Working Capital Financing – Canadian Corporate Financing Solutions

As a Canadian business owner or financial manager you are still somewhat bullish on sales and profit growth for 2010 – at the same time that growth requires working capital financing and corporate financing solutions that at times seem very challenging to achieve.

The reality is that small, medium, and even to some extent large corporations in Canada is demanding more access to working capital and cash flow financing – while at the same time the typical institutions who provide this capital are in fact denying access to many facilities that are required.

Business owners do not need to be told or hear about the difficulty and challenges in acquiring working capital facilities. Most firms think of Canadian chartered banks when they contemplate permanent or temporary working capital increases. This might be a bulge request for a temporary increase in their borrowing facilities, or sometimes a more permanent facility in the form of a term loan that might be tied to equipment, cash flow needs, etc. Various statistics are available which validate the difficulty that business owners have in obtaining working capital financing. Most of the needs seem to be short term based. In Canada unsecured working capital loans are available from the governments crown corporation bank, and, alternatively, through private independent financing firms. As the transaction tends to be a bit larger in size these loans tend to be called subordinated debt, or mezzanine type loans.

When a business is significantly smaller and can’t support the requirements of a more traditional cash flow or working capital loan Canadian business owners have actually turned to credit cards and personal equity loans to finance their business. This works, but comes at a higher cost. In general we believe clients we talk to want to separate their business finances from their personal finances.

Are their other solutions available to address working capital needs in Canada? Yes, there are several. One of the solutions you might consider is a working capital facility, also known as an asset based line of credit. This facility, available through specialty firms and advisors, generally significantly increases working capital while at the same time not bring on extra debt to your balance sheet.

Many clients we talk to don’t fully realize that they can unlock working capital that is in effect hidden on their balance sheets – It is a dual strategy of maximizing efficiencies in working capital, while at the same time leverage those current assets (most receivables and inventory, to their maximum borrowing power. These funds can help you avoid taking on more debt and allow you to grow sales and profits at the same time.

In summary, working capital and corporate financing solutions are in demand by Canadian business. Unfortunately supply is not fulfilling demand. Traditional solutions via Canadian chartered banks may not be available to your firm, and in some cases your firm might simply not qualify for the standard metrics around this type of loan / financing. Speak to a trusted, credible and experienced advisor who can suggest alternative solutions that deliver on cash flow and avoid additional debt. That’s a great business planning and financing strategy.

Financing for Equipment – Canadian Equipment Capital Options

Canadian business owners and financial managers, difficult times notwithstanding, continue to look for financing for Equipment, and have a strong desire to understand their Canadian equipment capital options.

While trying to achieve the best pricing in their negotiations with vendors business owners at the same time want to know they can preserve their capital, cash flow, and operating capital - lease financing does exactly that.

This type of business financing in Canada is an alternative to a cash purchase or a loan from a Canadian chartered bank. Clearly a win / win scenario is achieved when a business owner can acquire the information he needs, while at the same time achieving a solid financing structure around that acquisition.

Business owners can count on a number of sure fire benefits associated with the lease financing of equipment – those benefits may differ for each firm relative to their importance. However, more often than not they include the following:

- Canadian firms want to use assets to generate profits and sales – they don’t want to invest hard earned cash into depreciating assets

- If there are tax advantages to an equipment finance transaction they want to utilize or benefit from them

- If payments can be structured to suit the overall cash flow needs and working capital of the firm that is a beneficial option

- Budgets can often complicate equipment acquisition – business owners in Canada want to know them can circumvent a budget timelines or financing amount with an effective acquisition strategy

- Applying for a term or bank loan can takes weeks and months, lease equipment financing can often be approved in a matter of days based on the overall credit quality of your firm and the asset type

- Lease equipment financing is complimentary to your current secured lenders or bank operating facilities – they round out your ability to get additional assets and capital

The one thing you don’t want your acquisition needs to do is to restrict your overall cash flow and working capital position. That’s why we recommend you sit down with a trusted, credible, and experience advisor in lease equipment financing in order to assess your overall asset acquisition capabilities, as well as the benefits you can derive from utilizing this financing tool.

The reality is that every type of asset in Canada can be financed, so being for armed with that knowledge can greatly enhance your overall competitive financial position.

Clients often ask us at which point in the business cycle is they eligible for lease equipment financing. Some first are start ups, some are early stage, and in many cases they are mature companies with a growth and track record. The reality is that lease financing applies to all these types of firms.

Quite frankly the true challenge in leasing simply knows what cash flow benefits you can derive from the acquisition. It is important to structure a transaction that matches the appropriate rate, term and overall lease type that you are looking for. There are actually two major lease types, lease to own, called capital leases, and lease for use, more commonly called operating leases.

