What Mom Didn’t Teach You About Working Capital Business Financing

If you're like most of us Mom never really gave us a lot of advice on working capital! That's why for such an important business financing subject we recently wrote on an older article in Canadian Business magazine that covered a total of 15 - yes that’s 15 ways) to finance your business . Perhaps these were the secrets of the Holy Grail that Mom never taught us, we thought?

The reality was that we had some strong comments and additional information on those 15 items, and we commented on 7 of them in the last article. Let's cover off those final items and hopefully get some real value on what Mom never told us about these things!

Under the category of ' government programs' the article talked about various federal and provincial programs or initiatives for business financing. Mentioned was the Community Futures program as well as the Canadian Youth Business Foundation. These are very narrow and segmented programs, in the case of the Youth Foundation, guess what, you have to be a youth, which hardly suits most business owner’s .Community Futures programs have tended to be rural in nature, have ad minimal funding allocated to them, and seem to have focused primarily on start ups that might generate employment.

Secondly, Mezzanine debt was referenced. This is of course essentially an unsecured cash f low loan provided by private finance firms. In many cases it focuses solely on cash flow as the repayment vehicle. The bad news on mezzanine debt is that it typically is available for transactions in excess of 5 Million dollars, which certainly doesn’t work for most small and medium business owner’s .For the record mezzanine financing rates are in the low to mid teens.

Private equity was out third source of capital. Typically these funds are provided by niche Canadian and U.S. private firms who focus on equity and convertible financing instruments that force the business owner to give up partial ownership .This isn't necessarily a bad thing if you get the working capital and business financing that you need, but you should absolutely be prepared to give up some ownership on these transactions, which are often quite substantial and take several months, if not longer, to complete.

Hey, let’s go public and have access to unlimited sources of capital. That’s the typical pitch made to Canadian corporations who consider this type of financing. The reality is that a true IPO listing on the TSX or Venture exchange in Canada requires a significant capitalization and track record. Ownership becomes diluted, and companies are forced into very strong levels of reporting and disclosure. Many of our clients have ' gone public' via reverse take overs of shell companies that had a listing, we have never seen this work satisfactorily, at least from a viewpoint of giving them unlimited working capital.

The Canadian Business article focused on the federal SRED program. Finally! A good one! An absolutely great program that provides billions of Dollars of capital for any firm in Canada that qualifies for research spending and adheres to the program guidelines. Sred claims can also be financed, similar to a receivable, as soon as they are filed, that supercharges the program even more from a working capital perspective.

VC money is often bandied about and sought by many corporations. Venture capital in Canada is struggling in the 2010 environment, any fundings seem to be going to firms that have been previously funded, and are getting additional capital (to stay alive?). Any Venture capital firm expects a high rate of return relative to the risk they are taking in financing your firm on an equity basis - in fact traditionally , as the article stated, the venture capitalists are looking for a 5 times return . Unfortunately for many Canadian business owners these types of fundings go to the sexier industry segments such as biotechnology, high tech, etc.

Well, that’s it. Hopefully we haven’t sounded too negative, but the general trend clearly are that the ‘ 15 ‘ options outlined in the original C B article clearly need to be grounded in a bit more reality for the average Canadian business owner and financial manager seeking capital . Speak to a trusted, credible and experienced business financing advisor who can provide you with an up to date realistic alternative on business funding.
--

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_business_financing_2.html

What You Must Know About A Lease Vs Buy Business Finance Decision For An Equipment Lease

Business owners and financial managers in business finance are always faced with the same decision in acquiring an equipment lease, namely should we buy or lease. Technically this is referred to in the finance books as the infamous ' lease vs. buy 'decision.


Let's examine some of the key points and facts you need to consider in that decision. Naturally the good news is that an equipment lease can be used to acquire almost any type of equipment or asset - that includes equipment, machinery, buildings, etc. More often than not it pays to seek a business financing advisor who is well versed in the benefits and nuances of equipment finance.

Working capital and cash flow tend to be the main drivers of the lease vs. buy decision when we talk to clients. It goes without saying that most Canadian leasing companies probably have a lower cost of capital then your firm based on their borrowing capacity and the way they are funded. Therefore that lower cost of capital becomes a positive advantage in the lease vs. buy decision.

In many cases the lease vs. buy decision will be very close and the actual non financial benefits of an equipment lease will drive your final decision. For example, although you might be in a position to construct a favorable buy versus leasing model you might not want to use business lines of credit to access the cash needed to acquire the asset.

Also one of the key tenets of finance is that you should use long term funds to fund long term assets - that just makes common sense. Simply speaking you don’t want to purchase an asset as opposed to l easing it and find out you might not be able to make payroll on Friday because your line of credit is maxed out!

