Factoring – Financing Canadian Receivables

Factoringfinancing in Canada is a proven, and growing in popularity method of generating cash flow and working capital for your Canadian firm. It often works best in conditions when your firm is experiencing higher than historical growth, or in many cases you are a start up or early revenue company who requires additional cash flow that you might not be able to attain from Canadian chartered banks.

In speaking to many clients factoring is clearly mis – understood. Last week we got a call from a customer who inquired whether we purchase bad, uncollectible accounts receivable. We indicated to that customer that what she in fact wanted was a commercial collection agency! Factoring in fact is the opposite of that, it’s the purchase of your accounts receivable ( and we mean the collectible accounts ! ) for immediate cash flow .

Factoring in Canada is somewhat of a fragmented industry, so we encourage you to seek and speak to respected and credible business financing and factoring advisor. The type of firm you end up dealing with in factoring will often affect how successful you viewed this type of financing strategy. There are a number of different types of factoring in Canada. Technically speaking we can refer to the types of factoring in the following manner –

Full notification invoice factoring (This is the U.S. and British model)

Non notification factoring

Spot factoring

Factoring in the context of a true working capital or asset based line of credit facility

We are always concerned that customers, armed only with a little bit of information or their first contact with a firm who only offers one type of factoring, will get themselves into the wrong type of facility, thereby tainting any future positive thoughts they might have on this type of financing. The bottom line again – you can speak to an unbiased expert on how this financing can help your firm, or you can choose a hit and miss approach and enter into the wrong type of financing facility. We will take option # 1 any day!

Let’s talk a bit about factoring in general as opposed to focusing on which type of factoring best suits your firm.This type of financing is essentially the purchase of one or all of your receivables, on a one of, of on going basis, to facilitate immediate cash flow.

Remember also that you are not incurring any debt when you are factoring – in fact your balance sheet improves because you are turning over receivables / working capital in a more efficient manner.

Because there is a cost associated with factoring you should generally be comfortable that you have the proper gross margins for the factoring of your accounts receivable.Very low margin businesses, even though they have good turnover are not always best suited for this type of financing.

In summary, factoring is growing in popularity. At the same time the myriad of types of firms that offer this financing, as well as the way in which they offer factoring can ultimately affect whether your firm is a successful user of this financing strategy. Investigate the benefits of this type of financing, ensure you understand who is offering it to you and which ‘factoring model ‘they use, allowing you to better determine if financing in this manner suits your cash flow and working capital needs . That ‘s proper business decision making!

Film Tax Credit Financing in Canada

Film tax credit financing in Canada is a unique and specialized type of financing. While many of the larger film, tv, and digital media firms in Canada are aware of and are utilizing this type of financing, many smaller and independent firms are either unaware that the financing exists, or alternatively know there are substantial tax credits, but were not aware that they can be monetized into immediate cash flow for either project completion, or even moving on to your next project.

All of this activity stems from federal and provincial legislation that was recently amended to increase tax credits to Canadian firms in the three aforementioned sectors:

Film

Television

Digital Media – i.e. Animation, etc

All these program obviously boost Canadian content and help foster Canadas reputation in the industry, and the government, both at the federal and provincial level seems keenly comfortable that these tax credits and incentives, which are non repayable in most cases (yes we said non repayable) generate additional tax and revenue for Canada many times in excess of the tax credit values.

While federal legislation is of course standardized across the country each province has different organizations under different ministries to handle the provincial portion of the grants.

In Ontario as an example you can claim tax credits for 6 different credits – but did you know that if properly claimed you can generate immediate cash flow and financing of these film credits. (The six credits are: Production services/book publishing/sounds recording/interactive media/film and tv/computer animation).

How can these credits be financed ask our clients? Simply speaking if you have valid tax credit claims and the proper certificates in place you can monetize these into immediate cash flow. From a terminology perspective we can almost say that you are monetizing, factoring, or discounting your claim now based on cash flow you will receive from the federal and provincial authorities. In effect they are accounts receivable now on your special purpose entities (i.e. your current project/production) balance sheet.

Clients also ask what qualities or additional information must be in place in order to generate immediate financing of your tax credit. The answer is that you must have your affairs in order, namely the ability to confirm your eligibility, ensuring you have the right certifies either in place or set to be in place, and of course maintain proper records showing your disbursements, etc.

In certain cases , where proper documentation is available and has the ability to be maintained ‘accrual financing ‘ is also available – by that we mean cash flow is made available during your production prior to final certification . This is a true temporary cash flow and working capital benefit for many independent type productions.

