What If …. An Asset Based Line of Credit Could Save Your Company?

As a Canadian business owner and financial manager you may have heard about asset based financing. So what is an asset based line of credit and could it actually ‘ save’ your firm and if your firm doesn’t need ‘ saving’ does this method of Canadian business financing still make sense? ! We think it does.

In order to determine if asset based finance can ‘save ‘your firm it might do us well to understand what it is. Many clients we talk to get caught up and confused by the industry financial jargon which tends to complicate what they are looking for, which is adequate business financing that meets their cash flow and working capital needs.

So let’s invest a bit of time in the basics. Asset based lines of credit are revolving working capital facilities that totally focus on your asset base. When you are comparing this type of financing to a banking facility you will of course quickly realize that the Canadian chartered banking facility that provides a similar (but not exact) type of financing places a lot of focus on issues external to your assets – these include your balance sheet and income statement health, other assets as collateral, and a perquisite personal guarantee and respectable personal credit history of owners and principals.

That’s banking 101 – That is now was asset based lines of credit are. They are business financing working capital facilities that are revolving lines of credit secured specifically by receivables, inventory, and in many cases equipment and real estate if those two latter items are applicable .

You basically borrow, on a daily basis, as you need to, on the sole strength of those assets. Many of our clients are in fact able to also on occasion arrange temporary bulges which can even take them higher than their asset based borrowing capability! An example of this might be bring a purchase order financing scenario into play which would allow your firm to temporarily borrow against purchase orders and contracts you have received from your customers . This type of additional supplemental financing is best suited for manufacturers, distributors, and firms who export goods or who are wholesalers.

Let’s touch base on the concept of ‘saving ‘your company. A couple key points need to be made – first that asset based financing and asset based lines of credit used to be considered alternative financing, and financing more suited for companies that had serious challenges. The new reality is that this type of financing is being utilized by every type of corporation of all sizes and all industries in Canada, from start ups to Canada’s mega corporations. So something must be working.

The reality is though that in many cases firms who have business financing challenges indeed are the perfect candidates for asset based lines of credit – if only for the reason that they provided you with capital and cash flow when traditional source can’t.
So if your business needs to be ‘saved ‘ because of issues such as inability to achieve traditional bank financing, or you have traditional financing but it is not enough, than an ABL facility is what you should consider . ABL is the acronym for asset based line of credit.

Other issues you might be facing might include firms that are in a turnaround or workout situation. We have worked with a number of clients who in fact are in ‘special loans ‘scenarios at their bank and they require exit financing from that relationship. Alternatively your firm might be in a turnaround from either a difficult year or a difficult ‘one of ‘situation that took place. Or perhaps your firm is losing money but is on the road to rebuilding sales and profits again.

Fortunately or unfortunately for traditional business financing in Canada it’s all about the ratios and covenants. Asset based lines of credit eliminate those ratios you can’t meet because of being over leveraged (too much debt), or having dramatic seasonal cash flow changes based on your business model and your industry.

The bottom line is simply that your firm now has the ability to be ‘saved’, using our jargon, because you have maximum flexibility in borrowing on your assets, with those assets being the sole focal point of your borrowing base.

Depending on the size and challenges your firm faces pricing on asset based lines of credit vary significantly based on size of your firm, its borrowing total dollar requirements, etc. As a general rule ABL financing is more expensive than bank borrowing, which is currently at some of its lowest levels in Canadian history. But even paying a premium or significant premium on your ability to borrow in an unlimited fashion against your asset base can still 99% of the time make total sense, that’s simply because your ability to turn capital into profits takes care of a lot of the financing charges.

Speak to a trusted, credible and experienced business financing advisor and discover if the asset based line of credit is the saving grace solution for your Canadian business financing needs for growth and 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/asset_based_line_of_credit_3.html

What if .. Your Company Had All the Working Capital Financing You Needed?

Most Canadian business owners and financial managers cannot even imagine the concept of having enough working capital all the time, and never having to regularly face that cash flow challenge that many times consumes the time of owners and management.

