Factoring Financing In Canada - Reasons To Consider Factoring

Tweet

How To Crack The Code In A/R Cash Flow Financing 

( Immediately ) !

Factoring  Financing in Canada has a limited number of options, and factoring is certainly becoming one of them. When we meet with Canadian business owners and financial managers to discuss their working capital and cash flow problems, customers are either self-financing or requiring cash flow assistance, or their current financing needs do not provide them with the working capital and cash flow they require.

Although invoice factoring has a long history and is the way many businesses acquire short-term capital, a ' factoring loan ' does not bring debt to your balance sheet. Here's what you need to know.

 

THE CHALLENGE OF ACCESSING BANK FINANCING IN CANADA

 

Canadian banks are among the strongest and most successful in the world - part of that reason is their somewhat conservative stance to Canadian business financing - That conservative stance serves shareholders very well, but certainly doesn’t help small and medium-sized business owners achieve their financing needs.

So where does your business get the cash flow it needs?  Long-term borrowing, i.e. what the finance people call 'term debt' is not really the solution for day-to-day operating and working capital needs.  Companies generate cash from the 'current assets' portion of their balance sheet. That involves the following asset categories:

 

Cash

Inventory

Accounts Receivables

 

Invoice Factoring via commercial factoring companies in Canada focuses on turning receivables into immediate cash.  And Yes, there is a cost and a process but those costs and that way of doing business can be properly justified with the help of a trusted and credible advisor in this area of Canadian working capital finance.

When we meet with business owners to discuss their working capital needs it is essential they understand their working capital situation and requirements.  You don't need to be a full-fledged chartered accountant to measure your working capital situation and needs.

 

HOW  TO ASSESS YOUR WORKING CAPITAL AND CASH FLOW NEEDS

 

By taking a few numbers from their financial statements customers can monitor the level of working capital to fund the business, and make payments on any debt the company has i.e. loans, leases, etc.

Those calculations are very simple but not always properly understood or monitored by our customers.  For example, determine your current working capital by taking your current assets and subtracting current liabilities - it’s as simple as that. Then monitor this number against the following items:

Sales

Total assets

Total liabilities

By - at least on a monthly basis - analyzing these very basic numbers will show your trends in your working capital needs and any deterioration that might be setting in.

 

 

IS INVOICE FACTORING THE SOLUTION TO YOUR BUSINESS CAPITAL NEEDS?

 

Well, to this point we have discussed the problem - Is ' discount factoring ' the solution? It can be as long as the business owner understands what it costs and how it works. Would the business owner prefer to access cash immediately on making a sale, or wait 30 days to .. yes.. 90 days to collect a receivable? The fast application process and fast funding are why thousands of businesses, including your competitors, use third-party a/r finance via invoice factoring companies.

 

 

 FACTORING COST? HOW MUCH DO FACTORING COMPANIES CHARGE

 

Factoring works as follows if you have properly structured a facility for your own particular business model and way of doing business. You simply sell, or ‘factor’ accounts receivable invoices as you generate them. You receive 80-90% of the money immediately, the balance on payment from your customer.

 

There is of course no 'free lunch' in Canada so a financing fee, or 'discount fee' is deducted from the funds due you. In Canada this can be in the range of 1 to 2 1/2% on average- that is known as the factoring discount. Your ability to negotiate the best fee and the type of facility that suits your daily paperwork is probably going to come from working with a trusted and credible advisor in this area of Canadian Finance.

 

RECOURSE VERSUS NON RECOURSE FACTORING

 

 

How does accounts receivable factoring work when it comes to your credit policy? Canadian businesses can choose to maintain their current bad debt and credit risk policy via a standard recourse factoring agreement, or they can choose to access a non recourse facility which allows the company to transfer the risk to the factoring company at a higher facility cost.

 

 

 

How Factoring Can Make Your Company More Successful

 

Understanding the basics of factoring in Canada revolves around understanding why a Higher turnover of receivables, i.e. via factoring, is a great indicator of a successful company.  Your company is in a better position to invest funds, pay creditors in a timely fashion, and grow and profit your business.

