Asset Based Line Of Credit vs. Factoring in Canada

An asset based line of credit and factoring are terms that are becoming increasingly well known in Canadian business financing. These are two types of financing once considered non traditional and mis understood by Canadian business owners and financial managers are becoming more and more popular.

What is the difference between these two facilities and which one might be best for your firm?

Small and medium sized businesses in Canada continue to be challenged by working capital needs. That is simply the cash flow that’s required to run your company on a daily basis. As your current assets (receivables and inventory mostly) build up you find they cannot be liquidated as fast as they might be able to. Naturally some of that cash flow is required to service your long term debt also.

When Canadian business has too much money tied up in accounts receivable and inventory it must consider financing alternatives to address that issue. Two of those financing alternatives are asset based lines of credit (we like to also call those ‘working capital facilities ‘, as well as factoring.

Clients are always asking us which one is best for their firm. We believe that a true working capital facility is probably better than factoring, but the reality is that many firms cannot qualify for a true working capital facility.

However, both types of financing facilities will indeed have the same effect on your cash flow, namely improving it! , and at the same time reducing the need to borrow funds on a long term basis.

It is very important to note that both an asset based line of credit and a factoring facility is not ‘ debt ‘ – you are not borrowing at a fixed rate and increasing the overall debt load of your company . Both facilities simply ‘cash flow ‘or ‘monetize’ your current assets in a more efficient manner.

The reality is that when you do free up that additional cash flow by using one of these two facilities you, as we noted, reduce your dependence on external funding or equity needs. Your firm now has the flexibility to address day to day issues, and grow.

Clients ask then what the main difference is between these two financing facilities. It’s actually quite simply – a factoring facility is simply the sale of your accounts receivable for immediate cash on an ongoing basis. On the other hand an asset based line of credit provides that same level of immediate cash, but your firm hasn’t ‘sold ‘the receivables, you have simply provided them as collateral. The other main difference is that in many cases a true asset based line of credit will also cover inventory also, in many cases increases your cash flow availability by 50% or more.

We recommend that you speak to a trusted, credible and experienced business advisor in these matters to determine which facility is best for you. In many cases a smaller firm might not be able to qualify for a true asset based line of credit so factoring will be the only solution.

In summary, asset based lines of credit and factoring is coming into their own in Canada as true business financing facilities. Both facilities have different criteria for approval, and overall an asset based line of credit, or working capital facility, is probably the best facility for your firm – if you qualify. Investigate carefully and determine which type of financing might be right for your firm

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Stan Prokop is founder of 7 Park Avenue Financial. 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 :
http://www.7parkavenuefinancial.com/asset_based_line_of_credit_vs_factoring.html

Best Leasing Rates in Canada via a Leasing Specialist

Savvy Canadian business owners and financial managers know that leasing is not always about price, it often should focus on issues such as structure, terms, covenants, etc. However, having said that, how does the business owner ensure that he is in fact getting a rate that is very competitive, if not ‘the best ‘that his firm can achieve?

Let’s look at the factors that affect lease pricing. Lease financing in Canada is a specialized industry, and we encourage clients to ensure they seek out and work with a trusted, credible, and experienced lease financing advisor in this area of acquisition financing.

So what factors affect your lease rates – first and foremost it is overall credit quality. But let’s review some of the inherent math of leasing to ensure you can make that overall credit quality work for you.

The overall amount of the asset you are financing affects the rate in many cases – larger transactions with higher credit quality also play a large component in the overall final rate. Lease financing in Canada can range from five thousand dollars to 50 million dollars and of course everything in between. The other key factor you should realize is that the term of the lease (in other words the length or amortization of the lease) is also a critical factor in final lease pricing. Longer terms tend to drive better rates. Why is that? Simply because the lease firm is locking in a guaranteed yield on the transaction, and when that yield is even longer in term that affects you’re pricing – usually for the better.

Realize though that in certain cases your overall credit quality of your financial may necessitate a shorter term being offered or approved. In that case lease pricing tends to go up. So a Canadian business who thinks they can get the best rate for a 2 year lease is often mistaken – lessors in Canada tend to prefer lease terms of three to five years.

Many of our clients are unsophisticated financially, so when it comes to lease financing and pricing them also do not fully understand how some structuring features in leasing affects their pricing. When you are asked to provide a lessor with either a down payment or a security deposit this increases the overall yield to the lessor – so you are laying out cash and financing less, therefore driving the rate up.

Utilizing a financial calculator (not a regular calculator) will allow you to exactly determine the exact rate you are being quote. By simply entering values for:

- term
- value of your deal financing
- monthly payment quoted
- end of term obligation

Will allow you determine the exact rate you are being quoted.

