When you need asset finance and a business loan in the 2010 economic environment alternatives are great. One of those solid alternatives is an asset based lending arrangement which focuses on what counts, your assets!
As a business owner and/or financial manager you are looking for business financing that makes sense. ABL is the acronym for one of the more exciting business financing alternatives that is growing in popularity every year in Canada. Are we actually saying that asset finance via an asset based line of credit is ' exciting '? We will let you decide that, but if this financing is easier to achieve than bank financing, is cost effective, and provides you with unlimited capital... well our clients are excited... you make your own thoughts on that !
Asset based lines of credit simply are drawn down by your firm based on the value of ongoing assets. The assets that are always there are inventory, A/R, and to some degree your fixed assets that aren’t already financed. By collateralizing your assets, and, most importantly, leveraging them to the max if you need to, you are creating available working capital.
We are always explaining to clients that this leverage of assets is not taking on debt, you are not borrowing on a long term basis, and you are simply monetizing current and fixed assets based on current values. What are those values, typically they are 90-100% of receivables under 90 days, 40-75% of your inventory, and a liquidation type value on any equipment you want to temporarily monetize. Clients always ask - ' Do you mean that we can borrow, if we need to, on a temporary but ongoing basis on our fixed assets?". The answer is yes, if you are considering this type of financing strategy.
Let’s cover off the two key points clients always tend to focus on when they are investigating this unique business loan strategy- namely costs, and timelines to get the working capital facility in place.
In some ways cost is the most difficult area of explanation and investigation in an asset finance working capital facility. Putting aside the normal due diligence or commitment fee required to get a facility in place the reality is that there are a couple of key drivers that affect pricing . Asset finance revolvers can be just as competitive as a Canadian chartered bank financing (and less onerous to get approved) but prices varies all over the board in Canada because of the fragmented and specialized nature of this type of financing.
Typically we see rates as low as 9% per annum and as high as 1.5% per month. That’s a big spread and ultimately it depends on the size of the facility, the mix of your current assets, as well as any perceived industry or business risk associated with your firm. But again, we remind the reader, what price would you pay for unlimited working capital?
Typically it takes 2-4 weeks to close such a facility. In Canada as we noted the market is fragmented and these lenders are very focused, specialized, and by nature experienced in what they do, which is value your assets and finance them!
Speak to a trusted, credible and experienced Canadian business financing advisor around asset finance as a business loan strategy if your working capital needs ' aren't working ' now!
Our blog highlights Canadian Business Financing solutions via receivable finance , equipment finance, working capital financing, asset based lending, business acquisition financing,franchise finance, and tax credit monetization via SRED and Film Tax Credits. Our goal is to educate and assist Canadian businesses with their financing needs. You Are Looking For Canadian Business Financing! Welcome to 7 Park Avenue Financial Call Now ! - Direct Line - 416 319 5769
Friday, October 8, 2010
Wednesday, October 6, 2010
Isn’t Working Capital Bad For Your ( Business) Health ?
We can hear our clients now! How possibly could working capital (isn’t that cash flow?) be bad for my firms financial health. Let’s talk about that.
The technical financial folks define working capital as a very basic calculation that even the non financial business owner can do - simply deduct your current liabilities from your current assets ( from your balance sheet statement) and, voila ! Congratulations, you have working capital. Hopefully that number is a positive number, because when it’s negative you're technically insolvent and that's a subject and solution for another day!
Anyway, our working capital number is positive - that’s good, right. Not necessarily, and that’s the premise of our info we share here , because if you have positive working capital your funds are tied up in receivables, inventories and pre paid items .
It is therefore very important to understand what makes up working capital, how you can monetize or cash flow it, and most importantly, but often totally overlooked , how you can measure business capital and working capital .
The essence of measuring your working capital revolves around turnover, days sales outstanding, inventory turns, and payables days outstanding.
The good news is that you can very easily calculate and track these measurements, and we can virtually guarantee they will better assist you to understand why your investment in working capital is very much a teeter totter of good news/bad news.
Do you like to travel? Money does also, and considers how long it takes for a dollar to travel through your company. From the day you place an order, purchase product, pay for product, bill a receivable, and yes, collect that receivable that total cycle can be easily 200 days, if note more. That’s a lot of travel, so you hopefully can see our premise here that your investment in your working capital accounts is not necessarily a great thing.
