How To Achieve Acquisition Financing Successfully In Canada

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How To Finance A Business Acquisition in Canada

While the terms m&a financing and capital acquisitions conjures up visions of having to be a Bay Street / Wall Street heavyweight when it comes to sophisticated financial knowledge the reality is that financing to buy a business in the small to medium-sized sector of the Canadian business landscape actually requires a healthy element of ' do it yourself ' when it comes to acquisitions of competitors, synergistic companies, etc. The proper source of financing may often mean a number of appropriate solutions must be analyzed and investigated.

Companies consider financing a business acquisition because they want to increase revenues non organically or in some cases penetrate new geographical markets. So the right capital to fund a purchase and then operate the business is key.


Very few business owners can complete an all-cash deal, even in a good economic environment, much less a pandemic! Therefore financing buying a business with the proper and right type of debt allows you to not give up equity - that equity often called the most expensive form of financing. So if you have a good target company with understandable profit, sales and cash flow generation ability acquisition financing through borrowing is a recommended strategy.


Don't however underemphasize the importance of a solid external team to assist you with the expertise you need. Let's examine some solid ' need to know ' info that will help the Canadian business owner and financial manager address any acquisition successfully.

The goal of your purchase from a finance viewpoint is to ensure you have what is known as a ' capital structure ' in place that allows for a smooth takeover and continued growth of your target company. So from a business finance viewpoint, you want to focus on the right mix of debt and equity in the final structure that allows a firm to both operate and grow. The ' cobbling together ' of that right mix of finance leads to successful business acquisitions. In some cases you are integrating a business into the new business, which is even more of a challenge.

The value you are placing on the target acquisition is critical. It's that buying price that ensures you are paying for true value and worth. There are many different measures relating to a final valuation and financing an acquisition - typically revolving around sales, earnings, levels of depreciation, and a final calculation of what valuators call 'normalization' of the current earnings. This ' normalization process' takes out any expenses that won't incur in the future again, therefore providing a true ' earning power '.

Typical Acquisition Finance Structure / Financing The Purchase Of An Existing Business

Those measures of valuation we described are typically calculated as ' multiples' of the valuation points in question . Note that multiples vary in each industry allowing the purchaser to make an 'apples to apples' comparison of what he or she is buying. For example a company in a certain industry's sale price might be expressed as a ' 5 times multiple ' of current earnings before items such as depreciation which is a non-cash expense.

Business Acquisition Loans In Canada / Types Of Business Acquisition Lenders

A sample capital structure for financing acquisitions might look as follows:

Senior Lender
Selling Financing component
Cash Flow Loan
Owner equity component

As a buyer you need to determine what the potential earning power and sales revenues might be in future years, therefore allowing you to arrive at that ' multiple ' we have discussed. It is important to understand that lenders will always look very carefully at the ratio of debt and seller financing and owner equity to ensure they are in line with lender requirements.


Naturally the more a borrower puts in the less he or she has to borrow, which underwriters view as a buyer's commitment, or, in the language of the people 'skin in the game'!

The debt you incur in a transaction is usually a combination of senior debt which covers the main assets of the business and typically will include operating facilities for accounts receivable and inventory that arise out of future sales.

Today many business people consider asset-based lending, also known as asset-backed financing as a solid alternative to traditional Canadian chartered bank financing. By lending aggressively against equipment, receivables, inventory and real estate a transaction can often be completed to the approval of the purchaser.

Subsets of asset-based lending such as accounts receivable finance and inventory loans are key solutions to a final lending mix. The right a/r finance and inventory finance will ensure you have a handle on your ' cash conversion cycle ', namely the amount of time it takes a dollar to flow through your business, and we can assure you that timeline varies within different industries.



Revolving inventory loans, based on the value of the inventory, provide the cash to pay your suppliers. It takes time to convert the inventory into sales, use the value of this asset to help speed the process. Available in conjunction with accounts receivable financing or as a standalone retail inventory loan.




In some cases, even in a management buyout scenario a bank or commercial finance firm will consider a leveraged buyout, essentially used the assets of the target company as security for a loan/loan. Naturally, in these cases, assets must be strong, and there should be solid evidence of historical cash flow to support the much higher than usual leverage ratios.


Financing from a senior lender, either a bank or a commercial alternative finance firm, will bring you, the purchaser, into the world of ratios, covenants, and personal guarantees. A shorter-term loan will be less restrictive in nature. Lenders will typically investigate personal credit history and credit scores of the buyer to help them feel owners run their personal financial lives in a reasonable fashion.

