Film Finance Canada – Tax Credit Film Financing

Producers and owners of Canadian content in the areas of film, television, and animation credits are not always aware that they have the ability to monetize or cash flow their Canadian tax credits in Canada.

The three types of productions that we have referenced are provided with solid financing assistance from the federal and provincial governments in Canada.Your ability to monetize these tax credits, and turn them into cash flow at time of filing, (or in some cases before) can make or break the overall financing success of your venture.

Successful results can be achieving by working with a credible, trusted and experienced finance partner for your tax credit financing in Canada.The financing of these tax credits creates, in effect premium additional cash flow to allow you to enhance your initial equity and debt and gap financing strategy.

Let’s use a simple example wherein a Canadian produce in film, TV, or digital animation is financing a venture through equity and debt, and let’s say it’s a 50/50 proportionate relationship. The non equity portion of these ventures is often balanced with some sort of distribution agreements in Canada or elsewhere in the world. One strategy you could consider is to of course ensure prior to commencement and production that you qualify for and are eligible for the maximum amount of tax credits related to your venture. Let’s say our example consists of a 1 Million dollar independent film, and there is a 500k equity and debt component respectfully. In our example, if properly qualified and document the film owner, producer, etc can qualify for a tax credit that might easily come into the 200k-250k range.

Is that the end of our example? Absolutely not – what we are saying is that you can immediately finance that claim, either at time of filing, or in some cases earlier, and utilize that cash flow for all sorts of purposes related to your venture / production.

As Canadian production and content continues to play a hefty role in the producing of Films, direct to video, pay per view, and digital products the ability to finance these ventures is always a challenge. Very few of Canada’s banks and large financial institutions play a role in this type of financing; we therefore recommend to clients that they seek out the expertise of a credible, trusted and experienced advisor in this area. Maximizing your claim value and eligible cash flow are of course the rewards of working with the right party.

Larger and well known studios require financing also, but the true challenge is for independent producers and their investors who have budgets that are often ten million dollars and under, sometimes quite significantly under that threshold we just referenced. The reality also is that the industry seems to be breaking all records in areas of growth and economic activity and new forms of content and distribution. The bottom line is that as demand increases and distribution structures improve the need for financing and tax credit financing in Canada is also increased.

If a production can be properly pre-sold and distributed, and tax credit financing utilized as an integral role in initial production cost financing – well, that simply creates a perfect formula for financial success.To be successfully financing a production must have the proper amount of leverage, different exit and distribution strategies, and the proper utilization of tax credit and tax credit financing.

Working with the proper parties can often achieve50-75% immediate financing of your tax credits in Canada. The remainder is of course simply a buffer for the lender to allow for financing costs themselves, and any time lapses in the final approval and cheque from federal and provincial players that regulate the new generous tax credits.

Tax credits are increasingly generous in Canada – just in the last year or so a number of enhancements have been made to the various programs at various levels of government. Take advantage of these credits, and further investigate monetizing those credits at time or filing of prior to maximize the cash flow and overall financing strategy of your film, TV, or animations projects.

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SR&ED Sr ed Tax Credit Financing in Canada

SR&ED (SRED) tax credit financing is a solid strategy used by more and more Canadian business owners and financial managers who wish to accelerate the benefits of Canada’s Sr Ed program.Cash flowing, monetizing, or factoring ( they all mean the same thing!) your Canadian Sr edclaim can accelerate cash flow and working capital for your privately controlled Canadian business that is utilizing SR ED credits under the governments program .

In many ways the financing of your Sr ed credit actually allows you to maintain your competitive edge, as the combination of your non repayable tax credit and the immediate financing of it are a ‘ double whammy ‘ in the face ofyour competitors who might not use this strategy .A banker we deal with recently told us that current industry statistics show that many companies who are in fact eligible for the SR ED credit aren’t even applying for it, let along financing it. Therefore when your firm maximizes on the total value of your claim, and then generates instant cash flow on that claim you are clearly leading the pack in this regard.

Many clients tell us that they utilize the Sr Ed funds that they finance to assist in acquiring new equipment that allows them to maintain a competitive edge in their markets. The reality is of course that these funds can be used for an general corporate purpose , which might be things such as equipment acquisition, advertising and marketing, reduction in payables or debt, or of course the continued investing of even additional research and developmentefforts .

So what is the cash flow and working capital potential in your SR ED, and how do you unlock that potential?If you are already filing for SR ED credits you are no doubt working with the assistance of your client, or, alternatively, someone that is known as a SRED consultant. Having a solid resource in one or both of these parties allows you to maximize on your potential claim.

Once you have filed you claim we recommend that you consider immediately financing the claim. Naturally you don’t have to do this, and can simply wait the3-12 months that it might take Ottawa and your particular province to review the claim, adjudicate it, and process it for payment. But, as we state, why not consider financing the claim.