Your business is composed primarily of inventory, receivables, and payables, (also fixed assets). We therefore strongly suggest to clients that they understand the turnover and overall return they are getting from these key asset accounts.
You would understand your working capital situation somewhat better if it were not for those pesky issues that you can’t control - business owners and financial managers recognize them well and run into them every day. They are sales growth and decline, your fixed costs that you have to pay and manage no matter what, and any financial distress you may be experiencing from past external factors - i.e. a bad year, etc,
The holy grail of business capital and working capital financing is when you have strong controls on internal asset turnover and at the same time you have access to external working capital via bank lines, asset based lending facility, loans, grants, etc.
We constantly remind clients that if they are turning over their working capital accounts more efficiently all the time its in effect a measure of the true success of your company - think of it, you're buying things, paying supplies on time, and customers are paying you on time and ordering more goods and services. A quick tool for measuring your progress in this area is simply to take your receivables days and inventory days, subtract your payables days outstanding, and if that number is improving , or going down you are winning the 'working capital is bad for your health' premise we have presented.
As a Canadian business owner you are both granting credit and requesting credit (customers and suppliers respectfully). Understanding business capital in this manner will allow you to finance better internally and borrow via banks, finance firms, asset based lenders, etc.
Speak to a trusted, credible and experienced business financing advisor about our ' health’ problem and what your tools and solutions might be for better business success.
The technical financial folks define working capital as a very basic calculation that even the non financial business owner can do - simply deduct your current liabilities from your current assets ( from your balance sheet statement) and, voila ! Congratulations, you have working capital. Hopefully that number is a positive number, because when it’s negative you're technically insolvent and that's a subject and solution for another day!
Anyway, our working capital number is positive - that’s good, right. Not necessarily, and that’s the premise of our info we share here , because if you have positive working capital your funds are tied up in receivables, inventories and pre paid items .
It is therefore very important to understand what makes up working capital, how you can monetize or cash flow it, and most importantly, but often totally overlooked , how you can measure business capital and working capital .
The essence of measuring your working capital revolves around turnover, days sales outstanding, inventory turns, and payables days outstanding.
The good news is that you can very easily calculate and track these measurements, and we can virtually guarantee they will better assist you to understand why your investment in working capital is very much a teeter totter of good news/bad news.
Do you like to travel? Money does also, and considers how long it takes for a dollar to travel through your company. From the day you place an order, purchase product, pay for product, bill a receivable, and yes, collect that receivable that total cycle can be easily 200 days, if note more. That’s a lot of travel, so you hopefully can see our premise here that your investment in your working capital accounts is not necessarily a great thing.
Your business is composed primarily of inventory, receivables, and payables, (also fixed assets). We therefore strongly suggest to clients that they understand the turnover and overall return they are getting from these key asset accounts.
You would understand your working capital situation somewhat better if it were not for those pesky issues that you can’t control - business owners and financial managers recognize them well and run into them every day. They are sales growth and decline, your fixed costs that you have to pay and manage no matter what, and any financial distress you may be experiencing from past external factors - i.e. a bad year, etc,
The holy grail of business capital and working capital financing is when you have strong controls on internal asset turnover and at the same time you have access to external working capital via bank lines, asset based lending facility, loans, grants, etc.
We constantly remind clients that if they are turning over their working capital accounts more efficiently all the time its in effect a measure of the true success of your company - think of it, you're buying things, paying supplies on time, and customers are paying you on time and ordering more goods and services. A quick tool for measuring your progress in this area is simply to take your receivables days and inventory days, subtract your payables days outstanding, and if that number is improving , or going down you are winning the 'working capital is bad for your health' premise we have presented.
As a Canadian business owner you are both granting credit and requesting credit (customers and suppliers respectfully). Understanding business capital in this manner will allow you to finance better internally and borrow via banks, finance firms, asset based lenders, etc.
Speak to a trusted, credible and experienced business financing advisor about our ' health’ problem and what your tools and solutions might be for better business success.