As we said, some of the pure mechanical decisions around the lease vs. buy tool (there are numerous on line calculators which are references as lease vs. purchase analysis tool) can often be over ridden in your analysis by non financial considerations. For example, let’s say you clearly don’t want to keep the asset at the end of the term of its useful economic life. That’s where an equipment lease makes total sense, as it gives you the ability to return, extend, or even purchase the asset if in fact you end up deciding to purchase and keep it if your circumstances change.

Business owners might want to consider talking to their accountant or a business financing advisor on larger capital asset acquisitions. Some of the inputs required in the lease versus buy model include items such as the actual interest rate the lease company is charging you, your tax rate, the projected increase in profit via use of the asset, the depreciation expense you can take on the asset and your overall cost of capital which is calculated by analyzing your debt and equity in the business. Whew!! That’s some fancy accounting and it can best be left to your accountant or advisor on larger asset financing acquisitions. However the good news is that a simple computer spreadsheet handles all this for us nicely!

In summary the leasing versus buy tool in business finance can be a great asset in your financing decisions for new assets. Adopt Warren Buffets key approach, which is simply to determine if the asset financing opportunity delivers a solid return on equity for your business.

Yes our tool we outlined is important, but at the end of the day use business common sense to analyze the equipment lease opportunity and blend it into your overall business financing strategy .

--

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_finance_lease_vs_buy_equipment_lease.html

Has Your Company Overlooked the business financing of receivables or Factoring as a Working Capital strategy?

Have you forgotten something? Perhaps it is just a case of overlooking or not knowing all your alternatives in business financing for working capital. Factoring receivables for cash flow is just one of those strategies that you may have missed, not heard about, or not fully understood or investigated.

Let's do a basic ' primer' on this somewhat unknown or mis-understood form of business financing. Many Canadian business owners or financial managers mistake factoring or the selling of your receivables as a ' loan '. That is not the case, it’s simply the case of monetizing or cash flowing your probably largest current asset, your receivables, and paying a financing charge, or discount fee for the service

In general approximately 90% of the value of an invoice is advance to you pretty well the same day that you issue your invoice. Your normal obligation is to provide some sort of proof of delivery or acceptance of that invoice related to your goods and services.

We're of the opinion that factoring receivables seems to be viewed as a small business financing tactic , but we can assure readers that some of the largest corporations in Canada utilize the tactic also - in some cases its simply jazzed up with a fancier name such as ' securitization' or financing via 'asset backed commercial paper ' , etc. So the big boys are doing it also! Don't forget that.

When clients talk about moving forward on this type of business financing the largest challenges seems to simply be their ability to understand pricing, pick the right firm to work with, and finally, to ensure that the daily flow of paperwork around this type of business financing makes sense . If the wrong factor partner is selected there are countless stories out there of firms who have experience a negative level of customer intrusion around the whole factoring receivables process. So choose your partner well, and probably the best info or advice we share in this regard is to seek the services of a trusted, experienced and credible business financing advisor who can steer you towards financing and cash flow success.

A common question related to our 'primer' on factoring (also called invoice discounting or receivable financing) is: ' Do we qualify '. The short and positive answer is absolutely, if you have receivables you qualify, that's what this form of business financing is about.

Many business owners or their financial manager’s struggle with the cost of this type of financing which typically is in the 1- 2.5% range in Canada. The bottom line on the costs is simply that they will vary relative to the size of your receivables, the perceived credit quality, and the type of firm you contract with in this regard. That’s where the help of a Canadian business financing expert can help you immensely. In fact more often than not that expert can demonstrate how you can significantly reduce the cost of financing receivables to almost zero in some cases, but certainly a reasonable amount in most situations.
So whats our primer summary on receivables and business financing via factoring. It’s simply that if you’re reading this you probably have a business financing challenge. A/R financing is a method to eliminate that challenge. Working hard on your financing is commendable; working smart on your financing with an expert is a must. Investigate the solution that will bring cash to your firm’s door tomorrow.

How Film Financiers Can Monetize and Cash Flow Your Film tax incentive

Everyone else seems to know about them and are taking advantage of them, so why aren’t you? We are of course referring to the film tax incentive for film financiers in Canada.

There isn’t a day when we don’t read about film tax credits in the U.S. being under consideration for downsizing, or in some cases total elimination. That seems to be the trend in the U.K. also. So whats the good news? Welcome to Canada! The Canadian government has not only stepped up to the bar to maintain the credits and decry their benefits, they in fact have enhanced the credits for additional significant increases, primarily in the production credit area as well as digital animation.


