WELCOME !

Thanks for dropping in for some hopefully great business info and on occasion some hopefully not too sarcastic comments on the state of Business Financing in Canada and what we are doing about it !

In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.

Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.

Saturday, July 4, 2020

Solving Your Technology Finance Options And Tech Funding Needs

Technology financing options whether it be IT ( information technology ) assets or the newest kid on the block, ' cleantech ' and 'ICT', requires a combination of access to capital and solid expertise. Whether your company is an established corporation or a start-up working through that ' sweat equity ' stage you require funding for your investments in technology. Let's examine some key options and strategies in tech finance that will provide your firm with the growth potential you need.

ICT financing is both an opportunity as well as a potential risk. You want to be able to manage those risks with the assistance of a business financing expert.

Oh, and by the way, this pertains to whether you are a user or a vendor of these assets. While many look to the government for finance options that might be available at the end of the day your firm will no doubt require external financing solutions. That might be for licensing products and services or acquiring hardware and other related assets.

Companies invest capital into technology to ensure their firms are winning in today's competitive environment as well as the obvious efficiencies that come from cost reductions; that's why financing that investment properly is so important and why funding from Canadian leasing sources is so critical.

Healthcare financing has never been more in the news, pandemic issues included! Issues of cost and planning are top of mind for acquisitions. Understanding how technology provides value to health care systems is key, as is those financing arrangements around acquisitions.

CLEANTECH INNOVATION

The area of ' cleantech' is a rapidly growing area in the technology space. Companies looking to solve environmental issues often have large financing needs. Investments in computer hardware that revolve around energy or building commercial facilities are very capital intensive. Canada is ranked high in the Global Cleantech industry. For initial financing many of these firms look to private investors, angel investors, friends and family, etc.

Technology Finance Options

There are a number of ways to finance tech assets; the challenge is ensuring you have chosen the appropriate technology funding solution for all the types of tech you are considering purchasing - in some cases certain solutions may be highly inappropriate.

Business owners and their financial managers are looking for simple processes to address financing needs. They are considering issues such as upgrades, as well as the obvious costs around rates and financing costs. In some cases it might even make sense to consider a sale-leaseback financing to recover capital in your tech investments. While retaining the use of those assets cash flow is increased via the replenishment of working capital.

It seems to always come back to the capital budget process when you consider those higher cost technology investments. Those budgets need some relief for the often high ' sticker shock ' of tech investment costs. Larger projects that come with longer implementations, maintenance, upgrades needs etc require financing that meets those budget needs.

METHODS OF FINANCING TECHNOLOGY

Capital and operating leases play the main role in acquiring ' ICT ' needs. Key issues to look for in these transactions are your ability to fund progress payments to vendors and any prefunding issues that might arise with suppliers. We've noted the concept of ' tech refresh ' is a main driver in financing technologies, your ability to upgrade hardware and software as required. In some cases a ' rental program ' might make sense - there is a saying in tech that your business wants to ' use technology ', you don't want to ' own technology '.

Managed services financing is huge in the tech sector. Typically these solutions involve ' the cloud ' and are focused on larger dollar investments. Firms such as THE GARTNER GROUP advise that cloud solutions and distributed computing are among the hottest issues in tech today.

Simple flexibility around payments and invoicing should be a prerequisite in your financing discussions. These latter two issues are the mainstays of equipment leasing in Canada, as is the need to ensure you have 100% financing - no down payments required!

The GARTNER GROUP says it best , including our favourite old business adage " Cash is king. Target those items that will have a real cash impact on the profit and loss statement rather than noncash items like depreciation or amortization. For example, cost savings in cloud services have a real cash impact, as opposed to reducing on-premises software licenses or owned assets like hardware. Selling and leasing back assets can provide real cash savings as well." Source- Gartner Group

Working with the right financing expert allows your firm to properly match the duration of the financing, ie ' the term ', while at the same time ensuring you have upgrade capability if needed. That issue of ' life span ' in technology is always critical. Some companies might require laptop financing for their entire workforce - here is where information technology finance excels. Click here for more info on business leasing and technology finance in Canada.

Business owners / financial mgrs. should know that financing is available for both hardware and software. Yes, Virginia, software can be financed!

KEY POINT - business credit line or a term loan are not required - its all about credit preservation. Upgrade capability is also very important in your preliminary discussions around your financing needs.

Financing software needs allow your company to conserve capital so a

You need to know your financing, typically via a lease, is flexible and has the ability to handle upgrades. Here the concept of a ' master lease ' is very beneficial, as schedules of new assets added on can be easily implemented. You also need to ensure that the whole issue of technological obsolescence can be addressed via matching the duration of your financing to the technical life of assets and software being financed.

Key issues that come into play are the valuation of assets, useful economic life (ouch! isn’t that an accounting term?!) and types of financing available in the Canadian marketplace.

Clearly, tech financing covers a variety of industries, we're focusing today primarily on computing and information communication technology industries, but our comments are broadly applicable to a number of other asset types.