If your firm could sell more because it had the working capital to finance receivables and inventory and purchase more goods you are turning over assets constantly and generating more profit. Therefore the 1-2% cost of the factoring is hardly what the Canadian business owner should focus on.

THE COMPETITIVE ADVANTAGE IS BEING SUCCESSFUL VIA FACTORING SOLUTIONS

Does factoring make sense for your business? You can also extend credit terms to major customers or new potential customers, which becomes a major competitive advantage - like your firm your customer also views 'cash as king' and will probably reward you with new business.  Offering larger amounts of credit to good customers, with great payment terms is a great way to increase your competitive presence via the factor companies solution.

 

 

 CONCLUSION

 

Want to take your business further with the experts in small business lending in Canada. It's important to know what to look for in a factoring company in Canada!

At 7 Park Avenue Financial we offer the best factoring company solution to clients - Confidential Receivable Financing - it allows your firm to bill and collect your own receivables on a full or selective basis - Talk to our team for more info.

Factoring might not be the solution for every firm in Canada, most certainly it is not - BUT - if you can't get the financing you need it's a solid working capital Canadian alternative. For Canada factoring solutions speak to 7 Park Avenue Financial, a trusted business financing advisor to get the facility that suits your business and needs.  Learn the main reasons why factoring is a good choice for your companies growth finance needs.

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

What is Factoring -

The process of factoring invoices allows a company to sell its invoices to an invoice factoring finance company and access cash immediately for the investment they hold in outstanding A/R. The transaction removes invoices from the balance sheet and adds cash to the bank account. Businesses can factor finance all their receivables or selective invoices.

 

What factoring companies do?

 

A factoring company specializes in invoice factoring, or purchasing outstanding invoices from businesses that have slow paying customers and are looking to boost cash flow. This allows a business to access cash immediately after issuing an invoice, instead of waiting 30-90 days for the customer to pay

 

Is a factoring company worth it?

Invoice factoring and financing  works for business owners that require cash and who can demonstrate they have reliable customers that have a history of paying invoices on time - A company should be able to demonstrate good gross margins to afford the 1-2% factoring fees that come with selling invoices to a third party.

 

ADDITIONAL RESOURCES:

 

Here's a great article from Inc. Magazine on the business of factoring - Click here for the article

 

 

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/2021

Factoring Financing In Canada | 7 Park Avenue Financial

How To Use Factoring Financing In Canada For Cash Flow Needs

Tweet

Your Working Capital Needs Just Got Solved By Factoring Finance

FACTORING AS A SOURCE OF FINANCE IN CANADA

 

Factoring  Financing in Canada for Canadian small and medium-sized businesses is somewhat limited due to the financial alternatives available to Canadian business owners and financial managers.

 

Also, the overall structure of our banking system, although conservative and strong, by its own nature limits working capital and debt options, especially for assets like commercial accounts receivable. Small and medium-sized businesses in Canada need a form of financing to achieve growth objectives when addressing the future of business funding.

 

WHAT IS ACCOUNTS RECEIVABLE FACTORING FINANCING?

 

If your company is trying to grow significantly, or in some cases, survive, your company needs access to business capital. Using invoices as collateral is a way to achieve that via factoring financing companies.

 

 

 

WORKING CAPITAL FINANCING SOLUTIONS 

 

 

When we meet with Canadian firms to discuss their working capital arrangements and needs, the meeting generally starts with discussing the working capital need. Receivable financing is where the majority of that financing comes from. We can, of course, discuss the matter ‘technically‘ also. Finance analysts and bankers looking at your financial statements can quickly calculate what is known as the ‘Quick Ratio' :

 

 

That is simply taking our cash on hand and receivables, adding them up, and dividing by your current liabilities. As accounting-like and technical as this may seem, we strongly recommend to business owners that they monitor this figure quarterly, monthly, and annually – it’s a great investment in understanding your cash needs as well as your days sales outstanding performance.

