Worried About The Cost Of Business Accounts Receivable Factoring ? Problem Solved !

While many Canadian business owners and financial managers are accepting the significant benefits that come from business accounts receivable factoring what they continue to struggle with is the cost of this type of financing. Let's examine the proper method of looking at this cost of financing and ways to minimize the cost with the choice of an effective partner.

As a basic primer invoice financing is essentially the short term sale of your receivables, or ' AR’ that generates immediate cash flow and working capital for your company. Sounds good so far right? In certain cases it even eliminates all your credit and collections costs, although we must be frank and say that type of financing (turning over your credit decisions to another firm) isn’t our favorite, or recommended strategy. Clearly being able to obtain the benefits of this type of financing and being in total control of your own invoicing and collecting is the optimal solution.

The benefits of accounts receivable financing all come back to cash flow - business owners quickly realize that sales don’t equate to cash, and that can become an ongoing problem . Many entrepreneurs we meet advise they struggle with cash and working capital issues on a daily ( if not hourly !) basis, And given that they cannot obtain all, or the proper financing from their banks it seems logical that business accounts receivable financing is truly the only, and perhaps best, solution.

So, back to our main topic, which is understanding the cost of this type of financing! Canadian business needs to realize that if the lack of financing is stopping you from growing your business then the cost of new financing should probably not be your biggest worry.

Let's look at a real world type example. Take a look at your balance sheet. You probably have limited or minimal cash on hand and significant investment in receivables.

Let's use a firm with 1 million dollars in sales as an example. Lets assume you have some decent, or even great gross margins, or ' cost of sales '. Your overhead costs are fixed, and in control, and you are a profitable company. Since you haven’t any access to bank or traditional financing your net income is positive, but not growing.

If you can grow, or perhaps even double, your business by solving your cash flow problem then the business accounts receivable factoring cost is only associated with your additional growth that comes from accounts receivable financing .

Again, back to our example - your sales are 1 million, you have no financing, and factoring or invoice discounting will allow you to grow your sales to 2 million dollars. The cost of financing would probably be in the 40,000 to 50,000 dollar range - however, your overheads, or your fixed costs have stayed the same. Your profits, minus the factor cost can probably easily double.

Our example above focuses on the concept of opportunity cost, i.e. what you can do with capital by achieving more turnover and profits.

The actual financing cost of business accounts receivable factoring in Canada vary - they typically are between 1- 3% a month. 2% tends to be the norm. Better pricing can be achieved based on the size of your facility, the relative quality of your receivables, as well as the type of firm you deal with when you enter into a receivables financing arrangement. And don’t forget that confidential account receivable finance is also available in many cases - allowing you to totally control your customer base and cash flows.

Speak to a trusted, credible and experienced Canadian business financing advisor so you can truly understand the real cost, and the lost opportunity issues we have provided as an example. It may well be your ultimate cash flow revelations and solution!

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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

Understanding Credit Securitization Loans

Securitization is a financing term that is not commonly used by the average finance person, let alone the average lay person who has no detailed knowledge of business financing and alternative financing. The term ' securitization' became increasingly well known during the financial and liquidity crisis that the world experienced in 2008/2009. We discovered that one of the main causes of the world wide financial collapse was, in effect, the securitization and marketing and sale of mortgages.
It is an alternate form of funding for corporations. When it works well it is an excellent source of funding for many organizations. Securitization is a form of structured finance.

Credit securitization loans allow you to remove assets from your balance sheet, obtain liquidity, and important to many firms, keep those borrowing ratios intact for your loan and ratio covenants .

How does it work? A company or organization takes certain assets that are desired by various investors. These assets are most typically receivables, contracts, car loans, credit cards, mortgages, etc. The quality of these assets is key in the entire securitization process. We watched the financial world fall apart when people discovered those securitized mortgages that were bundled in the United States had a very low credit quality.

One of the reasons investors like securitized assets is that the risk is spread among hundreds, probably thousands of different borrowers. This diversifies risk. We continually here how one needs to diversify to control risk, whether in business or in our personal financial affairs. The cash flows that come out of that pool of assets backs up the quality of the investment by the buyer of the securitized asset.

For a transaction to be properly securitized there has to be a strong level of predictability in the repayment of the loans, leases, mortgages, etc.

How are Securitizations structured? The assets become known as a' pool 'of assets. Financial analysts or the credit rating agencies ( Standard & Poors, etc ) assign a credit rating to this newly created SPV. ( Special Purpose Vehicle ). Investors buy this pool of assets because they theoretically understand the asset quality and the risk. There are many subsets to the risk which we won’t cover in our article - for example concentrations of assets or customers, etc

The pool of assets is usually ' serviced ' by the seller. He collects and maintains the portfolio - of course it has he who also created the portfolio of assets. The ongoing collection of the portfolio flows back to the investors who purchased it.