One of the key challenges in financing technology is simply the fact that the majority of goods and services provided and utilized by your firms either depreciate rapidly or, unfortunately slowly become obsolete. There is a great analogy that tech assets are like a mine's assets, they are depleted and are 'replenished by development'. A true analogy!

Financing tech assets must take into consideration the obsolescence factor - a good example, of course, is PCs, laptops and servers which easily can depreciate 30% per annum. Creative financial arrangements around these types of assets are critical and we'll discuss that a bit also.

In certain cases your firm might be involved in developing technology versus being a user for your corporate operating needs. Financing solutions are available for the unique position your firm is in either as a user or developer.

As a user of technology owners, financial managers and their chief information officers are looking for financial creativity around acquiring assets that will be productive in the business and increase efficiencies. And no surprise to any business person that hardware, software and other ' IT ' (information technology) needs often require a significant capital investment.

Software and services, often financeable, are other solid examples of high technology assets that require specific options and strategies. These products are high gross margin to the seller and when financed properly provide both benefits to the user and profits to the vendor/lessor. Factors that drive software financing are upgrade cycles, the continued proliferation of PCs and mobile products into all facets of business, as well as the obvious productivity gains these products provide.

Tech and Solar assets can be either financed or purchased. When these assets are financed key issues for financial and credit scrutiny include interest coverage and cash flow, valuation of the technology re the type of financing desired.

In the U.S. Surprising almost half the country's employed work in IT and other emerging tech areas such as solar, wind, etc. We're quite sure Canada's numbers would be too far off that.

For computer IT assets typical lease and other financing terms rarely go over three years... it’s simply a question of the useful life of these types of assets. Solar projects require alternative strategies since they typically have a longer payback.

Financing transactions in IT and Solar industries tend to be cash flow, and not asset based when it comes to lending and financing transactions. These types of transactions clearly aren’t 'asset based lending' in its traditional form. Upgrades are common in computers, they aren’t in Solar.

It is important for both borrowers and vendors and lessor to separate financing from licensing and technology issues - the intellectual property in the asset being financed rarely if ever transfers to the borrower.

Key options and strategies in technology financing typically include operating leases, providing the user with significant flexibility. Equipment Leasing in Canada can easily handle these transactions.

FINANCING YOUR REFUNDABLE TAX CREDIT VIA A SR&ED LOAN

Thousands of firms, potentially many of them your competitors, utilize Canada's SR&ED Tax Credit program as an inventive to invest in new technologies. Typical refunds for your r&d capital investment are in the 35-40% range of your total spending. The refunds pertain to portions of your spending in salaries, consulting, materials, etc. That cash refund can be turned into immediate cash by utilizing a SR&ED financing loan to get the money earlier as opposed to waiting for the federal government refund from Canada Revenue Agency.

Your firm should strive to have a long term strategy in place that focuses on your needs and financing options in information communications technology: costs, budgets, and sources of financing when it comes to tech funding.

When either financing tech, or information communications technologies or software, consider working with an experienced, credible and trusted Canadian business financing advisor with a track record of industry success who should be selected on the basis of experience, knowledge, and references and access to financing sources you need today.

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.

Click here for the business finance track record of 7 Park Avenue Financial

Stan Prokop
7 Park Avenue Financial/Copyright/2020

Solving Your Technology Finance Options And Tech Funding Needs

Thursday, July 2, 2020

Accessing Purchase Order Financing In Canada

Purchase Order Financing? Is it your solution to growth, cash flow, and working capital challenges? Canadian business owners and financial managers are always challenged when they are required to fulfill customer orders or new contracts where prepayment of a significant amount of goods is required to ultimately complete a large order or contract. Many times these new orders or contracts represent the potential start to a large relationship that has the ability to grow large revenues and profits for your Canadian firm.

Is there a solution? One that you might want to consider is purchase order financing. Under this type of financing, (also referred to as ‘P.O.Financing') payment by the finance firm is made directly to your suppliers for your order or contract. It is a very unique form of working capital financing in that it allows your company to fund goods that have been manufactured or sold by a supplier. Many companies sustain a substantial burden when they have to allocated valuable cash and working capital to supplier payments.

' P O Financing ' is a solid mechanism to finance sales when you have decent gross margins to sustain the financing cost. Purchase Order finance also works well because many transactions involve extended payment terms based on supplier delivery and your own customer's final payment. That can easily in many cases be anywhere from 60-90 days, significantly increasing your ' cash conversion cycle '.

Why Would Your Company Choose TO Utilize Purchase Order Financing - Canada?

In many cases companies taking on larger orders and contracts have a significant overhead attached to the sale/project/contract. That issue, coupled with the entended payments we have already referred to drains operating cash flow for your day to day operations.

This allows you to complete the order, generate receivables from the P O Order, and of course collect from your customer. The financing charge is typically in the 3=5% range, so there needs to be a clear indication that your firm has the gross margins to support an additional cost in that range.

