Factoring Receivables – Factoring Companies That Don’t Charge Interest in Canada

More and more Canadian business owners and financial managers are considering factoring as a viable alternative financing solution. Everyone seems to tell you that ‘factoring is expensive ‘. If that’s the case why would you want to choose this financing solution? Even moreso, is it even remotely possible to achieve interest free factoring or factoring at zero cost? Let’s show you why that premise is defensible and we will let you decide.

If you are a small or medium sized business you know the true value of financial serenity when you have positive working capital and cash flow. Actually, cash flow is great, if you have positive working capital that simply means that you have a major investment in accounts receivable and inventory, and that isn’t necessarily great, especially if your balance sheet accounts such as receivables aren’t turning over every 30 days.

Does anyone ever pay in 30 days anymore? We don’t think so, that’s for sure.

When your firm is able to more efficiently used cash flow generated from accounts receivable you have easier ability to grow your business. In fact as a business owner you quickly realize that the single largest asset on your books is often accounts receivable. In the current economic environment it takes easily one, often two, and sometimes 3 months to collect the average receivable. When you delay payments to suppliers you are increasing your cash flow from operations, when you grant credit to your customers you are decreasing that same cash flow – it’s a daily battle that plays out every day.

Factoring, or receivable financing allows you to collect and immediately invest those funds back into your business.
A quick example offered by a firm called the Receivables Exchange (U.S. based) is as follows –

Let’s say your firm earns 20% on the money it invests in itself, therefore in 44 days your firm can earn a 2.2% return.
Now let’s get to the root of our premise. Factoring companies don’t charge ‘interest ‘per se, because you are not borrowing funds. You are simply monetizing your receivables at a discount for immediate cash today. Let’s use a typical factoring discount rate of 2%, which is certainly not uncommon. That’s a 30 day rate. There is better pricing, and there is higher pricing.
But look at what we are saying – if you can immediately, on the same day you generate an invoice get cash , re invest in your business , and earn a profit, ( we will use our example of 2.2% return in 44 days ) haven’t you in effect achieved zero interest charges on your working capital financing .

Let’s make a more clear and dramatic point – Use our example again of a 2% discount fee for 30 days. What if your receivables for the month were $ 300,000 and you were factoring them at our 2% discount rate. If you have immediate cash for that $ 300,000.00 do you think you could pay major suppliers immediately and subtract 2% for their stated net 30 day payment terms. Also, do you think you could meet with your major and valued suppliers, advice them you were in a position to pay cash on the basis of getting better pricing, and would they accept!

We hear the saying ‘cash in king ‘everyday in business – after the 2008 economic meltdown Cash ruled supreme. By offering to pay your suppliers more promptly and buy in greater quantities we have had many clients tell us they have achieved as much as a 5% saving in some cases.

Let’s recap the premise of our information. It’s simpler that it may sound:

**Factoring offers you immediate working capital, and purchases your invoices at a discount – it is incorrect to view these funds as a loan, or an interest rate per annum.

** If you got the typical fee of 2% as a discount charged on factoring by your factoring company and had unlimited cash flow and working capital could you purchase more effectively and pay suppliers more promptly, taking a discount all along the way . Yes we believe you could.

You will never get a letter from a factor firm that states you are being charge no finance charges – but we have effectively shown that the cost of that financing, balanced against carrying your customers and being able to take supplier discounts and purchase more effectively can add thousands of dollars to your bottom line . And at the same time you have removed the business person oft greatest worry – lack of working capital.

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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/factoring_receivables_factoring_companies.html

Business Inventory and Purchase Order Financing Canada

Many Canadian business owners and financial managers are not fully aware of the availability and benefits of business inventory and purchase order financing .. These types of financing are very ‘niche ‘and are specialized areas of business financing in Canada.

The reality of these two financings is that they can be arranged individually, but quite often are sought by business owners as a combination as they are inherently linked by their very nature. That is say that your firm receives a purchase order (p.o.) or contract, and as a result required working capital and additional cash flow to buy the inventory required to fulfill those customer needs.

Business owners want to ‘unlock ‘the cash and working capital that they have in inventory. If your firm qualifies for traditional bank financing you will be margined against the inventory, in much the same manner as a bank would margin receivables. The challenge in the current financial environment is that banks, which have traditionally not enjoyed financing inventory, are even somewhat more reluctant to embrace this type of financing these days.