Securitization has become more and more popular because it has provided great liquidity to the financial markets.

In summary, the securitization flow chart is as follows:

A seller creates the assets

A SPV is formed around those assets

Investors purchase the SPV

A trustee monitors the flow of cash, collections, etc.

Of course as one can imagine all sorts of lawyers, accountants and financial analysts have a healthy hand in various aspects of the above process flow!

The benefits of securitization can be summed up as follows:

* It provides cash flow to many companies who would otherwise have to wait years for customer payments, etc

* Profits from the sale of the pool of assets allow a company to grow and create more assets

* When properly structured there are certain balance sheet enhancements - i.e. the company selling the pool gets cash but does not take on debt.

Securitization can be a complex financing arrangement if you don’t have the right team and information in place . When you do have that team it’s a very viable financing alternative in the refinancing of your firm on an ongoing basis . Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in credit securitization loans and 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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

Successful Lease Financing Approval in Canada

Are you having challenges in getting lease financing approvals in place in Canada for your assets and capital expenditures? The current difficult economic environment makes it more challenging than every for Canadian business owners to get the proper rate, terms, and structure that they deserve. Let’s share some expert tips on what you need to understand for solid equipment financing approval and success.

Success lease equipment financing requires a working knowledge of what the lessor is looking for in a transaction.

Owners can safely assume that the lender is doing significant work on financial statement analysis to satisfy them they are making a proper financing decision with you firm. Included in this analysis is strong emphasis on cash flow history and projections, operating efficiencies of your firm as measure by industry accepted ratios, and balance sheet analysis with respect to the amount of debt your firm is carrying, etc.

In our previous article we suggested that business owners should be aware of some key 'structuring options 'that lenders use when they are contemplating an approval that they are not 100% comfortable with. These options, previously discussed were:

- Utilizing higher rates to compensate for risk

- Use of Security Deposits

- Use of advance payments

- Structuring higher payments in the earlier years of the lease

- Shortening the lease term to offset long term risk

Business owners should be aware of some additional enhancements that can further a financing approval when your firm might not fully qualify for your desired amount of financing and overall structure.

Let's looks at some of those additional enhancements that compliment the 5 areas we have noted above.

Business owners who are not familiar with some of these financial nuances should employ the use of a trusted leasing advisor with credible experience, thereby significantly increasing their chances of getting a lease financing approved.

Business owners might not always be comfortable with providing a Personal Guarantee on the transaction; however personal guarantees are a clear fact of life in the Canadian business financing environment. The logic of the lender, in this case your equipment lessor, is that you are more motivated to make those payments if you are personally obligated in the matter also. Naturally companies incorporate to avoid personal liability but business owners are often called upon by lenders, lessor, etc to provide a guarantee. It goes without saying that the lender will also want to validate the quality of your personal guarantee.

In many cases you as a borrower, or the lender might request, additional collateral on the transaction. This would be collateral that is currently unencumbered, but in effect shores up the lessors overall position, allowing your transaction to be approved. In many cases you will be required to provide some form of documentation (usually an appraisal) of the additional asst.

In some circumstances effective additional collateral might be credit life insurance on the transaction - in a smaller of mediums sized Canadian firm the lender / lessor may rely on that insurance in the event something happens to the owner, that something being ' death ' of course!

Not all Canadian business owners know that in some cases the manufacturer that you may be purchasing and financing the equipment through is in some cases agreeable to providing a limited or partial guarantee on your transaction. They are making a sale, generate profits from the sale to your firm, and may be able to remarket the asset if the lessor requests assistance in this area.

Speak to a trusted, credible and experienced Canadian business financing advisor to ensure you have the ability to successfully meet your equipment leasing and financing needs.

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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

How To Get A Government Small Business Loan In Canada – SBL Business Financing

Most Canadian business owners and financial managers are not aware that if they have been 'refused 'a loan by a Canadian chartered bank that they can still apply, (to that same bank!) for a government guaranteed Small Business Loan.

We have observed this loan is called a number of things by a number of people -Borrowers refer to it as an 'SBL '(Small Business Loan), or a 'government small business loan. Bankers tend to refer to it by its more formal and legal names, the BIL loan, or the CSBFL.

Whatever you want to call it, the loan is a great part of the governments focus on assisting business with financing.

So how do you get the loan, and what's involved?

Although the loan is directly guaranteed (90%) by the government, the loan is actually administered by the Canadian chartered banks. The government emphasizes that they like the banks to participate in this program, and the government guarantees to the banks the 90% of the loan amount.

The biggest issue, we think, with the program, is the misconceptions that come with the program - business owners think they cal get a 'line of credit 'under the program. This is not the case. In certain instances the program tends to be confused with another program called the COMMUNITY FUTURES program. This is a separate program that is funded by certain economic regions to promote employment and business in that particular area or geography. It tends to be a bit more 'rural 'in focus. Again, we emphasize, the Community Futures program is not the government guaranteed Small Business Loan. (In the U.S. our government loan is called an 'SBA' loan, as it's administered by a separate organization set up by the government).