Firms with higher gross margins are great candidates for purchase order contract financing, and they are less so if they are in a low margin commodity type business. It’s all about the gross margin!

REASONS WHY YOUR FIRM MIGHT NEED TO ACCESS ORDER/CONTRACT FUNDING :

It is not hard to imagine why suppliers are asking for upfront payment. The typical reasons that we hear from our customers are:

1. They have reached their credit limits with suppliers of their bank

2. Many suppliers are overseas these days and do not want to commit capital to companies in other countries

3. Your firm is not a mature firm and is in early-stage or start-up mode and does not have the capital resources to commit to larger revenue opportunities via order financing.

Therefore the simple financing process around paying your supplier via a letter of credit from the P O lender and then monitoring for delivery and acceptance and payment to your firm is an attractive potential financing solution.

KEY POINT - As a technical point related to Purchase Order financing business owners /financial managers should note that payments made by the P O Funding source do not include any taxes that may be charged to your order or deposits you have already received from buyers.

PREREQUISITES FOR A SUCCESSFUL PURCHASE ORDER TRANSACTION:

Transactions are based on the reselling of manufactured products and finished goods

Your firm has the ability to generate reasonable profit after financing costs

Suppliers are bona fide and legitimately verifiable

End-user client has a good commercial credit history

The actual purchase Order must be non-cancellable

At 7 Park Avenue Financial many new clients enquire about P O 's that require financing for less than 100k. While this is possible it is generally accepted in the marketplace that orders over this amount are somewhat more financeable and benefits all parties to the transaction re profits, deal size, etc.

Remember also that your firm has what we called that 'cash conversion cycle' (every firm has one). There is a large of often 2-3 month from the time you receive orders, build and ship inventory or product, and then wait 30 days (or longer!) to collect from your customer. Purchase order financing is a solid solution to your cash conversion cycle.

At 7 Park Avenue Financial when we put together a purchase order financing facility we stress to clients that this is very much an alternative financing scenario, but it is clearly one that offers you a solution that traditional Canadian banking or lending would not offer.

Therefore your firm should be able to ensure that you can demonstrate the viability of your customer and that you can fulfill the order or contract via this method of alternative financing.

One of the other advantages of supplier financing/purchase order financing is simply that from start to finish it can be set up in approximately 14-21 business days, assuming your full cooperation on application forms, backup info, etc. Most Canadian business people recognize that financing of a certain size in a traditional banking or term lending environment might take significantly longer to complete.

BENEFITS OF PURCHASE ORDER FINANCING: HOW DO PURCHASE ORDERS WORK IN LOCAL / EXPORT FINANCING?

It is clear that utilizing this alternative funding method for certain sales allows you to take on orders and contracts, even in other geographics that otherwise might not be able to be considered as part of your growth strategy. Many opportunities are ' seasonal ' in nature and must be seized upon with confidence to avoid not losing the sale or a client relationship.

The ability to foster good relations with suppliers re your payment history is key in any business relationship. Because of the ' specialty finance ' nature of P O Funding you benefit from lender expertise in this very niche part of Canadian busienss financing, and that includes flexibility around customized situations that might be unique to your order/contract.

KEY POINT - Business owners should be proactive in planning their financing around any significant addition in new business - this avoids the proverbial cash crunch and allows you to avoid reactive processes that to say the lease can be stressful for the business owner.

Use the services of an expert or advisor to determine if PO Finance works for your transaction. In certain cases, in lieu of a business line of credit, a combination of receivable factoring and Purchase order finance might be best suited to finance the transaction in combination with each other given that a receivable if created out of your order and the factoring fund method of non-bank financing is less expensive than purchase order funding.

In summary, a purchase order loan/financing is a unique niche within the area of business financing. If you are new, or not knowledgeable about this type of financing speak to a credible and experienced and trusted business advisor who will guide you through key areas of P.O. Financing including such things as minimum amounts that can be financed, credit application information, and the standard industry fees/rates.

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

' 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

Asset Based Credit Line : A Working Capital Alternative

Time For Some Fancy Footwork Around Your Business Financing & Line Of Credit Needs?

An asset based line of credit is an emerging financial alternative in Canada for companies of all sizes that wish to maximize working capital in terms of their growth needs. This type of lending revolves around loans to your business where the collateral of your assets and your ability to generate sales provides all the liquidity you need to operate and grow.

More often than not asset based lending is associated with companies who are unable to arrange or qualify for what most business owner’s term as a bank operating line of credit.

Asset based lending is known as ' ABL financing ' and has risen to great popularity, first in the U.S. where it originated, and now to the Canadian marketplace. Although occasionally Canadian banks choose to participate in Asset Based Lending through separate units within the banks the vast majority of providers of asset finance are commercial finance companies that are independent of the banks.