At 7 Park Avenue Financial, we will always tend to investigate the ability to identify ' seller financing ' as a part of the acquisition finance strategy. The strategy can often make or break a deal, and is typically viewed positively by lenders. It is simply the sellers agreement to e apid a percentage of the acquisition price at a future point in time. The bottom line? Less borrowing is required. Structures of the seller finance, also known as ' VTB ' or vendor take-back can vary but often are in the 10-20% range and have various forms of creativity around payment terms. You might also hear this term is called ' earn out '. Three different ways to say the same thing!

There might be conditions tied to the earn-out, so in most cases a lower rate of interest that current market lending rates. It is the epitome of a ' motivated seller '. In many of the transactions we see at 7 Park Avenue Financial seller owner and or management stays on for an agreed upon amount of time to ensure a smooth transition.




The amount of proper financing that you can generate, internally and externally (mostly externally!) will ultimately play a large part in the size of the company with whom you might be acquiring, or merging. Here is where valuations come into play and anywhere from 30 - 50% of the final price that you agree on might in fact have to represent a cash type scenario.

In some cases there is a shortage of the total term loan to get a transaction approved and closed, so some for of ' mezzanine financing ' will have to be considered. That financing will cover the gap created between borrowing power, equity, and the sale price. Mezzanine financing is often unsecured, relying solely on future cash flow generation, so interest rates on cash flow loans are more expensive, but, again, similar to seller financing, can make or break a deal.

For smaller transactions in Canada many companies consider the Government of Canada Small Business Loan program as one of the methods of financing acquisitions.



Naturally there are a thousand stories in the naked city, as many firms are acquired simply for the reason that they are not profitable for the current ownership. This does bring up a very key point though, which is that if you are looking at acquiring a firm that is in trouble, losing money, losing market share/sales etc then in fact a lot less cash is required for the transaction. However at that point you'll obviously have other challenges to address.


If there is a solid piece of advice we can give to the Canadian business owner and financial manager it’s to start a financing strategy around your acquisition early on. That final capitalization of the proper amount of debt and equity is critical.


When contemplating bank financing for business acquisition financing in Canada a solid, realistic and succinct business plan is required. We see many plans from clients that are far less than ' succinct ' and therefore raise more questions than answers.


So what does one in fact have to demonstrate to the bank? A good start is how your firm will operate the business - so a good examination of the financials and any key issues around the seasonality of sales and cash flows, customer concentration, production, and credit terms are key.


If the business you are acquiring does in fact have challenges it's clearly a good time to demonstrate how you will implement controls and changes around those challenges.

At 7 Park Avenue Financial our due diligence process spends a good amount of time on assuming proper levels of sales and cash flow, often in conjunction with a business plan we prepare to support your transaction. Spending valuable time on structuring financing your an acquisition will lead to optimal performance going forward. The right amount of flexibility in your finance may be well required down the road.


Spend a lot of time considering the amount of leverage you will ultimately have when acquisitions are completed. It's tempting, of course, to become highly leverage but this is the classic double-edged sword of business financing, and don’t think that high leverage will guarantee higher returns to shareholders, as that debt you are now carrying can, in fact, become a day to day nightmare down the road if not managed or financed properly.


Business acquisition financing in Canada is about finding a solid opportunity, analyzing your transaction carefully, and closing with the best financing possible based on your industry profile of debt and overall capitalization. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with acquisitions that make sense- financially!





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.





Stan Prokop
7 Park Avenue Financial/Copyright/2020

Your Most Complete Guide to SR&ED Financing & SR&ED Loan Success In Canada

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SR&ED refundable tax credits and financing r&d   are in the news a lot these days. Things seem to be always changing, sometimes in a big way, sometimes less. The one constant? SR&ED Financing! It's always there - always available. Let's dig in.

 What is The SRED CREDIT?

 

Sometimes called ' Shred  Credits ' they are one of Canada's most accessible, popular, and widely used incentive programs under the auspices of Canada Revenue Agency, allowing you to claim for either a cash grant or in some cases a deduction against income taxes owing. R&D capital investments use up cash flow resources, so collateralizing your sr&ed claim makes a lot of sense when other traditional  sources of financing are not available.

Corporations that are in need of liquidity cannot afford to wait until the end of the fiscal year to receive payment of refundable tax credits. For this reason, lenders offer sred funding, an advance (or loan) to eligible corporations, while using the future receipt of the SR&ED refundable tax credits as collateral.

 

In the majority of cases, you are eligible for amounts in the 35-40% range of your total expenditures. The amount of that refund can go over 5O% when your Sred Consultant and accountant, typically working in combination, take advantage of both the federal and provincial parts of the program. 

 

At 7 Park Avenue Financial we can't overemphasize the role of ensuring your have an experienced and reputable sr&ed consultant preparing your claim . Their track records and reputations are invaluable both in the financing process as well as the CRA audit process for sred.