So, who qualifies? Hopefully your business! You must have revenues under five Million dollars per annum.

So when should you proceed - We would recommend right now, not when your venture is in desperate need, at which point your chances might be less than successful.

What is the 1 Million dollar issue on the program?! It's as follows - Dealing with banks and paperwork requires proper preparation, detail, and you need to allow for some reasonable time frames. That is your 1 Million dollars worth of advice!!

So what are those key next steps? Ensure you have a crisp financial package - balance sheets and income statements, your personal financial statement of net worth (more on that in a moment) and a clear business plan and summary of your business, the funds needed, and the purpose of the loan. A proper description of any assets being purchased (quotes / invoices, etc) helps also.

The application must re handled by a Canadian bank. Here is where we recommend that if you either don't have a banker, or if you don't have a strong relationship with a bank/banker that you used the resources of a business financing advisor /expert in this area. The nominal fee you might pay this person is worth its weight in gold if they have solid contacts and experience.

In our experience many government small business loans are not automatically approved on the first time - they are in fact reviewed and adjudicated by people at the bank that you will never meet. So be prepared to enter into healthy dialogue on any questions or issues that might come up! It is not unusual to go back and forth a bit clarifying any of your issues that might have come up in the application.

So whets the bottom line? It's as follows: this is a solid government financing program. Business owners should understand it's administered by the bank, but not run by the bank, so to speak. Prepare a good package, if you can't, enlist an expert by speaking to a trusted, credible and experienced Canadian business financing advisor on the government small business loan ( SBL ) Be patient, and hopefully those government funds will be 'flowing 'into your firm shortly?
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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

Software Leasing and Financing in Canada

Software Leasing? Is that possible? Absolutely! Many businesses, both small and large do not realize that software can be leased or financed. Although software financing is unique in some manner, in general it has many similarities to equipment leasing.

It is also proper to ensure that right finance firm is utilized, as many lenders are somewhat risk averse to financing this asset. However, many others are looking for business in this area!

Contrary to popular opinion software as an asset in many cases has more value that a depreciating hard asset. It has also been confusing for lenders when it comes to the registration of collateral under Canadian PPSA (PERSONAL PROPERTY SECURTY ACT) legislation.

In its broadest term the financing or leasing of software that can't be transferred to another user. The business owner does also of course not own any development rights in the software. Software financing is treated as a financing mechanism; it is not a true lease per se.

Some additional key points around the technicality of software leasing/finance are as follows:

The right of a customer to use the software gives the company no right in the intellectual property surrounding the developer’s rights in the software code. The best example of this is when we look at our EXCEL spreadsheets that we use in finance and home matters. We use the software, but Microsoft of course owns it.

The problem in the past around the financing of software revolved around the fact that lenders did not know how to collateralize and register their security. Under current PPSA legislation intangibles and software can be collateralized. Therefore the software financing lender/lessor can be very confident that the software can be collateralized.

At the heart of the software financing issue is the true value of the software to the business owner. He runs his business on it, i.e. CRM programs, office software, manufacturing software, etc. Software lease payments tend to be made since the asset is indispensable to the value and on going concern of the business. Unless companies are liquidated in total bankruptcy most lessors and finance firms recover fully on their software leasing - Source - Journal of Equipment Leasing
In many business bankruptcies the software lessor or lender is treated as a secured creditor.

Also key to the software financing issue is that many software firms offer maintenance, support, and updates around their product. This enhances the lenders asset as it is used for longer lengths of time, and often constantly upgraded. Quite frankly it becomes less obsolete than computer hardware!

Many software lessors and lenders also finance the service and maintenance contracts associated with their customer’s software acquisition.

We do acknowledge in this article that it is more difficult to finance customized software although it is possible based on the overall credit strength of the borrower. Many customized software deals are done with only investment grade borrowers where credit risk is minimal. Many smaller ticket lessors and lenders however do now lease software. In general these transactions are full payout capital leases.

In summary, software lease financing is available and should be considered by every business owner in the same context as a capital equipment finance transaction. The computer hardware industry has grown with leasing, and the software industry is doing that also. The same considerations an owner gives to lease vs. buy apply to a software finance acquisition.

Speak to a trusted, credible and experienced Canadian business financing advisor who will help you ensure your software acquisitions can be adequately financed under the best rates, terms and structures that make sense for your company.

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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

How To Finance A Franchise In Canada – Make Franchise Financing Work!

Is there a perfect, foolproof method on how to finance a franchise in Canada? Naturally there are no sure things in business, but financing a franchise has a 99% chance of success, if, and it’s a big if, you are prepared and have expert knowledge on how this type of business financing is done in Canada.

