Creative Inventory Financing Solutions for Startups and Growing Businesses

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YOUR COMPANY IS LOOKING FOR INVENTORY FINANCING!

FINANCING INVENTORY FOR SHORT TERM FINANCE NEEDS

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT  BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

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

 

WORKING CAPITAL OPTIMIZATION FOR INVENTORY FINANCING SOLUTIONS

 

Inventory financing in Canada.  What are the methods that Canadian business uses to ensure that working capital investment is maximized? How does inventory financing work?

 

The good news is that there are several inventory financing solutions for businesses in Canada - It is a valuable type of financing that allows a company to fund inventory and stock - Solutions such as supplier trade credit / vendor financing, purchase order financing, inventory loans and inventory finance solutions within asset-based lending ABL lines of credit are all available to the Canadian borrower and can help fund business expenses.

 

Each of these financing solutions is unique and has different benefits and potential drawbacks, so it's important to understand financing options that best match the needs of your business.  Let's dig in!

 

 

"Financing is not a one-size-fits-all proposition." - Barbara Corcoran

 

 

WHAT IS INVENTORY FINANCING 

 

Inventory financing is a type of short-term business financing that allows a business to either purchase inventory or use inventories as collateral for financing the business - That ability to leverage inventory helps in overall cash management when used in an efficient manner.

 

For a business selling products ( as opposed to service-based companies ), it is critical to maintain an appropriate inventory level without negatively impacting the company's cash position. That allows a business not to have to liquidate inventory or pledge other assets as collateral.  The ability to avoid more expensive forms of business financing eliminates the worries around the company's cash flows. Many firms are seasonal businesses in cyclical industries, requiring specialized financing solutions.

 

In many cases inventory financing from alternative lenders is easier to obtain than traditional bank financing. Many banks are hesitant to lend on inventory to the SME commercial finance segment of the industry. Those small businesses and medium-sized firms often require business capital the most but find it hard to access.

 

Many business lenders have particular inventory funding expertise not available in the SME banking segment in Canada.

 

The ability to access financing for inventories will also allow firms to benefit from bulk purchases from key vendors, and that strategy is also often accompanied by volume discounts - ie better pricing / more profit margin!

 

The worldwide pandemic reinforced the importance of inventory and supply chain management - talk about an example of market conditions demand fluctuating and focus on supply chain disruptions. 

 

Effective inventory financing and asset management of this critical current asset will always lead to better profitability and the ability to achieve long-term business growth.

 

When business owners/financial managers are challenged on how to finance inventories, it's important to focus on two areas - we'll call them ' tips' and ' traps'!

 

 

TRADITIONAL FINANCING TENDS TO AVOID FINANCING INVENTORY FOR A VARIETY OF REASONS

 

 

Financing inventory typically revolves around retail or commercial concerns and may involve a line of credit combination. Smaller retail businesses have a huge challenge as banks and other commercial lenders are reluctant to lend against inventory based on business credit score history or financial health. In many cases, they will demand the personal or business assets of the business owners as collateral. Compounding the problem is the fact they view that type of business as an ' all-cash ' business - so why would it need small business financing?

 

 

INVENTORY FINANCING LOANS

 

Typically when inventory is financed by a bank or commercial concern via business loans, it's important to realize that it's always financed at cost.  Another good thing to know is that in certain types of financing actual physical counts, inspections, or appraisals will be required by your inventory financing lenders - again, typically a bank or non-bank commercial lender.  That won't always be required, but it’s an absolute must on occasion. The lender needs to determine the ' margin formula ' they will lend against on an ongoing basis.

 

WHAT IS THE FORMULA FOR INVENTORY FINANCING?

 

While there is no specific formula around how different traditional and alternative business lenders address inventory financings, several key factors determine the amount of borrowing a company can achieve in pledging existing inventory or purchasing inventory. 

 

At the top of the list is the actual value of the inventory of a business as that value becomes the key component in margining for an inventory term loan or part of a business line of credit. Factors assessed here are the potential resale value and the initial cost.

