SR&ED Tax Credit Financing - 2 Things You Must Know

Many of our clients can be easily forgiven for being confused and mis-informed on CanadasSR&ED program, aka‘ SRED ‘, as most people callit . They can be even more forgiven for not know the basics about SRED finance .

We try and simplify that discussion into two very basic things you need to know :

-If you have a sred claim its financeable for cash and working capital now

-To finance a claim you need to have filed a claim, but not always!!

Your ability to monetize or cash flow a claim is in fact a superior way of generating additional working capital and cash flow now based on the value of your filing . We will add one technical point here, in that claims are generally financed at70% LTV . LTV means ‘ loan to value ‘ , so we are simply saying that for everyone hundred thousand dollars of sred claim filing you can generateseventy thousand dollars via a short term sred loan .We can expand on that point a bit to ensure you arewell informed . After filing a claim it is clear you are in a‘waiting mode ‘ for your claim to be analyzed, potentially audited , and then of course waiting for the proverbial government cheque – we are of course all familiar with the expression ‘ it’s in the mail ‘ – With Ottawa backing your non repayable cheque you of course have the assurance funds will come, but you just don’t know when !

We recommend that if you have filed a claim that you investigate the ability to finance that claim now . If the cheque under the program is a non payable grant( other than paying tax on the income that’s as close to free money as we can get in Canada from the government !)Why wouldn’t you consider a financing option to accelerate cash flow and start using those funds now?

Uses of funds under SR&ED financing are totally within your control. We see clients utilize sred financing to further invest in even more R&D, i.e. next years claim! or you can choose to reduce payables, invest in additional equipment or business assets, etc .

In a small handful of cases we meet with firms who have a tax liability to Ottawa or the province re source deductions, GST/PST back remittances, etc. If you work with a trusted, credible, and experienced sred financing Sr&Ed consultant you can structure your financing to ensure that you’re past due remittances are taken care of during the sred financing process. No firm wants to be in the governments bad books re past due government super priority issues.

The actual SR&ED financing process should be treated by yourself as any other business financing – we try and actually make the case its easier in some cases, because the actual asset behind the sred loan is the sred claim itself, so even if you think your firm might not qualify for financing for other forms of traditional borrowing your probably qualify for the sred – why?? Because you have a sred claim as an asset that’s verifiable!

Ensure you are aware of this great program within Canada that generates billions of dollars in working capital and cash for Canadian corporations .Yes you can wait for funds, which may take a couple months or the better part of a year – if you cant wait consider financing your Sr&Ed claim via a short term sred loan which is collateralized against your filing. We strongly recommend you have a professional filing prepared, by your accountant or sred consultant (there are many) – this will significantly positively impact your ability to finance your claim.

It’s a great cash flow and working capital strategy, and no debt is on your balance sheet, as it is offset by your sred asset that is in fact a monetizable account receivable.

Buying a Franchise - 3 Things You Must Know About Franchise Finance and Franchise Loans

Clients are always asking what extra steps or information they need to know to complete a successful acquisition a new or existing franchise. Buying a franchise, it goes to says, is clearly one of the largest decisions any entrepreneur might take. Of coruse there are a couple of different versions of the opportunity, as follows

- Purchase of a new franchise

- Purchase of an excising franchise that is for resale by current owner

- Purchase of an additional unit in your chain when you own one already

Are there any special tips and critical pieces of information you need to know that will get you a leg up on a ‘ leg up ‘ in the area of franchise finance . Let’s share and discuss three critical points.

1. Franchise Finance is a very specialized type of financing – financing options are available but not unlimited – you need to know what they are

2. There is a chance for franchise financing failure if you do not have the proper fundamentals in place and are exploring numerous options at the same time – ‘flailing around is not good!

3. You might significantly benefit by using the services of a franchise consultant in the area of business financing

Lets review our point # 1 - Business financing in general has always been a challenge. Specialized financing in any area of business is a unique challenge because of limited options and a limited number of players. Players = lenders! If you accept business financing is difficult then you can imagine the severity of the challenge in the 20010 global economic crunches that we still seem to be in.

So is it all negativity and bad news. Not necessarily of course if you are informed and prepared. Let’s unveil the mystery of franchise financing. How exactly are the majority of franchises financed in Canada?

