What is the Financing Cost and Options of Different Sources of Financing

What are my available sources of financing and what is the financing cost of those sources and options ask our clients? When we are talking working capital it all comes down to your firm’s ability to raise and utilize cash flow on an ongoing basis.
We will discuss what some of those sources of financing are, and more importantly the costs and benefits associated with those different types of financing for Canadian business owners

When you understand what working capital is you are obviously in a better position to source it! You therefore need to know how to measure working capital in terms of your overall business needs. That’s part of the problem and challenge, because when we sit down and work with clients on working capital and cash flow needs we quickly determine that working capital and cash flow mean different things to different business owners .

The problem usually starts with the business owner assessing his working capital needs by looking at the ‘Total Cash ‘line in his bank account. That is of course cash on hand, and doesn’t reflect working capital, which is the funds he has tied up in receivables, inventory, prepaid, etc.

We can go to the text book definition also ( not our favorite way of doing things ) and finding out that working capital is simply current assets minus current liabilities, calculated by a quick look at your balance sheet . We are not a big fan of that calculation, simply because it doesn’t give you a true sense of the turnover of those critical balance sheet accounts such as A/R and inventory. A quick example simply is that most business owners assume the larger the ‘working capital’ numbers the better shape they are in – in fact the exact opposite is true because they require cash flow to fund that higher investment in receivables and inventory.

The best way to measure working capital efficiency is on a regular basis to calculate your receivable and inventory turnover. They are either getting better or worse, and your working capital improves or deteriorates in the same relation.
You should also focus on business liquidity because suppliers and creditors will bear the brunt of your inability to fund your business – and deterioration in supplier / creditor relations is the worst thing that can happen to your business.

So now you have a better handle on working capital – what next. Well you clearly recognize that cash on hand and growing inventory and A/R isn’t helping your cash flow at all – you need external financing. You achieve external financing by the profits you generate from your business, plus working capital facilities via a bank or independent finance company. Your needs might be seasonal, or on going, depending on what industry you are in.

So back to our sources of financing and the costs associated with those sources. You of course have the option of either generating a working capital term loan, or, if it’s a larger facility, it might be called a Sub debt or mezzanine loan. Essentially they are unsecured cash flow loans with rates in Canada ranging from 10-15% - they are traditionally on a fixed term, fixed rate basis – 5 years is common. You also have the option of putting more permanent equity into your business via an equity injection of bringing in a new shareholder. We are perfectly clear with clients that this is the most expensive form of financing, because you are giving up future ownership.

If you can’t raise capital for a working capital loan call your suppliers. Are you kidding, customers ask?! Well partly, what we mean to say is simply that your working capital increases when you slow payments to suppliers – that’s a double edged sword re supplier relationships, so tread cautiously on that one.

Other more traditional alternatives are bank operating lines of credit, these come with the best rates, current in the 4-5% range in early 2010 in Canada. The only problem – great rates but difficult financing to achieve as Canadian chartered banks demand solid financials when they are granting this type of facility. A better way to achieve full liquidity via this method is to consider a factoring or asset based facility – Rates in Canada range for 9% / annum to 1-2% per month based on your overall financial position and size of facility . But, they offer you 100% working capital for all your business financing needs, so that’s a good trade off.

Many clients approach us for other working capital sources, such as a sale leaseback of unencumbered assets, or a bridge or bulge loan on equipment and real estate to shore up working capital. These are great short term, but no long term fixes.
Understand what sources of financing are available to your firm, knowing their costs, and executing on facilities or solutions that make sense for your business is the true working capital and cash flow solution for Canadian business. Speak to a trusted, credible, and experienced business financing advisor to guide you to the right business financing decision.

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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/sources_of_financing_financing_cost.html

Equipment Leasing Canada – Why Equipment Lease Rates aren’t Important!

How can equipment lease rates in Canada not be the most important part of your equipment leasing in Canada acquisition strategy? That’s what clients want to know when we advise them the while an overall competitive leasing rate is important they must not miss the several other factors that play a huge part in making the proper lease financing decision.