 

Business owners and financial managers should understand that inventory financing is about asset turnover. ie the inventory turnover ratio. This is a critical measurement in lender financing consideration - how quickly a business can turn inventories into accounts receivable and then cash!

 

The collateral required around an inventory loan as a stand-alone loan or part of a line of credit is the inventory itself - so the value and quality and marketability of the inventory are key.

 

Businesses should be prepared to present proper financial statements and properly aged listings of inventories and accounts receivable - allowing the bank or commercial finance firm to best assess financial health and repayment.

 

WHAT ARE THE TYPES OF INVENTORY A BUSINESS COULD USE AS COLLATERAL

 

The types of inventory reviewed by the inventory financing lender, in the majority of businesses, can be broken down into 3 categories

 

Raw Materials

Work In Progress

Finished Goods

 

Finished goods are the most liquid of these 3 categories and will always command the higher borrowing power unless the product is highly specialized/unique.

 

However, in many cases, raw materials can command significant borrowing power based on potential resale value.

 

Each of these 3 different inventory segments will usually have a specific loan to value attached to it - That is simply the amount the business lender will lend against that portion of the inventory - As an example, if a lender assigns a 50% loan to value on raw materials can borrow 50k on 100k of raw material inventory.

 

Understanding the different types of inventory on the balance sheet allows a business to secure better financing to support ongoing operations and business needs/business growth.

 

KEY TAKEAWAYS INVENTORY FINANCING  - THE MARGIN FORMULA IN INVENTORY FINANCE

 

Margin formulas vary significantly based on several key factors. They include an analysis of which one of the three stages your inventory is in (raw materials, work in process, and finished goods).  Businesses that are able to demonstrate they have perpetual inventory systems in place stand a  much better chance of ' borrowing power ' when it comes to financing inventories as part of their overall ' current assets.

 

Your overall gross profit also plays a key point in financing. Ultimately important is the lender's/bank's opinion on how marketable your goods are under a worst-case ' forced sale ' scenario.

 

  

THE GOVERNMENT SMALL BUSINESS LOAN PROGRAM DOES NOT FUND INVENTORY AND RECEIVABLES   

 

Many business owners consider the Canadian Small Business Loan Program to finance their business. They wrongly assume that the program covers some sort of working capital, cash and inventory components. That is not the case! In that program, only 3 classes of assets can be financed - equipment, leaseholds, and real estate. The program is a term loan versus a revolving credit facility typically required to finance inventories.

 

UPDATE! In 2022 the Government of Canada updated the SBL loan program to now include working capital financing and business credit lines that would allow inventory financing components and receivable financing as part of the program. The financing of inventory for startups is very challenging, and the federal loan guarantee program can help!

 

CREDIT FACILITIES THAT COMBINE INVENTORIES AND ACCOUNTS RECEIVABLE

 

How does the business owner use inventory financing to maximize sales and profits? Is there a winning way we constantly recommend and implement for clients looking for inventory finance? The answer is that most successful financing in this area is in the context of a combined credit facility that also financed receivables. Two sources of financing exist here - The Canadian Chartered bank and, in some cases even better: Non-bank asset-based lines of credit. 

 

  

 NON-BANK ASSET-BASED LENDERS ARE GREAT AT FINANCING INVENTORY   

 

While the bank or commercial non-bank lender places a higher emphasis on receivables due to their more immediate liquidity, they also fully realize those sales are generated from inventory turnover.  While banks differ in Canada on inventory margins, it is non-unusual in ' ABL ' (asset-based credit revolving line solutions) to achieve anywhere from 30 - 75% borrowing power. Your  Inventory management system and asset turnover are the keys to asset-based loans of this type. Having a good management system in place is key, such as FIFO / LIFO-based programs

 

Oh, we almost forgot. Why can't used submarines be financed? We would say that they can't be readily liquidated, and valuation is extremely hard to determine. Although we suppose the financing company lender could utilize a ' FLOATING DEBENTURE '!