Clients ask us how the actual process works. It is quite simple really. Your calim is generally financed at 70% of the total value of the amount you and your accountant and consultant have claimed. You can receive cash immediately after it is filed. In certain cases you can actually receive funds for the claim prior to financing – that whole process is called SRED accrual financing. Some of the basic criteria are simply that you must have filed a claim before, have a solid reputable party preparing it, and be prepared to demonstrate good records and accounting around those expenses you are intending to claim.

So how can we summarize in a ‘bottom line ‘manner. Its simply as follows – you should be filing Sr Ed claims if you are eligible. On filing you have the option of financing that claim, so you are bringing immediate cash flow and working capital to your firm on funds that are not repayable to the government. Funds can be used for any company purpose, and proper utilization allows you to maintain a competitive advantage on your competitors. That’s using research as a cash flow generator – a solid financing strategy!

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Financing a Franchise in Canada

Financing a franchise in Canada properly allows a Canadian entrepreneur to start a business that is established and is a proven business model based on the success of your franchisors system, number of units , and general brand recognition and success .

The financing challenge that you face is often quite simply based on the amount of full financing that you need for the purchase of a new or existing franchise .In Canada franchises that require financing range all the way from 25,000.00 to severalmillion dollars .

One of the positives of financing a franchise in Canada is that in general the overall concept of franchising is viewed as having in many cases a better chance of success as opposed to an individual start up . This may or may not be the case, but just the simple fact that the Canadian banks in general in Canada are favourable to financing a franchise is a positive statement . Most Canadians know that smalland mediux sized start up operations in Canada are difficult to finance from the get go .

Sois there an exact process or method in financing your franchise . The answer is that there is clearly no one proven method utilizaed by all parties to finance a franchise .But there are a number of both proven planning methods, as well as exact financing strategies that can be employed to complete a successful acquisition of a new or existing business .

The initial process you should focus on is some simplecash flow planning around the requirements of the business that would allow you to complete the transaction and open the door for business . However , any business ,even if it’s a ‘ cash ‘ business per se requires some level of working capital financing . If you business is going to have any level at all of inventory or accounts receivable that places a pressure and demand on cash flow .

Most franchisors will assist you in determine what the initial requirements are . In many cases they will actually stipulate or strongly recommend that you don’t enter into the business without a specific level of personal investment couple with the asbility to borrow additional funds .

A critical part of your overall cash flow planning is of course to allow for the ability to pay back royalties to the franchisor every month, as this is how the franchisors themselves generate revenue and utilize these funds for additional expansion of the chain .Naturally all franchisors wantyou to be successful, because you will then be ergo making them more successful . That’s the franchise fundamental business model .

Things you need to take into consideration in your financial planning and acquisition of a franchise are the basic cash flows, the‘ ins and outs ‘ we could call them, of the business . Things to consider are your operating expenses, advertsing you might undertake, the aforementioned royalty payments, and long term cash needs for things like equipment , etc.

Clients ask us if there is a simple or recommened manner in which to sit down and plan all this . There is of course, and its utilizing a basic cash flow or business plan template that will allow you to simply enter in projected revenues and expenses, and out of that will automatically fall out your cash flow needs .The-- things you need to consider are initial monies that you will put in personally as an investment, plus funds you will borrow , and the breakdown of how these funds will be repaid .

Once you have done the proper amount of planning and analysis sit down with your funding sources, or someone who has experience , credibility, and that you can trust for solid franchising advice . In Canada franchises are financed by a special government program that works well for this type of funding, as well as your own investment , plus additional borrowed funds from commercial finance or leasing companies .Carefull planning will allow you to cobble together the right amount of financing for both short term and long term needs .

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Asset Based Line Of Credit and Working Capital

Canadian business owners and financial managers are increasing optimistic about 2010. That optimism is balance with their concerns re their ability to finance both operations and growth.

An asset based line of credit is a solid working capital alternative for Canadian business. Although financing continues to be one of the most serious considerations for business in Canada the alternatives are certainly not as available and obvious as they once were.

Working capital and capital expenditures top the list. Small and medium size business naturally has the greatest challenge, as they don’t have the bench strength of larger firms. While Canadian chartered banks are certainly paying lip service and trying to, for the most part support small and medium business the reality is that the ability to finance basic growth of inventory, receivables and contracts is a challenge.

So is there a Canadian solution to additional working capital and cash flow needs when traditional bank financing can’t be finalized? The reality is that more and more Canadian businesses are considering a financing solution that is becoming more developed every year in Canada - that solution is broadly referred to as an asset based line of credit, or a ’ working capital facility ’.

Is there a special requirement for this type of financing - just one? Assets! Asset based lending is simply the provision of the maximum amount of cash flow and working capital that can be loaned against assets. We used the word loan. But this is not a loan or term loan, it is a revolving facility based on inventory and receivables, (and sometimes customer purchase orders) that your firm generates. The facilities only security is of course the A/R, inventory, and unencumbered equip that your company has available to finance.