Leasing in Canada has of course been around for many decades, we venture to say at least back to the 19 50’s, if not older than that. As a Canadian business owner and financial manager you recognize that it is clearly one of the most viable methods of acquiring assets for profit and sales growth – Profit through use is one of the buzzwords of equipment leasing in Canada.

The key thing you quickly realize about lease financing in Canada is that it encompasses all types of assets - from heavy industrial equipment, used equipment of all types, and of course technology such as computers and telecom equipment, etc . The reality is, and this is a surprise to many, that even ‘soft’ items can be financed such as computer software, or installation costs and warranties for shop equipment, etc.

So fine, we recognize that leasing is important, and we recognize it’s available to us as a financing option. So why isn’t rate the most important factor, isn’t it all about cost and payments?

We don’t think so, because the reality is that if you don’t properly address or thing about the other key factors that are involved in the whole ‘should I lease or should I buy?” decision then the last thing you should be worrying about is your rate. Let’s cover off one key point about rate before we move on to some of the other factors you must consider – it is as follows - Business is competitive in Canada – There are a number of lease financing sources. Customer doesn’t believe us but we actually spend a lot of time talking to them and advising them that they get to pick their own rate! How is that possible they ask? It is simply based on the statement that your overall credit quality determines your rate within a very close band of competitive offerings of lease financing in Canada.

So if you can properly demonstrate your own overall credit quality re ability to pay, historical cash flows, future cash flow ability, overall business prospects, etc then categorically will be in essence determine your own interest rate on the transaction. End of story on rate!

So, those critical other factors you need to consider - they are as follows – you should discuss with your accountant or a trusted, credible, and experience lease financing specialize what financial statement implications your lease will have – You want to determine if you choose a lease for ownership of the asset, or a lease for use of the asset, the latter being called technically in the industry an ‘operating lease ‘.

Are there any risk to leasing equipment .There might be. This is where you want to talk to your accountant about what the tax advantages or disadvantages are of the transaction. You mighty want to ask him to run what is known as a lease vs. buy analysis to determine, with your input, what is the best way to acquire the asset in questions.

Despite what leasing companies might tell you in their literature or on their website you might find that a true analysis of the transaction shows that leasing is not necessarily the lease expensive way to acquire assets. If you and the leasing company borrow at the same rate (it could happen – leasing companies borrow also to fund your deal) then clearly lease financing might not be the best option.

When we sit with customers we find that the true real life day to day advantages of leasing tend to be quick credit approval, ability to structure payments in a fashion that makes sense for your business, and also the ability to structure purchase options and returns or purchase of the asset at the end of the lease. All of this flexibility makes a compelling case for lease equipment leasing in Canada.

In summary, make sure you consider a number of key factors when you are out shopping for equipment lease rates. Structure your lease properly with a solid analysis and assistance from a trusted credible advisor – focus in on what advantages of equipment financing make most sense to you. And yes, the equipment lease rate will take care of itself!

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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_leasing_canada_equipment_lease_rates.html

Equipment Financing Companies Canada – 3 Things You Must Know

Canadian business owners and financial mangers need to know a couple critical pieces of information when contemplating an equipment financing and leasing transaction in the Canadian marketplace. We tell clients that if you don’t have good info and insights into these three factor you are poorly equipped to enter into a lease financing strategy.

We can summarize those items as follows:

1. Know the type of lease you need – there are several types, and the wrong pick in this area can nullify the benefits you are seeking in a lease financing strategy
2. Focus in on what advantages of leasing are important to yourself and your firm – Not all advantages will usually apply to everyone
3. It’s not a perfect world, there might be disadvantages to lease financing in your particular case – Understand what those might be.

Let’s elaborate on those key points. First of all there are two types of leases in the Canadian marketplace – you can answer which one is best for yourself by simply asking the basic question – Do I want to ultimately own the equipment, or in fact do I simply want to use the equipment. There a big difference there that affects both the overall pricing of your transaction, and how it is structured financially on your books.