 

 

"WHEN THE BANKS SAYS NO" 

 

When business owners are faced with cash flow and working capital challenges, owners must address what solution is available to increase cash flow; and invoice factoring via a commercial factoring company is one solution.

 

Factoring financing institutions are usually non-bank commercial finance companies in Canada, who unlike the bank finance your company while the focus is not dependent on your balance sheet.

 

 

If your company does not have traditional Canadian chartered bank financing, the concept of ‘factoring' has the ability to remedy your working capital challenges. A/R Financing does not focus on the credit history of owners, unlike how an owner's credit score is a key focus in Canadian business banking. That's one of the key advantages of factoring financing in Canada.

 

Receivables finance vs factoring comes down to the issue of either assigning your receivables to a bank of selling them on a selective basis to suit your cash needs. Businesses have to have decent gross profit margins to absorb the factoring finance cost and receive immediate financing upon approval of the facility.

 

 

Factoring in Canada provides you immediate cash for your receivables that you otherwise would be waiting for 30, 60, and yes, unfortunately, sometimes 90 days for your funds from customers. If we go back to our ‘Quick ratio'  example, we can see that your cash and receivables on hand might clearly not be able to cover your current liabilities, most notably accounts payable, Government source deductions, etc.

 

  

FACTORING COMMERCIAL ACCOUNTS RECEIVABLES IS CASH FLOW MONETIZATION AND NOT DEBT ON THE BALANCE SHEET  

 

We can't overemphasize that factoring as a solution is not ‘borrowing‘ or term debt as the bankers like to call it. It is simply a method of liquidating your current assets earlier than you anticipated, giving you the cash flow to pay supplies, employees, etc. That is the solution delivered by factoring companies.

 

 

The basics of ‘factoring’ in Canada vary widely. That is partly because, in our opinion, factoring in Canada is viewed much differently than where it originated in the U.S. and England. We, therefore, encourage customers to understand what the Canadian factoring environment is all about so they do not lock themselves into a financing strategy that is contractual in nature, has too high a cost, and is not productive from a daily paperwork point of view.

 

 

Many businesses in Canada have major misconceptions about factoring as alternative financing. When we meet with customers, we continually find we are clearing up those misconceptions by discussing the following points:

 

The Canadian Factoring landscape is very different than in the U.S.

 

Canadian businesses in Canada generally have the perception that factoring is both intrusive to their customers and that the overall credit quality of their customers limits the amount of funding that your firm can receive under a factoring facility. When we talk to customers, we can show them ways to offset most - sometimes all! - of the costs of factoring.

 

  

WHAT DOES FACTORING COST   

 

Many customers view the actual factoring cost as an ‘interest rate. ‘ This is a poor way of looking at the cost – a better way is to view your ability to get unlimited cash flow financing at the expense of a 1-2% reduction in your gross margins. Prompt collection of your accounts receivable will reduce your financing costs.

 

 

  

 

EXAMPLE OF HOW FACTORING WORKS  ON A DAY TO DAY BASIS   

 

 

Many Canadian firms also don’t understand the day-to-day basics of factoring – we can, for explanation purposes here, simply say that it is the selling or 'discounting‘ of your receivables in two steps.

 

You receive 80-90% of the cash for the invoice the day you generate the invoice, and it is a true earned or ‘owing' invoice. You receive the balance when the customer pays you, less the 1-2% discount fee that we talked about earlier.

 

 FACTORING VERSUS PURCHASE ORDER FINANCING:  CAN PO FACTORING FINANCING AND RECEIVABLE FINANCE BE USED TOGETHER 

 

Clients at 7 Park Avenue Financial sometimes confuse factoring in Canada with Purchase Order Financing. They are not the same. The factor/a/r financing solutions is a method to cash flow your invoices from creditworthy clients - Attached to that is a fee in the 1.5-2% range, so a client should have typically good gross margins to absorb the financing charge. For more information on how P O FINANCING works, click here.