Investigate financing for equipment options. Work with a credible advisor. Decide which benefits works most for your firm, and structure a transaction that makes sense and maximizes your ability to grow revenues and profits.

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Inventory and Purchase Order Financing Solutions for Canadian Firms

For many Canadian business owners growing sales and profits is not always the biggest challenge, it’s locating business financing in Canada a can satisfy inventory and purchase order requirements from their customers.

When traditional financing doesn’t necessarily satisfy your firm’s ability maintain thee right levels of inventory, and satisfy those large new customer purchase orders and contracts than an inventory and P.O. Financing facility might just be the solution.
Clients we speak to like the concept but always ask – ‘How does this type of financing facility work?’ . We can use a basic example that reflects the power of this unique financing tool. Let’s assume you have an order, contract, purchase order, etc from a valued new or existing client. The challenge, mainly due to the size and or timing of the order, is of course how you purchase and maintain the level of inventory to satisfy those client needs.

When you use an inventory or purchase order financing facility your vendors or suppliers are paid directly by the inventory financier. Generally speaking up to 75% of the value of your order can be financed via a payment to the supplier. That 75% number is key, because in the example we are using I reflects that you probably have at lease a 25% gross margin on the sale of your products. Generally speaking at least that amount of margin is required to efficiently and properly complete an inventory or financing transaction. That is because the remaining 25% acts as both a buffer to the lender, as well as it allows some of your margin to be paid out as a financing fee of course , for the business risk and cost to finance your inventory/project .

Generally inventory finance lenders prefer to be paid as soon as you ship and create a receivable for your goods and services. That necessitates ensuring that you have a receivable financing facility set up with either you bank or a receivable financing/discounting firm.

What is the key benefit of such an inventory or p.o. financing facility? It is simply to remove a huge part of what finance people call the conversion cycle. If you don’t know the term we are very sure you know ‘the feeling ‘. It is the feeling of knowing that in a normal environment, if you were fully financed, that you would be waiting anywhere from 60-90 days, (sometimes more, sometimes less) for a dollar of your services to move from time of receipt of purchase order, your purchasing the inventory, your finishing the inventory, and then billing and waiting another 30-60 days for payment. The inventory finance facility helps to significantly lesson that amount of time as you can imagine.

That is why growth and the ability to carry inventory, (and receivables) are often the biggest challenges to Canadian business owners who are focusing on increased sales and profits.

Inventory and purchase order financing focuses on the transaction, and focuses less on the fundamentals of your company. Naturally the facility works best when you can validate that your firm has strong management, good profit potential in your orders, and the ability to successfully deliver and get paid to clients who are generally known or credit worthy. Financing for clients who sell to the ‘big box ‘stores are commonplace in inventory and P.O. Financing – think ‘Wal-Mart’.

Remember also that the financing facility we describe above delivers on working capital and cash flow, but is not a term loan per se, so no additional debt is on your balance sheet – you are simply monetizing your inventory, receivables, and purchase orders in order to complete our full ‘ conversion cycle’ of order  inventory  Receivables Cash .

When you can duplicate that process over and over and shorten the total time outstanding you have successfully utilized one of the most unique financing alternatives for Canadian business.

Speak to a trusted, credible and experienced advisor in this area if you have an inventory financing need. Ensure you understand timing, costs, how the facility works and whats required. You might find that it’s the perfect solution for growth and profits.

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Film Financing In Canada via Tax Credit Loans

Film financing in Canada (we’re including television and digital animation productions) has significantly benefited from the Canadian government’s very aggressive stance on increasingtax credits, which are non- repayable.

Unbelievably, almost 80% of U.S. productions that have gone outside of the U.S. to be produced have ended up in Canada. Under the right circumstances all these productions have been, or are eligible for a number of federal and provincial tax credits which can be monetized for immediate cash flow and working capital.

How do these tax credits affect the average independent, and in some cases major studio production owners. The reality is simply that the government is allowing owners and investors in film, television and digital animation productions to get a very significant (on average 40%)) guaranteed return on the production investment. This most assuredly allows content owners of such productions to minimize the overall risk that is associated with entertainment finance.

Naturally, when you combine these tax credits ( and your ability to finance them ) with owner equity , as well as distribution and international revenues you clearly have the winning potential for a success financing of your production in any of our aforementioned entertainment segments .

For larger productions that are associated with well known names in the industry financing tends to be available through in some cases Canadian chartered banks (limited though) as well as institutional Finance firms and hedge funds.