It’s not secret that franchise finance is hot! From the downsizing of companies in Canada and the U.S. to simple entrepreneur dreams thousands of would be ' business owners' are looking to explore the franchise dream for personal and business success.

Franchise financing pays off, as we said, if you are well prepared. You also have to be in a position to understand that the concept of OPM, or ' others peoples money ' doesn't work in any business, let alone a start up franchise. By that we simply mean that you have to have somewhat of an investment to make in the business. Those funds must be accessible and you have to be in a position to demonstrate the source of those funds.

Typically our clients make their equity deposits into a franchise business from savings, or friends and family type donations. In many cases they have either liquidated assets, i.e. savings, or perhaps collateralized their home via personal line of credit, etc. The bottom line is simply that you should generally be in a position to put 30-40% down as your own investment in the business.

You are now in a position of being able to find the remaining funds you need to both purchase, and of course run the business on an ongoing basis.

We will now show you have to finance that franchise. First of all, ensure you have a proper cost breakdown. That should be broken down into soft costs and hard costs. Soft costs are typically items such as the franchise fee, etc. The real hard costs are the assets and leaseholds and equipment you are purchasing, which should be broken into those three categories.

As much as clients hate to do it, you need a business plan that describes you, your experience, the business, its potential. When you address the key issue of how to finance a franchise you must demonstrate in the financial section how your loan or newly acquired debt will be repaid. If you don’t have experience in preparing such a plan an expert can prepare one fairly economically - we view it as a true investment in financing franchise businesses.

So who exactly is in the franchise financing business in Canada from a lender perspective? One guy is BILL. That's an attempt at humor, as the BIL program, formally known as the Business Improvement Loan program is by far the largest funder of franchise in Canada. That program, coupled with some specialty lending in the areas of equipment and working capital allow you an excellent chance to get your franchise financed.

In summary, when addressing how to finance a franchise in Canada know your costs, summarize your proposal in terms of yourself, the business, and its financial potential, and ensure you are in a position to present the transaction in a professional manner to an experienced franchise financing lender. Speak to a credible, experienced and trusted Canadian business financing advisor if you need assistance in your entrepreneurship financing goals in franchising.
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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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

Looking For Asset Financing ? Does Your Firm Have What It Takes For A ABL Facility With An Asset Based Lender

You're on the hunt, and the prey is business financing under an asset financing scenario you have heard so much about. Let’s examine what an ABL facility is, who is the asset based lender that offers this financing, and, oh yes, do you qualify?

To say that business credit financing is top of mind these days with Canadian business owners and financial managers is clearly an understatement. With the economic clouds clearing on the horizon after the 2008-2009 business credit meltdown business owners are looking for growth financing.

And the reality is that the type of operating facilities that you are looking for are getting tougher to secure from Canada's major chartered banks. We are of course referring in general to firms that have some sort of challenge, because medium sized and large Canadian firms with great balance sheets, profits, and solid cash flows can access great credit terms from the banks.

Unfortunately that isn’t the client profile we're talking to everyday - as owners we meet have challenges such as inability to secure the operating cash they need, the requirement to acquire additional assets, or even a full acquisition of a competitor. And that economic turbulence we mentioned earlier usually means that many firms are coming out of a turnaround type environment and are slowly getting their financials back in order. Therefore the ability to secure an ABL facility (abl = asset based lending) for inventory and receivables becomes the goal in asset financing.

So what is the real difference in asset financing under and abl facility compared to a bank line of credit, commonly called a ' revolver ' in business finance. The best way we explain it to clients is that the bank focus is on cash flow, the asset based lender focuses on assets. Big difference!

So, does your firm qualify for abl financing? In general, as we stated, any firm with assets of receivables, inventory, equipment and real estate qualifies. Where the challenge comes in is deterring the overall quality of those assets as well as the size of the facility. An ABL facility is generally available for any firm with over 250k in a combination of receivables, inventory, and equipment. In certain cases even tax credit receivables can be financed.

Where you as a business owner have to focus is the choice of a partner in this type of financing. If your facility requirements are in the millions of dollars and you have high quality business assets (i.e. collectible receivables, inventory that turns) you can access significantly more credit than under a normal bank facility - at rates commensurate with bank financing.

Small firms pay a premium for this type of facility, but when you consider you can access almost all the business credit you need under such a line of credit, coupled with the ability to grow profits and revenues and take on additional orders... well , we'll let you decide if that’s worth a premium .

If you want to comfortably walk the business financing minefield in ABL and feel you aren't 100% conversant with the players, requirements, and pricing then consider seeking a trusted, credible and experienced Canadian business financing advisor in this area .

P.S. If you found your access to business credit has just doubled, don’t say we didn’t tell you!

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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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

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