Why Do Companies Consider ABL Finance And The Asset Based Loan

Asset based credit lines and loans are used for a variety of purposes - we can make the case they are an ' all-season ' Canadian business financing solution. They are used for:

Non-bank asset based revolving credit facilities

Companies that are growing quickly and can't access all the capital they need

Structuring a merger or acquisition or a management buyout

Seasonality in business financing needs - example - Xmas retailer, etc

Companies that have high debt/equity ratios who are ineligible for traditional finance solutions

Turnaround and restructuring facilities/refinancing of existing debt

Financing The Purchase Of A Business

How Is Asset Based Lending Different From Bank Borrowing?

New clients of 7 Park Avenue Financial want to know the difference in bank borrowing versus alternative lending solutions such as ABL. In banking it's all about traditional corporate credit quality and that boils down to profits and capital structure design around a solid balance sheet with solid owner equity. Those elements historically define a great company poised for continued success. Asset based lending on the other hand revolves around shorter-term focus around converting current assets in cash flow and an understanding around the true value of the collateral of the company.

That latter ABL focus doesn't require that a company be doing as well as a bank financed company. So sales turnover and the liquidation value of assets are essentially what the ABL loan is about when it comes to corporate finance.

In accessing asset financing via an asset based credit line for working capital and cash flow your focus should be on the short term liquid assets of receivables and inventory. That will allow your borrowing facility to fluctuate and lower overall financing costs. That constant turnover of sales into cash will make the ABL solution even more beneficial, and, important to know, these facilities can very easily be increased as you generate higher revenues.

Credit types vary, and traditional bank financing places a heavy emphasis on the overall financial position of your income statement and balance sheet. Therefore, if that is the focus then firms such as yours with either balance sheet issues, or experiencing temporary financial losses or other negative circumstances do not quality for margined lines of credit with institutions such as Canadian chartered banks.

HOW IS THE ASSET BASED CREDIT LINE LIMIT CALCULATED?

The calculation of your borrowing limits under your credit facility has some basic formulas attached to it . Accounts receivable and inventory are the two key drives, but fixed assets and any real estate can play a key role also.

The formula and final limits of your facility are called a ' borrowing base ' and this number is reviewed, typically every month to determine what your new limits are based on the value of your a/r and inventories. This is the revolving part of the facility, and often the fixed assets and real estate part of the facility are under a separate term type of loan. Usually the advance rate on your sales/receivables is higher than the inventory part of the facility, but it should be recognized that asset based lenders are experts in understanding the true value of inventory and are in a position to generate higher advance rates than chartered banks.

Typically A/R under 90 days is an essential part of the borrowing formuls. Typically funds are advanced a 85-90% of the a/r portfolio under 90 days. As you collect receivables your reduce the advances that have been made under the facility, not dissimilar to a bank LOC. The ABL underwriter will look at your overall DSO/COLLECTION period and also look at individual issues such as any one client being a large percentage of yoru sales ( 'concentration' ) or any set-offs you might have in place with suppliers or customers .

KEY POINT - It is essential that your firm is up to date on provincial and federal taxes, as CRA arrears can destory your lenders security on the facility. If you do have CRA arrears they can be paid out at the start of the facility, or you can ensure you have a documented payment plan in place on those arrears.

Inventory advances are where Asset Based Lenders shine. They understand the different components of inventory such as raw materials, work already in process, and finished goods. Their ability to underwrite and advance against inventories is a key differentiator in asset based lending. To you the borrower it's simply more borrowing power!

Asset based lines of credit take the reverse position from banks, simply that you have the assets, let's finance your firm on the strength of your assets, with minimal, if any, in fact, focus on ratios, covenants, outside collateral, operating metrics, personal guarantees, etc.

An asset based line of credit partner will tend to work through with your unique challenges in your industry or your business model. Some of those challenges might be the seasonality of your business or the special ‘one-of' situations we referred to. Some of those circumstances might be making an acquisition, restructuring your firm, or being in the receipt of large new contracts or purchase orders that are out of line with your traditional financing arrangements.

Operating capital financing, or rather the lack thereof(!) can often be the reason your firm is unable to take advantage of strong market opportunities to maintain your competitiveness.

One of the largest parts of an asset based lending facility is receivables financing. In small firms this is often taken care of by a factoring facility – your invoices are sold to the lender, you receive immediate cash, and you can structure facilities around such issues as credit insurance, non-recourse to your firm, etc.

The asset based line of credit, in a true sense, offers all of the advantages of factoring but operates instead like a true bank facility – your receivables, and inventory, are highly margined to the maximum value, and your access to cash availability is directly commensurate to your sales growth – in other words, you have no real cap on your operating facility – you receive cash for receivables and inventory as fast as you can sell and move our product and services!

Your firm will probably find that anyone in the asset based finance area has a stronger knowledge of your business model and assets. If your company has a strong focus on understanding the true collateral value in your business, and is focused on asset turnover in a/r and inventory your firm will be a true beneficiary of the asset based credit line. The general attributes of ABL financing

What Does Asset Based Lending Cost? Factors To Consider

Asset based lending credit lines and facilities usually are higher cost than bank financing when it comes to credit in the capital markets. The low interest rate environment has allowed asset based lenders to become more competitive and in a small number of cases asset based lenders can be competitive or on par with banks on higher quality deals. From a borrowers perspective clients need to weight the access to significantly more business capital versus the cost, more so when your company cannot in fact access bank credit.