Tuesday, October 5, 2010
A Different Solution for Business Inventory Financing
We feel sorry for you. Your firm is not in the service industry. They are the lucky ones with respect to inventory financing - there is no inventory! Unlike your business, which produces goods and carries inventory to meet customer order needs your services firms have no storage requirements!
If your firm has an investment in inventory then financing for that asset is often, if not always, vital. Financing via bank credit lines for the inventory component of your balance sheet is always difficult, if not in some cases impossible. Most business owners and financial managers know that of your two major current assets ( receivables and inventory ) that banks prefer receivable , aka a/r financing .
So how do you finance your inventory, and what are the requirements to get such a facility in place? The reality is that every business is different and your firm will have different categories of inventory - most commonly they are raw materials, work in progress, and finished goods.
Inventory financing in Canada is most often financed under an ABL facility. What is ABL is the next question our clients always ask. The acronym stands for asset based lending, and is a specialized type of financing that is mostly carried out by non bank institutions. Facility sizes tend to range from 250k and up, as it is not really economical for all parties (you and the lender) for finance amounts much under that.
Your ability to control, report, and purchase inventory most economically are key drivers in an inventory financing decision made by your inventory financier. Your ability to monitor, stock, and produce and bill and collect are the basic requirements for an inventory financing facility. We would point out that in many cases this facility also includes a receivable component, because, as we all known, inventory flows into a receivable which flows into ... dare we say it... cash!
If you are unable to finance your inventory properly you can very easily get into what can best be describe as a ' cash trap '- and that’s not a good trap to be in. Typically each one thousand dollars of inventory on hand can cost you between 150 and 250 dollars per year when you take into account some obvious and not so obvious factors such as financing costs, storage, handling, insurance, and deterioration of the inventory which by its necessity forces you to do an asset write down .
The irony is of course that you can have too much inventory or too little, it’s a balance act.
When you arrange inventory financing you want to ensure you have reasonable levels of product - so you need to focus on both financing cost and order costs.
If you have inventory financing fast efficient turns are potentially more possible and you annual carrying costs can be dramatically reduced- don’t forget that the cash you invest in inventory could be put to work elsewhere and in many cases earn, for example, at least 12% more in profits. That’s a very typical number for a manufacturer.
Financing inventory is a challenge - you want to be able to take advantage of volume discounts, but at the same time limit your investment in inventory while satisfying customer order needs. Whew! That’s a real teeter totter don't you think?!
Speak to a trusted, credible and experienced business financing advisor who can guide you through inventory financing in a manner that supports your business and industry. Beating the inventory financing challenge is a solid financial accomplishment.
If your firm has an investment in inventory then financing for that asset is often, if not always, vital. Financing via bank credit lines for the inventory component of your balance sheet is always difficult, if not in some cases impossible. Most business owners and financial managers know that of your two major current assets ( receivables and inventory ) that banks prefer receivable , aka a/r financing .
So how do you finance your inventory, and what are the requirements to get such a facility in place? The reality is that every business is different and your firm will have different categories of inventory - most commonly they are raw materials, work in progress, and finished goods.
Inventory financing in Canada is most often financed under an ABL facility. What is ABL is the next question our clients always ask. The acronym stands for asset based lending, and is a specialized type of financing that is mostly carried out by non bank institutions. Facility sizes tend to range from 250k and up, as it is not really economical for all parties (you and the lender) for finance amounts much under that.
Your ability to control, report, and purchase inventory most economically are key drivers in an inventory financing decision made by your inventory financier. Your ability to monitor, stock, and produce and bill and collect are the basic requirements for an inventory financing facility. We would point out that in many cases this facility also includes a receivable component, because, as we all known, inventory flows into a receivable which flows into ... dare we say it... cash!
If you are unable to finance your inventory properly you can very easily get into what can best be describe as a ' cash trap '- and that’s not a good trap to be in. Typically each one thousand dollars of inventory on hand can cost you between 150 and 250 dollars per year when you take into account some obvious and not so obvious factors such as financing costs, storage, handling, insurance, and deterioration of the inventory which by its necessity forces you to do an asset write down .
The irony is of course that you can have too much inventory or too little, it’s a balance act.