The formal name of the program is ' Scientific Research and Experimental Development ' , hence ' SR&ED ' ! It is one of the most popular government programs vie encouraging firms to conduct r&d in Canada, as well as providing refundable tax credits for those investments made by your firm.

 

Why a Sred  Loan ? SR&ED Debt Finance

 

 

Simply because its a method of allowing you to use your refund owing, which is essentially an account receivable, as a source of operating cash in the same manner in which any company would finance their receivables via either a bank or a commercial a/r financing firm. It's a good example of  ' specialty financing '. Note that this does not involve government grants, or grant financing - that's a whole different category of accessing funding from the government.

 Essentially you are unlocking the value of your tax credit, which is, in fact, a real asset on your balance sheet, although many companies we have worked with sometimes do not book that as a receivable. 

 

Companies using the Sred program tend to always be looking for business growth capital. Most but not all are early stage companies looking to commercialize their products and services. Just the ability to finance their r&d prior to their claim filing is appealing to firms who are always looking to generate cash. Many firms are in new or emerging sectors such as digital medial , environment, biotech, etc but firms in every industry utilize SR&ED. Accessing traditional financing is very challenging for many of the firms involved in SRED, and going the equity raise route is both time consuming and even moreso, costly!

 

 Claimants under the program may be surprised to know that if your firm has ongoing multi-year activity in research you can set up a Sred Line Of Credit, allowing you to accrue and then finance ongoing work. Here is where a track record in' Shred ', as well as a good consultant, is important.  Also, your claim can be financed before filing with the proper level of due diligence around claim content.

 

 

 We can make the case that SR&ED finance is really  SRED factoring, namely the factoring of your sred receivable. And as we have mentioned elsewhere, owners should consider sred accrual financing allowing you to accelerate cash flow.

The challenge around receivables of course is ' waiting for payment '! Historically the timing around SRED REFUNDS has been a major point of discussion and is one of the reasons why a  SR&ED FINANCING COMPANY is often utilized to monetize your tax credit. Depending on the size of your claim, the technical aspects around it a firm can easily wait for  many months to receive their refund.

 

 

 Another issue around the timing of claims is that your claim is filed by your accountant and Sr&ed consultant, typically working together, at the time of your year-end tax filing. You can see that it could add a further delay to payment by the government to your firm. 

 

 

KEY POINT: A  SRED CLAIM  can often be financed and funded in just a few weeks if you are working with expert help and someone who has a track record of financing success in the tax credit area.

 

Although many business people use the term ' loan ' when it comes to this type of debt facility,  SR&ED financing brings no debt to the balance sheet, you are just monetizing your claim as a manner of advanced funding.

 Utilizing SRED TAX CREDITS is simply an additional source of funding for many companies, many of which are new, emerging, and even startups. Although many firms are technology companies almost every industry is eligible for SRED CREDITS based on their commitment to r&d.  It's all about growing their business.

 

 New clients at 7 Park Avenue Financial always want to know if they are in fact eligible for SRED CREDITS.  If your business is what is known as  CCPC,  essentially meaning a private, not public company and you are doing qualified experimental research to develop your products you are eligible.

 

Industry statistics around SR&ED tell us that in the last 7 years payouts on SR&ED claims have reduced by over 5 Billion dollars - suffice to say billions are still being paid on thousands of current claims. The government seems to be asking anyone with interest to provide guidance on the future of the program.  Canada Revenue Agency provides great information on the CRA website on both the qualifications around your claim and overall eligibility. 

 

All of that  information essentially comes down to 3 issues - Is your firm investing in r&d capital to advance technologically, are their uncertainties in your research, and has the research become a process whereby technical challenges are overcome

Talk about uncertainty! Business owners hate uncertainty. Who doesn’t? The one constant in SRED? Cash Flowing Your Claim!


SR & ED (SR ED) factoring is a viable consideration for any Canadian company that files SR ED claims and is looking for additional working capital. Not all Canadian business owners and financial managers are aware that SR ED claims can be monetized (financed!).


For an overview of SR ED financing, it’s important for us to validate some of the basics -


-Have you filed an SR ED CLAIM?


-How much was the dollar amount of the claim?


-Who prepared the claim?


-What amount of cash or working capital do you need in conjunction with the claim filed?


If you are looking for cash flow with respect to your Canadian SR ED claim you either have working capital financing in place now with your bank or finance firm (a factoring company perhaps) or your firm is self-financing and you are looking for the SR ED to supplement additional cash flow. Risk capital /equity capital and Canadian venture capital is challenging to raise in Canada . Financing r&d makes a lot of sense.