Other tradeoffs are the requirements for more regular reporting on your receivables and payables and inventories and any miscellaneous audits or appraisals that might be required by the asset based lender to justify the higher borrowing levels. As we have stated the ability to access cash without the typical bank covenants and operating metrics is always top of mind with borrowers utilizing asset based lending. The overall flexibility in an asset based credit line tends to work well beyond traditional finance when all the options of each type of financing are considered.

While determining your borrowing strategy should be individualized based upon each business and tailored to your business’s specific needs, borrowers seeking working capital financing need to seriously consider the benefits of working with an asset-based lender, as it can provide greater flexibility and options for businesses seeking to look beyond traditional bank lending. Share which lending strategy has worked best for your business in the comments below.

Since asset-based loans don’t rely on the borrower’s operating performance, but on the quality of the collateral, fewer financial covenants are required of the borrower, and as compared with traditional bank lending, ABL lenders typically require a much more limited degree of reporting back to the lender.

KEY POINT - ABL facilities usually start at a minimum of 250k relative to the approved sized of the borrowing facility. This is the lowest end of the scale and there is no real upper limit to a company borrowing if the firm satisfies assets and sales revenue size.

If a company is too small, or for some reason is not eligible for abl lending then a factoring/ receivable financing facility should always be considered. Even startups or very early stage and smaller firms can consider the factor funding solution. Access to cash flow is fairly quick and easy for firms looking to just finance receivables. Providing your financials, aged payables and receivables and some other general info on your firm will typically get you started and approved quickly.

7 Park Avenue Financial recommends a CONFIDENTIAL RECEIVABLE FINANCING facility for firms considering just an a/r solution, outside of the asset based credit line.

This type of facility allows you to cash flow all your sales immediately, and your firm is responsible for all the billing and collecting very similar to a bank facility. In lieu of an interest rate commercial factoring firms chared a fee for discounting the invoice, and this is typically in the 1.5-2% range , so if your firm absorbs that fee and has good margins your cash flow problems are certainly solved.

We recommend that you seek out and talk to an experienced and credible advisor in Canadian business financing to determine if the advantages of an asset based line of credit work for your firm! It is a business loan with collateral that works.

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

' 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

Saturday, June 27, 2020

Access Business Loans Via These Alternative Business Financing Solutions

The best business loans and Canadian business financing options for business owners and financial managers aren't always the obvious ones when it comes to achieving capital needs for your company. If there is any good news in today's highly competitive business environment it is that funding options and a loan alternative are available for everything from startups, growing businesses, as well as financially challenged firms.

Why Is The Use Of Alternative Finance Growing In Canada

Three reasons by alternative lending is booming in Canada :

1.Credit Restrictions from Canadian Chartered Banks

2.Demand for Funding That Is More quickly Accessible and attuned to industry needs

3.Increased Knowledge Around Benefits of Alternative Finance - Studies show that Canadian business borrowing in the past was somewhat skeptical about dealing with non ' bricks and mortar ' financial institutions, but that is changing quickly.

In fact industry statistics from organizations such as the IVEY SCHOOL OF BUSINESS/UNIVERSITY OF WESTERN ONTARIO advise that 867 Million dollars of alternative capital were borrowed via non bank lenders for figures available just a few years ago.

Constant changes in the economy, ( pandemics included !) make it difficult for companies to access the business capital they need. Mainstream financing via Canadian banks etc is not always available when you need it, and alternative methods of financing and the ability to get a commercial loan in canada have almost become an imperative for business owners and their financial managers to inspect.

It is no secret that many industries have unique financing requirements, and even within industries, no company might have the same needs - hence our focus on ... options!

So what in fact drives the need for financing? It typically comes down to the longer-term goals of your company, the size of your business, and the overall 'risk rating' that both traditional and alternative lenders use to provide their capital to your company.

KEY POINT - When it comes to SME COMMERCIAL FINANCE options at 7 Park Avenue Financial e strongly recommend that business owners separate their business and personal credit. Although traditional banking does, in fact, focus on the reflection of your personal credit history as a measure of how you will handle business affairs it is still appropriate to have commercial lenders draw on credit info from business credit bureaus such as Dun and Bradstreet - building business credit and being able to demonstrate proper financials and a business plan and cash flow projections goes a long way to business financing success.

Business owners typically gravitate to term loans - it's a common form of loan that at its basics requires you to make monthly payments over a pre-determined period - typically 2-5 years. These days many clients we speak to are looking for short term working capital loans, typically covering temporary shortfalls or unique situations. These loans are very popular, readily available, and even more good news, quick to close, often in a matter of a week or two.

Those short term working capital loans and financing loans compete directly these days with traditional banks, who of course have better rates but harder approval criteria. Often no hard collateral is required, just the 'promise' of the business and business owner to pay. Typically these loans are for 10-20 percent of your annual sales volume, as a guideline to keep in mind.