The options are exactly as follows:

- A special Government programme called the BIL program under which the majority of franchises in Canada are financed
- Owner equity – your own deposit into the deal
- Equipment and asset financing
- Working capital cash term loan – typically a 5 year payback
- Vendor financing ( if available – more often than not it is not )
- Revolving line of credit for ongoing operating needs and growth!

With respect to the last point we would emphasize that while it is of course important to structure a proper financing around your franchise purchase many business owners forget to consider how they will finance the business on an ongoing basis , and more importantly, how growth options will be financed .

It is critical for you to understand that it is very rare that any one option will get you the full financing you need. The reality is that it will be a select combo (and that’s the expertise you require) to fully finance your business with any number of the above options.
We point out in our key point # 2 that you must be prepared. This is where many clients tell us they have failed in the past – they have not prepared a proper business plan and executive summary. We encourage you to prepare a proper business plan, understand what your opening balance sheet will look like, and most importantly, understand the cash flow needs of your business. For example, if you take the time to sit down and do all the numbers ( this is actually easier than you think ) you could find that in month one and 2 and 3 that you might be experiencing negative cash flow . If sales ramp up slowly and you have negative cash flow then clearly you will have problems which could accelerate and dampen the overall success of your business.

Finally, consider using the services of an experience, credible and trusted franchise consultant that can guide you through the financing maze. Having that party properly prepare a business plan, opening cash flow, executive summary, and proper financial projections is worth a small fee you might be charged . Business financing in Canada dried up in 2008 and 2009 – franchise financing is still alive and well though. Many lenders view franchise financing even more positively than other types of businesses and industries – the reality being that there is a greater chance of success for a brand that is proven and known, and has a reliable business model of proven success.

Know your franchise options, be prepared in executing on those options, and consider italicizing a franchise consultant to complete your franchise loan and overall funding. That’s a solid plan!

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/buying_franchise_franchise_finance_franchise_loans.html

Asset Based Line of Credit – 3 Critical Things You Need to Know About This Working Capital Financing Solution

When working capital starts to become a critical day to day challenge Canadian business owners and financial managers must consider all business financing options.

One of the most growing in popularity options, and often mis understood is an asset based line of credit. This type of financing comes under the broad category of asset based lending and the simple definition of such a facility is the ability of your firm to maintain an operating line of credit, outside of a bank relationship. How is that possible? Let’s examine 3 critical factors that you need to know and understand to effectively use such a financing solution.

1. What assets are financed under this facility and how does this differ from a bank facility

2. How does the facility Work on a day to day basis

3. What are the fees involved and how much can we get from a total working capital perspective

Let’s start with our first critical factor – exactly what is this type of facility? An asset based line of credit in its true sense, and in the context we are discussing is a working capital revolving credit. The assets that are secured under this facility are accounts receivable, inventory, and in many cases equipment and actually sometimes real estate.
We poised the question – how does this facility work when we compare it to a charted bank line of credit. In actuality it is quite similar, with the main difference being that 99% of the time you can extract additional borrowing power out of the assets we mentioned. That is simply because a bank focuses on overall financial health and considers a number of external metrics to the actual line of credit – these include balance sheet and income statement rations, personal guarantees, outside collateral, and the overall nature of your industry and business model.

Asset based lines of credit in fact tend to eliminate many of those considerations, and focus only on one key point - the assets! Because that is the case receivables and inventory are margined up, via traditional borrowing based certificates, to a much higher level than might otherwise be maintained with traditional financing. When you factor in working capital that is secured by equipment, you can quickly see that your borrowing capacity has increased significantly.
Let’s examine a very typical solution that we see with our client base everyday. A firm has a bank facility, or is self financing in some cases, and essentially their only working capital relies heavily on accounts receivable. If your firm gets more borrowing power from you A/R, has the ability to throw inventory into the mix, and can secured additional funds via some unencumbered equipment which is used working capital collateral you can quickly see how a 150,000 line of credit could become a 400,000 line of credit in very short form.