Part of your success in attaining the right amount of working capital understands what it is and what it is not. The most applicable way we encourage clients to understand the term is simply the funding needed to manage your daily business operations. So in general it is ‘short term ‘in nature, although business owners can readily be excused for wondering why it is ‘short term’ if they are thinking about it all the time!

As we have stated, you have to understand what the problem is before you can address it, and address it properly .So focus on the concept of thinking of working capital as your ability to finance your investments in receivables and inventories, and in a small number of cases ‘ marketable securities .

The concept of a ‘cycle ‘is very important in understanding the cash flow conundrum and the solutions around that conundrum. Think of your current assets as changing daily, they are revolving and reverting back to their original state, i.e. Cash becomes inventory which becomes a receivable which becomes cash again... that’s the concept.

You will be in a better position to understand the working capital needs, and how to address them if you understand the length of your working capital cycle – simply put: How long does inventory remain on the floor and then converted into saleable inventory, and how long does it take for a receivable to be collected.

One of the ways you could achieve a fairly perfect working capital scenario is to delay or not pay your payables, as that would stem the outflow. Naturally that is not practical or recommended, but our point is simply that your working capital financing investment in your current assets is offset by the timing of your payables, which assists in your cash flow cycle.
What are therefore the solutions to business funding? They can be grouped into three areas, new permanent working capital, bank or factor borrowings, or delayed payment arrangements with suppliers. It’s that simple.

To assess which method is best for your firm you have to do a couple basic things – first of all understand the turnover of your receivables and inventory – very quick rudimentary calculations can determine that. Hint – Research day’s sales outstanding and inventory turnover calculations, which are very basic. Then develop a realistic cash flow forecast, because you now know what the needs are based on the knowledge we have obtained around understanding our turnover and requirements.
Clients we meet are often searching for a ‘quick fix ‘number – One calculation you can use in a general matter is that your firm requires working capital in the amount of 25% of your sales. That is of course a very general guideline.

To finalize working capital financing and business funding for your company your options are a long term fixed working capital cash loan, in some cases this is called mezzanine or sub debt financing. At the same time you may be in a position to secure bank financing of receivables and inventory, which has become more of a challenge than ever in the current economic and business environment.

Your firm is probably a candidate for a working capital factoring facility, which monetizes your receivables the same day you issue them – this is one form of generating all the working capital financing you need for business funding.

So our bottom line is simply as follows – understand what working capital financing is, calculate how much you need and when and why, and then implement the right solution that matches your business overall needs and credit quality. We encourage you to speak to a trusted, credible, and experienced business financing advisor in this area of Canadian business financing.

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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/working_capital_financing_business_funding.html

What If .. Accounts Receivable Finance was the Perfect Answer to Your Cash Flow Financing ?

A tale of two worlds – one in which you have unlimited cash flow or one in which you had day to day cash flow challenges that hamper your ability to grow and manage your business . A cash flow financing solution could well be the solution to all your problems .

Canadian business owners and financial managers face, on a daily basis real world cash flow challenges. Lets look at an example at why accounts receivable finance can be your holy grail of working capital financing . Cash flow financing goes by a number of different names in Canada that is part of the confusion we are always trying to wade through on our client’s behalf – various terms apply to this type of business financing. They include: factoring, invoice, discounting, A/R financing, etc. Depending on how you transaction is structured and who you are dealing with is really the key issue, not what the financing is called.

Clients always want to know if they are a candidate for this type of business financing. There are some perfect candidates, so let’s look at a profile or two in order that you can determine if you fit. Generally you will have accounts receivable that pay fairly regularly but are on occasion slow – your overall bad debt experience has probably been quite satisfactory. Your invoice and stated terms for your customers is 30 days, but guess what, most of them seem to be paying in 60 and 90 days – that definitely seems to be the trend of clients we talk to.

Does size count – In cash flow financing it really doesn’t – speaking in general terms if you have at least $ 50,000 of invoices a month you are a candidate for accounts receivable finance. The reality is that corporations with many millions of dollars in receivables actually utilize this form of financing also.

We hasten to say that in most instances the size of your facility will affect your overall pricing. In our experience you can potentially reduce the cost of your accounts receivable finance facility by close to 1% per month if you have a large facility. However, we spend many hours and many meetings educating Canadian business on factoring pricing, which is grossly mis understood by most clients who look into this type of business financing.