If you think the rate is too high you of course have the option of calling every lease company in Canada, revealing your financial information, and negotiating a rate. By the way, we don’t recommend that! The best solution is to work with an experienced leasing specialist to ensure he or she feels you have a ‘competitive ‘best rate. The dangers of doing that on your own are that your financial condition is quickly spread all across the industry, and secondly credit reports on yourself and your firm are potentially drawn and lowering your overall credit scores for your firm and yourself as a potential guarantor

We also advise clients that working with larger more established firms will generally drive the best rate for your transaction. Why is this? Simply because these firms themselves are funded in a more cost effective manner than small firms who are capitalized from private type sources.

In summary: rate of course isn’t everything, but it’s important. Understand the key elements of how a lease price is calculated; work with a trusted advisor to ensure you understand how your firm’s credit quality will be adjudicated. We also note that the type of asset and its overall collateral value play a role in your best lease pricing.

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Stan Prokop is founder of 7 Park Avenue Financial. 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 :
http://www.7parkavenuefinancial.com/best_leasing_rates_canada_leasing_specialist.html

Inventory and Purchase Order Financing – Canadian Solutions

Inventory and Purchase Order Financing in Canada is a niche, specialized area of business financing for Canadian firms . Prior to contemplating of securing this type of financing we encourage you to talk to a credible business financing advisor with experience in these areas.

The need for for inventory and P.O. Financing in Canada arises generally from two areas of demand for clients – they are growing too quickly and have secured new orders and contracts which they need to finance. Secondly, since inventory for many firms is a key component of your current assets the Canadian business owner has traditionally found it challenging to finance inventory through traditional institutions such as our Canadian chartered banks. In the majority of companies in Canada all working capital revolves around the turnover of inventory and receivables – Depending which industry you are in and what your product is the inventory line on your balance sheet can be very significant in relations to your total working capital.

If your firm turn over inventory, say for example, in 60 days but finds you need to now keep 90 days of inventory on hand your cash needs are therefore growing, really those needs are the new equivalent of another 30 days of sales.

Most companies know of how calculate their investment in inventory – it’s a simply calculation you should probably be monitoring monthly. The calculation is as follows:

Average inventory/average daily sales = days of sales in inventory

It’s that simple a calculation.

In Canada you might have to consider alternative financing of your inventory outside your banking or regular arrangements. Really this is a form of what we call asset based lending, with of coruse inventory as our focus.

How much finance can you get for your inventory? You probably know the answer already, which is of course – ‘it depends’! Depending on the quality of your inventory, and its turnover you should be able to receive anywhere from 40-60% in our experience. The greater the commodities value of your inventory the greater financing you will get.

Purchase order financing continues to be another unique challenge for growing, or many times smaller firms in Canada. It’s a vicious cycle the Canadian business owner of financial manger is very familiar with – their suppliers want payment up front, your customer won’t pay you in 30-60 days, and you’re caught in the middle with the manufacturing or delivery dilemma. Banks traditionally cannot assist you in this need, as they will tend to focus on traditional borrowing criteria. But the purchase order financier will pay your suppliers on your behalf, take collateral on the inventory, and monetize that inventory into cash when you create your receivable and shop goods. Purchase order financing is expensive, generally in the 2-3% range per month, so you should view this as a reduction in your gross margins. If you have good gross margins you can significantly benefit from P.O. Financing.

In summary, inventory and purchase order financing are needed by many Canadian firms who cannot otherwise finance their business traditionally. These two types of financings are specialized and should be entered into with a proper level of analysis re costs and benefits. Speak to a trusted, credible and experienced advisor in asset based lending in Canada to determine if these two financing strategies are right for you.

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Stan Prokop is founder of 7 Park Avenue Financial. 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 :
http://www.7parkavenuefinancial.com/Inventory_Purchase_Order_Financing_Canada.html

Sr&Ed Financing – SRED Loans in Canada

Canadian business owners and financial managers certainly appreciate and utilize one of the best (maybe ‘the’ best?) government grants in Canada – the Canadian SR&ED program administered by Ottawa and the provinces.

But did you know that you can ‘supercharge’ your SR ED grant by monetizing that claim into cash flow now?! The reality is that if you have filed a SR ED claim now you can immediately convert that claim into cash flow and working capital now for your business.

You are probably focusing on SR ED as a program because it allows you to remain competitive within your industry; as the world goes ‘ global ‘ your Canadian firms ability to stay competitive in your local or international market is key .

Clients ask us questions in two main areas “

- Why should we financing our SR ED claim
- How do we finance that claim?

Receive cash now for your filed SR ED claim can in effect inject immediate working capital into you claim. And remember that financing your claim is not the process of taking on more debt; you are simply cash flowing or monetizing that SR ED receivable now, in an effort to use that capital to continue and grow your business. Many firms we work with consider their SR ED claim as the largest receivable they will have that year.