Let’s move on to point # 2- how does this facility work based on any current financing arrangements you have? Similar to a bank revolving line of credit your borrowing capacity in an asset based line of credit is simply the drawing down, on a weekly, monthly, or in fact anytime basis, of your total borrowing capacity based on your reporting of current A/R, inventory and equipment levels. A quick example – lets assume for simplistic purposes you haven’t drawn anything down – you send in your borrowing based certificate showing receivables of 500k and inventory of 300k. (Previously it was determine you could draw 90% of A/R and 60% of inventory) That would allow you to receive immediate funds of 630,000$.

Some factors that might make this facility a little less are the overall age of your receivables, or if you only have a couple of concentrated accounts. Key to mention here is that under this type of facility you are reporting more often on the assets and their turnover, so that should be considered and of final point, fees and borrowing limits.

Asset based lines of credit typically cost more than the bank- In Canada these facilities are priced from 7-9% per annum to 1-2% a month . What determines this huge spread in pricing? It is the overall asset quality and size of the transaction , as well as the ability of many asset based lenders to do transaction that would normally not be anywhere near to be considered by a bank, and as such, the risk is higher, so pricing is higher . It is as simple as that. In terms of what amounts you can borrow, you can assume 90% of A/R, a 40-60%+ range on inventory, and a similar amount for equipment. (Equipment would often be subject to a market value appraisal) . Very standard legal costs, due diligence fees, and origination fees usually are part of the term sheet you will receive .

Does your firm need more working capital? Are you self financing now. Are you unable to access traditional financing, or, more commonly, does traditional financing seem unable to meet your growth or unique situation needs? If so, speak to a trusted, credible, and experienced financial advisor in asset based lending.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/asset_based_line_credit_working_capital_financing.html

Small Business Loans for Working Capital Financing In Canada

If your firm is looking for what is commonly known as a ‘ Small Business Loan ‘ it is critical to focus on two major issues –

1. Are you looking for additional financing

2. Are you looking for new Financing, aka ‘ re financing ‘

The current overall economic environment makes it challenging for business owners and financial managers to often access the right amount of capital they need.

When we talk to client’s discussion tends to revolve around what type of financing they require, and as a business owner you should understand the options and benefits that come from various types of working capital financing.

A good way to address the issue is to simply focus on why you feel you need the additional capital. Reasons might be as follows – refinancing existing debt, leasing new equipment, or, if we use the true meaning of working capital, to further monetize current assets such as A/R and inventory. You need all the help you can get in assessing those needs and the benefits that arise from them – as a result we recommend you work with a credible, trusted, and experienced advisor in business finance.
For ongoing working capital needs you are either in Category one or two-

Category 1 – You have a bank relationship but can’t access the true amount of financing you need

Categories 2- You can’t and haven’t accessed traditional financing, are self financing, and require additional capital to maintain and grow your business.

If we get straight to the heart of the matter for options for working capital financing are as follows:

- a working capital term loan

- additional bank operating facility

- a true asset based lending / working capital facility – ( this is a non bank facility)

- Receivable discounting, also know as factoring your receivables

- Inventory financing via a supplemental inventory loan ( this traditionally works best when it is combined with a receivable facility

- Sale leaseback options to release working capital in assets

We encourage customers to think around the terms traditional financing and non traditional financing. If you are thinking of exploring traditional financing with a new or existing bank then you should anticipate, in our experience, at least a 1-2 month timeframe. This might not be suitable for your timing purposes if you have increased payables to address, or new orders and contracts which require a build up in A/R and inventory.

If timing and increased working capital are your priority you should consider an interim solution to the always long term problem of business financing – that solution might be a working capital facility from a private finance firm, one that provides you full margining of your receivables and inventory .Typical entry advances for a/r and inventory are 90% and 40% respectively, and if you work with the right partner that specializes in inventory financing then you can even enhance those ratios . All that simply means is more working capital! One point of confusion that we like to clarify with clients is that the government small business loan program finances only equipment, leaseholds, and real estate, i.e. hard assets – as such this program should not be confused with a true working capital solution .

So what is our bottom line for small business loans (unsecured) and working capital financing .It is simply that you must realistically recognized the commercial lending landscape has changed:

Traditional financing is harder to access

Collateral requirements and guarantees are at a higher bar for approval

There are alternative methods to securing working capital financing – these might come at a higher cost, but should in most cases provide you with the cash flow you need to effectively run and grow your business.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/small_business_loans_working_capital_financing.html

Equipment Financing Canada – One Big Mistake Not to Make

Equipment Financing – Canada has embraced this type of business financing for decades. Most Canadian business owners and financial managers know they can obtain financing for equipment, but they are often unaware of some of the hidden benefits, and, yes, pitfalls, of equipment financing. Let’s explore a couple of those key issues that you need to know about.

