Receivable Financing – Factoring is the 4th Way To Finance Your Company

Canadian business owners and financial managers often ask about assessing the different alternatives to their overall business financing strategy – Receivable financing – factoring can be one of the cornerstones of a creative alternative financial solution for their business. We sometimes hesitate to use the word ‘alternative ‘because quite frankly this method of financing is becoming as mainstream as things can get!

Canadian business can be financed in one of four different ways – You need to be able to asses the methods utilized in those four categories and which one, or ones, makes sense for your firm.

Business is financed of course by your own shareholder equity – Equity is expensive because when you give it up, or sell ownership in your business your overall position becomes diluted and your return on investment diminishes.

The three other methods of financing, in lieu of equity of ownership relinquishing are:

Debt
Grants
Asset Financing

Debt of course comes in the form of good debt and bad debt – we would, as an example categorize a commercial mortgage as good debt – a cash flow working capital loan might be another example. However, the reality is that most business owners recognize the dangers of debt and how that increased leverage can be a double edged sword.

Clients are always asking us about ‘governments grants and loans ‘. In our opinion there are only two respectable grant/loan programs in Canada – the SR&ED program, and the CSBF program – the former is a non repayable grant, the latter is simply a great government loan for financing equipment and leaseholds.

So that brings us to # 4- Asset financing. Depending on the type of business and industry you are in your asses include inventory, land, equipment, and receivables.

A very strong case can be made that #4 should in fact be #1 when it comes to working capital and cash flow financing – Simply speaking your assets need to be monetized in the best manner in which to bring you liquidity.
Receivable financing – factoring is in fact the quickest and most efficient manner to bring immediate cash flow to your business. Why is that the case – simply because it involves no debt coming on our balance sheet, no payments are made as in a loan type scenario, cash flow is immediate, and the reality is, that if you have negotiated the right factor facility then you are in control of your overall cash flow requirements?

The benefits of a receivable financing factor facility are very clear once you understand the process. Generally a factor facility, aka an invoice discounting or receivable financing facility can be negotiated in a couple of weeks from start to finish. To the extent that your business is growing you essentially have successfully completed a financing that gives you unlimited cash flow. We say unlimited, because if your sales and receivables grow your cash flow and working capital grow in lock step to that growth!

Cash flow and working capital from a factor facility can be used to increase inventory, take on more purchase orders and contracts, and, in general meet working capital guidelines.

The overall process for a receivable financing –factoring facility is simple. You sell some or all of your invoices to your factor partner firm – You receive generally 90% of that invoice amount that same day as cash in your bank account. When your customer pays the factor firm keeps a ‘discount fee ‘based on the total time it took your customer to pay.

Discount fees, or as clients prefer to call them, ‘factoring rates ‘vary in Canada. Factors (excuse the pun) that affect your fee are the size of facility, who you deal with, the method in which your facility operates, and the overall quality of your customer base.
Speak to a credible, trusted, an experienced business financing advisor – Find out today why the 4th method of financing your business might just be the best!

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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/receivable_financing_factoring_working_capital.html

Everything You Wanted to Know About Purchase Order Factoring and Inventory Finance in Canada !

You may or may not agree we are technically still in a ‘ business credit crunch ‘ but you probably will agree that yourCanadian firms ability tofactor purchase orders and arrange inventory finance is still a major challenge .Is there any solution, traditional or otherwise, to this ongoing Canadian business financing challenge?We happily tell clients there is, it’s just a case of having the right knowledge and ensuring you qualify for such financing.And you may find that due to the specialized nature and experts in this industry that are available, that it is not as hard as you thought!

Traditional sources of purchase order factoring and inventory finance are the Canadian chartered banks. To qualify for such financing the pre requisites are very clear -a decent balance sheet and income statement, growth prospects, profitability,potential external collateral, and the guarantees of owners and shareholders . Easier said than done, right?!

Purchase order and inventory financing can provide you with the working capital and cash flow to grow your company. It is simply a case of securing this type of financing, but at the same time recognizing that that costs and methodology around this type of financing makes sense for your company.

By assigning or selling your rights in the purchase order to a specialized inventory and p.o. financing firm your supplier is guaranteed payment of goods that you require to fulfill orders and contracts.When your supplier is paid goods or product is shipped to yourself, or potentially your customer, less a financing fee, which is typically in the3% range. That fee varies, but is a good general starting point for discussion and negotiation.