We strongly feel that without the film tax credit incentive many productions info fact would not get made or completed, certainly those that are independent in nature, and non studio affiliated come to mind . Hollywood North is of course the generic industry term for the film, televison and digital animation industry. This typically seems to refer to projects being filmed or produced in Vancouver, Toronto and Montreal. But to show you how powerful the tax credits area, producers, owners and director can actually enhance their budgets by filming and production projects outside of these major centres - and, guess what, at that point the tax credits actually increase.

Film financiers and the industry in general seem to strong recognize the film tax incentives. It’s not hard to see the popularity of these tax credits, given that budgets seem to be increasing, and access to capital was somewhat demolished in the 2008-2009 global recessions which hit every industry, not just entertainment of course.

Project owners always have the same challenge; we are referring primarily to independent productions, not major studios which have much more access to capital. The challenge is always the same, raise some equity , work hard to ' sell' or ' pitch' your projects to distribution and pre sale entities, and then wrestle down that final gap via bank and tax credit financing .

The monetizing or cash flowing of your film tax incentive credit can be a key part in the successful financing and completion of your project. In Canada the production tax credits in the past primarily focused on the labour component, but now all sorts of other eligible expenses can be claimed. This only means one thing, a larger tax credit, and more working capital if you monetize of cash flow your credit.

In Canada your film tax incentive credit can be financed either on final certification or completion. However, if you have a credible project with a solid finance plan and a track record you can actually obtain accrual financing to significantly cash flow your project during production. Most conservative finance people would suggest your use the cash on your tax credit to successfully complete your production, more aggressive owners of projects often use the funds to start the next great project t - that’s your call .

Successfully cash flowing and monetizing your tax credit enhances the overall potential return on investment in your project. Speak to a trusted , credible and experienced film tax credit financing advisor to help recoup and enhance the investment and ultimate 's 'saleability ' of your project .

Not Considering Sred Tax Credit Financing Could Be Costly

Canadian business owners know that the SR&ED program in Canada is a huge benefit, and an incentive to the funds that Canadian firms commit to research and development - we haven’t met one firm yet who doesn’t think it’s a great program.

But are you missing out one on aspect related to ' SRED ‘, which is that you are able to implement sred tax credit financing that in effect supercharges your non repayable tax grant . Simply speaking your ability to monetize or cash flow you sr&Ed claim remarkably enhances your overall business financing.

THE SR&ED program (Scientific Research & Experimental Development) reimburses your for your R&D expenses - you know that already. So at this point a compelling choice emerges - you have the option of waiting for your cheque from Ottawa and the Provinces (you are perhaps familiar with the saying ' the cheque is in the mail’!) or you can facilitate a SRED loan to obtain your cash today.

Many younger , emerging or start up firms that we have worked with count on the cash from their SRED grant as one of the largest receivables or cash injections they will receive at one time during the year . That’s a lot of money to most firms. Actually the government statistics show that anywhere from 2-4 Billion dollars in any year go out to firms such as yours in the form of non repayable sred grants.

So how does sred tax credit financing work? Asks clients? Is it complicated, time consuming, what else is involved? Those are all perfectly legitimate questions.

We'll provide a very basic overview of the sred tax credit financing process. First things first - you need a sred claim completed and filed. In certain circumstances financing can also be done prior to filing your claim, but for simplicity sake we will focus on your claim having been filed.

If your claim has been prepared by a sred consultant with experience and reputations that plays a great factor in your sred loan approval. As you can imagine the actual sred claim it is the collateral for the loan, so we want to ensure your calim has a very significant chance of being approved. We hate to say it but it is rare that a business owner or your accountant can prepare a proper claim, simply because as in all fields of business an expert is preferred.

For the actual financing of the claim it also doesn’t hurt to work with a sred tax credit financing expert. He of she will enhance the speed of your funding, which involves simply a basic standard business financing application as well as review of the claim as we have stated. Funding is not for 100% of the claim, a very typical amount is 70%, and the other 30% is more or less to be viewed as a buffer. You can expect the whole process to take a couple weeks, which certainly isn’t bad, and if you focus on working with a sred financing expert you should have minimal delays, if any.

In summary, if the Canadian government is allocating billions to firms such as yours, clearly having cash is better than waiting for cash - consider monetizing your claim today and stay one step ahead of your competition that are still waiting for that cheque. Remember, as we said, it’s in the mail!

Common Mistakes to Avoid When Entering Into a Franchise Financing Loan

Many Canadian would be entrepreneurs and business owners find that financing a franchise is often as challenging (if not more so) than the process and work and due diligence in selecting the right business to purchase.

Lets share some hands on, ‘real world’ advice and tips on franchise finance in Canada. Fantasy might often work for you, but NOT in business financing!