Also, let’s talk about timing. If you have filed a first time SR ED claims it certainly would not be out of line to say that you might have to wait close to a year for your funds. Remember of course those funds are non – repayable. So if you have cash coming a year from now why, and its non repayable, why wouldn’t you consider financing your claim and putting that cash to work now. Clients as what they can use those funds for – the answer is simply, any, we repeat ‘any’ general corporate purpose. So that could be:

- Reduce payables
- Purchase new equipment
- Invest in marketing
- Start your new Sr ed process for the next fiscal year

The reality is that its company’s funds use them as you would another other injection of working capital.

So what is the process of financing a SR ED claim? To say that sred financing is a boutique and niche industry would be an understatement. Would you consider entering into a new business without the benefit of working with an expert? We don’t think so, so seek out a trusted, credible and experienced advisor in your area to maximize your Sr Ed loan.

The process, with an expert in tow, is simple. It involves a basic business application, the usual due diligence around any type of financing (info on your company, owners, etc) and the documentations that collateralized the SR ED into an asset to be financed.

How much can we get? Are the final questions from clients? The answer is that 99% of the time your sred is financed at 70% - that means that you receive 70 cents on the dollar now for your claim, with the balance coming when you claim is approved by Ottawa.
Sr Ed is a national program and your sred claims can be financed in any province in Canada.

In summary, business owners should avail themselves of the SR ED program. They should also consider financing their claim which allows them to inject working capital immediately into their firm. Speak to an experienced credible advisor in the area and maximize the benefits of this great Canadian grant program!

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Stan Prokop is founder of 7 Park Avenue Financial. 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 :
http://www.7parkavenuefinancial.com/Sr_Ed_Financing_SRED_Loans_Canada.html

How to Finance A Canadian Franchise – Franchise Financing and Lending in Canada

Canadian entrepreneurs continue to explore franchise acquisitions in Canada as a way to maximize on the business opportunities provided by the franchise industry. Entrepreneurs evaluate franchising because it provides them with an ability to generate sales and profits from established business models – they can build equity in businesses and enjoy the benefits (perceived or otherwise!) of self employment and entrepreneurliasm.

As you start to formulate your ideas around purchasing a franchise the concept of how o you will finance your new business should be very close to the top of your list. Many clients we talk view the actual financing of the franchise as the largest obstacle to achieving self employment success.

The reality is that anyone with a reasonable business and work background, coupled with a stable financial situation (good credit bureau history, etc) should be able to successfully finance their venture.

Is there a secret to franchise financing in Canada! Yes, there is, and don’t by surprised by the answer – which is simply that you must have a thorough and solid proposal in hand, and the right people need to see that proposal. Unfortunately that isn’t as easy as it seems.

So how are franchises in Canada actually financed? During the last couple years, due to the world wide economic slowdown/recession franchise financing became a smaller fish bowl so to speak. The methods in which franchises were financing in some cases actually disappeared, and in most cases simply had the ground rules changed relative to whats required and how its works and how long it takes.

In Canada franchises are financed by, in most cases a government sponsored and subsidized loan that comes under a program known as the CSBF loan program. Additional a very select number of firms offer specialized franchise financing loans, and in our experiences we have complimented these two programs with basic lease financing of assets plus in most cases a working capital cash flow loan or an introductory line of credit to facilitate daily operations and long term growth.

So is there a key to success. Absolutely, and it starts with a solid executive summary and business plan that has some reasonable financial projections and assumptions attached to it. The basic elements of that document are the business description, an overview of the basic business model and industry, financial projections, and a focus on the strengths of your business and its expectations of profits. Those profits will of course be cash flow to repay your franchise loan and debt.

We recommend to all clients considering and entrepreneurial career as a franchisee in Canada to discuss your franchise financing options with a credible and experienced advisor in franchise financing. Keep your financing objectives at the very top of your list early on in your process, plan well, and present your proposal once, and properly. You will soon be en route to a successful new business with sales and profit growth!

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Stan Prokop is founder of 7 Park Avenue Financial. 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 :
http://www.7parkavenuefinancial.com/How_To_Finance_A_Canadian_Franchise.html

Working Capital Loans – Cash Flow Business Financing Canada

Working Capital Loans in Canada provide cash flow business financing for Canadian business owners and their financial managers. When you achieve a cash flow loan of this type the overall financing rate tends to be very attractive.

Generally a working capital loan is a 3 to 5 year short term / intermediate term facility. Repayments are made monthly out of business cash flow, and typically the working capital loan is viewed as permanent business cash flow.

In many cases a working capital loan can have some collateral attached to it such as equipment or other business assets.