The irony of the whole tax credit scenario is that these credits actually drive what province in Canada a production might be filmed.We would venture to say that the overall cost of production varies greatly in Canada depending on which province is utilized, via labour and other geographical incentives.Example – A production might receive a greater tax credit grant treatment if it is filmed in Oakville Ontario as opposed to Metropolitan Toronto.We have often heard ‘follow the money’ – in our example we are following the (more favorable) tax credit!

Clearly your ability to finance your tax credit, either when filed, or prior to filing is potentially a major source of funding for your film, TV, or animation project.They key to success in financing these credits relates to your certification eligibility, the productions proper legal entity status, as well as they key issue surrounding maintenance of proper records and financial statements .

If you are financing your tax credit when it is filed that is normally done when principal photography is completed.

If you are considering financing a future film tax credit, or have the necessity to finance a production prior to filing your credit we recommend you work with a trusted, credible and experienced advisor in this area. Depending on the timing of your financing requirement, either prior to filing, or after you are probably eligible for a 40-80% advance on the total amount of your eligible claim. From start to finish you can expect that the financing will take 3-4 weeks, and the process is not unlike any other business financing application – namely proper back up and information related directly to your claim. Management credibility and experience certainly helps also, as well as having some trusted advisors who are deemed experts in this area.

Investigate finance of your tax credits , they can province valuable cash flow and working capital to both owner and investors, and significantly enhance the overall financial viability of your project in film, tv, and digital animation .The somewhat complicated world of film finance becomes decidedly less complicated when you generate immediate cash flow and working capital via these great government programmes.

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Financing Sr ed Credits – Access Working Capital via SR&ED Discounting

Canadian business owners and financial managers should consider financing sr Ed credits as a source of working capital and cash flow. It is a unique and alternative financing strategy that monetizes your Sr&Ed tax credit, and has no long term effects of adding debt to your balance sheet. All you are doing is simply ‘cash flowing’ or receiving your refund now instead of waiting for a potentially long time for your government refund cheque.

Business owners who file claims under the program already are keenly aware of the power of this great Canadian government program. Hundreds of Millions of dollars are refunding annually to your firm and your competitors – why not get a step ahead of the competition and turn that SR ED credit into immediate working capital.

Naturally the amount of your sred financing is related very directly to the total amount of your filed SR ED claim. Therefore it is in the best interests of every Canadian business owner who files under the program to maximize the size of their claim. They do that by working with a solid accountant or sred consultant who understands the true nature of the program. It is a misnomer that your research and development must be ‘successful ‘in the true sense of the word. The reality is that a proper sred claim is often increased simply by proving that you had significant trial and error in those business processes and research that you are documenting.

Anyway, you are aware of the program; you have filed a claim, or are in the process of filing a claim. What now? Consider financing the claim and turning your refund into immediate cash. Clients we work worthy with typically utilize funds in a SR ED financing to reduce payables, invest in additional research, buy equipment, or focus on investing in more direct marketing and sales The bottom line is that when you finance you SR&ED claim funds can be used for any worthwhile corporate purpose .
How does SR ED funding work? It’s really complimentary to any type of business financing you have ever done. You are not taking on debt; you are simply converting a receivable, i.e. your SR&ED credit, into cash. The best and most easy way to think of a sred financing is simply that you are factoring or discounting your claim. The funds will be repaid to the SR ED lender when you claim is approved by the government and your provincial government. (There is a Federal and Provincial component to each Sr&Ed claim)

You can access approximately 70% of the total claim you have filed. If the claim has already been approved by Ottawa and you are just waiting for the confirmed refund the 70% loan to value we just referred to can even be increased in many cases.
Even more sophisticated firms that finance their SR ED claims annually are not aware that under the right circumstances they can receive funds even prior to filing! That process is called a Sr&Ed accrual loan. That’s really staying one step ahead of the competition!

Financing SRED claims in Canada is a boutique financing. You accomplish it successfully when you work with a trusted, credible and experienced financing advisor re sred claims. The process involves a simply business financing application, copies of your sred filing, and miscellaneous business back up material to substantiate the sred loan. The total focus of the loan relies heavily on the actual claim itself, not the overall credit worthiness of your claim, as some might believe.

If you are filing sred you can stay ahead of the competition by considering of financing your claim. It’s a simple process that can be completed in a couple of weeks with your full co operation of back up info, etc. Your sred claim is already not repayable to the government, as it’s a grant, so consider supercharging that program by immediately monetizing your claim in valuable cash flow and working capital.

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How to Get Funding for a Canadian Franchise Loan

Successfully getting a franchise loan in Canada still remains a financing challenge for Canadian entrepreneurs who wish to pursue the Canadian dream of owning their own business. While the Federal governments key loan programme, technically called the BIl programme is the main financier, in our opinion, of franchise loans in Canada the program has come under the microscope by a number of people and different associations and bodies.