When you arrange inventory financing you want to ensure you have reasonable levels of product - so you need to focus on both financing cost and order costs.
If you have inventory financing fast efficient turns are potentially more possible and you annual carrying costs can be dramatically reduced- don’t forget that the cash you invest in inventory could be put to work elsewhere and in many cases earn, for example, at least 12% more in profits. That’s a very typical number for a manufacturer.
Financing inventory is a challenge - you want to be able to take advantage of volume discounts, but at the same time limit your investment in inventory while satisfying customer order needs. Whew! That’s a real teeter totter don't you think?!
Speak to a trusted, credible and experienced business financing advisor who can guide you through inventory financing in a manner that supports your business and industry. Beating the inventory financing challenge is a solid financial accomplishment.
5 Tips For Selecting The Right Leasing Company For Your Equipment Finance Needs
Partnering is more often than not the right thing. Bad partnerships don't work and can adversely of course affect your business. That’s why it is so important to select the right firm to originate your equipment finance needs.
The right leasing company on a long term basis will ensure that you are investing properly in the assets you need to run your business for your customer base.
Let’s look at 5 key tips we can provide you to ensure you are putting the right financial strategy in place around asset acquisition. Successfully working and negotiating through these tips with the right leasing partner guarantees you business equipment lease financing success.
Its all about getting approved of course , and getting an approval quite frankly is the biggest decision your lessor has to make around the transaction - that approval can be significantly influenced by yourself - it is important to present both the positives around your firms financials, as well as the challenge you may have, or may be facing,
Chance of getting approved is significantly reduced if negative information about your firm or its financials arises after your submission. Factors that affect your approval are your time in business, your ability to have sourced financing in the past - i.e. other lessors, banks, etc. Other key areas of focus are trade references and the ability of the owners to demonstrate they run their personal lives in a fiscally responsible manner also. This is usually accomplished by the lessor drawing a credit bureau report. On transactions over 50,000.00$, as a general rule financial statements are required, and areas of focus will be your overall balance sheet health and the ability to generate positive cash flow to repay the lease .
Lets move on to rate, we are never under surprised with how much our clients focus solely on rate and their ability to drive down the lessors yield . In Canada leasing equipment is very competitive, and all we can say is that if you have presented your financials properly the market will ensure you have a competitive rate. Naturally you can spend all the time in the world securing a ' better deal ', but consider management time and total savings. A quick example: If you leased a 75k piece of production equipment and were quoted a rate of 10.25% and you spent a lot of time in sourcing another quote, re submitting your financials to a new firm, etc , and got a rate of 10.00% you would be saving twenty dollars a month. We'll let you decide the value of your time.
We have covered off credit approval and rates, Documentation are important also. You should be prepared to provide a proper invoice or quote to the lessor, as well as a certificate of insurance. The equipment lease and your acceptance of delivery are key to the lease commencement. Smaller transaction in Canada has been greatly simplified, so you should typically be provided with a one or two page lease agreement. Larger transactions are of course more complex.
The type of lease you choose and your analysis of the lease versus buy decision is also a key area of focus. Look at your cash flow Vis Vis payments you will make on a lease versus a loan basis. As a general rule leasing tends to be more expensive, but is easier to obtain and is less of a drain on your cash flow.
Two is the magic number. There are two types of leases you should inquire about, a full payout capital lease, as well as an operating lease where use of the asset is more important than owning the asset.
Your overall lease financing decision should be focused on a very simple question - namely:
- is the asset acquisition important to your business profitability and productivity. If new assets and proper financing position your business for competitiveness you have made the right financing decision.
We have covered off 5 key areas in the selection of a leasing company in the equipment finance area. If you find the information and the challenge overwhelming speak to a trusted, credible and experienced business financing advisor who will help you achieve lease financing that meets your goals.
The right leasing company on a long term basis will ensure that you are investing properly in the assets you need to run your business for your customer base.
Let’s look at 5 key tips we can provide you to ensure you are putting the right financial strategy in place around asset acquisition. Successfully working and negotiating through these tips with the right leasing partner guarantees you business equipment lease financing success.