The two types of leases in technical terms are capital leases, and operating leases. In a capital lease transaction you make fixed payments over a period of time and then gain ownership of the equipment. The payments to the lessors cover the cost of the equipment and the interest or financing charges. Again, the bottom line is that you retain ownership at the end of the lease.
In an operating lease scenario you pay for the equipment and its use for a specified term, the most typical rate we encourage clients to enter into on an operating lease is 3 years. These types of leases have significant cash flow and balance sheet advantages and make sense when leasing items such as technology, i.e. computers.

Let’s focus in on critical factor # 2 – what leasing advantages are important to your firm. There are several very obvious ones which include:

- Cash flow and working capital conservation
- Higher loan to value financing – usually only a nominal down payment is required
- Your other credit facilities remain untouched – we strongly recommend to clients that they match long term asset acquisition with a long term lease financing strategy, You don’t want to purchase assets with your revolving credit line or receivables financing facility
- In 90% or more of lease financing deals the only collateral is the asset being financed
- Your accountant will advise you that you have a number of tax, write off, and investment tax credit scenarios which may further maximize your transaction.

Let’s close off now and move to final critical item # 3 which we can simply start out by saying – It’s not a perfect world! No single financing strategy is beneficial for all firms. Some of the potential and that’s important, potential disadvantages are that leasing in some cases has a real or perceived higher cost. Also, if you are doing a sale lease back financing in some cases if your asset is below the sale price there might be a capital gain tax to pay. Although they aren’t ‘ disadvantages’ per se, you should also thoroughly understand insurance, install, purchase options, and any restrictive covenants that might come into play in a lease financing strategy .

Leasing continues to be one of the most important sources of long term working capital .Don’t over look it, but do clearly understand how our 3 factors can assist you in making an informed equipment financing decision.

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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_companies_canada.html

Factoring In Canada – Invoice to Cash Conversion – Benefit of Alternative Financing

In the current economic and business financing environment Canadian business owners and financial managers keep hearing about alternative financing and they want to know how factoring in Canada works . It would help to understand the benefits also!

Clearly factoring in Canada, also called receivable financing, or receivable discounting is a new emerging strategy for business financing in Canada. The reality is that is has been around for only a hundred years! But has become increasingly popular as business owners of small, medium, (and yes, large corporations!) struggle to find methods of financing cash flow and working capital.

Let’s try and clear up some of the myths and mysteries of this method of financing your business. As a business owner or financial manager you have options when you consider asset financing. Let’s focus on the key issue we are considering, which is working capital and cash flow financing.

You can finance your business via a working capital term loan, this is available through really only one source in Canada, and is essentially a cash term loan that is repaid via fixed monthly payments. Naturally this type of financing is ‘debt ‘financing and brings a certain level of debt to your balance sheet and overall leverage. You also have the option of putting in additional equity into your company via your own resources or bringing in an additional partner /owner – This of course tends to dilute your ownership and is not really high on the list of most of our clients!

So, we don’t want to necessarily borrow and incur debt, and we certainly cant or don’t want to dilute ownership. Is there another solution. There certainly is, and that’s financing the assets of your business. In our case we are talking about current assets, receivables and inventory, and for the purposes of our discussion here we are talking receivables.

When we focus on the monetization, or cash flowing of your business we can see the eyes light up in our clients faces, as we are now talking about a financing strategy that doesn’t bring debt to your business, uses your liquid assets for cash flow, and keeps your ownership intact. That clearly is what factoring as an alternative financing mechanism becomes more popular everyday.
Factoring is simply the immediate sale of your accounts receivable invoices, at your option. You have the ability to factor one invoice, several, or all. You remain in control. Using our invoice to cash conversion allows you to immediately pay suppliers, purchase more inventory or product, and continue to generate sales and profits for your business.

Factoring in Canada is not the challenge – the challenge is working with the right factoring partner to make sure you have a competitive rate, and that you have the ability to control the overall process, including customer relationships . Pricing is also a huge discussion point in Canada, and without the use of a trusted, experienced and credible business financing advisor you run the risk of setting up the wrong facility at pricing that does not make sense for your firm.

