility and Autonomy: Entrepreneurs can make decisions without external pressures.

Limitations of Self-Financing:

• Limited Capital: The amount available to borrow money may restrict business scale and speed of growth.

• Not Suitable for Capital-Intensive Ventures: This may not suffice for businesses with high financial needs.

• Growth Constraints: Rapidly expanding businesses may require additional external financing.

 

Entrepreneurs often explore a mix of financing sources as their business evolves and funding needs increase to align with their goals and financial capabilities.