Our clients usual ask - ’ Well don’t banks do this also?’ And the answer is of course yes they do. But traditional bank financing in Canada focus on balance sheet ratios, income statement rations, and covenants and outside collateral.

Asset based lines of credit, or working capital facilities as we have called them focus on only one thing, the collateral. These facilities are provided by independent commercial finance firms, and pricing varies by transaction facility size, the overall quality of your business risk profile, and, more importantly who you pick as a partner firm in this area. We therefore strongly recommend that since this is a newer breed of financing that you speak to and work with a trusted and credible business financing advisor in this unique area of Canadian business financing.

So what is really happening in our facility - it is simply leverage the business assets you have on an ongoing basis to their maximum monetized value. That tends to be 90% of receivables under 90 days, as well as inventory advances of 40-80%, and on top of that unencumbered equipt is valued and advanced on if required. (Real estate is also a component, although less widely used.)

Years ago a description of this financing would have come with terms such as ’ lending of last resort ’ but the new reality is that asset based lending is fundamental to thousands of businesses in Canada , and growing everyday .

Asset based lines or credit and working capital facilities - investigate them, consider the advantages, and benefit from the cash flow and working capital they bring to the growth of your Canadian business.

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Working Capital Loans and Financing Canada

Working Capital Loans and Financing is a term that has different meanings to Canadian business owners and financial managers. One of the most popular (we actually feel it’s the best) loans for small and medium sized businesses in Canada is a loan commonly known as the Government SBL, or Small Business Loan.The essence of this loan is great rates, terms and structures – i.e.3% over prime, nominal personal guarantees and re payment terms of 5-7 years.

Sounds great, right? Yes, we agree. But many business owners seeking working capital loans are dismayed when we tell them that the program only finances three things and it’s many times not the three things they are looking for. They are looking for Cash! The program only finances equipment, leaseholds, and real estate.

Working Capital loans are actually available from what people consider traditional sources. One of the Crown Corporations within the Canadian government actually focuses very significantly on cash working capital loans. These loans are structured as term loans, have fairly competitive rates, and repayment terms of 5 to 6 years. They are also unsecured, which means they rank behind and senior lender or security you might have in place. The only commitment to repay is the guarantee of the company 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.

A great way to address why your Canadian firm requires working capital loans and financing is to address the root of the issue, which is to fully understand your receivable and inventory requirements. Those are the key drivers of any working capital need.The holy grail of working capital is when you can grow your business, reduce inventories and turn them faster, and increase receivable collections. Increasing a/r collections either via more efficient methods of collection, of selling your receivables as you generate them ( that’s called 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 has a significant inventory investment at all times you can obtain direct loans in Canada against that inventory. Bank financing traditionally is the route many larger and established businesses take when they required working capital for inventory purchases. However when your firm can’t qualify for the full extent of financing that you need then a direct inventory working capital loan is best.

Our recommended working capital loan is actually not a loan that adds additional debt to your balance sheet. 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 importantly, doesn’t add debt to the balance sheet.

The best way to generate your own working capital loan to your firm is to improve collections and delay payments to suppliers. The latter must be done carefully of coruse, so as not to mis manage vital supplier relationships. However, clearly it’s every man for him in business financing, so you should focus on negotiation the best payment terms you can with valued suppliers who will usually extend solid payment terms when they see you as a viable and long term customer.

So whats our bottom line summary on working capital loans and financing in Canada.It’s simply that you might not necessarily need a true loan and in fact should be accessing your working capital accounts such as inventory and receivables for financing. But true working capital loans are available in Canada – work with a trusted credible advisor to find a solution that meets your needs.

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Canadian Lease Financing – Equipment Leasing Options Canada

Canadian Lease equipment financing continues to be one of the most successful means for a company to acquire assets of all types.

Unfortunately most clients we talk to are always focused on rate, which in many cases is only one small piece of the Canadian asset, based lending puzzle, and solution.

In Canada equipment of all types can be leased - that includes capital expenditure items from 5k to 50M dollars.

What should Canadian business owners focus on and seek guidance on when acquiring assets via the leasing option. We think three things are important -

- Who to lease from
- What are the key elements of a successful lease structure?
- What is required for an approval that meets your firms needs Vis a Vis rate, term, and structure.

In Canada the leasing industry is very fragmented. Like all other parts of the financial services industry the business has gone through major tumult in the last couple years, particularly the 2008-2009 global financial meltdowns.

So who are the players and why is it important to know who you are leasing with, as long as you are approved? Good question?! Let’s explore the answer.