In summary, factoring in Canada remains one of the most popular financing strategies in Canada – it is not debt per se, you are just liquidating your current assets as you need to. Funds are available instantly the same day you generate your invoice for goods and services, and the overall benefit is that you are in a position to grow sales and profits.

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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_IN_CANADA_INVOICE_TO_CASH.html

How to Finance Production Tax Credits in Film, Television and Digital Animation in Canada

We read very recently that critics of film tax credit financing in the U.S. ( This was in Philadelphia ) felt strongly that the benefits of tax credit financing were negligible and did in fact not stimulate economic growth or tax revenue .

We certainly don’t intent to weigh in on U.S. politics, but it seems very clear that the Canadian governments , both federal and provincial still strongly feel that the economic benefits of the recent tax credit increases over the last year or two in fact do bring in some cases a multiple of 5-10 times in financial benefits to the government . The bottom line is that film, television and digital animation credits in Canada are some of the most generous in the world, and these credits play an integral part in the financing of many productions in our aforementioned 3 key entertainment areas.

In order to stay on top of film TV and digital animation financing it is necessary to understand key elements of tax credit financing in the Canadian environment. Financing of a production can be a daunting, frustrating, and complex journey. Ultimately you want to also ensure you have access to an experienced, credible and trusted financing advisor in this specialized area of finance.
Two key strategies are most commonly used in tax credit financing - essentially the actual financing of a tax credit when it is certified and in fact filed, and , equally ,or perhaps more popular, the financing of tax credits now on the assumption they will be certified and eligible for government financing . This 2nd process we have describe here could be called ‘accrual tax credit financing ‘.

As a producer, director, or owner of a project (Perhaps you are all three?!) you want to ensure you interpret the different tax credits properly – that will allow you to maximize the financing you are eligible for.
Most commonly use also want to set up a separate legal entity for each project, one that allows you to maintain specific and separate legal and financial records for that project.

As unpopular it might be to focus on areas such as payment of taxes, keeping filings up to date, etc you must ultimately attend to these key issues as they are intrinsic to the proper financing of a tax credit.

The financing of a tax credit is clearly one of the most innovative methods in which you can generate valuable cash flow and working capital for your production. In many cases other parts of your debt and equity financing will always come back to your ability to both generate tax credits, and even moreso, finance them in a timely and economical fashion.

When you utilize a film finance tax strategy you are in effect helping to reduce part of the complexity of the film financing process. We can’t keep forgetting that our advice also refers to television and digital animation credits also.

Monetizing your film tax credits demonstrates your ability to ensure you are exploring the latest trend in entertainment finance – While equity and banking credit are more challenging to obtain then ever the tax credit finance strategy clearly creates a win for all parties .

It monetizes a great source of financing, and the fact that you are not giving up expensive equity or taking on additional leverage debt clearly makes for a positive financing strategy. No payments are made on tax credit financings, and your advance is ultimately set off against final receipt of government funds, which can be sometime in the future.

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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/Finance_Production_Tax_Credits_Film_Tax_Credit.html

SRED Financing - Finance SR&ED Claims Today

SRED financing is simply the method by which you can, our firms own option, monetize or ‘cash flow ‘ you Sr&Ed tax credit and generate needed working capital and cash flow for ongoing operations or of course further investment in your r&d processes and development .

We have all seen the oil change commercial where the mechanic states ‘you can pay me now or pay me later ‘. Well financing your sred claim has a similar ring to it – of course you have the option of waiting for the government at the federal and provincial levels to mail your firm your cheque – that could take anywhere from 1-12 months – Or you can arrange to finance that claim now and utilize those funds for any business purpose .

Are we eligible to finance our sr&Ed claim? Clients often ask. We can only replay that if you have a claim, and have filed it, your are in fact eligible. In fact, under certain circumstance it can be arranged to receive funds even prior to filing.
Clearly the pure financial benefits of the sred grant program in Canada are numerous – you receive significant amounts back from expenditures made on research, including wages and salaries associated with that research, as well as major portions of material and equipment expenses.