Its all about getting approved of course , and getting an approval quite frankly is the biggest decision your lessor has to make around the transaction - that approval can be significantly influenced by yourself - it is important to present both the positives around your firms financials, as well as the challenge you may have, or may be facing,
Chance of getting approved is significantly reduced if negative information about your firm or its financials arises after your submission. Factors that affect your approval are your time in business, your ability to have sourced financing in the past - i.e. other lessors, banks, etc. Other key areas of focus are trade references and the ability of the owners to demonstrate they run their personal lives in a fiscally responsible manner also. This is usually accomplished by the lessor drawing a credit bureau report. On transactions over 50,000.00$, as a general rule financial statements are required, and areas of focus will be your overall balance sheet health and the ability to generate positive cash flow to repay the lease .
Lets move on to rate, we are never under surprised with how much our clients focus solely on rate and their ability to drive down the lessors yield . In Canada leasing equipment is very competitive, and all we can say is that if you have presented your financials properly the market will ensure you have a competitive rate. Naturally you can spend all the time in the world securing a ' better deal ', but consider management time and total savings. A quick example: If you leased a 75k piece of production equipment and were quoted a rate of 10.25% and you spent a lot of time in sourcing another quote, re submitting your financials to a new firm, etc , and got a rate of 10.00% you would be saving twenty dollars a month. We'll let you decide the value of your time.
We have covered off credit approval and rates, Documentation are important also. You should be prepared to provide a proper invoice or quote to the lessor, as well as a certificate of insurance. The equipment lease and your acceptance of delivery are key to the lease commencement. Smaller transaction in Canada has been greatly simplified, so you should typically be provided with a one or two page lease agreement. Larger transactions are of course more complex.
The type of lease you choose and your analysis of the lease versus buy decision is also a key area of focus. Look at your cash flow Vis Vis payments you will make on a lease versus a loan basis. As a general rule leasing tends to be more expensive, but is easier to obtain and is less of a drain on your cash flow.
Two is the magic number. There are two types of leases you should inquire about, a full payout capital lease, as well as an operating lease where use of the asset is more important than owning the asset.
Your overall lease financing decision should be focused on a very simple question - namely:
- is the asset acquisition important to your business profitability and productivity. If new assets and proper financing position your business for competitiveness you have made the right financing decision.
We have covered off 5 key areas in the selection of a leasing company in the equipment finance area. If you find the information and the challenge overwhelming speak to a trusted, credible and experienced business financing advisor who will help you achieve lease financing that meets your goals.
Monday, October 4, 2010
Looking for Small Business Financing ? – Consider An Account Receivable Financing Strategy
Could account receivable financing help your firm? The dramatic rise of small business financing in accounts receivable ( by the way, Canada’s largest corporations use this tool also!) Is simply a factor of companies such as yours wanting to capitalize on the working capital and cash flow that is, in effect, locked up in receivables
It doesn’t take rocket science for any business owner of financial manager to figure out that if his or her firm has investments in receivables and inventory then those assets, typically called ‘ current assets’ requires financing in some form. Of course you can ’ self finance ’ - meaning simply wait for your inventory to turn into receivables, and then wait probably even longer for A/R to turn into cash. But, doing that forces you to give up on sales opportunities and challenges the very core of your financial health, given that we all agree cash flow is king.
If you are fortunate enough to be financing via a Canadian chartered bank you are of course familiar with ’ collateral ’- our banks do a great job of explaining that to you! Why don’t you use your own firm’s collateral, its assets, mainly accounts receivable, and monetize that asset into cash.
Clients are often fairly clear on the benefits of account receivable financing, which is also called invoice discounting or factoring. What they don’t seem to have the best handle on is how it works.
One you have such a facility set up it quite frankly is one of the easiest and quickest ways to unlock cash flow and working capital on a daily, weekly, or monthly basis. The power to choose your timeframes remains with yourself. And by the way, you only pay for the financing you are using. Let’s get back though, to how it works.
In Canada there are two types of factoring, we’ll focus on the most common one, which, by the way, isn’t exactly our favorite (there is a better one) but let’s keep it simple for now.