The concept of the financing fee around purchase order and inventory financing is critical as it relates to your gross margin, or overall profitability on your transactions. If you are in a low margin, slow turnover business the financing fee around a p.o and inventory financing scenario can eat away significantly at your overall profitability. Quite frankly the inventory and p.o. financing firm might deem your overall ability to complete the transaction as not making sense for all parties – there is no reason to just turn over sales and revenue if you do not have a solid profit outcome.

We all know the saying ‘timing is everything ‘, and how about another well worn but quite solid cliché – ‘the sale is not completed until your invoice is paid ‘. Those two well worn saying factor significantly into inventory and purchase order finance. The inventory finance firm expects to be paid when the product is delivered and your invoice is generated. In normal circumstances, if your firm is traditionally financed, you would borrow against your receivables and pay the inventory finance firm, which in some cases could be your bank. (If you had access to traditional finance). If your firm can’t repay the inventory and finance firm then it is wise, and in fact common, to arrange for factoring of your invoice. This is simply the sale and discounting of your invoice – with those funds you pay your supplier, your firm is now paid, and you have realized the actual cash profit on your sale. (Assuming you had those good profit margins we spoke of!)

By now you have probably figured out that a number of key players play a role in the inventory financing and purchase order financing cycle. Those key players are your firm, your customer, your supplier, and the inventory finance and P.O. finance firm. All are dependent on each other to perform properly in purchase order factoring , and in a timely fashion. Business owners and financial managers by now have probably realized the importance of validating your own customer, the purchaser or your product, as being credit worthy and agreed to your payment terms. If those don’t happen you clearly are at risk.

Despite the costs associated with inventory and purchase order financing in Canada there are a number of advantages – your company can growsignificantly based upon access to large amounts of capital you might otherwise have not been able to raise or borrow .

And remember, inventory and purchase order finance is not debt on your balance sheet, you are simply monetizing inventory and p.o.’s to raise liquid capital.

So where do you obtain this type of financing. It’s a specialized form of business finance and we suggest to clients that they obtain the services of a successful, credible, and experienced business financing advisor in this area. That allows you to capitalize on opportunities for growth. That person can also assist and help you wade through the finance maze of basic issues, which might include the size of the facility you need, what info you need to provide to complete the financing, how long does it take to arrange the facility, as well as the costs associated with your transaction on a one of or ongoing basis.

When you are comfortable that his type of financing makes sense you should be able to complete your transaction within a number of weeks , assuming the proper level of transparency between you, your customer and your inventory finance and purchase order lender .

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

Cash Flowing your B.C. and Ontario film grants – Film Finances Canada and Tax Credit Financing

Cash flowing and the monetization of your film tax credits in Canadacan be a very large aspect or part of your overall production financing success in today’s challenging entertainment finance area .

Whether your film is 100% Canadian, or a co – production you should be aware that your tax credits forOntario film grants, B.C. film grants, ( those seem to be the most two popular provinces ) can be financed for cash flow and working capital .

It is certainly not unusual that tax credit can be anywhere from 25-40% of your overall finance plan, and if that is not significant then we don’t know what is! Its that sort of cash flow and financing commitment that keeps your productions moving forward from a viewpoint of the equity and debt investors you need to engage to successfully finance a production, whether that be television, film, or of course the ever growing digital animation area . Those funds become an intrinsic part of what is generally known as the ‘soft money ‘component of your production.

When you rationalize Canadian film tax credits into your overall production financing you can make a strong case that even if a movie or TV show is shot elsewhere than in Canada in certain instances it makes total sense to use Canadian cast members, and post production, all of which significantly contribute to your tax credit status.

Everyone seems to agree to day that film, digital animation and TV financing is very much a ‘cobbling together ‘of resources which will end up funding your entire plan.

The concept of co productions and co ventures seems to be a very strong part of what is happening now in independent film and TV financing. While film tax credits seems to be falling apart and in fact disappearing in many parts of the world the Canadian environment is very robust. Tax credits can be financing on a ‘when filed ‘basis, or, if your production has good credibility and financial reporting, financing can be provided on an accrual basis.