All of those above noted expenses are ‘cash out ‘to your firm – the funds have been spent .So why not consider financing your claim and receiving those funds back in an extremely timely manner.

We can almost hear some of your questions now as you review our information, as they are typical of what many clients ask:

- How exactly do I monetize the sred claim
- What exactly is a sred loan – is there additional debt involved
- How long does it take and what does it cost?

Let’s cover off some of those very basic questions so you can feel comfortable about the sred financing process. The sred financing, or the monetization or cash flowing of you sred claim is simply a business financing that uses the actual sred claim as collateral. You receive approximately 70% of the full federal and provincial total as a short term cash loan that is collateralized by the sred itself. Of course the additional 30% is still yours, it is simply held back as a buffer for any adjustments that are made to your claim.

No payments are made on your sred loan, and the final cheque to you firm (you have already received 70%) is the holdback amount less the financing costs. So you have pure cash flow and additional working capital, no long term debt associated with a loan per se, and no payments are made. That is truly creative business financing for which most Canadian business owners are not even aware.

The typical process to create a sr&Ed financing is approximately 2-3 weeks, you should quite frankly view it as any other business application – the usual business info and backup on your firm, plus of course the details of the sred financing.

In summary, have your claim prepared by a qualified sred consultant - recent submission rules and styles have changed.
If you have unlimited cash flow and working capital resources by all means wait for your cheque – if you want to cash flow or discount your claim speak to a credible , experienced and trusted business financing advisor in this area .

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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/SRED_Financing_Finance_SR_ed_claims_today.html

How to Finance Your Franchise Investment

You have made the decision to purchase a new or existing franchise then quickly realize that basic question - How do you finance your franchise investment.

Money or funding as quickly becomes a top priority and your ability to successfully finance your investment in your new business will ultimately play a large part in your success or failure in your new role as a Canadian entrepreneur.

For non- financial people, those not trained or comfortable in finance that challenge suddenly looms large – at the same time you have read in the papers that business financing continues to be difficult as Canada comes out of the global financial meltdown of 2008-2009.

So how can you be successful then and finance your franchise investment in a manner that allows you to take advantage of your independent business opportunity. The reality is as follows – franchise financing is available in Canada today – it is some what of a custom made financing, and the three largest assets you can bring to the table to succeed are the ability to seek out a trusted and experienced franchise financing advisor, as well as your own business and credit experience, coupled with a relatively reasonable down payment.

The true secret to your overall franchise financing success is the ability to put together a solid, slick proposal that at a high level demonstrates your ability to run the business, the potential financial success of the business, and then presenting that information to sources of franchise financing in Canada.

A key ingredient in all of your planning should be a carefully tailored business plan that highlights the basics we have discussed – this would include a summary of your business experience (and why you will make the business successful), some key financial such as, at least, your sales and profit projections for one to perhaps 3 years. And equally as important in this data is carefull documentation of your costs and expenses.

So let’s assume you have that completed – you now have to present it to a franchise financing and funding source, and ensure you have properly describe the amount of equity of personal funds you will put into the business, as well as the debt component, or total borrowed funds. The magic relationship of the right amount of debt and equity in your business will leave you, as the financial textbooks describe, as ‘properly leveraged’. By that we mean simply that it is probably very wrong to purchase your business with all cash, and equally or moreso as wrong to assume you can or will borrow all the funds needed. Either of those strategies is not recommended!

How are franchises funded in Canada asking our clients? In our experience they are financed mostly by the government sponsored Small Business Loan. In addition that is supplemented by equipment financing where applicable, as well as your own personal investment in the business. Two other sources of financing sometimes come into play; they are a vendor take back on part of the financing, either by the franchisor or the franchisee you might be buying an existing franchise from. Also available in certain cases is the ability to negotiate a cash working capital term loan from the one institution we are aware of that provides that type of financing.

The proper mix of all of the above components of franchise financing will should in fact allow you to successful complete your acquisition.

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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/How_to_finance_your_franchise_investment.html