After your firm generates an invoice you submit it to your factor firm partner. That could be once invoice, several, or many or all. Funds for those invoices are wired, or sent to you, that same day into your account. Didn’t you just feel your cash flow being totally unlocked and flowing?! Approximately 10% is held back as a buffer, but as soon as your client pays you get those funds back also, less what is known as a discount fee, typically between 1 and 3% - 2% is pretty well the norm.
2% you say! Isn’t that expensive for small business financing. Absolutely, positively maybe, but we actually don’t think it is. That is because all in rates from your bank when you total up all the fees, services, standby fees etc often total in the 11-12% range , not the 6% or 7% you think you are getting . And furthermore, if you take the huge amount of cash you just receive and use it to purchase more efficiently, or takes discounts on supplier invoice payments you make your total cost of capital goes down . And, another point, if you are in a competitive environment, (who isn’t) does your ability to have unlimited cash flow put you steps ahead of your competition? We think it does.
There are a number of ways to finance your business. If your firm has A/R assets and you are challenged by the timing in which money flows through your business then consider the benefits of account receivable financing. Speak to a trusted, credible, and experienced business advisor on this popular financing tool for small business financing in Canada.
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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/account_receivable_financing_small_business.html
Sunday, October 3, 2010
Information on the Film tax credit for Canadian Independent Productions in Film and Television and Digital Animation
Canada’s film tax credit (by the way that includes productions in television and the rising category of digital animation) is becoming an intrinsically important method of financing independent productions in Canada.
When discussing these credits around Canadian film productions with clients it seems increasing evident that three key factors are driving the tax credit issue. Let’s quickly recap what we believe those three factors are, and then let’s discuss your ability to monetize those tax credits into valuable cash flow and working capital.
First of all Canada’s tax credits slowly seem to have risen to the top of the popularity pile – there isn’t a day these days when we don’t read about U.S. states either considering lowering the state film tax credits, or in some cases abolishing them altogether. A very Fox newsclip discuss the potential total abolition of film tax credits, which have long driven the industry to a certain degree. Secondly, he Canadian tax credit program on the other hand is considered more generous a better run. (We suspect that might be also because we only have 10 provinces as opposed to 50 different state laws around such credits!)
Another key factor is that after the 2008 world wide financial implosion debacle industries such as film, TV and animation are just slowly crawling back to normal, given the manner in which productions were financed previously.
As a general rule labour costs have traditionally been about 50% of a productions cost. By in essence having close to doubled the Canadian tax credits in provinces such as Ontario, Quebec and B.C. The current tax credits in effect were almost doubled when production tax credit per cent ages allowed was increased.
We don’t want to get into a Canadian geography lesson here, but the government also had the foresight to enhance the credits further for your production when you should outside of such major cities as Toronto, Vancouver and Montréal. As an example and case in point, we recently had a client develop a script around an Indian Bollywood type film – by shooting the project about 45 min west of Toronto in a suburban environment our clients tax credit situation was enhanced even further . More tax credit equals more cash flow and working capital for your production. The government appears to like the fact that about 250,000 people work in the industry in Ontario alone, and unlike the U.S. the Canadian government views the industry as an economic driver, not a cash drain.
Working with clients on various projects in film, TV and digital animation gives on an insight into how difficult and challenging it can be to put the financing of a film together. Pre production planning and financing is critical, as the current environment forces you to consider revenue solutions around theatrical release, DVD sales, cable and TV rights, etc.
Utilizing tax credit financing allows you to enhance the overall equity, return and financial risk and reward around your project. The film tax credit should be utilized to generate cash flow to assist in completing your project, or in many cases, allowing you to start work on the next one. We are also amazed at when talking to owners and producers as to how long they have been planning certain projects, and the overall financial undertaking they need to invest in vis a vis their time .
Monetizing (i.e. financing) your tax credit will take away a lot of the uncertainty around your productions success. If you have an upcoming project in Canadian film, TV and digital animation speak to a trusted, credible and experienced film tax credit advisor in the area of tax credit breaks. Consider financing your credit to enhance the cash flow and return on capital in your project. That’s a solid film finance strategy!
When discussing these credits around Canadian film productions with clients it seems increasing evident that three key factors are driving the tax credit issue. Let’s quickly recap what we believe those three factors are, and then let’s discuss your ability to monetize those tax credits into valuable cash flow and working capital.