 

CONCLUSION

 

Are factoring services  Canadian business the panacea and ultimate solution for every Canadian firm? Definitely not. Can it help thousands of small and medium enterprises in Canada fix their funding challenges? Absolutely yes!

 

Work with 7 Park Avenue Financial,  a trusted and experienced advisor in this area to ensure you have the best facility, the right asset based finance factoring company at the best rate that suits your business model and way of doing business over the long term via a factoring financing solution. Let our team be the growth strategy funding experts you have been looking for.

 

 

 

 

 

FAQ: FREQUENTLY ASKED QUESTIONS

 

 

 What is factoring?

 

Factoring is a business finance transaction and is a method of selling accounts receivable/outstanding unpaid invoices at a discount. The factoring of accounts receivable allows a company to meet its short-term debt obligations by using this customized flexible approach method of ' debtor finance' as a type of line of credit.

 

How does factoring finance a company?

 

Factoring debt financing works for business when a financing company, known as the ' factor ' provides business capital to a company by purchasing and paying for outstanding invoices for creditworthy clients of a business. Typical advances on the receivables are in the 85-90% range and funds are advance promptly, usually same day or the next day. Companies receive the balance of the invoice advance when the debtor pays, less a factoring fee.

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

Factoring Financing In Canada | 7 Park Avenue Financial

Business Finance Solutions In Canada : The Rise Of Asset Based Finance Lending & Non Bank Lenders

Tweet

7 Solutions From Asset Based Lenders That Can Help Your Business

Asset based financing via non-bank lenders is one of the most popular and fast-growing business finance options in Canada. But why are these new paradigm asset loan lenders so popular with increased presence and visibility in all aspects of raising capital and cash flow today? We think we know exactly why! Let's dig in!

 

WHAT DOES THE WORLD OF ASSET BASED FINANCE INCLUDE?

 

One challenge though is that this type of finance term, i.e. ' ABL ' ( asset based lending ), is a bit of a catch-all term when it is first heard by many business owners and financial managers. There are, in fact, a very distinct number of solutions within the term 'asset based finance '  and asset based financing companies, including a business line of credit that delivers the same benefits as a bank loan and steps up with capital when you need it the most! Let's dig in on business asset based financing basics!

 

  

Solutions from asset-based financing companies include :  

 

Asset-based operating lines of credit - The asset-based loan revolver

Factoring / AR finance - Accounts receivable funding/ AR Loans - Asset-based finance factoring solutions include Confidential Receivable Financing

Inventory Loans

Sale Leasebacks / Asset-based equipment financing

Bridge loans - Custom-tailored asset-based bridge loan solutions

SR&ED Tax Credit loans

Acquisition/merger financing

Real Estate - asset-backed solutions for company-owned real estate/land

 

  

WHY ARE ASSET BASED LENDERS DIFFERENT FROM CANADIAN CHARTERED BANKS  

 

We think you can see the basics, though - it's borrowing power for cash flow and working capital secured by some or all of your business assets. Unlike Canadian traditional bank solutions, ABL lenders are more often than not commercial finance companies who operate for a profit and, unlike our banks, are not regulated by the government when it comes to asset lending and loans.

 

That type of regulation often limits borrowing!! Interest rates and cost of financing/asset based financing rates are always higher in ABL lending, but access to more capital is key to business owners. ABL rates are most commonly perceived as the main disadvantages of asset based financing.

 

So why consider this type of solution? The most common reason is your firm’s inability to get some of all of the credit from those traditional capital sources. In some cases, your firm might be in dire straits and is in the process of exiting the bank. (At their request!)

 

ASSET BASED LENDING VS. TRADITIONAL BANK LENDING

 

When it comes to understanding how does asset-based lending works, It is very safe to say that non-bank lenders take more risk, provide more capital, and come with a higher cost of borrowing.