Canadian business owners and financial managers are aware that when they finance their receivables and inventory these 'current assets' are 'margined'. By margining we of course mean the amount of funds you can borrow against these assets.


In SR ED financing you are generally financed 70% of your claim, and that is the combined total of the Federal and Provincial claim.


So if you have filed an SR ED claim, of say, for example, $350,000.00 you are eligible for 70% of that amount, or $245,000.00


Funds can be advanced as soon as you have filed the claim, but not before. Naturally, it is somewhat important to ensure your claim was filed by a qualified party - usually an accounting firm or consultant. It's these consultants that are in the field daily on the program, wresting with all sorts of changes around Form 4088! ... Defining and backing up your project.


SR ED financing is outside your normal current financing arrangements. The SR ED is collateralized separately - it is, in essence, a short term working capital loan that is repaid when the government sends you your cheque. Most Canadian business owners do not want to wait, 3, 6, 12 months or more for a cheque for a substantial amount that is in effect a non-repayable grant from the government. The Canadian government continues to pour well in excess of a billion dollars into the program, and if your firm qualifies for an SR ED claim -


1. Why wouldn’t you use the program?

2. Why wouldn’t you accelerate the cash flow from the grant by financing your SR ED claim?


SR ED financing is a boutique small industry in Canada - business owners are cautioned to work with a qualified, credible, and experience party who will ensure they are maximizing financing capabilities under the program. Naturally, any firm can wait for its refund , but using the cash from financing your claim allows you to move on to new opportunities in your business, including even more investments in r&d. 

 

Typically companies investing in research are in highly competitive industries, and rather than considering external equity this type of financing is simply one way of increasing value and time to market without the dilution of additional ownership to your company. Utilizing internal cash resources in the early stage of growth allows you to increase the value of your firm at a later point.

Companies financing their r&d claims use funds for a variety of reasons - that might include further research, general working capital purposes, marketing, new employee hires, or geographical expansion.

 

How Does The SR&ED Financing Application Process Work

 

 Business owners and their financial mgr's should view the financing process as the most simple of loan applications. A minimum amount of the claim is typically $100,000.00. With a client's full cooperation we have had clients financing in plays in a week or two, sometimes sooner. Typical loan amounts are in the 70% range based on your total claim. Simple business application information applies, ie years in business, articles of incorporation, etc,

No payments are made for the duration of the financing! The loan interest accrues and is deducted from the final payment by the government of your claim . Your current lender security stays in place, and significantly less emphasis is paid to typical bank focus on personal guarantees, net worth of principals, etc. A track record in previous SR&ED claims is helpful, but not necessary, and firm time claimants may apply to fund their claims.

It should not come as a surprise that certain other refundable tax credit programs can also be financed, they include:

 

 

Digital Multimedia Tax Credits

E-Business Development

Multimedia Gaming

Film Tax Credits in Many Canadian Provinces

In summary, Canadian firms that are eligible to file an SR ED claim should do so. What firm would not want to receive a cash non-repayable cheque from Ottawa! If you can wait for the funding, and don’t need additional cash flow, great. That's why sred tax credit loans make sense.

 

If you wish to arrange interim financing for your claim enlist the services of a trusted and credible SR ED financier. In a matter of a couple of weeks, your working capital and cash flow will be augmented vis a vis your SR ED financing. SR ED Financing and factoring - a great Canadian alternative financing strategy

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop
7 Park Avenue Financial/Copyright/2020

Need Turnaround Financing Or A Restructuring Loan ?

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Turnaround financing and business refinance solutions are often required when your company has been on the rise... and then, unfortunately, a fall situation. Turnaround finance typically requires restructuring loan, or loans, of some type, in combination with performance changes in your business. It's all about fixing a business! Let's dig in.

Well managed companies that have a proper business plan and cash flow forecasts are rarely caught totally off guard in a liquidity crisis ( pandemics excluded ! ) and often can reverse very negative financial results. If your management team is not seasoned your company has to get help on how to survive a potential insolvency crisis.

The ability to successfully complete your business turnaround via restructuring and turnaround financing will put your firm back on solid ground. Financial recovery is ' time-sensitive ' to say the least so our ability to select and work with the right firm is ' job 1 '! Every industry has unique financing needs and you need a firm with a track record of business financial success to deliver on restructuring loans that will work to your benefit.

Leading experts such as KPMG, world-renowned for turnaround advise that turnaround and restructuring is really a 3 step or 3 phased approach for the restructuring of a company - addressing the strategic crisis, addressing the sales and profit crisis, and then the fix on your liquidity crunch for funding a business.