A recent paper by the prestigious firm KPMG referred to these tax credits as ‘hidden money ‘. We would point out that the financing of these credits is in fact the true hidden money that could be the final spoke in your productions wheel!

In summary, if your project is eligible for tax credits take advantage of them. If you wish to monetize those credits immediately into additional working capital and cash flow then speak to a trusted, credible and experienced firm in this area. It’s a great cash flow and working capital strategy in one of Canada’s most exciting industries.

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/FILM_TAX_CREDIT_FINANCING_3.html

How to Finance a Canadian SRED (SR&ED) claim for Cash Flow

Canadian business owners and financial managers who file SR ED ( aka SR&ED , aka SHRED ) claims in Canada are keenly aware that it is one of the true ‘ government grants ‘ that many people are referring to when they are researching the broad topic of government grants and loans .

Funds approved in your SR ED claim are non repayable, and we cannot think of a better program in Canada that both assists Canadian firms in ongoing research and development, as well as allowing Canadian to maintain momentum in new products, processes, and technologies .

Our is certainly not to questions why the government provides such non repayable grants, they simply do, and as a Canadian business owner you want to be able to maximize your claim.

SR ED credits are applied for every year when you file your tax return. Our focus is on ensuring the reader understands that this tax credit filing is the trigger that allows you to, if you choose, to also finance your claim. These claims are not traditionally financed by Canadian banks, as the banks we feel probably aren’t fully comfortable with the collateral. Most Canadian business owners also know that there is some risk involved in having your claim cut back a bit after it is reviewed by the appropriate department in Ottawa that hands SR ED claims.

If you wish to finance a Sr Ed claim it is important that you follow a much defined process. Let’s review that process and provide you with some additional tips and information on how the claim is financed and what benefits might come out of the cash flowing of your claim.

There exists in Canada a small boutique market in SR ED financing. Given the unique and specialized nature of this financing we strongly recommend that you work with a trusted, experienced and credible advisor in this area of Canadian financing. That will allow you to maximize the size of the financing we believe, but probably more importantly speed up the process.

When clients ask us how long it takes to finance a claim we generally advise on 2 to 3 weeks, assuming the full co operation of your firm in the usual back up to such a transaction with of course includes:

Application to Finance Sred
Related back up to the application – i.e. financial statements, etc
Copy of the SR ED (SR&ED) claim itself
Copies of prior year claims that were approved, if applicable

It’s basically as simple as that.

‘What amount of funds can we receive for our claim?’ That also is probably questions number two from clients – and the answer is that claims are generally financed at 70% loan to value, which means simply that for every $ 100,000.00 of claim you should expect to receive 70,000.00$.

SR ED financing is structured to your firm’s benefit – that is that they are loans that have no payment during the term of the loan. The term of the loan is of course as simply as long as Ottawa takes to process your claim. Various factors are involved in the timing – we can generally say it takes anywhere from two to twelve months to process your final refund cheque from Ottawa. At that time the other 30% of the claim is returned back to you by the SR ED financier, less the financing cost, or the ‘total time to carry the loan’

So in summary, you can of course wait from 3-12 months for your refund cheque for your sred claim, but why not consider putting that working capital and cash flow to work now. In reality all you are doing is collecting a receivable (the s red claim) faster than waiting for a long period of time. Put that money to work into more R&D to stay competitive in your industry, reduce your payables, or invest in additional marketing or machinery. Take advantage of SR ED financing to inject immediate cash flow into your company. Talk to a SR ED finance advisor today!

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/How_To_Finance_Canadian_SRED_SR_ED_Claim.html

Canadian Franchise Financing – Made in Canada Solutions!

Canadian franchise financing requires solutions that are not necessarily part of mainstream business financing . As in all types of business financing we urge clients to consider working with an expert who is credible and experienced in the Canadian franchise financing environment .

There are a solid handful of franchise financing alternatives in Canada . Franchising is growing increasingly popular, and the industry as a whole is a key part of Canada’s relatively strong economy after the difficult challenges of 2008-2009.

Franchise financing in Canada consists of the same two elements that exist in any business financing – debt, and equity . Our work with clients has found that it is more beneficial in financing a franchise for your equity portion of your deal to carry some of the major soft costs . In general, and this is news to many new franchisees, soft costs such as franchise fees, pre paid rents, etc cannot be financing .

As we have stated , your financing is completed via two areas – your equity that you put into the business, and what you borrow . You naturally would have a much stronger chance of success if you put up all the funds yourself, as your franchise would not be carrying any debt – but the reality is of course that is not generally possible .