So the bottom line is that you should not let your company size, or any other challenges you might be facing – (temporary financial losses, restructuring, etc) affect you ability to successfully achieve an accounts receivable finance strategy.
Many times the decision to consider cash flow financing of your receivables comes from directly related issues to collections – in some cases the slow pay nature of your client may be affecting your ability to purchase inventory or meet payroll – those are some typical factors that drive customers toward factoring.

When you finance (in effect you are selling) your receivables under this type of facility you immediately receive an 80% advance on your invoice- that allows you to meet obligations and expand your business.

Most business owners know that if they had access to working capital they could readily grow their business – yet the traditional sources of business financing in Canada, i.e. chartered banks have made it challenging for firms to finance receivables in a manner that makes sense for the business owner. In some cases, as we noted, your business has or had challenges that prohibit you from temporarily sourcing cash flow financing.

Speak to a trusted, credible and experienced business advisor in this area – determine if accounts receivable finance is right for your firm, and focus on getting into a facility that meets your needs re day to day workings and cost.

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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/accounts_receivable_finance_cash_flow_financing.html

What If … You Could Cash Flow and Monetize your Canadian Film Tax Credit Today ?!

As a producer , director, or owner of a film, television, or digital animation production in Canada you are,( or should be !) keenly aware ofthe value of financing your tax credit, and using tax credit financing aspart of your overallfinancing plan for your production .

Just imagine that you are now in a position to speak to equity and debt investors with the confidence that you will now be able to monetize your tax credit as a key part of your overall cash flow and working capital requirements.

Canadian players in digital, film, and TV now actively court international investors due in part to the generous tax credits that the Canadian government has provided for the entertainment industry. Ours is not to question that generosity, but to capitalize on it!

These tax credits play a key role in the importance that Canada holds in productions in the entertainment industry.

Tax incentives vary from province to province, but in generally investigation will reveal that production services tax credits, animation tax credits, and labour expenditures have increased fairly dramatically over the last couple years.

The proper utilization of your tax credits often distinguishes your production from a professionally prepared and financed venture, as opposed to one that can simply be viewed as amateurish and newbie in status. The creation of a solid finance plan with the monetizing of your tax credit is a key part of your overall finance plan. In rudimentary explanation you are simply identifying sources of what accountants might call ‘where got’ and ‘where used‘re your cash flow!

The reality of Canadian film tax credits is they play a key role, no matter what the size of the venture, so the tax credit financing can be $ 250,000 or several million dollars. We assure clients that interested parties such as your debt lenders, investors, as well as their accountants and lawyers will all be looking at your finance plan and tax credit strategy in order to assess ultimate financial success.

In Canada the financing of film, television, and digital animation credits is a defined and in some cases we could call it a sophisticated process. You must be in a position to identify which geography and what provinces tax credit you will ultimately be calling upon.Critical information needed to calculate your overall finance plan is of you’re your actual budget for the film, as well as a pre-sales you can qualify. You must at its simplest, as we have said, identify sources of equity and sources of debt for the production.

Completed and filed tax credits can usually be financed within a couple of weeks – the process should be viewed not much differently than any business financing – an application, due diligence around the tax credits, and the manner in which they were prepared, and then legal documentation and funding.

Film tax credit finance can also be accelerated via an accrual approach to the financing of the tax credit – this is simply monetization of your claim as you are in fact expensing the funds, with your full stated intention to complete proper tax credit certification and qualification material.

Speak to a trusted, credible and experienced advisor in this unique area of film, TV and animation finance.Our ‘what if ‘title question now becomes your opportunity to successfully complete and finance your production using an effective film tax credit finance strategy.

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

What If Your Firm Could Get Funding Today for Your Future SR&ED Tax Credit Financing ?

Most Canadian businesses don’t fully explore the power of Canada’s SR&ED program, but what if you could fully harness the financial benefit of the program. The reality of the program is of course that if you are participating properly in the program you have completed your annual claim and are waiting for your cheque. And hopefully an audit on your claim won’t further prolong the waiting for those funds.