Challenges in the turn around abound, especially since in a turn around .especially when it comes to SME COMMERCIAL FINANCE needs, new equity/owner capital is often difficult if not impossible to acquire. So that lack of money must come from operating assets and sales. The ability to maintain sales and increase profits is of course also key to your cash flow problems.



Safe to say that owners/mgrs have to recognize the issues that arose prior to a turnaround need - they include issues such as costs in the business, mgmt/employee performance, or lower sales. Naturally, those types of issues, combined with a poor asset and sales finance strategy are typically the key issues.



Key signs of a poor finance strategy being in place are your inability to buy new needed assets , inability to meet fixed cost commitments, and loan and lease default scenarios.

Typically owners and management will notice trends in costs and sales revenue that require some sort of corrective action. In many cases, timely attention to those areas will save any sort of formal insolvency steps being taken.

This is when a hard look at your business needs to taken, and quickly. That's a look at the overall structure of the company, and that typically involves your vendors, all owners, and any other stakeholders such as key employees and of course your current lenders. You are looking for ' the fix ' and may possibly need outside help.

A good management team can often take informal internal steps to save a good business, but as we have stated, outside help should probably be considered. The ability to have time to restructure your firm on your own is always less costly and allows you to have maximum flexibility in negotiation with third parties such as banks, etc.

Implementing a Restructuring Plan and a Corporate Restructuring 

 

During this time owners and financial managers must address all the operating issues within the business, such as accounting, administration, and the management of working capital. Never has the role of financial and administrative staff been so crucial as the ability to provide financial results and cash flow forecasts for owners and lenders.



There has never been a more critical time to accelerate collection of receivables and taking a hard look at inventory turns, and the overall value of inventory, which in many cases can be in various stages of production. This entire process in well run or financially distressed companies is called the ' cash conversion cycle ' and measures the travel of money as it flows through your firm. Solving cash flow problems and timing of asset conversion to cash is key.

If a company is managing the turnaround internally on its own outside lending has to be evaluated, either through existing lenders or new sources of business capital. One of the quickest methods to accelerate cash is considering an accounts receivable financing facility, sometimes known as factoring, although the word ' FACTORING' has many versions. At 7 Park Avenue Financial we recommend CONFIDENTIAL RECEIVABLE FINANCING, allow your firm to bill and collect your own receivables while generating immediate cash flow on all sales.

An internal focus on fixing the problem allows your company to avoid formal restructuring, especially when a bank has put your account into the ' special loans ' category, often requiring a forbearance agreement to give you the much needed time we have been talking about. Those formal proceedings such as CCAA, RECEIVERSHIP, PROPOSAL TO CREDITORS, DEBTOR IN POSSESSION, etc. all involve very costly and time-consuming measures. It goes without saying, but we will say it, that negotiating financing during formal types of insolvency is highly difficult!




In some cases companies that have made an investment in r&d capital should consider factoring their SR&ED claim. Another solid strategy we've implemented is the sale-leaseback finance process, allowing you to generate cash flow from owned assets while at the same time retaining the use of those assets. Cash conservation should be a key management focus, evaluating all possible options.



Many businesses get to the ' crisis ' situation without ever having prepared a proper business plan and cash flow plan. Suffice to say that now is the time to do that! That financial forecast and plan will determine where turnaround finance is needed and how it could be achieved. Those types of efforts will determine where cash will come from and how and when it will be used.



There is a great story around a fellow named Henry Frick - In 1871 he borrowed through good and bad times to acquire and grow businesses. His secret? It might well come from the actual bank notes from Thomas Mellon of Mellon bank - a bank U.S. money center bank. Those notes? They read ' land is good ... the ovens are well built, manager on the job all day... keeps books in the evening... knows his business’!



There often emerges a clear ' pecking order ' in who or what needs to be paid and addressed in a business refinancing. That list of key players is pretty short - government obligations, key suppliers, and utilities/rent!



For those customers with bank facilities in place, they are of course forced to address the turnaround when a demand loan is called. An asset loan is often the solution that ' takes out ' the bank and provides an interim financing solution. At the end of the day it's all about being able to leverage assets via asset based lending type solutions that will allow you to put an operating plan in place while still retaining some balance sheet strength.

Asset based lending facilities which typically come from non bank lenders allow your refinance assets and move to recovery. ABL financing works in all scenarios, whether a firm is restructuring or not , and provides your firm with maximum liquidity for all assets as well as the ability to monetize sales.