 

For that reason, the ABL loan agreement is not focused so much on loan covenants, balance sheet ratios, owner credit score/credit history, etc. If your firm is still a startup or early-stage company, you're still often a solid candidate for financing. Hint: Sales revenues also help, as well as your asset based business loan collateral!

 

How does one access alternative finance solutions? That sometimes is a challenge in and of itself, as the players are small, large, the U.S. owned, Canadian owned, and occasionally geographically focused. All have different rates, structures, solutions, and programs around the asst based loan facility solution they offer.  In many cases enlisting the help of a Canadian business financing advisor makes total sense to save time and hone in on the right solution that is comparable to bank lending solutions.

 

When you do, in fact, focus on the solution that makes sense for your firm, benefits will often include flexibility and quicker access to capital. In a handful of scenarios, it's not uncommon for an alternative financier to also work within your current bank facility, although that's not the norm.

 

 

CONCLUSION

 

Want To Know More About Asset Based Financing Non-Bank Lenders  Finance? The bottom line? There is a whole new ' ball game ' when it comes to commercial business financing asset based loans via non-bank lenders.

 

If you want to know more about how asset based lending works versus bank lending, you're looking for lines of credit, cash flow and working capital solutions, or very specialized finance needs, speak to 7 Park Avenue Financial,  a trusted, credible, and experienced Canadian business financing advisor who can assist you with the asset-based financing structure that meets your business finance needs.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  

 

What is asset based finance?

Asset based finance is a financing solution that provides businesses with working capital solutions that include term loans and lines of credit. Typical assets that are collateralized by these loans include receivables, inventories, and fixed assets/equipment as well as real estate. 

 

Is it difficult to obtain finance with asset based lending?

 When it comes to asset-based lending vs bank financing asset based loans are more easily obtainable than traditional bank loans as the asset based lender focus is on the value of the collateral turnover and asset turnover in categories of receivables and inventories. Less emphasis is based on bank criteria that typically include balance sheet ratios and covenants and guarantees.

 

What is an ABL term loan?

 

ABL loans are asset backed loans that are structured in the form of a term loan or a revolving line of credit. The majority of ABL lending is in one of those two structures. Term loans are typically on a fixed installment basis, while credit lines revolve based on borrower usage.

 

Do Canadian Banks Offer asset based loans?

The rise of bank owners asset-based lenders has grown in Canada. Their solution acts like non-bank lenders and run specialty financing divisions within the Chartered bank regulated structure. Their product solutions are similar to non-bank lenders and are priced more aggressively due to their ability to access lower cost of funds. They are different in that the credit quality must be of a higher grade and deals often start in the 5-10 Million dollar range.

 

 

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

Asset Based Financing Non Bank Lenders Finance | 7 Park Avenue Financial

7 Ways To Finance A Business Acquisition in 2021

Tweet

To Finance A Business Acquisition In Canada - The Best Ways

 

Acquire a company?  That’s one way to beat the ‘organic growth ‘path to business success, and it can be a proven strategy  ... when done properly.  How then does the owner/entrepreneur successfully finance a business acquisition? Some experience in the area helps - given that different sources of finance in this area demand different approval criteria for successful advantages of acquisition to eliminate financing risk. Let's dig in.

 

 WHY BUY AN ESTABLISHED  BUSINESS? 

The ability to buy a company with a working and successful business model can't be overestimated - employees, existing assets and a revenue base are all good things! ' Time to market is virtually eliminated, via an established client base, given that building a brand and market share takes time!

Existing cash flows make it more feasible to attract additional financing to grow the business. These days it is all about the supply chain in your industry, so an existing network of suppliers, vendors and systems and processes is more than invaluable!

 

For more info from the Harvard Business Review on those ' rules ' and benefits to acquiring a business, click here for the article. We particularly like HBR's rule # 5 on how to acquire a business with a loan  - don't buy a failing business!

 

  

WHAT FINANCING STRUCTURE WILL MAKE YOUR TRANSACTION WORK?  