Clients will often ask what the pre requisites are for tax credit financing in Canada. As different and unique as is the entertainment industry the reality is that you’re simply need some careful up front planning and documentation to ensure you can qualify and obtain financing for your tax credits. Generally that comes in the form of havingpre sold some of your product in question ( a film, tv series, etc ) and having a financing plan in place that address the three components of debt, equity , and tax credits .

Having a specific budget in place for your project, and having that budget validated with respect to which amounts will qualify for tax credits is critical. We can assure you that if your budgets haven’t been reviewed by a proper entertainment accountant then that will be a part of your financing term sheet with respect to requirements for the proposed financing.

While some experience in having been approved on previous projects for tax credits is desired, it is not a 100% pre requisite – but when hasn’t experience ever not helped in business and in financing?

Whether you view the financing of film tax credits as a mainstream or alternative strategy the reality is that this will make up a key component of your financing. Ultimately you have to be able to verify your numbers and provide some level of clarify around your eligibility for the tax credit.

In Canada tax credits can be financed on a when certified and filed basis, or, even more attractively, on an accrual basis. Funds are reimbursed to you as you spend them, in effect doubling up on the cash flow and working capital requirements of your project .

Speak to a trusted, credible, and experienced film tax credit financing advisor in Canada who can provide you with financing information that should allow you to complete you’re financing in the most cost effective manner to yourselves as owners of your productions.

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

The Only Sr&ed Funding Guide You Need For Your Sred Loan on Your R&D Tax credit

Although Canada’s Sr&Ed program seems to be going some changes in terms of application and adjudication of your claim the good news is that the ability to finance your SRED (SR&ED) claim is as straightforward as ever. Let’s explore some key basics around what you need to know to finance your claim and get a head start advantage on your ability to reclaim sred funds.

Put very simply, if you have filed a sred claim there are a number of reasons to consider financing that claim for immediate cash. It’s a simple case of staying ahead of the game and monetizing your R&D tax credit now to accelerate working capital.

There is no industry that is unable to finance a sred claim – the program of course covers a wide variety of industries in Canada – many claims we see from clients are in the software and technology area, but virtually every industry has the ability to capture a sred government grant that is of course, non – repayable.

We should state however that sred claims that are prepared by proper technical advisors tend to be easier and quicker to finance – that is simply because with that experience and credibility comes the assurance to your lender that your claim has a high probability of being approved in entirety or for the most part .

That brings us to a critical point around the financing of the sred claim, which is often our client’s most typical starting question – ‘Our Company has a sred claim – how much can we get for it today?”SRED loans typically start out at 70% ltv. Ltv is an acronym of course in finance for loan to value, so we are simply stating that you can immediately borrow and receive in the range of 70% for your sred claim. Naturally that 30% gap still remains with your firm to its credit, it’s simply that you don’t receive sred loans for that remaining 30% which acts as a solid buffer to cover the probability that your claim might be adjusted by Canada Revenue Agency – it also covers off the financing costs.

A popular misconception around sred financing is that it is a loan – that is not the case in the technical manner that we as business owners view loans. A term loan, or short term loan for that matter adds debt to your balance sheet, and you make payments on a loan of course. SR&ED financing of your R&D tax credit is simply the monetizing of your sred claim, with the claim as collateral – so your firm is incurring no additional debt. Also, the beauty of a properly constructed sred financing is that no payments are made for the duration of the financing – The financing costs are netted out against your final cheque that you receive from Ottawa and your province. (SRED funds usually have two components, the federal and the provincial portion.)

Sr&Ed financing is efficient and can happen very quickly – as a business owner you should view the entire process in the same manner as you would any other application for financing – example – leasing some equipment, etc.

The key aspects of a sred application are a copy of your sred claim, a copy of your tax filing that you of course made at the same time as you filed you R&D tax credit, and typical information on your company, i.e.your financial statements . If for some reason you have made the decision to finance that claim after you have had your technical audit you are eligible for even a greater advance that our aforementioned 70%- however typically clients come to us when they have just filed a claim, or in some cases, are in the process of filing.

Financing of your sred loan takes a couple of weeks from start to finish, in our experience. So your strategy to finance your claim and receive cash for it can often be enhanced by planning early, which is always a good thing in any aspect of business finance.