Myth ! - Only ‘new’ equipment can be financed.

Nothing can be more farther from the truth. Lease financing is readily available for all types of equipment in Canada, including used and refurbished equipment. This equipment typically is bought at auctions, as well as via the internet, or in many cases from dealerships that have taken a trade in or have a machine that has come in off- lease.

The main benefit of used equipment financing typically is the price. Lets look at an example – lets say you are buying some production equipment and the price for new equipment is 300,000.00$ - Typically this type of equipment if lease financed over 4-5 years. If you were to acquire the asset as used, and lets say you got it for $ 225,000.00 (certainly not unrealistic), then you are saving that 75,000.00 – that’s obvious to anyone of course. But remember that 75,000.00$, if purchased new, is a part of a 4-5 year financing so the ability to cut 75k in long term financing out of your cash flow is a very large benefit .

We would point out that in some cases, because the equipment is used, it might need to have an appraisal or a valuation attached to the financing – this would typically be obtained from a qualified third party appraiser. Typically, as in all financing costs, the borrower, or in our case, the lessee, (that’s you) pays for the appraisal. So the common sense question simply becomes – if your equipment was warrantyed, guaranteed, and you felt it had long term value, would you in fact invest 1k in an appraisal to save 75k++ in financing costs . We think our clients would!

Does the type of equipment alter the pricing and structure of your equipment lease – in some cases it might, but typically not drastically. The lessor might in some cases ask for a down payment, or a larger down payment, and also might, on occasion, lower the term of the lease ( for example – 3 years , not 4 years , etc ) but overall lease financing for used equipment is still a great value . In many cases even computers are often re financed after they are returned to the vendor or reseller.

Clients often ask if there are certain types of used equipment that can’t be financed. The reality is that pretty well everything can be considered for financing. Normal credit underwriting is done, focused mostly on your ability to repay the lease from cash flows generated from your company and the asset. All types of equipment should be considered, especially when you and your team have confidence in your ability to acquire, price, install and maintain the asset.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/equipment_financing_canada_used_equipment_finance.html

Factoring and Accounts Receivable Financing – A Real Working Capital solution for Cash Flow challenges

Factoring is predominantly becoming the main solution when a firm considers a new or alternative accounts receivable financing strategy. As customer payments slow down ( many firms seem to be waiting 60 to sometimes 120 days for the customer payments ) the challenge of running your business from a cash flow perspective increases . The irony is of course that many customers still post 30 day terms on their invoices and purchase order acknowledgements from their client base.

We should not fail to mention of course that there is one very obvious ‘non – financial ‘solution for your company, and it does not even involve additional financing effort. It is simply to enforce collections more strongly and reduce what is known as your ‘day’s sales outstanding ‘to a more manageable level. Any major dent you can put in your ‘D S O ‘will improve working capital and cash flow. There is of course the other non financial alternative, which is the other side of the equation, and that’s to slow payables, which also improves cash flow – but you don’t want to do that at the expense of your suppliers which you value.
So we have discussed why you want to factor receivables and to some extent what your non – financial solutions are.

But let’s just make sure we understand what we are talking about. When you are working under a bank facility your receivables are collateralized or pledged as a security for an overdraft. That’s the best simple way we have of explaining to clients what factoring is not. What is is , though, is the sale of your invoices , on a daily, weekly, or monthly basis ( the flexibility is your choice ) , thereby increasing your advance rates on those receivables to the 80-90% range depending on the type of facility you have structured .

More cash flow and more immediate cash flow is the most obvious solution to factoring and accounts receivable financing. There are two sides of the coin though, and on the other side of this type of financing strategy is the fact that you might find yourself reporting on your receivables more often that you would have with a bank type revolver line of credit. You also might be less reluctant to negotiate longer payment terms for your customers, as in fact it will as your firm that directly carries this financial cost.