 

 

When buying/acquiring a business or merging your business into another (That’s the 'M ' in m&a), it’s important to visualize the company's ultimate structure. While it's preferable that your target business has little or no debt, strong cash flow, and valuable assets, the reality is that's not always going to be the case. Therefore different types of acquisition financing are required to shore up the overall ' business valuation' of the target company in connection with your process of due diligence and a better guarantee of being successful with acquisition financing lenders.

 

 FOCUS ON THE FINANCIAL STATEMENTS

As we have said in the past, financial statements don't provide a ' magic number ' for value, but properly completed (and available), they should show you the business's cash flow situation. Again, the past is not the future, so careful examination of future financial potential is key in a financial acquisition.

 

SHARE PURCHASE VS ASSET PURCHASE

 

Buyers must also determine if they are buying the ' shares' of the business or the ' assets.' There's a big difference in tax obligations here, and this is where it's best to consult your lawyer or external accountant.  Sellers need to consider the fact that there is no real ' market ' for private company shares.  The buying and selling of businesses rely then on proven ' formulas' for valuing a business.

HOW ARE BUSINESSES VALUED?

Those valuations typically include giving a multiple to cash flow, profits, sales, or some combination of those. In some cases, it's all about the business's assets,' so both a buyer and seller would benefit from a third-party independent appraisal of any assets on the balance sheet if required. While sellers will maintain an overall ' glossy ' outlook on assets... it's buyer beware when it comes to sellers risk.

On larger, more complex transactions, a 'fairness opinion' will help a transaction - that type of solution to value is much less rate in the SME/SMB marketplace for acquisitions and buyouts.

Example: Specialized assets will require additional due diligence. A good example of that might be intellectual property.  Additionally, real estate might often be a part of your transaction. That can be addressed in several ways - as that type of asset is typically, but not always, held in a separate holding company as part of a long-term owner strategy. 

The quality of the financials and the business's performance historically dictate what type of financing you will need to complete a transaction when financing an acquisition with debt. Poor profits, high levels of debt, and other operational deficiencies will dictate finance solutions. Ultimately understanding the working capital and assets is key. Remember also that in the small to medium enterprise area, ' Goodwill  ' is rarely, if ever, financeable on that balance sheet.

 

Oh, and by the way, the ability to  ' sell yourself ' as a manager with skills is key.

 

7 WAYS TO FINANCE  A BUSINESS PURCHASE IN CANADA /

 

Let's get back to our actual financing options when acquiring a business and those sources of funding. They include:

 

Canadian chartered banks

 

The Govt of Canada guaranteed ' Small Business Loan.'

 

Asset-based loans and lines of credit -  utilized for leveraged buyouts and asset-intensive companies, thereby providing maximum leverage on assets for another company

 

Sale-leaseback strategies on owned assets

 

Unsecured cash flow term loans / Mezzanine Finance

 

Seller financing participation - i.e. the 'VTB.' / Vendor financing - establishing a creative earn with the seller will almost always help your transaction.

 

Buyer equity - equity financing vs debt financing must be balanced according to your goals and capability to successfully completethe transaction.

 

One or more often, a combination of these finance solutions will help finalize a financing structure that works best for your purchase. The interest rate on any debt financing will vary based on deal size and type of financing.  A business plan for financing will almost always be required to effectively present your transaction most positively. 7 Park Avenue Financial business plans meet and exceed bank and commercial lender requirements.

 

Taken into consideration also must be the financing for equipment that might be needed to grow the business - that is most often accomplished via effective equipment leasing to conserve working capital.

 

While larger deals might be able to secure private equity or a public listing for financial success, the real meat and bones of the small to the mid-market area of acquisitions rely on those 7 strategies ( or combinations of them ) that we highlighted above. Many firms are also acquired via a management buyout - Click here to buy out financing solutions.