These type of facilities are made through 3 types of organizations-

Chartered banks
Independent Finance Companies
Government owned Crown Corporation

Achieving success in a working capital loan scenario will come with some conditions, as business owners will normally be required not to take out excessive funds from the business, and must be able to demonstrate that they have the cash flow in place to repay the loan. This is typically adjudicated via traditional cash flow analysis – the lender simply wants to see that you have current and projected funds flow to meet your repayment obligations.

As we stated, there is only a small handful of organizations that typically provide such business financing IN Canada. Canada’s chartered banks provide the lowest rates , while other firms and organizations have a higher cost of borrowing which is passed on to your firm as the borrow .

Working capital loans should be considered for a variety of reasons – some of these are – capital improvements, equipment purchases, and working capital to support cash flow and inventory.

It is important to ensure you are entering into a working capital loan arrangement for the right reasons – as working capital loans should not be confused with asset based lending on items such as receivables, inventory, equipment, real estate, etc .

Typically a working capital facility loan will require the guarantees of the owners of the firm. One of the smartest things you can do in positioning a facility such as this is to provide a crisp well thought out cash flow analysis – (an updated business plan wouldn’t hurt), to give the lender the comfort that you can make payments. In your document you should know that the lender will be looking at total debt to equity once the loan is in place, and also that you have cash flow coverage to repay.

In our experience with clients working capital requests tend to be in the 50k-250k range. Larger facilities than this become known as mezzanine debt, or subordinate debt – these are fancy terms for ‘unsecured cash flow loans ‘.

In summary, working capital loans are available in Canada from 3 different types of entities. It is important to position your request properly, and carefull attention to the metrics that the lender will be looking at will pay off for your firm. Speak to a trusted, credible advisor in business financing who will help you maximize the benefits of a true working capital loan facility.

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Stan Prokop is founder of 7 Park Avenue Financial - http://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 :

http://www.7parkavenuefinancial.com/Working_Capital_loans_cash_flow_financing_canada.html

Equipment Financing – Expert Advice for Canadian Lease Financing

Canadian business owners who are armed with some basic equipment financing knowledge can significantly increases their chances of approval, and, equally as important, ensuring the Canadian lease financing they are looking for comes with rates, terms, and general structures that are commensurate with their overall credit quality and business financing needs .

A lease and equipment financing provider has some basic needs around your initial application for financing. Some of the key areas you should focus on are detailed below.

Leasing is available for firms with all durations of ‘time in business ‘. Although a start up firm can be financing via a lease financing solution your overall time in business can be a great factor to increase your chances of a proper approval. Equally important is the overall industry and business model you are in – as on occasion some industries are out of favor. In 2008-2009 the auto industry was clearly ‘out of favor ‘.

Lease financing is a segment of ‘asset based lending ‘- therefore the asset you are financing has a considerable role in determining your overall approval and pricing. Equipment that is financed generally tends to depreciate, so your lease firm will focus on the value of the equipment during the term of your lease. As an example a lessor could only reasonably expect to recover 5 or 10% of a computers value three years from now, simply because a computer and telecom equipment in general as asset classes depreciate quickly .

Equipment that is not purchase for bona fide vendors and manufacturers also on occasion can present financing challenges. Therefore if you have a choice work with repeatable dealers, wholesalers, manufacturers, etc.

Any lease firm will draw commercial credit reports on your firm and look for payment trends to suppliers – if personal guarantees are required on private small and medium sized firms quite often a net worth statement and credit bureau check will be asked form . Quite frankly these types of information and credit diligence are associated with any borrowing, whether that is a corporate credit card, a business loan application, etc. In reality lease firms in Canada probably provide the quickest overall approval times than any other type of business financing. Many lessors use automated credit scoring systems and smaller transactions fewer than 50k for example can actually be sometimes approved in a matter of minutes or hours.

Lease transactions in Canada can run into the many millions of dollars, lease financing is one of most vibrant financing initiatives in the country – so expect on larger deals that a higher level of due diligence will be performed on your firm for larger lease facilities .

Finally , leasing is all about ‘structure ‘ so you should feel free to be creative in your lease structure request in order to maximize the particular benefits of lease financing that you are trying to achieve – they might include lower rates re your credit quality, seasonal payments, flexible end to term options etc .

In summary, business owners should learn some key leasing basics around what is required to make a lease approval successful. Being armed in this manner will ensure a more prompt approval and the overall approval you are seeking re asset type, term of lease, and flexibility at end of term. That is sensible, proactive financing. Seek the advice of a trusted and credible lease financing advisor who can assist you in maximizing benefits!

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Stan Prokop is founder of 7 Park Avenue Financial - http://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 :
http://www.7parkavenuefinancial.com/equipment_financing_expert_advice_canadian_leasing.html