Business financing is a challenge on any level, major corporations wrestle with it everyday, and you are wrestling with it as you contemplate your new business venture. Naturally all our comments and advice relate to both a new franchise or your purchase of an existing business that is being sold by a franchisee .

A lot of franchises would do well to understand how the franchise industry is regulated in Canada and what types of disclosure and protection are in place for both you, and, to be fair, the franchisor. Those rights and obligations you have are under something called the ‘Arthur Wishart Act’ if you are in Ontario - other provinces have similar legislation. We strongly recommend that you look at the Act, and quite frankly your lawyer might be the best one to do this.

Clients always ask us what rate they might be expected to pay on a franchise finance loan in Canada. We are very clear on that, and the answer is ’ it depends ’! Would a rate in the 5-6% range sound good to you. We certainly think it does given you are a small business and in many cases viewed as a ‘start up ’, notwithstanding your franchisors depth and reputation. That interest rate is available to you through a loan technically known as the BIL loan, also called the CSBF loan. Lay people call it the government Small Business Loan, and it is categorically the way in which a majority of the franchises in Canada are financed. Speak to trusted, credible an experienced advisor in this area of franchise finance who can successfully complete this financing for you.

Is a BIL franchise loan the only way to finance a franchise? Definitely not, other alternatives include a cash term loan, equipment financing for any hard assets in the business, and the final piece of the puzzle, which is your own owner equity or cash investment into the business. All business is financed by borrowing (debt) plus the owner equity contribution.

Can you get a franchise finance loan without any personal guarantees - the quick tip and answer is ’ no ‘, we don’t think so, but we also point out to clients the aforementioned BIL loan requires only a 25% personal guarantee.

Clients always ask if a franchise can be financed with no down payment - here’s our quick tip on that - No, absolutely not. Whether you are financing a pizza franchise or building a car mfg plant any lender in North America will look to some owner financial involvement in the project. The balance act becomes how much, as there are pros and cons of putting down too much or too little equity.

Can you purchase a franchise without some thought around a business plan - we don’t think so, and info act the best tip we can give you is to do a business plan, and if you aren’t preparing it personally at least stay involved in the input and the process. It will steer you towards a common sense level of financial success in your business.

Prospective franchisees are always asking if an appraisal is required. Generally it is, but the biggest tip we can give you in this area is that the modest cost of an appraisal can actually be the largest financial benefit to your franchise financing, as it has the ability to increase lender confidence and lower your estimated personal financial commitment to the business.

Franchise finance has many small twists and turns along your process - investigate financing options thoroughly and our tips should help you to minimize personal risk and maximize the financing of your business.

--

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/franchise_financing_loan.html

Reinventing Your Business Funding with Asset Based Lending Companies

Asset based lending companies have come a long way baby! Seriously though, business funding has dramatically changed in Canada - it was always a challenge - 2008 Global implosion happened, and guess what, business financing is more challenging than ever. Every Canadian business owner and financial manager for companies of all size and industry knows that.

We're all heard that when the going gets tough the tough get ... well you know what we mean. So business financing via asset based lending was slowly becoming more popular in Canada (It’s huge in the United States) and has become, can we say ' ultra popular' in our current time.

Asset based lending as new as it is in Canada certainly can't really be called ' innovative '- it simply focuses on, guess what ' assets '! It is essentially a great financing solution for companies that are normal, distressed, leveraged, experiencing high growth, etc.

The problem we have with the term asset based lending or asset based finance is simply that it is a bit of a catch all when it comes to being used or explained to business owners. We define this type of business funding as revolving lines of credit based on asset quality, receivable discounting, inventory and trade financing, which sometimes can actually include purchase orders or contracts.

The reality is that this type of financing can be customized to every industry for companies of all size, although typically we tell clients that the facility works best on transactions of 250k+.

Asset based lending companies can help you manage and grow your business, with the focus on ' grow’,

The biggest mis understanding around asset based lending is that typically it is not done via a bank; it is managed through private independent finance firms that are very experienced in asset valuation and funding. Their experience allows them to take a look at your financeable assets and maximize what is known as an ongoing ' borrowing base' for those assets. Typically we are talking about receivables, inventory, equipment, and as we noted, in some cases purchase orders and contracts.

The benefits of working with asset based lending companies are that it is a fast, innovative method of financing your company that is not focused around the requirements that a Canadian chartered bank would typically impose. We can honestly tell clients we have never seen an asset based line of credit not deliver on significantly more financing that the customer would have ever achieved with a bank revolver.

So what’s the bottom line - simply that by investigating this method of business funding you potentially have the ability to enhance your overall business financing for growth and success. Speak to a trusted, credible and experienced business financing advisor who can put you on track to better business financing! That’s a good thing.