 

BALANCING THE ADVANTAGES AND DISADVANTAGES OF BUSINESS ACQUISITION

 

Most of the advantages of buying an already established business are obvious, most notably, eliminating the challenge of starting a  business from scratch. However, there are also some potential risks and disadvantages, such as the costs associated with the value placed on assets, brand, goodwill, proprietary technology, etc. If you as a buyer have limited expertise in the target company industry, the learning curve can be steep - As one of our mentors once said, ' tuition is costly in the school of experience'!

Other issues to contend with are the potential inability to address employee issues or properly assess future financing needs. We all hate surprises, and the surprise around potential product/service and client issues can be a major challenge. In the technology environment, reinvestment in outdated assets can prove to be a financial burden.

Naturally, with a proper level of due diligence, the vast majority of issues can be addressed in the early stages of preparing your offer to purchase.

 

CONCLUSION - NEED TO FINANCE AN ACQUISITION?

If you're looking for expert help and real-world financial solutions to buying a business, seek out and speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in your business acquisition finance needs. When it comes to finance a small business acquisition, let our team help you finance the purchase of an existing business.

 

FAQ: (FREQUENTLY ASKED QUESTIONS)

 

How Do You Finance A Business Acquisition

After a potential purchaser establishes a value on the target company they wish to buy, a value/purchase price must be established. The most common way to establish value is the ability of the company new generate profit. A common formula is ' EBITDA' - which is calculated by earnings before interest, taxes and depreciation. An industry multiple is then put on that number.

Why is Goodwill An Asset?

Goodwill on the balance sheet of a company is the amount over the value of tangible assets of the business. It is viewed as an asset because its benefits are long-term and extend beyond the financial statements period. Components of goodwill might be brand value, client lists, propriety technology etc.

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

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 

Finance Business Acquisition Acquire Company | 7 Park Avenue Financial

The Secret Of Factoring & Invoice Financing In Canada

Tweet

Get Rid Of Cash Flow Problems Once And For All With Accounts Receivable Factoring Companies

Factoring in Canada continues to be more and more of a financing option for Canadian business owners and financial managers.  Generally speaking, factoring in Canada is a great synonym for alternative financing. When Canadian businesses cannot raise traditional financing for working capital and cash flow solutions, factoring via invoice discounting becomes one of several viable alternatives.  

 

IS FACTORING INVOICES  A GOOD IDEA? WHO USES FACTORING

 

Factoring invoices work for all companies that sell on business credit, require money for day-to-day operations and who have a creditworthy customer base. The cost of this type of financing is quoted as a fee and not an interest rate, and companies should be able to absorb this method of finance.

 

WHEN DOES INVOICE FACTORING WORK WELL?

 

Invoice factoring works well for business owners that need money quickly, have reliable customers that have a history of paying invoices on time and can afford the fees that come with selling invoices to a third party - that party is accounts receivable factoring companies. If this sounds like your business, you might benefit from an invoice factoring solution!

 

FACTORING FACILITIES CAN BE SET UP QUICKLY AND EASILY

Part of the appeal of a Canadian factoring finance solution is a firm's ability to put this financing facility in place fairly quickly. In our experience, the facility generally takes about two weeks to finalize, from start to finish. When we compare this against a firm's time spent negotiating traditional Canadian chartered bank financing, we can easily see this as a key advantage.

 

WHAT INDUSTRIES IN CANADA USE FACTOR FINANCE

 

Almost every industry in Canada has the potential for factoring invoices. The process is also referred to as invoice discounting.  Companies that maximize the factoring process are generally those that are expanding and growing very quickly – this is probably the optimal use of factoring as an alternative financing vehicle, but in many cases Factoring in Canada is simply a survival or restructuring strategy of a temporary basis. Factoring companies in Canada are often referred to as a 'bridge' back to traditional financing.

 

Most business owners and financial managers are keenly aware of both the cost of carrying their receivables and at the same time the amount of management time that is spent on monitoring this asset, which quite often represents the largest or second-largest ‘ current asset ‘ they have on their balance sheet. (Inventory is 2nd). 