Government guaranteed start-up loans are also popular. The government is committed to billions of dollars in these loans every year in Canada. Repayment is long, and covers 3 assets you can finance - equipment, leaseholds, and even real estate! The downside - those great rates and terms and flexibility come with an application process that can be cumbersome if you don't have the expertise of an experienced Canadian business financing advisor.

Businesses run day to day on credit lines, typically secured by receivables and inventory. Asset based lenders provide non-bank lines that offer generous borrowing margins.

Other Alternative business financing and immediate sources of business funding include:

Short Term Working Capital Loan ( Also called 'MCA's or Merchant Advances )

These loans are usually very quickly available with the main criteria for approval focusing on your years in business and loan amounts geared to your annual sales, typically in the 15-20% range. The personal credit history of the owner/owners is also a data point considered for funding. Loan repayments are typically spread out over a year and are often customized to your cash flow receipts from cash and business receivables. Interest rates are higher but flexibility and quick access to capital is the key benefit . Those are often the key benefits to any alternative lending solution .

Receivable Financing

A/R financing is a mainstay of alternative business financing. Financing is based on a high percentage of your receivables, typically 90% which is significantly higher than Canadian bank receivable margining policies. Rather than an ' interest rate ' per se commercial receivable finance funders charge a fee, typically in the 1.5- 2% range.

Firms with good gross margins who can easily absorb a 1-2% reduction in their profit margins can find themselves virtually becoming an automatic cash machine as they generate cash at the same time they create and grow sales revenues. It is generally improper to compare this type of financing to a bank business loan as the interest rates and fees are not a ' apples to apples ' comparison.

Receivable financing facilities can be stand-alone, or combined with other financing, such as an asset based line of credit that allows you to borrow under one facility based solely on your assets and sales. At 7 Park Avenue Financial we recommend that is a sole stand alone facility is used a CONFIDENTIAL RECEIVABLE FINANCING solution be implemented, allowing you to bill and collect your own receivables while reaping all the benefits of a/r financing/factoring.This financing is not a working capital loan that brings debt to the balance sheets, it's simply a monetization of your current assets.

Note that you can even finance a business purchase with an asset based loan.

Purchase Order funding / ABL Asset Based Lines Of Credit - These credit line and sales financing solutions are focused on business sales revenues and current and fixed assets. Much less reliance is placed on balance sheet ratios, covenants, outside collateral, personal guarantees, etc, often demanded by more traditional lending institutions.

Equipment Leasing / Equipment Loans / Sale leasebacks

Equipment loans and lease financing solutions are utilized by the majority of North American businesses to acquire both new and used assets. Business owners are sometimes surprised that used assets can also be financed, as long as they are acquired from another business or distributor, not via a ' private sale '. Business borrowing via Sale leasebacks can generate working capital for assets your firm owns outright, including real estate.

Equipment lease approvals are based on your ability to meet the monthly payment with respect to your cash flow, as well as being able to demonstrate the asset financed is a benefit to your business. The asset/equipment is of course the main collateral for the le assets. It is often recommended that you discuss with your accountant the lease vs. buy and the lease vs. loan business financing decision.

Government Of Canada Small Business Loan Program - Small Business Loans Canada

Although a mainstay of traditional banking many business borrowers are not familiar with the program and have a challenge in locating a banker who will work with them on this government-guaranteed loan. The formal name for the program is the Canada Small Business Financing Program
and allows small businesses, including startups to get 'traditional bank loans ' based on a guarantee the federal government, via INDUSTRY CANADA, provides to the banks.

Loans are up to $1,000,000.00 which is hardly ' small ' and over the last decade over 60,000 loans have been made under the program. Any new or established businesses under 10 Million in revenue can apply. AT 7 Park Avenue Financial we work with clients to ensure a speedy approval without missteps typically associated with bank borrowing - so we work with clients on a business plan, cash flow, company history, management overview, etc.

That business plan and other info help assure a speedy response and approval. Business owners borrowing under the program must have a decent credit score in the 650 range per Canadian credit bureaus such as Equifax.

It is very important to note that these ' SBL ' loans ' can only be used for equipment and leasehold interests and real estate. Unlike the U.S. counterpart in the U.S. it is only focused on those 3 asset categories and can't be used for cash flow, working capital, r&d, inventory, etc. Loans to buy a business in Canada are often utilized under the Govt SBL program.

Many franchise financing needs work very well in this program. As well rates are comparable with Canadian bank interest rates and terms vary from 2-5 years. A business start up loan is often the best way to utilize the program.

Statistics show that more and more Canadian business owners are understanding the various business finance options available to them. As opposed to taking to numerous commercial lenders it makes more sense to talk to a proper business advisor around types of financing, costs, and conditions. Canadian business has been somewhat slow to adopt alternative financing compared to ur U.S. counterparts but for those willing to investigate options there are numerous opportunities to finance your growth and operating needs.