Speak to a trusted, credible, and experienced financial advisor in SR&ED TAX credit finance to determine how easy it is to monetize that claim and turn that non repayable government grant into cash flow that will accelerate your growth and profits.

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

What If … You Had All the Info You Need About Buying a franchise and financing a franchise in Canada ?

Canadian entrepreneurs can be forgiven for feeling overwhelmed when it comes to buying a franchise and financing a franchise once they have made that very significant decision to own their own business within the franchise model.

Being armed with critical information about financing a franchise is a key part in your overall success when you purchase a business within the franchise model.

The excitement of owning your own business and finding a solid opportunity is often very quickly overshadowed by the entrepreneurs concerns that financing prospects might be limited. When we talk to clients about their desire to purchase and finance a franchise we try and make it clear that franchise financing is Canada is a specialized part of the overall business financing landscape. Given the specialization we strongly recommend to clients that they seek the services of a trusted, experienced and credible franchise finance expert to assist them in their overall acquisition strategy.

Start up Capital in franchise financing at the same time is no different than if you were starting a business in any other industry. That original capital comes from you as owner and from a lender or lenders as debt, or loans, etc. Many potential franchisees in Canada cannot get off the ground because the franchisee is unable to properly document their business track record, as well as demonstrate some sort of credible personal financial history, such as a decent credit history. Most franchisors themselves, as well as your lenders will want to determine if you as a small business owner have handled your personal financial affairs in a credible manner. We therefore work with clients to present a net worth statement and credit bureau documentation which allows us to at least get out of the gate in a positive manner.

So you have focused on a specific franchise, you have done your due diligence, and we are now at the point of implementing a finance strategy. If there are any secrets we share with clients around franchise financing it’s simply that it is rare, in the current environment, for one particular method of financing to access all the capital you need. Therefore a carefully crafted business plan that outlines your own investment and your proposed sources of capital is critical in a franchise finance strategy.

We can’t over emphasize the requirement for a business plan. It doesn’t have to be 100 pages long with pictures, but it sure better include info on yourself and your experience, the proposed business, how you will finance it, and some reasonable credible projections around sales, expenses, and projected profits. Typically we find that a 3 year projection is satisfactory. One of the mistakes many owners make is that they focus on getting the business, and not fully getting into how the business will finance itself on a day to day business, allowing for future growth. So focus on both, that’s important.

The ability to present your business plan and finance proposal in a confident and positive manner is key, if you are not comfortable doing that seek the help of an experienced franchise financing business advisor who can work with you in every aspect of the plan and its presentation.

One of the big mistakes we see our clients make is that they feel they can rely on the franchisor, your new business partner so to speak, to either provide or assist in the financing of your new business franchise. The reality is that they are in the business of selling franchises, not financing them, so you must stay much focused on obtaining external financing.

So lets get on to another ‘ key secret ‘ we are sharing about franchise financing in Canada – which is simply, how are they in fact financed .If the words ‘BIL ‘, CSBF Loan, and SBL mean nothing to you that is not a surprise to us. All of these terms are acronyms for the government’s small business financing program, under which the majority of franchises are financing in Canada. In our own experience it necessary to complement that strategy with potentially several others, which include a working capital term loan, equipment financing where applicable, and, in the case of you purchasing an existing franchise, a vendor take back from the current owner.

It is true that the majority of businesses in Canada, franchise or other are financed by borrowed funds, i.e.‘Debt ‘. But you must make a personal investment in the business also. This tends to be one of the biggest challenges clients come to us with, which is simply the question – ‘ How little can I put down to acquire this business ‘. The answer to that is a couple of things – first , it actually doesn’t make sense to finance the entire business with your own funds, so borrowing for leverage is good, because it essentially increases your own return on your investment . The other point is that the franchisor has track record and experience in knowing what a typical franchisee investment of personal resource should be, and they might actually stipulate a specific amount as a requirement. Our final point in this area is that certain of the loans and financing we discussed require several key ratios to work from a viewpoint of debt , equity, and working capital, so the reality is that some of these ratios will actually ‘ drive ‘ what your personal investment is required to be .

Franchising is booming in Canada, there are some great opportunities. Investigate which one makes sense for your interests and skills, and set out to properly plan and finance your business with the information we have shared.

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

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