In discussing franchise financing with clients we point out that financing has to consist of two different mind sets – the financing you need to get the business purchased and going, and then, equally as important , the ongoing working capital needs . Many franchises are ‘ cash businesses ‘ ( example – restaurants ) that require little or no investment in receivalble and inventory . Alternatively your franchise might have a non cash business focus on you need carefull planning on the level of financing you need for a/r and inventory, etc .

Franchises in Canada are financed in 5 ways in Canada . It is extremely important you are aware of those five sources – Naturally the 6th source , unmentioned, is yourself, as you are of course required to make some level of personal investment also .

The Golden 5 ! Franchising in Canada is financed by one major international finance firm , as well as the Canadian banks, who have special departments set up for this type of financing . It is incredibly important to ensure you are dealing with the right group at these two institutions , otherwise you will waste significant time and erase some of the credibility around your financing request .

Our firm supplements the above two sources of financing with leasing for various assets, and in some cases unsecured working capital loans . The final component is the franchisor itself, or the franchisee from whom you are buying an existing franchise . While many franchisees who are selling to your will consider offing vendor takeback financing in general this is tenuous – additionally franchisors themselves are in the business of selling you a franchise , not lending you funds !

In summary, franchise financing in Canada is a focused and specialized niche lending . It is accomplished through a combo of traditional and somewhat non traditional sources . Determine what financing you need to acquire the business, as well as ongoing working capital needs . The words ‘ franchise financing expert ‘ should become a top priority , as an expert will help you cobble together your total financing solution that meets your personal needs .

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/Canadian_Franchise_Financing_Solutions_in_Canada.html

Asset Based Lines Of Credit – Canadian Solutions

Asset based lines of credit are solid solutions for Canadian business financing. They are often an alternative to a Chartered bank line of Credit – (in some cases the banks themselves even offer this unique financing as a subset of their services)

Asset based lending should not be confused with ‘loans ‘or ‘term debt ‘. Instead it is a working capital or line of credit facility that is tied to your firm’s inventory, receivables, and in some cases equipment and real estate can be added.

Although asset based lending, or ‘ ABL ‘ facilities as they are called are often viewed as an alternative to Canadian chartered bank lending, the hidden reality is that some of the largest corporations in Canada are now utilizing this type of financing . So if some of Canada’s largest corporations have abandoned traditional bank financing should your firm at lease consider and learn more about this type of facility. We certainly think you should investigate both the benefits and the mechanics of this type of financing facility.

Rates on ABL facilities in Canada vary, and you can pretty well guess the parameters of why they vary – which is simply:

- deal size of the facility
- your firms overall credit quality, and some component of assessing what industry you are in and
- How your industry functions Vis Vis profitability, seasonality, and other industry dynamics.
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- We can say in general that rates on ABL facilities in Canada go from 7-9% per annum to 1 ½% per month depending on most of the factors we listed above.

Overall credit quality challenges should not deter you from looking into a Canadian asset based lending solution – for the simple reason that this type of financing focuses on assets, not overall balance sheet and income statement quality. Simply put, your company might be currently losing money or experiencing a unique challenge, but you might find you still qualify for a very significant facility.

On a day to day business the most significant feature of an asset based line of credit is the ability for you to bridge cash flow that you have tied up in inventory and receivables. Your asset based line of credit will fluctuate based on the key elements of the ABL security, namely the receivables and inventory. The good news is that as your receivables and inventory grow you can draw down on more funds – unlike a bank facility which might have certain caps on how much exposure the bank will take with your firm on an operating line basis.

The one aspect that you should consider in such a financing solution is additional reporting, but if you can properly account and report on receivables, inventory, etc you should not be concerned. Many clients tell us that some of the additional ‘reporting’ that comes with an asset based credit line actually has helped them understand their business better!

In summary, asset based lending solutions are working capital and operating facilities that are non bank based. They can provide you with greater liquidity and access to capital that might normally not be achieved through traditional banking. Talk to an expert in the area, determine if this financing meets your needs, and ensure, with the help of an expert, that you access the type of facility that provides you with working capital in a manner that suits your company’s cash cycle
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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/Asset_based_Line_of_Credit_Canadian_Solutions.html

Working Capital Financing – Canadian Challenges and Solutions

Working Capital Financing - Your Canadian business is challenged to find the best working capital solution for your firm. Canadian business owners and financial managers have unique needs – factors that affect their needs are the types of customers they have, their industry characteristics, etc.