In Canada the leasing industry is self regulated via a national association called the CFLA. The companies that make up the industry are:

- Major international conglomerates and their Canadian subsidiaries
- Canadian owned private independent finance firms
-Captive finance Companies
- Independent lease originators, also known as intermediaries

So why is it important to understand who you are dealing with? Time is money, and a significant amount of time can be spent with a lessor who you think might be able to do the transaction for you, but ultimately your firm might not fit the asset and credit criteria required .

We referenced the major international conglomerates; a well known example might be GE. The reality is that these firms predominately focus on very high ticket value transactions with commensurately high credit quality criteria. We have spoken to many customers who have invested time, commitment fees, etc only to find they were in effect dealing with a firm that was unable to satisfy the size of their transaction.

Private independent lease firms in Canada tend to have niches - in the industry the term is ’ credit box ‘. That simply means they only solicit a certain type of asset and credit quality - any transaction falling outside the box becomes not doable. Again, you may have totally wasted your time.

We are the first to advise clients that if they can get lease financing via a captive finance company or a vendor program via the manufacturer there is only one recommendation - ’ Take the Deal!" Vendor and Captive programs are highly incented to finance assets at competitive rates and sometimes overlook the rational credit quality that is required to get a deal approved.

Recall that our final lessor category is independent finance originators, aka intermediaries - we hate the term broker by the way. The key benefit of working with a trusted, credible, and experienced advisor in lease financing in Canada is simply a time/ money scenario. You can spend hours, days, and weeks negotiating with firms who ultimately can’t do your transaction. Along the way you may have laid out commitment fees as well as having your firms financials viewed by a number of different parties with whom you may never do business .

Our experience is that people prefer to deal with experts. Why wouldn’t you want to work with an expert that can assist you in achieving the optimal rate, term, structure, etc? Simply things such as a recommendation on the type of lease you choose (capital or operating) can save you firms either thousands in interest, or have a significant effect on monthly payments. That is a solid acquisition financing strategy!

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Purchase Order and Inventory Financing in Canada

Canadian business owners and financial mangers are often challenged by the need to finance either, individually, or both, inventory and purchase orders for major new customers, contracts, etc. Is this type of financing available in Canada and how does it work?

With grown and revenue prospects come challenges. A large part of that challenge is simply the need to access cash flow and working capital now to facilitate those new orders and large contracts with either new or existing customers.

Clients we talk to normally have a very typical challenge – they have a large, sometimes huge! New sales opportunity. That opportunity requires an abnormal build up in inventory via those new contracts and purchase orders.

It is logical for every Canadian business owner and financial manager to initially survey their existing financing arrangements and determine if those financing arrangements either meet the needs of the new orders, or if additional financing is required. If you company is relatively new, or sometimes even at the start up stage that type of traditional Canadian chartered bank financing will be very difficult to achieve .

Naturally the other resources that could pull you’re financing together in this area and personal and outside resources, which most entrepreneurs either have reluctance for, or in some cases find it difficult to access and complete funding via that mechanism.The worst thing any business owner wants to do is of coruse to decline those purchase orders or contracts.

Purchase order financing, or alternatively, inventory financing, is a solid mechanism whereby you can access funds needed for your P.O. fulfillment. Depending on how you structure your transaction the P. O. financier may cobble together an assortment of receivable and inventory and equipment collateral in order to assist you in fulfilling your orders. In some cases, especially when it is demanded by your customer, the P.O. Finance firm can even issue a letter of credit on your behalf.

Purchase order and inventory financing can be applicable for all size of firms; however clients we meet with are either in start up mode, have had some financial challenges, and area unable to access what we would term as traditional working capital.

It should be stated of course that the actual purchase orders and inventory requirements that are being financing must come from reliable firms, either here in Canada or elsewhere. Their general reputation and stability must be able to be confirmed. That is of course done through areas such as public records, commercial credit reports, etc. In some cases our clients providing you with the purchase order might be a large well known public entity – all the better of course.

The benefit of purchase order financing is that it places emphasis on the overall quality of the deal, and your ability to fulfill the contract. Unlike traditional financing your balance sheet and income statement, with all those banker ratios, covenants, etc do not necessarily come into play in this type of financing. For that reason purchase order and inventory financing is a ‘boutique ‘‘specialized ‘type of financing that is more expensive than traditional financing. Business owners can significantly offset that expense by ensuring they have good gross margins on the transactions.

Manufacturers, wholesalers, and distributors are probably the best candidates for purchase order financing. When you meet with a credible, experienced and trustworthy advisor in this area that initial focus is simply document ting the transaction, i.e. info on your firm, the transaction, and the standard application and due diligence that comes along with any type of business financing in Canada .

Your firm should investigate purchase order and inventory financing if you feel you are a strong candidate for this type of financing based on your inability to access traditional financing to meet your sales goals. Work with an experienced partner, ensure you understand the application and diligence process, and you should then be able to successfully capitalize on this great alternative financing strategy.

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