Similar to bank loans for businesses and other mainstream financing alternative funding sources all have their benefits and potential drawbacks if not accessed properly, and for the right reasons - so investigate the options that best suit your firm's immediate needs. Seek out and speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of success.

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

' 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.

Click here for the business finance track record of 7 Park Avenue Financial

Stan Prokop
7 Park Avenue Financial/Copyright/2020

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

' 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.

Click here for the business finance track record of 7 Park Avenue Financial

Access Business Loans Via These Alternative Business Financing Solutions

Thursday, June 25, 2020

Looking For A Bank Financing Alternative ? We've Got One Several !

Bank Financing alternative solutions are, in many ways, the new normal. Canadian business owners and financial managers are constantly seeking bank alternatives as they start and grow their businesses. Traditional bank loans seem more difficult to achieve for thousands of business owners and their financial managers in Canada, and we're not talking about just pandemic time.

KEY POINT - It's interesting to note that all alternative finance mechanisms we discuss are in fact available from Canadian chartered banks. But it will always come back to the criteria in place as to your ability to access the above solutions at low bank rates. The traditional pre-requisites for accessing bank credit are the length of time in business, balance sheets that reference positive equity, profit history, cash flow coverage, and owner personal credit history and collateral.

Alternative finance solutions when sourced and used properly take the uncertainty out of financing your business and that's what business owners are looking for. While not widely regulated by the government many of the industry is self-regulated by their own trade associations and are governed by Canadian borrowing laws.

The good news is there are numerous options to consider, all the way from invoice finance techniques to short term working capital loans and online lending 'p2p' solutions known as commercial merchant advances.

WHO ARE THE ALTERNATIVE LENDERS?

Generally these are what's known as non bank lenders that serve SME commercial finance needs. They are usually not banks and typically are not deposit takers.

Many of the new clients we meet at 7 Park Avenue Financial find their bank arrangements have been rescinded and in more severe cases find themselves in special loans and workout categories at their bank. The good news is there are independent lenders/commercial finance companies that are very able in providing business financing to the SME sector in Canada.

Alternative lenders focus predominantly on sales and assets and can provide niche solutions ranging all the way to full-scale business lines of credit. These facilities support both growth and daily operations. Numerous types of ' factoring ' solutions are a keys source of financing for thousands of businesses in Canada. They are the new alternative to the traditional ' bank loan '. Other solutions as we have noted include equipment leasing, sale leasebacks on assets owned, and loan advances based solely on future sales projections.

While large corporations have access to all sorts of capital, in some ways unlimited, businesses in the SME COMMERCIAL sector struggle to find options that make sense and are balanced against what is usually a higher cost. Let's dig in.

One author in the U.S. recently offered up that business owners must ' spank their banks ' when it comes to access to business capital. While we suppose there are a hundred reasons to ‘spank’ U.S. banks (anyone remember 2008), those reasons don't really exist in Canada, as we're known to have probably the strongest banking system in the world, pandemics included.

So our banks tend not to go bankrupt, they don't go to jail, they do provide safe investment vehicles... and they have all the capital in the world - IT'S JUST DIFFICULT TO ACCESS BUSINESS CAPITAL AND QUALIFY FOR FINANCING.

So what's our point? Simply that the owner/manager in SME starts to look outside the box at non-bank alternatives.

What Are Some Popular Utilized Alternative Funding Sources In Canada?

Those alternatives include:

Accounts Receivable Financing - Commonly called factoring, or invoice discounting this is one of the most efficient and quick ways for a company to generate cash based on sales. In North America alone billions of dollars are financed every year according to industry statistics from FACTOR CHAIN.

A/R Financing fundamentals are easy to understand. Instead of the typical waiting period for commercial collections, which these days is anywhere from 30-90 days companies can enter into a financing arrangement to ' sell ' their receivables as they generate sales. Financing can be for some or all of their a/r portfolio, at the company's choice.

There are some key differences in bank credit lines and a/r finance via a commercial lender - the commercial finance company looks mainly at the quality of your receivables while the bank look at overall risk in dealing with your firm. Traditional bank lending is focused on your balance sheet and cash flow generation while the a/r financing firm focuses on your invoices as the collateral.

A/R Financing has a ' fee ' attached to it, not an interest rate, often a key misunderstood point in commercial receivables finance. That fee is typically between 1.5-2%, but if your firm has good profit margins and can sustain that reduction in profit a very strong case can be made for financing receivables.

Inventory Finance - A wide variety of inventory financing solutions are available through asset backed lenders who specialize in the valuation and financing the turnover of inventories. Most common is the combining of inventory financing into an asset based business credit line allowing your company to borrow on the combination of a/r and inventory.

Short Term Working Captial Loans/Merchant Advances- The growing popularity of short term unsecured loans for businesses cannot be denied. This ' peer to peer ' lending solution provides upfront capital based on a simple formula of your annual sales. The two main criteria are your ability to demonstrate your sales revenues through either your financial or bank statements, as well as a requirement for the business owners to have decent personal credit histories, the proverbial ' credit score '.