People who are actually experts in Canadian finance seem to feel strongly that the program has been mis used by the franchise industry. We certainly don’t think so, and feel it’s simply a case of presenting a clean transaction that has both business and financing merit. That is the key to successful franchise financing.

Just to give the reader a sense of the popularity of this program the government figure actually show that overall defaults under the total program involving franchise financings were 26% higher than non franchise transactions, and that the average franchise loan was 43% higher than those businesses seeking financing in a non franchised environment . That clearly evidences at least the popularity of the program.

In the uncertain business global and economic environment, of which certainly Canada Is no exception it is easy to understand how many people from all walks of life and business want to own, and therefore need to finance, a franchise .

With respect to the BIL / CSBFL programme itself (that’s the technical name of the government program) it seems quite obvious that without a government program in place a lot of franchise financing would not get done. When clients seek our advice on how to finance a franchise we point out the basics, which are simply that financing a franchise in Canada has become a challenge, and invariably needs to be a combination of a couple different types of financing to achieve full financing success . We also caution business owners to focus on two things, putting the proper financing in place to buy the business, and, oh yes, ensuring you have the proper working capital and cash flow in place to operate the business successfully in the long term, generating profits and cash flow of course.

There are many downsides to financing a franchise improperly, that’s why we caution clients to choose an experienced, trusted, and credible financing expert in this very niche field.

So let’s focus on some of the things that can go wrong in financing a franchise, and how in some cases you can avoid or manage those pitfalls. In many cases we see clients choosing a franchise too quickly, this might mean they are putting themselves in an industry they don’t know much or anything about, or in some cases the size of the opportunity and financing are just too large for them to handle.

When any business owner decides to finance a business, either at the start, or ongoing, he talks to his advisors about the proper mix of debt and equity – simply speaking how much you borrow and how much you put in. We see many cases of clients who should have entertained a borrowing or loan strategy and instead have sunk in their life savings, only to see those savings either dwindle or disappear. So whats the bottom line, it’s simply that you should assess the proper mix of debt and equity – it’s ok to borrow if it’s for the right reasons. And we can give you one good reason to borrow under the government programme, and that is that you are only obligated to guarantee 25% of the loan if your business fails. That relatively nominal guarantee happens nowhere else in Canadian business financing!

So in summary, should you buy a new or existing franchise? Quite frankly that’s your decision and we will assume you are an informed buyer who has planned. But when it comes to financing that business, let’s recap the key basics again –

- Avail yourself of the loans and programmes that are best suited to franchise financing in Canada

- Work with an expert , that’s preferable on any type of financing

- Ensure you have a proper mix of debt and equity – its ok to borrow if you borrow smart

Many say a franchise gives you a better or more proven chance of success. If you believe that finance your franchise properly and your ability to generate sales and profits and personal wealth should increase greatly.

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Working Capital Financing – Why Asset Based Lines of Credit Work

How can Canadian business owners and financial mangers secure working capital financing and cash flow financing for their business at a time when it seems that access to business financing provides significant challenges .

The answer is that a potential solid solution exists by the name of an ‘asset based line of credit ‘otherwise what we call 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?

Although asset based lenders tend to be specialized independent finance firms many business people are surprised to find that deep in the bowels of a few Canadian bank there exists small , somewhat boutique , divisions who specialize in asset based lending . Ironically they are many times competing with their peers down the hall in more traditional commercial corporate banking.

The most active assets these firms finance tend to be ongoing receivables and inventory, but in many cases, utilizing an expert advisor or partner you can structure a facility that also includes a component of equipment and real estate.
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 firms overall credit quality doesn’t play the largest role in determining if you can get approved for this type of financing. As its name suggest, financing is on your ‘assets ‘! And doesn’t really 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 type of business borrowing should in fact be entertained only with a respected, trusted and credible business financing advisor who can guide you thru the roadblocks and pitfalls of any commercial financing arrangement. Missteps in business financing can lead to long term negative 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 .

What are the key issues you should consider when considering such a financing facility? Primarily they are:

-Advances rates on each asset category (A/R, inventory/equipment)

- How is pricing defined (asset based lines of credit and ABL lending is 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 its not!) you should be focusing on the ability to pay out at any time, or at a minimum with some form of nominal breakage fee

- Ensure that the asset based lending facility , which generally costs more, will allow to you 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

So whats the bottom line. As always it’s simple – consider asset based lending and an ABL facility as a solid alternative for financing your business. Work with a trusted advisor as this type of financing is generally either mi understood or not too 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.

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