SUMMARY OF TURNAROUND FINANCING SOLUTIONS :

Turnaround finance Solutions that are available are diverse - They include:



Asset based bridge loan on assets



Asset-based revolving credit facility - combines A/R, inventory and equipment and real estate into one business credit line



Tax credit finance



A/R financing


Purchase Order Financing / Contract Finance



Sale leaseback lease/loan on unencumbered assets



Sales/Royalty finance

Restructuring Advisor Assistance

At 7 Park Avenue Financial, we focus on the turnaround task at hand, helping you plan and facilitate a restructuring that works for all vested parties. That might include cash flow planning and financing, negotiating with current senior lenders and other secured lenders, as well as vendors/suppliers. Raising business capital and funding through this process requires experience and the ability to move quickly when your firm needs it most. Many firms and industries have different needs and circumstances.

At the end of the day it's all about the preservation of the true value in your company and it's future, ensuring the company transformation process works. That comes from your work on implementing costs and sales analysis, as well as ensuring you have a financing partner in place to optimize cash flow and working capital. Your ability to take action in turnaround planning to address lower sales or cash flow generation is key to the turnaround.



If your business is facing operating losses and other issues requiring business refinancing seek out and speak to a trusted, credible and experienced Canadian business financing advisor and restructuring consultant for help in asset loan and cash flow needs. Welcome to the turnaround plan !




7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop
7 Park Avenue Financial/Copyright/2020

Purchase Order Financing In Canada

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THE PURCHASE ORDER FINANCE SOLUTION :

Purchase Order financing, as well as inventory financing, is two relatively new alternative financing solutions in the Canadian business environment. These two solutions provide additional flexibility when combined with traditional financing sources provided by your Canadian chartered bank or independent finance firm. Think of P O Financing as a short term finance options, allowing you to access capital to pay vendors and suppliers when you have a verifiable purchase order or contract.

WHAT IS PURCHASE ORDER FINANCING

It's a unique source of capital without giving up  equity. In P O Finance its all about the transaction specifically, providing you with the liquidity to grow your company without taking on additional debt. New clients at 7 Park Avenue Financial have quickly found that their current banking and funding arrangements formula are well beyond what they need in immediate financing. Let’s dig in.



P O Financing works very well in work-out situations, where the borrower’s existing bank/s do not want to finance all the purchase of the inventory as it goes beyond the borrowing formula set by the bank.



Traditional business and bank lending in Canada typically is unable to meet the SME need for financing of large purchase orders and contracts, and most clients we meet can't satisfy the bank requirements of collateral, strong financial statements, external guarantees, etc. Industry experts say that a significant percentage of all businesses requiring SME COMMERCIAL FINANCE solutions are constantly worrying about their cash flow, let alone the cash flowing of large new orders. Enter the P O FINANCE solution.

Who Uses Purchase Order Lending Facilities?

Growing and smaller and medium-sized businesses that have access to revenues otherwise not financeable utilize PO Finance - Your firm might not be able to generate the cash flow investment in a/r and inventory that comes with larger orders and contracts. The types of firms that use P O FINANCE are manufacturers, and distributors, as well as those firms that have an import/export business model. Typical clients looking for this type of creative financing have large bulges in incoming orders or some seasonality attached to their business.


Traditional business financing in the context of working capital and cash flow revolves of course around the traditional current assets of receivable and inventory. Even if your firm is well-financed and has a traditional bank line of operating credit you may have challenges in fulfilling large orders and contracts. This challenge becomes equally daunting when you don’t have traditional financing, so the ability to generate cash to fulfill larger orders and contracts becomes seemingly impossible. Utilizing P O Finance allows you to take on larger orders without the commitment of a debt financing/loan solution.


Purchase order financing/purchase order loans can provide you with the capital to fill those large orders and contracts, and, if properly put in place; can be very complimentary to your current financing.


As we have noted the concept of purchase order financing, aka ‘P.O. Financing ‘is a relatively speaking, new phenomenon in Canada.

HOW DOES P O FINANCING WORK?

So how do P O Loans work? Simply speaking financing is put in place to cover your material costs and direct labour costs, which are of course a significant part of your order or contract. We can safely say in many businesses that is 60-70% of the total order or contract based on most gross margins in any industry.

The purchase order funding process begins on your acceptance of an order from a verifiable customer. In the majority of these cases, clients of 7 PARK AVENUE FINANCIAL require financing because our client's supplier requires payment in advance. The working capital cycle has now kicked in! Most clients know that full payment from their client won't be received for probably another 60-90  days. Business owners of course do not want to lose the order and are typically unable to obtain Canadian chartered bank financing based on whatever their current financial position is.

The verified purchase order represents opportunity and value though - it simply requires accelerated funding. So in the P O FINANCE process your supplier is paid either by direct cash or in some cases a letter of credit with conditions related to your purchase order re-delivery, amount, pricing, etc. Key to P O Finance approval is your ability to present your company and management experience. It's safe to say the complexity of this type of financing is why it is more costly - there are a number of moving parts: timeline around the order and delivery, credit risk, etc.