First of all Canada’s tax credits slowly seem to have risen to the top of the popularity pile – there isn’t a day these days when we don’t read about U.S. states either considering lowering the state film tax credits, or in some cases abolishing them altogether. A very Fox newsclip discuss the potential total abolition of film tax credits, which have long driven the industry to a certain degree. Secondly, he Canadian tax credit program on the other hand is considered more generous a better run. (We suspect that might be also because we only have 10 provinces as opposed to 50 different state laws around such credits!)
Another key factor is that after the 2008 world wide financial implosion debacle industries such as film, TV and animation are just slowly crawling back to normal, given the manner in which productions were financed previously.
As a general rule labour costs have traditionally been about 50% of a productions cost. By in essence having close to doubled the Canadian tax credits in provinces such as Ontario, Quebec and B.C. The current tax credits in effect were almost doubled when production tax credit per cent ages allowed was increased.
We don’t want to get into a Canadian geography lesson here, but the government also had the foresight to enhance the credits further for your production when you should outside of such major cities as Toronto, Vancouver and Montréal. As an example and case in point, we recently had a client develop a script around an Indian Bollywood type film – by shooting the project about 45 min west of Toronto in a suburban environment our clients tax credit situation was enhanced even further . More tax credit equals more cash flow and working capital for your production. The government appears to like the fact that about 250,000 people work in the industry in Ontario alone, and unlike the U.S. the Canadian government views the industry as an economic driver, not a cash drain.
Working with clients on various projects in film, TV and digital animation gives on an insight into how difficult and challenging it can be to put the financing of a film together. Pre production planning and financing is critical, as the current environment forces you to consider revenue solutions around theatrical release, DVD sales, cable and TV rights, etc.
Utilizing tax credit financing allows you to enhance the overall equity, return and financial risk and reward around your project. The film tax credit should be utilized to generate cash flow to assist in completing your project, or in many cases, allowing you to start work on the next one. We are also amazed at when talking to owners and producers as to how long they have been planning certain projects, and the overall financial undertaking they need to invest in vis a vis their time .
Monetizing (i.e. financing) your tax credit will take away a lot of the uncertainty around your productions success. If you have an upcoming project in Canadian film, TV and digital animation speak to a trusted, credible and experienced film tax credit advisor in the area of tax credit breaks. Consider financing your credit to enhance the cash flow and return on capital in your project. That’s a solid film finance strategy!
Is It Smart To Finance Your SR&ED TAX CREDIT via a Sred Loan ?
You decide. Does your firm want to consider the benefits of a SR&ED tax credit loan? If you participate in Canada's sr&Ed program you are immediately eligible to consider financing that claim. Lets looks at why that might make sense, what are some of the benefits of monetizing your sred grant, and, finally, how exactly do you do that?
Any firm that has filed a sred claim via their own preparation, the utilization of a sred consultant, or through the use of their accountant has probably quickly picked up that billions of dollars every year are allocated to this program.
By participating in the program your firm is eligible for the non repayable grant on which the entire program is based.
So you have filed a claim. You are now in the waiting game process, as your claim has to be acknowledged, audited, and then processed for a refund cheque. When we talk to clients about what they will use the funds for a number of scenarios emerge - some firms hire additional staff, others , not surprising re invest in the entire r&d process to maintain their competitive posture within their industry .
In sharing our information on our sred subject we are making the assumption your firm knows about and is maximizing the program. As a sr&Ed claimant your firm develops or improves existing products, develops new ones, or invested in various process improvements via a trial and error type scenario.
So where are we at - we've simply re enforced the fact that your firm is aware of the program, it participates, and, via your sred consultant or accountant you are maximizing your eligibility for the maximum refund possible.
Cash is king, and you have spent a lot of your cash on the actual R&D involved in the program. Your firm has the option of financing your credit, as soon as it is filed. Clients are often confused about the financing of their claim - basic questions always seem to be - how much does it cost, is my firm incurring debt that I do not necessarily want to take on, and how long the process takes to finance such a claim and whats involved.
Let’s cover off those key points, which should allow you determine if you should consider financing your claim. We'll also throw in a few tips around maximizing your financing should you choose to proceed.