 

CONCLUSION - THE IMPORTANCE OF INVENTORY FINANCE SOLUTIONS

 

Managing inventory is a key part of business asset management - the inability to properly finance inventory can lead to lower working capital availability and prohibit proper purchasing of inventory needs.

 

Solutions available to  businesses looking for inventory financing include

 

Supplier financing

P O Financing

Inventory Term Loans

Asset-based loans/lines of credit

 

Effective financial and inventory management will enhance cash flow and provide a key solution to the business financing challenge.

 

 

"The biggest challenge in business is not the competition but making sure you have enough capital to execute on your vision." - Jason Calacanis

 

If you want to beat the challenge of inventory finance in Canada, call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor with a track record, allowing you to achieve the business loan funding you require. Whether it's an unsecured loan or asset based financing solution, talk to the experts about an inventory line facility or short term loan solution.

 

 FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK  /MORE INFORMATION 

 

What are the advantages of inventory financing?

 

 

There are numerous advantages and benefits to inventory financing facilities via an inventory financing loan  - key benefits around inventory finance companies who offer different types of inventory financing include the ability to improve the overall cash flow position of the company. Companies with positive cash flows and better asset turnover can improve buying power and access better pricing from key suppliers and vendors who sometimes offer bulk discounts for larger purchase orders that accompany prompt payment.

 

Fast turnover in inventory helps accelerate sales revenues which can generate additional profits.

Proper use of inventory financing can fund all types of inventory, including raw materials,  inventory as work in progress, and finished goods.

When inventory financing is combined with other credit facilities, such as asset-based credit lines, a business can achieve lower costs of financing regarding interest rate, etc.

Business lenders view asset turnover as a key part of overall working capital management, enhancing the company's ability to access other forms of credit.

 

 

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

Alternative Sources Of Financing In Canada For Business Loan Solutions! What Scares You About Alternative Financing?

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YOUR COMPANY IS LOOKING FOR  BUSINESS FINANCE SOLUTIONS!

How Alternative Financing is Taking Over in Canada

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing businesses today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

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

 

 

The Rise of Alternative Financing: A Game-Changer for Canadian Business 

 

Alternative financing sources in Canada sometimes conjure images of the unknown to Canadian business owners/financial managers. Is there anything to be afraid of when considering this method of business loan finance? Hardly. Let's dig in.

 

At 7 Park Avenue Financial, we have long maintained the financial industry landscape in Canada for the business borrower has changed drastically compared to traditional bank loans for example. Current trends in alternative lending provide numerous solutions and financing options for your business. Naturally, any form of business financing has advantages and potential disadvantages when it comes to how much funding is needed.

 

  

 Redefining Business  Capital: The Power of Access To  Alternative Financing  

 

The ongoing struggle for businesses in small and mid-market sizes to secure financing for their firms leaves many more options to explore these days. It's the rise of alternate forms of funding as benchmarked to traditional Canadian chartered bank financing.

 

One kind of hybrid example is always worth exploring in small business loans  - it’s alternative finance offered by the banks. We're referring to the Government guaranteed business loan program for financial assistance, which provides term loans to borrowers who can help startups or established businesses otherwise cannot access a small business loan based on traditional bank criteria.

 

SBL loans are worth examining, but entrepreneurs with poor credit histories will not be approved. Funding startups and franchise financing are two popular uses of the program.

 

The borrower should be prepared to present a proper business plan for the loan application process.

 

  

  

  

Alternative Sources of Business  Finance in Canada: Exploring Innovative  Business Loan  & Funding Options  

 

  

  

Alternative lenders for small businesses and medium-sized firms are essentially commercial finance firms that are not funded like our banks, i.e. deposits. Therefore, they are ' unregulated' and operate under their own risk and lending models around alternative funding options versus traditional loans. More often than not, these firms specialize in offering to finance certain types of loans or working capital solutions.