Purchase order lenders distinguish themselves by being experts in the area of alternative finance. They have the expertise and ability to look at the entire order cycle, including the creditworthiness and legitimacy of your supplier/suppliers.

What Does The P O FINANCE Company Look For In Your Transaction? Applying For Purchase Order Financing

As we have mentioned P O FINANCE is a more expensive form of financing so your firm must be able to sustain the gross profit margins that satisfy your profits and the financing cost in the transaction. You should be able to provide the following at the commencement of your purchase order finance financing request:

Supplier Invoicing

Your firm's sample invoice to the customer

General business information such as financials, legal name of your company, etc



Your firm, therefore, now has the working capital to finance your production and fund purchase orders. What’s left of course is essentially the profit on your P.O. or contract.


While it sounds relatively simple and easy we would point out some key critical issues that will allow the Canadian business owner and financial manager to determine if his or her firm qualifies for such financing. We can first of all say there has to be sufficient proof that your purchase order or contract is with a valid, creditworthy party. Naturally, if there is any doubt that your order might not get paid, or that the customer is not creditworthy that precludes the successful completion of any purchase order financing.


You should also not view the purchase order financing as a long term financing solution, it is not that. The funds are generally repaid immediately when you have completed your order/contract.

PURCHASE ORDER FINANCING VS. FACTORING

There are also some technical issues that need to be addressed if you have secured financing arrangements in place already. For example, if your firm has a bank line of credit they would be required to acknowledge the security that is taken in the Purchase order and resulting receivables that you create out of that order.


In our own experience Purchase order financing frankly works best when there is not a secured lender in place already, but that’s just our firm’s observation. Additionally, on occasion, certain other collateral or personal guarantees might be required. We would hasten to add that if you have already provided guarantees to the bank or other firms it would seem logical that you would provide them on the purchase order financing, which is somewhat of a riskier transaction for the lender.

Most clients at 7 Park Avenue Financial realize that purchase order finance companies are really providing a one-stop funding that takes you all the way from the order to the collection of the receivable. Note that P O loans that allow you to fund purchase orders is often very well received by suppliers who know they are going to be paid. Also government purchase order financing is also available.


Another very critical point is the whole issue of gross margin. The issues are that you need good gross margins to complete purchase order financing! A firm that is in low margin very commodity-oriented business is not a strong candidate for P.O. Financing, because the combination of cost of goods, labour, overhead costs, and financing costs of the financing leaves very little for the business owner. So categorically good gross margins make a much better P.O. Financing deal. Costs in P O FINANCE tend to be different for each transaction based on a number of factors including the cost of capital, time to complete the order, etc. International purchase order financing may also bring new complexities to your transaction regarding sovereign risk.

So for the business owner and financial manager looking at purchase order financing lenders it is important to weigh the costs and benefits of your transaction. In many cases larger P O 's and contracts are a key part of company growth plans so they are prepared to forgo some profit to achieve sales goals. In many cases traditional financing simply can't react quickly enough to satisfy the timelines of your order. So alternative finance solutions such as P O Finance, Inventory Financing and A/R financing solve your financing need.. quickly.


So why has this type of financing become popular – that’s fairly easy to understand. First of all the current Canadian business financing environment is challenging – therefore any alternative financing vehicle has a strong chance of being embraced and becoming more popular. After that it simply makes sense that p.o. financing can be very successful for your firm if it gives your company working capital you didn’t have, , it allows you to grow and profit at greater levels, and overall improves your competitive positioning within your industry.


We strongly recommend that if you consider Purchase order financing that you enlist the services of a trusted, credible and experienced Canadian Business Financing Advisor with a track record of business finance success who can assist in maximizing your cash flow and working capital with this unique innovative type of financing.






7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop
7 Park Avenue Financial/Copyright/2020

Funding For Lenders In Canada: The Lender Finance Solution

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Funding for lenders in Canada is all about the right finance solution for your firm. You're a specialty finance firm with the normal challenges of running a business in a good economy, much less a pandemic economy! Your funding requirements for growth are unique and your best bet is working with a firm that has special insights into your business. That ever-evolving capital need is why you want to work with 7 Park Avenue Financial.

Why Grow Your Business With Increased Lender Financing Capability?

 

 

The majority of specialty lenders in Canada who require additional lender financing tend to operate locally or at most in all of Canada. Dun and Bradstreet advise that bank lending to business has decreased in many areas and that decrease plus capital market volatility provides opportunities for those augmenting their lending needs.