Typically small business owners with credit scores under 600 have a challenge in obtaining this financing, simply demonstrating that commercial lenders of all size look at how you run your personal finances as a reflection of your business.

The amount you can receive under these loans is typically 15-20% of your annual revenues so a business with revenues of 1 Million dollars will qualify for a 100-150K loan. Rates are generally quite high in this type of financing but the quick and easy approval and access to working capital have garnered great appeal to many businesses, retailers included. The online borrowing totally focuses on cash flow and sales revenue.

Equipment Financing

Sale/Leaseback / Bridge Loans - If your company owns equipment that has no liens on it and is generally unencumbered the sale-leaseback financing solutions provides immediate cash value for these assets, simply by entering into an arrangement to ' sell ' the equipment back to the finance firm, and then leasing it back, and naturally your retain full use of the equipment/asset. The lease payments become a monthly expense on your income statement and your firm generates immediate cash flow for working capital purposes.

Tax Credit Financing - ( SR&ED & MEDIA Tax Credits - Both Film/Media tax credits, as well as the Federal SR&ED tax credits which is a refundable tax credit that is financeable via a short term sr&ed loan cand provide valuable cash flow for newer firms focused on putting cash into their r&d efforts.

Asset-Based Lines Of Credit - Business credit lines, or more appropriately ' asset based lines of credit are full operating revolving credit facilities from the asset based lender. This product offering competes with the standard bank revolver line. The benefit of the 'ABL' credit line is that it provides all of the cash flow you need by combining the borrowing power of your receivables, inventory, and even equipment into one margined borrowing facility that your firm draws down as needed. Credit limits are extremely flexible and tend to grow with your assets and sales.

Purchase Order Financing - Many companies find themselves in the position of being able to receive large orders and contracts that would be a significant growth factor in their business, but they often have to decline this business as they are not in a position to have the working capital in place to fulfill those orders and contracts.

Under this alternative financing method, your supplier is paid directly by the commercial finance company allowing you to fulfill orders and sustaining the 30-60 day period between supplying your client and waiting for payment.

The order and receivable are taken as security for the P O financing solution. The transaction is closed when the final payment is made to your firm by your client. In many cases suppliers are located in Asia so the ability to fund these transactions is a very creative way to grow business. Similar to factoring and a/r financing solutions you must have very good gross margins to cover the 2-4% fee on this type of financing.

Absence of any one of those bank criteria can quickly derail your bank application. We almost find it humorous that business owners or their financial managers go from bank to bank only to be told the same response.

Bank alternatives in Canada are offered by commercial finance firms. They might be small, large, Canadian, U.S. owned, and in some cases geographically focused. They provide all the solutions offered by banks and typically have a much higher risk appetite as they are motivated by profit and growth also. Almost all firms only specialize in certain loan/finance segments, so it’s important to seek out an advisor who can help you navigate the waters and speak the lingo!

WHY ALTERNATIVE FINANCING?

Although some may consider alternative financing solutions as ' outside' the system industry statistics tell us they are becoming more mainstream than ever. You can call it ' FINTECH ' non-traditional but it is more utilized than ever before . Some have called it an ' improvement ' on traditional business financing. These solutions cover a wide range of business needs, including lender finance/ funding for lenders, SME Commercial Finance funding, acquisition financing, etc.

Many of the alternative lenders utilize newer forms of technology that enable transactions to happen quickly with greater improvement to the customer borrowing experience. Cash flow and invoice financing solutions are widely available to ease the cash flow crunches that many businesses in the SME sector face daily outside of their bank relationships. It's very safe to say the rise of the internet made a lot of this happen!

Technology and internet marketing allows Canadian businesses to access business capital that were previously the exclusive domain of the Canadian banking system. The wide variety of financing solutions available allows Canadian commercial borrowers the option to choose from a wide range of niche financing solutions.

Access to capital is faster than ever, and previously underserviced Canadian commercial borrowers
are finally finding business credit accessible whereas before they were considered ' underbanked'. Access to cash flow is faster than ever and borrowers are now able to, for the most part get all the funding they need based on their sales and assets.

Business owners will perhaps be surprised to know that many alternative lenders have partnerships and funding relationships in place with Canadian banks. Unlike the banks though they do not require historical financial strength and the strong credit history that is associated with the bank borrower. Many of the alternative lending players are funded by private investors, private equity firms, and rely on these investments to fund their loans.

Canadian business borrowers should view alternative lenders as specialty lenders who typically are focused on one unique financial offering, allowing them to have significant expertise in key niche areas. Banks of course offer a broad array of financing products and it is sometimes challenging to locate a banker specific to your needs.

So, bottom line. The Canadian business owner / financial manager can spend all their time blaming (spanking) their bank or they can choose to seek out real world solutions that exist for the financing they need.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in the evaluation of a bank financing alternative via alternative funding that will allow you to grow or start a business.

Click here for the business finance track record of 7 Park Avenue Financial

WELCOME !

Saturday, July 4, 2020