So are there solutions. Yes there are. In Canada you need to seek out and explore the services of a trusted and credible business financing advisor who can guide you through the inventory and po... financing maze.The basic solution to the business inventory finance challenge is a collateralized loan against inventory. What has to be addressed though is the relationship of that loan or working capital advanceto the security you might currently have in place against your business vis a vis receivables , etc . That requires somewhat of a skill in order to satisfy all secured parties and give you the working capital you need in a manner that makes sense.

The exercise of obtaining this type of financing is worth if when you have a significant investment in inventory and your inventory asset can be collateralized and liquidated in some manner .We say this , because, as most business owners know inventory come sin three forms,raw materials, work in process, and finished goods. So care must be given in the analysis of what type of inventory you maintain and what are those three different levels within your working capital cycle.

Ultimately you should explore business inventory and purchase order financing ( In p.o. financing your suppliers are paid directly by the purchase order finance firm) if you are always short of cash flow and working capital, or have seasonality in your business cycle – i.e. huge amounts of product required for the Xmas season would be a good example.

Your firm is a candidate for business inventory financing if you can demonstrate the ultimate salability of the inventory, as it of course becomes the main collateral. If you are unable to demonstrate the marketability of your inventory as collateral you will have a major challenge in obtaining this type of financing.

If your firm identifies inventory as a major working capital component and you have solid gross margins (inventory financing can be more expensive than traditional financing) you should explore the benefits of such business financing.

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

- Film Financing via Tax Credits - Two Critical Necessities for Independent Film Financing

IndependentFilm financing via tax credits is a significant component of an independent production in film , well as televison anddigital animation, those latter two gaining significant traction .

There are two critical necessities for the financing of your film:

1. Your ability to ensure you pre qualify for tax credits

2. Your access to capital as an additional resource for cash flow via the tax credit

Provincial and Federal tax credit programs in Canada have never become been more generous and accessible.We have met with a number of industry players, both individuals and corporations who have U.S. vested interests and have expressed a sincere desire to access financing for their productions and ensuring they qualify under appropriate certifications.

It goes without saying that major studios in the U.S. and Canada generally have the wherewithal to finance their own productions via their own resources, which are often quite significant. But if you are an independent production, or a smaller player in the scheme of things then you should view the tax credit financing as a key part of your overall financing strategy.It certainly is cheaper and often less time consuming considering the amount of time we have heard you might be spending on raising ‘ equity ‘ for your productions .

We recently ran into a situation where a major U.S... Movie which was produced in Canada and qualified in the various areas re Canadian content was financed critically under the monetization of the tax credit. It was interesting that the actual tax credit was being pitched to private high net worth individuals who were being promised a 15% return based on the validity of the actual credit and the funds that were due under that claim.

Using film and tv as our prime examplescapital for projects tends to be raised by owner equity, international distribution, and tax credits that can very easily be in the 30-40% range for the entire production‘ below the line’ budget .

Its perhaps a larger example in terms of dollar value, but what we are of course saying is that if you have a$10,000,000.00 budget and have a proper legal entity, ownership, and accounting in place you can easily qualify for a3 to 4 Million dollar non repayable tax credit .

More importantly many clients don’trealize their claim is financeable, so they‘ wait’ for the cheque which is dependant on the review and auditing of their filing, as well as the timelines that might come from waiting many months after the initial filing .

Is there an alternative. There certainly is. If you are working with a credible, experienced, and trusted advisor in this area you can generate funds for your tax credit as soon as it’s filed! Does it get any better than that – Actually it does. In the right circumstances, if you have a credible, experienced management team, solid industry representation re an accountant or lawyer, you can actually apply to get the funds prior to even filing the final claim. That is true cash flow and working capital generation.

The overall growth in DVD, home downloads, and cross marketing with other players allows Canadian productions to benefit significantly, even if the content is on a much smaller scale than large studio productions.

From a pure financial risk and reward point of view, the fact that a large part of your production is in effect guaranteed via the production tax credit , and that fact that you can monetize that claim any time you want ( if you qualify ) significantly enhances the overall financialreturn on investment .

As an example, we’re working with one Canadian production that will use the concept of accrual tax credit financing to in effect start production on the project. We can’t over emphasize the importance of proper and realistic budgets, your ability to show some industry experience in this area, as well as aligning yourself with credible parties.

Structuring your project properly via legal and accounting mechanisms, maximizing your leverage regarding tax credits that are available, and monetizing those tax credits into real money for the current or next production ensure a very viable chance of financial success for film, television and digital animation projects in Canada.

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

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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