The combination of responsiveness and flexibility in structuring capital transactions that work is a solid formula for success. Growing and expanding your lending power is JOB #1 at 7 Park Avenue Financial. Lending solutions to specialty finance firms covers many niche industries - You might be an asset based lender, a receivable financing/factoring firm or in smaller niches such as SR&ED loan financing.

Lender financing needs have grown dramatically with the rise of the internet - no secret there. Clients of 7 Park Avenue Financial typically have provincial or national operations but are always looking for areas to expand in. Specialty finance firms typically are non-deposit taking and not heavily regulated, allowing more freedom for growth.

Business has dramatically moved to nontraditional specialty lenders who operate outside of the mainstream of traditional bank. The concept of a faster approval turnaround, although coming with higher rates, has enabled many businesses to operate and grow outside traditional bank financing. That drives the demand for your lender financing needs.



Small businesses are increasingly turning to non-traditional lenders as mainstream financing is more difficult to secure. Payments giant PayPal has begun offering online merchants financing options that don't require credit checks and carry no periodic interest or miscellaneous fees. Applications for lease types of loans are usually handled online and offer quick turnarounds and higher interest rate

Lender finance is all about borrowing from the right financial firm or intermediary. The business model is fundamentally quite simple - borrow at a rate lower than what you earn on client loans, i.e. your yield!

Factors Affecting Lender Finance Interest Rates

The rates you will pay depends on a small number of key factors that boil down to overall credit risk, and regulatory risk, as well as the general level of competition in the lender finance market. Non-Prime lending comes with greater credit risk but offers opportunities for profit with solid infrastructure and well documented credit processes.

The opportunity, with increased financing capability to dominate your specialty niche or to take on an under-serviced area of business financing, coupled with taking advantage of the lower cost of capital now available to specialty finance firms is very appealing to CEO's and CFO's. Financing is available via term loans, revolving credit facilities, of other arrangements that might be syndicated.

What Drives The Need For Increased Financing?

Access to reasonable interest rates and overall business and consumer confidence drives the need for increased lending capital. Your firm's ability to originate business, write deals, and then service your portfolio will distinguish yourself from the pack. A smaller company will always be able to compete when they are a leader in their specialty niche, allowing them to compete with banks and very large firms who have unlimited access to capital. Dun & Bradstreet advises that in the specialty finance industry 75% of the total market is dominated by a small handful of very large players!

Also, the internet and ' online lending ' have allowed many firms to disrupt market positions held previously by larger financial corporations. That's what ' Fintech Lending ' is all about, alternative business financing that can compete effectively with traditional finance lenders. Here your business processes and the technological ability of your firm will differentiate you from the competition.


Safe to say that many other specialty finance niches are becoming more successful every day - including law firm funding, small business working capital loans, royalty finance, software financing, and numerous others.

Key Trends In The Specialty Finance Vertical

Nontradtional lenders in Canada are experiencing strong growth, hence the need for access to lender finance solutions. Business models that bypass Canadian chartered bank financing, coupled with intensive use of online marketing make for better ability to mine the potential client base. Firms that can minimize loan loss while taking advantage of the lower interest rate environment is a key to long term success in alternative financial services.


The actual needs of your firm might even be outside normal lending needs, such as the areas of acquisitions or startup. In some cases you might be a captive finance company looking to expand your parent company's growth. Unfortunately, not all companies in Canada have access to public or syndication type markets, especially if your firm is smaller. Your firm, therefore, prefers a credit solution that is more customized. Ensuring you have a strong business model and good fundamentals is key in access to lender finance solutions in good and less than good economic cycles.

The key to specialty lender is innovative and custom solutions for your client base - that is a recipe for allowing your firm to reach its financial objectives. Your goal is to access certainty in your future financing needs. It's about creating a balance between your credit facilities and your company goals around long term goals, which might even include a merger or acquisition.

Well run specialty finance firms can achieve profitability when many industries struggle in a difficult economic environment. There should never be a 100% direct correlation to everything else that is happening in the economy, pandemics included credit crises included! In fact when we talk to specialty finance firms new opportunities and new geographic opportunities abound. Your challenge is of course to be able to fund and capitalize on those opportunities.

Typically specialty finance firms seeking lender finance have solid in house credit staff and technology, as well as the ability to demonstrate they can source transactions. Naturally, everyone is always on the hunt for opportunistic acquisitions of growth opportunities.

At 7 Park Avenue Financial we're committed to originating the right financing based on our knowledge of the right lender finance solution. We're positioned to address your needs quickly and focus on the shortest closing time possible. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with you.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.


Stan Prokop
7 Park Avenue Financial/Copyright/2020