 

 

  

WHAT IS THE TYPICAL CHARGE FOR FACTORING / INVOICE FACTORING RATES? 

 

The average costs of factoring is between 1-2% and depends on factors such as monthly volume, overall credit quality of your receivables and the average invoice value. These costs are expressed as a fee, not an interest rate.

 

So when you don’t want to wait 30 to 90 days, or in some cases 90 days as seeming the norm being the norm, accounts receivable factoring is the quick and effective solution. It is somewhat more costly than traditional financing, but savvy business owners can turn the perceived high costs of factoring around in many creative ways. 

 

This can be done in very basic ways, such as increasing pricing by 1 or 2% or utilizing part of the cash flow generated from factoring to take prompt payment discounts with suppliers and negotiating better pricing on goods and services. Imagine a financing solution that gives you unlimited cash flow and whose costs can be effectively managed by smart business decisions in your business and operational and purchasing model!

 

FACTORING FINANCE IS NOT DEBT ON YOUR BALANCE SHEET

The process of factoring is really one of the key issues around why factoring was much slower to catch on in Canada, and business owners are highly recommended to research this type of financing with an experienced and credible partner. If properly structured, your Canadian factoring solutions will not require additional collateral, and they should not be confused with term debt or additional borrowing. You are simply ‘monetizing’ immediately your largest liquid asset, those receivables!

 

SOME BACKGROUND AND HISTORY ON FACTORING

 

So why has factoring become a cash flow solution of choice for Canadian businesses? If it’s so great, why haven’t you heard more about it? The truth is that factoring has been in place for hundreds (some claim thousands!) of years.  When I first heard of factoring is was always in conjunction with the textile or garment industry in Canada, much of that out of Montreal. Nowadays, factoring is pervasive in every industry.  We can easily maintain that if your firm has good receivables and your overall gross margins can handle factoring, you should consider this financing a potential alternative.

 

So what’s the ‘Canadian’ spin on factoring? We know that in the U.S., there are probably over a thousand-factor firms - these firms are looking for financing relationships with U.S. businesses. In Canada, the market and the players are, as usual, smaller in size.

 

We strongly believe that one of the reasons factoring in Canada did not catch on as quickly was simply that Canadian business owners did not like the concept that their receivable is managed via a notification process to their customer.

 

DO BANKS OFFER FACTORING

 

Banks do not offer factoring as a general rule. Instead, they take an assignment of your accounts receivables, and these ongoing receivables are collateral security for the loan or line of credit. They have security on your A/R receivables loan, unlike the factoring process, which sells a receivable.

 

So if your overall business philosophy does not foster the idea of a finance company notifying and collecting your receivable for you, you should strongly consider a non-notification financing factoring facility. This again is where you need the services of a trusted, credible, and experienced financing advisor to steer you through the Canadian factoring process.

 

In summary, Factor companies in Canada are, relatively speaking, a  newer form of financing – but has been in place in Europe and the U.S. for hundreds of years. It has major cash flow benefits, is a great alternative financing strategy, and, if managed properly, is cost-effective. 

 

One of the best Canada factoring solutions is Confidential Receivable Finance - allowing you to bill and collect your own receivables without any notification to any clients, suppliers, etc. Companies can choose between non recourse factoring and recourse factoring depending on what level of typical bad debt risk they wish to maintain of transfer.

 

Are you looking to fast-track your liquidity as a small business? Factoring services will turn your outstanding invoices into cash immediately, either the same day or within 24 hours. Talk about accelerated working capital via factoring financing!

In some cases, PO financing might be an additional service that is complementary to A/R Finance.

CONCLUSION

Processes that Canadian owners may not necessarily like around the paperwork and customer intrusion from ar factoring companies can be managed and negotiated carefully with the assistance of an experienced Canadian business financing advisor like 7 Park Avenue Financial, with a track record of success in this area of factoring program and accounts receivables as a key asset of your business.
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/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Factoring In Canada | 7 Park Avenue Financial