SRED financing of your sr&Ed tax credit is somewhat of a boutique finance industry in Canada. It is very rare that your bank will finance the claim. We certainly don’t agree with that, because in effect it is an account receivable, and they do finance receivables, don’t they??! Anyway, your firm will have to have a strong borrowing relationship with a bank to finance your claim. The reality is that this type of financing is best and more quickly achieving via a sred financing specialist.
Rates for sred financing vary, and factors that affect the rate tend to be size of claim, your company's current financial position ( many sred claimants are early stage, pre revenue, etc ) , as well as the perceived quality of your claim .
A sred loan is not debt per se, that’s important to understand, you are simply monetizing, or ' cash flowing ' one of your receivables, in this case the sred . Sred loans are structured as no payment loans and the final financing charges are simply deducted from the final cheque you receive from our good friends in Ottawa.
Sred financings can be processed, and funded in as little as two weeks - very standard application paperwork is involved, and the main collateral is or courses the sred itself.
Here’s some final tips we promised - have your sred prepared by someone who knows what they are doing, sred consultants are the best in this area as they are specialized. Count on receiving at least a 70% advance on your claim. Also, did you know that under certain conditions your sred can be financed prior to filing?
We’ve e shared some tips and procedures that will allow you to consider financing your claim. If additional cash flow and working capital are important considerations speak to a trusted, credible, and experience business financing advisor to validate your sred loan options.
Any firm that has filed a sred claim via their own preparation, the utilization of a sred consultant, or through the use of their accountant has probably quickly picked up that billions of dollars every year are allocated to this program.
By participating in the program your firm is eligible for the non repayable grant on which the entire program is based.
So you have filed a claim. You are now in the waiting game process, as your claim has to be acknowledged, audited, and then processed for a refund cheque. When we talk to clients about what they will use the funds for a number of scenarios emerge - some firms hire additional staff, others , not surprising re invest in the entire r&d process to maintain their competitive posture within their industry .
In sharing our information on our sred subject we are making the assumption your firm knows about and is maximizing the program. As a sr&Ed claimant your firm develops or improves existing products, develops new ones, or invested in various process improvements via a trial and error type scenario.
So where are we at - we've simply re enforced the fact that your firm is aware of the program, it participates, and, via your sred consultant or accountant you are maximizing your eligibility for the maximum refund possible.
Cash is king, and you have spent a lot of your cash on the actual R&D involved in the program. Your firm has the option of financing your credit, as soon as it is filed. Clients are often confused about the financing of their claim - basic questions always seem to be - how much does it cost, is my firm incurring debt that I do not necessarily want to take on, and how long the process takes to finance such a claim and whats involved.
Let’s cover off those key points, which should allow you determine if you should consider financing your claim. We'll also throw in a few tips around maximizing your financing should you choose to proceed.
SRED financing of your sr&Ed tax credit is somewhat of a boutique finance industry in Canada. It is very rare that your bank will finance the claim. We certainly don’t agree with that, because in effect it is an account receivable, and they do finance receivables, don’t they??! Anyway, your firm will have to have a strong borrowing relationship with a bank to finance your claim. The reality is that this type of financing is best and more quickly achieving via a sred financing specialist.
Rates for sred financing vary, and factors that affect the rate tend to be size of claim, your company's current financial position ( many sred claimants are early stage, pre revenue, etc ) , as well as the perceived quality of your claim .
A sred loan is not debt per se, that’s important to understand, you are simply monetizing, or ' cash flowing ' one of your receivables, in this case the sred . Sred loans are structured as no payment loans and the final financing charges are simply deducted from the final cheque you receive from our good friends in Ottawa.
Sred financings can be processed, and funded in as little as two weeks - very standard application paperwork is involved, and the main collateral is or courses the sred itself.
Here’s some final tips we promised - have your sred prepared by someone who knows what they are doing, sred consultants are the best in this area as they are specialized. Count on receiving at least a 70% advance on your claim. Also, did you know that under certain conditions your sred can be financed prior to filing?
We’ve e shared some tips and procedures that will allow you to consider financing your claim. If additional cash flow and working capital are important considerations speak to a trusted, credible, and experience business financing advisor to validate your sred loan options.
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