Let’s break tradition and insert the summary of our information we’ll share right here! Quite simply it’s that you have a choice of working or seeking advice from an expert or a non-expert in business financing. We’ll take an expert any day!

There clearly in the mind of Canadian business owners exists a gap in financing solutions. Working capital is needed by your firm for both long term and short term needs.

One of the best programs, bar none in Canada is a government sponsored guaranteed loan that goes by the name of CSBF loan, or BIL loan, and most people commonly call it the SBL Loan, which stands of course for small business . There is only one problem with it, as we tell our clients. It’s simply the program covers only equipment and leaseholds and real estate – and that aren’t working capital!

Working capital needs are commonly day to day needs - other terms for it are operating lines of credit and net working capital. The two most common assets in this category are receivables and inventory. So short term working capital needs need to be addressed within those two asset categories.

The best form of working capital financing is of course free financing – what is that you ask? Its supplier financing, because the credit suppliers grant you has no financing charges applied to it, and by delaying payment of your payables you are in effect generating cash flow and working capital. But that must of course be balance off by the need to maintain positive supplier relations in the context of a long term business relationship.

The biggest challenge in the working capital environment is fast or dramatic growth within your firm. Sales are great, fast growing sales are even better, but at the end of the day they require your additional investment in receivables and inventory.

How can your firm finance receivables and inventory. It can be done in a number of ways – those methods include –

- Bank operating lines
- Inventory financing
- Floor plan financing
- Asset based lending
- A permanent cash flow loan that injects working capital but is paid back on a long term basis

Most small and medium sized business we talk to have a major challenge in obtaining the proper overdraft or line of credit facilities from their banks. Quite often they also have a hefty inventory component in their working capital needs and are unable to get proper margining on inventory. In those cases we strongly recommend to clients that they focus on alternative financing – this comes at a higher cost but often times can be the source of financing that takes your company to the next level of sales and profit growth.

In summary, working capital challenges are complicated. You need to determine what your cash flow needs is, how they will be met, and if they aren’t being met by your current financing strategy consider alternative methods of working capital financing. And, as we stated, you can talk to a non-expert in this area, but we don’t recommend that!

Lease Financing Canada – Canadian Asset Financing Solutions

Lease financing in Canada is the acquiring of use of assets such as machinery, vehicles, and computers. Most Canadian business owners and financial managers have recognized for years that this type of financing is a great way to avoid large investments of capital in equipment. You use and profit from the equipment, but the lease finance firm owns the asset for the interim period of the lease.

Canadian business has almost unlimited choice in what can be leased. We advise clients that their only challenge in equipment financing is simply to ensure they have structured the right lease with the right finance partner that offers superior rates, terms, and structures.

Most of the advantages to leasing in Canada are already know to Canadian business owners:

- fixed lower monthly payments
- certain tax advantages
- preservation of working capital
- staying competitive by utilizing and acquiring more up to date technologies for your plant or office needs
- lease payments are expensed and if structured properly do not significantly impact your balance sheet

Naturally there is no ‘ perfect ‘ solution in business financing for all firms for all the time – In certain circumstances you might end up paying a bit more for the asset over time, also, most lease payments, as we noted are fixed, and if you used a loan strategy you might have access to variable rates .

Although most Canadian business owners utilize a lease to own strategy in general you should always be focusing on matching the term of the lease with the useful life of the asset.

We can’t over emphasize that each customer has unique needs and may benefit more from certain of the key benefits of leasing depending on their overall business model and financial structure.

Rates in leasing are important, but at the same time the ‘rate ‘on the lease should not drive your over all decision to finance with any one particular firm. Flexibility, favorable buyout terms, easy to understand documentation, and prompt credit approval are all key factors in equipment financing.
Overall credit quality of your firm is also a key factor in Equipment financing in Canada. We can categorically state that lease financing is utilized by start ups to the largest corporations in Canada. Therefore approvals for equipment financing are focused on the general over all credit quality of your company, and in the case of small business, the credit attributes of yourself as a business owner.

In Canada the players in lease financing are: Banks, Equipment Dealers, Independent finance companies, captive finance companies, and lease financing specialist with a wide access to the market.
In summary, lease financing is a solid strategy for equipment acquisition in Canada. Canadian business owners should weigh the lease versus buy decision carefully and determine which lease benefits are most important to them. Work with a specialist in the area based on your asset type, your firm’s credit quality, and any unique issues you might have in your firm or industry. Utilize lease financing to grow and profit in today’s competitive environment.

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/Lease_Financing_Canada_Canadian_Asset_Financing.html