In talking to many clients we can safely say that most firms who have a commitment to r&d probably could use put those funds to alternative uses – those uses might include working capital for daily operations, purchase of new equipment, and yes, even continuing again their whole research and development process . Therefore as powerful a tool as a sred claim is the reality is that it itself can create short term cash flow problems. Those challenges are on top of the ones Canadian business owners and financial managers face every day, slow receivables, demanding payables , opportunities to purchase more inventory , or in some cases invest in equipment and long term fixed assets .

So how would your overall cash flow and working capital position change if you could monetize the sred claim the minute you filed it, or, in some cases even before that. If you could convert the sred claim into cash today you could more easily address the challenges in cash flow and working capital that we spoke of above.

SRED, aka SR&ED tax credits are financeable! So you ability to finance your claim simply allows you to receive approximately 70% of your claim today in the form of a SRED Loan. And remember, that’s not additional debt on your balance sheet, since the sred loan is in fact offset or collateralized by the full value of your actual sred refund. (We tend, like many Canadian business owners, to use the works sred and sr&Ed interchangeably).

So , all of a sudden you have double kick started your participation in sred , as you are receiving non repayable grant money today, and putting that to purposes such as expanding your business, hiring additional staff, reducing obligations to suppliers, or finding yourself in the position ( perhaps for the first time ) to take supplier discounts for prompt payment . Can you only imagine that one!?

So how difficult is it to finance your sred claim. That answers in two words – not very! It involves a very typical business financing application, as well as full backup for your sr&Ed claim, including who prepared it, details of any previous year’s submissions and approvals, etc. Even if your firm is experiencing financial challenges you are still very much in the position of being able to discount, or in effect factor your sred claim, because that is the asset that supports the financing .

Clients often ask how long the whole process takes, and we indicate that with your firms full co operation a sred financing can be completed in a couple weeks. There are numerous smaller issues that need to be addressed or clarified, so we encourage clients to speak to a trusted, credible and experienced sr&Ed finance expert who will no doubt help them accelerate the sred financing.

So our bottom line is not now ‘what if ‘you could finance your sred claim, it’s now ‘what would your firm do with that additional cash flow and working capital. That’s a good problem to have.

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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/SR_ED_Tax_Credit_Financing_2.html

Financing a Franchise – Whats the Deal on Franchise Financing in Canada?

Minor details. You have made the commitment to purchase a new or existing franchise in Canada and must attend now to that final detail – you need to figure out how financing a franchise works in Canada! Franchise financing is a specialized industry in Canada, and your ability to investigate and source and finalize the proper franchise financing will of course be one of the reasons for your success as a Canadian entrepreneur operating within your franchise segment.

Whether you are Canada’s largest corporation, or the owner of a Canadian franchise its all about debt and equity. Simply put it’s the balance between how much you will borrow and how much of your own funds will go into the business. The franchise finance landscape in Canada is littered with many cases of business owners who did not match up, so to speak, the right amount of debt and equity.

There is an interesting point we can make about whether there is in fact a perfect formula or combination to the optimal amount of borrowing or personal funds that go into your new business. It’s a financial concept called R O I – which stands for return on investment. Let’s use a simple example to illustrate our point. If a franchise cost you one hundred dollars, and you paid all cash for it with personal funds and your profit in the first year was one hundred dollars then your overall return on investment is not great, as you can see. . However, if you borrowed 90 dollars, and put in ten dollars of your own money and your profit was that same one hundred dollars then you have generated a ten fold return on investment.

So that’s a good thing , right – well not necessarily, because your business has a lot more debt than ownership equity, as a result you are deemed to be very leveraged – if sales go down or profits aren’t achievable the owner has , in the creditors eyes, very little stake in the business .

Enough though of some of our textbook financial analysis we have just illustrated – what happens in the real world of franchise financing is what our clients want to know. The reality is that over the past several years, due in part to the current poor financial environment, owners have been obliged by lenders to put more and more equity into a new franchise. Although in some cases a 10% down scenario is possible, the reality is that number approaches 30-50% in most situations.

So a large part of the planning around financing a franchise should involve a couple things; your business plan or cash flow model should understand what amount of debt the business can handle, and in particular you should also understand the working capital needs of the business. It is not recommended to only focus on buying the business, as sooner or later you will have working capital or growth needs, so take that into account also.