We spoke of the price you have to pay in factoring receivables. When we site down with clients we advise them there is a real price, i.e. the financing or invoice discounting cost, but, more apparently, the major change in the way day to day business changes from a paper flow and customer interaction basis. If you negotiate the wrong type of facility you might find yourself in the same situation that many of our clients have found when they come to us with financing woes, which is simply that they feel that in spite of the significant cash improvement they in fact feel that their factor firm partner is running their business.
Factoring facilities in Canada are available with firms who have very high professional standards, are well funded to meet all your financing needs, and in fact tailor their financing service to your business, once they understand the uniqueness of your challenges.

Many business owners who know little about factoring seem to know one thing, that it can be viewed as intrusive by their customers. You can eliminate that ‘intrusiveness ‘by ensuring you have the right type of facility, one that is priced right, has straightforward terms, and works on a day to day basis for you and your customers. The best factor funding facility in fact, we feel, is the one that allows you to bill and collect your own receivables, while at the same time reaping all the benefits of accounts receivable discount, as factoring funding is also known.

So what’s our bottom line in our cash flow information interchange – it simply:

- Determine if you can achieve self financing status via the more prompt collection of receivables

- If financing is in fact needed consider factoring financing as a working capital strategy

And , most important, work with a credible , trusted and experience advisor who will model a working capital and cash flow solution that reaps benefits and cash on terms you can live with on a day to day basis .

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .
For info on Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/factoring_accounts_receivable_financing.html

How Factoring and Accounts Receivable Funding Can Fix your Working Captital problems

When your payments from key customers are significantly slowing down many firms in Canada turn to accounts receivable financing, otherwise known as ‘factoring’ for a solution to their working capital challenges. As unbelievable as it seems in many cases it is not unusual to have clients tell us that receivables are getting paid in 90 days these days, sometimes longer in fact. Gone seem the days when the 30 day term on your invoice seems acknowledged and honored.

When those payments do slow down that tends to cripple your cash flow. Naturally the solution to the problem, or the obvious one to most business owners is to make an all our effort to improve collections but focusing on increased accounts receivable turnover.

As an aside we think it’s very important that Canadian business owners and financial mangers know their accounts receivable collection period – you don’t have to be an analyst to do that - the simple formula is as follows –

A/R Times 365 Divided by Sales

To illustrate, if your firms year end balance sheet has receivables of 400k and your annual sales are three million dollars your collection period is 48 days. (We wish our collection period was 48 days we can hear you saying!)
Naturally you can alter the above formula on a quarterly or monthly basis by adjusting the A/R and sales level for your required period.

You can address the additional cost in carrying receivables by attempting to raise your prices with your customer to cover those increased A/R cost. However, that gets you profit, and not liquidity. That is where factoring and receivable financing comes in.
Factoring is quickly becoming the first alternative solution for firms who wish to get 85-90% of their cash immediately after they invoice. This solution is available through a pure factoring solution, or, if your firm is a bit larger ( 250k + in receivables) as part of a working capital facility or asset based lending facility.

The challenge, we tell clients, is ensuring you have the type of facility and factoring partner that meets your overall goals in day to day business financing. It certainly also helps when you have a solid business with good clients, but the hard reality is that factoring is available to almost every size and type of business is Canada – what will differentiate your facility is simply the overall pricing, terms, and structure of your facility .

Is your firm a candidate for a factoring or accounts receivable financing facility. It probably is if your customer payments are slowing down, sales are growing, and you are unable to obtain traditional bank lines of credit from Chartered banks. Factoring is hugely popular in the U.S. - Over 140 Billion dollars (yes that’s billion!) was done in 2009. The Canadian landscape is much smaller and fragmented, but bottom line, its growing.

We can’t over emphasize to clients that your factoring facility grows with your business, and your factoring credit facility can be adjusted upward very easily in terms of your growth.

Is there any downside at all to a factoring and working capital facility? When we sit down with clients and work them through the process we focus on 3 main areas –

1. Choosing the right factoring and receivable financing partner

2. Ensuring you understand your true costs ( and how to offset them )

3. Picking the right facility from a day to day ease of doing business perspective

Speak to a trusted, credible and experienced advisor in this area to ensure that you are comfortable that such a business financing is the solution to your cash flow and working capital problems.

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