Your financial planning around your financing should take into account the franchisors experience in the financial needs of the business – in a perfect world it is important to try and talk to some existing franchisees as to how their overall financing strategy works.

In Canada the majority of franchises are financed by a special federal government program called the BIL, or in some cases aka CSBF loan program. You need to ensure you meet the general criteria of this program. In our opinion no one financing method can really accommodate all your franchise financing needs, so we advise clients to consider a number of approaches including the above noted program, equipment financing where relevant, and in some cases a working capital term loan. Naturally all of this financing is under pinned with your own personal equity contribution into the business, which we discussed earlier.

So what is our take away on financing a franchise in Canada – there are a couple as we noted. Plan the financing of your franchise early on in the process and integrate it into your overall decision to purchase the business. Calculate what works out best for you relative to the ROI equation – what do you need to borrow, and what funds are available to put in yourself.

Speak to a trusted , experienced and credible business financing advisor in franchise financing to ensure you understand your financing options and that they can be presented to the lender in the best possible light . That’s a successful Canadian franchise financing strategy!

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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/financing_a_franchise_franchise_financing.html

Why an ‘ABL’ Might be your Best Choice for a Business line of Credit

Canadian business owners and financial managers will quickly acknowledge that is more challenging than ever to successfully obtain a business line of credit. That same challenge is why an ABL is fast becoming the business financing vehicle of choice for many Canadian firms. Great, say our clients, but what is an ABL?!

ABL is an acronym for an ‘asset based line of credit ‘. This business line of credit is a working capital facility, similar to your bank facility that provides working capital on a regular basis against inventory, receivables, and in many cases equipment and real estate if that is applicable. We can argue the case forever on whether Canadian banks are providing the right amount of financing and support for small , medium, and yes even large businesses in Canada – we don’t think we’ll get full closure on that discussion .

Therefore let’s simply assume you either can’t qualify for a chartered bank business line of credit or that you perhaps do, but the facility doesn’t meet your needs. That’s where an ABL, or asset based line of credit comes in.
So whats the solution and how does it work ask our clients. It’s a simple, no nonsense form of financing provided by non bank type firms. You can choose to call it alternative financing, but we can assure you this form of ‘alternative financing ‘is becoming more mainstream and popular every day.

Because the chartered banks focus on traditional metrics such as your overall financial performance, outside collateral, personal guarantees, etc you will find the overall ABL process much simpler and common sense. It’s simply a case of borrowing against your real assets, with little or no reliance on the issues we outlined above relative to a bank type facility.
The specialty of an asset based line of credit provider is simply their strong knowledge of your industry and assets – so because of that your ability to generate almost unlimited working capital becomes very obvious very early on in the picture. What do we mean by that? Simply that if you have receivables, assets and equipment you can always borrow against them on an on going basis – typically you can draw down on 90% of receivables, 40-70% of your inventory values, and pre agreed upon amounts on the appraised value of unencumbered equipment .

Typically companies that are the best prospects for this type of financing are firms with fast growth and in some case a limited track record – i.e. a start up, etc.

In some cases this type of business line of credit could possible be complimentary to your existing bank facility, but more often than not if replaces it totally.

While there are a number of key advantages to an asset based line of credit they do normally cost more than bank facilities – Depending on the size of the facility and the overall nature of your firm, its industry, and other challenges you might be facing the final pricing will reflect a realization of those issues. But let’s keep in mind that you have in effect just negotiated unlimited working capital, and have the ability to turn assets more quickly and generate increased cash flow, revenues and profits. That’s a true business financing triple threat if we have every seen one relative to your competition in your own particular industry.

The bottom line is to ensure you understand that you have a non bank alternative when considering a business line of credit via an asset based facility. Yes, it will cost more, but those costs can be significantly offset by increased cash flows via inventory turns, ability to purchase smarter with that cash, and to convert receivables immediately into cash for additional sales efforts. Speak to a trusted, credible and experienced advisor in this area to ensure that you determine if you can benefit from such a business financing arrangement.

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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/business_line_of_credit_abl.html