 

  

 

  

Revolutionizing Finance in Canada:  Alternative Funding Solutions

    

 

Here is a list of various forms of alternate finance:

 

A/R Receivable Financing / Invoice financing for unpaid invoices

 

Inventory Finance

 

SR&ED Tax Credit Financing

 

Working Capital Loans

 

Equipment financing - Sale-leaseback

 

Non-bank Asset-based business lines of credit

 

Sales/Royalty financing

 

Merchant Cash Advances / short-term working capital loans

 

Purchase Order Financing

 

Business credit cards

 

 

The above solutions offer tremendous flexibility for the business owner in how funding can be derived. Naturally, that flexibility will almost always come with higher finance costs. Because lending standards are less restrictive than the banks, your firm can access the finance it needs.

 

The best way to look at these financing forms is to consider that they are heavily ' asset ' based and much lighter on things such as covenants and other restrictions. Traditional lending has almost always focused on pure cash flow generation.

 

  

SPECIAL LOANS / RESTRUCTURING / TURNAROUND 

 

For firms financing with traditional banks who find themselves in some form of distress or business turnaround challenge, the alternative finance vehicle is an excellent way to refinance your business when a workout with the bank in ' special loans '  cannot be established.

 

One key factor in assessing when you’re e considering business loan finance of an alternate nature is to ensure you understand any reporting requirements.  Essentially that reporting becomes the ' communication vehicle ' between yourself and the lender. In many cases, that reporting can also work positively to help identify additional or other types of financing you might need. Being 'self-aware ‘in your financial condition is essential, and a disciplined reporting system helps that cause.

 

  

CONCLUSION - BEYOND BANKS - BEST  ALTERNATIVE FINANCING SOURCES IN CANADA 

 

 

Ensure you are 'self-aware' of your business's overall financial health. If you're looking to explore alternative financing sources.

 

Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can help eliminate the curiosity gap in choices.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION  

 

WHAT ARE ALTERNATIVE METHODS OF FINANCING IN BUSINESS

An Alternative financing method includes non-traditional borrowing from non-bank commercial financing companies and asset-based lenders. Typically, alternative finance solutions provide greater access to business credit because eligibility criteria are less restrictive than traditional financial institutions such as banks. Alternative financing tends to be less stringent without many financial covenants imposed by business lenders such as banks.  Some businesses pursue equity financing for raising money via equity crowdfunding, friends and family, angel investors or venture capital solutions, and their own money in a venture. Alternative financing solutions are approved in a relatively short period when compared to more traditional lending institutions.

WHAT ALTERNATIVES ARE THERE INSTEAD OF BANK FINANCING

Alternatives to bank financing for businesses looking for equity financing include crowdfunding, angel investors, venture capitalists, and private equity sources. Some business owners pursue government grants as well as peer-to-peer lending. For debt financing and cash flow/working capital solutions for small business owners, financing is available via asset-based lenders,  invoice factoring companies,  and solutions around purchase order financing,  merchant cash advance, tax credit financing, and lease finance and sale-leasebacks as potential alternative financing options.
 

WHAT ARE NON-CONVENTIONAL SOURCES OF FINANCE

 

Non-conventional sources / alternative funding sources are business borrowing solutions from non-bank financial institutions such as commercial financing companies and asset-based lenders who lend money to businesses. They offer financial solutions similar to a traditional bank loan and numerous other types of financing, although in many cases, interest rates will be higher.

 

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

Navigating Business Capital Financing For Business Loans In Canada

 

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YOUR COMPANY IS LOOKING FOR  BUSINESS CAPITAL FINANCING!

WORKING CAPITAL & BUSINESS LOANS FOR CANADIAN COMPANIES

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

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

 

NAVIGATING THE COMPLEX WORLD OF BUSINESS CAPITAL FINANCING - STRATEGIES FOR THE RIGHT FUNDING FOR YOUR BUSINESS

 

Business capital financing in Canada, particularly in the SME COMMERCIAL sector, often comes with that feeling of ' dark days ' for the Canadian business owner/financial manager.

 

Despite those challenges, there are some great reasons to borrow for your business - we'll cover off 3 of them. Let's dig in.

 

UNLOCKING THE SECRETS OF BUSINESS CAPITAL FINANCING

 

When we talk about business capital financing for clients here at 7 Park Avenue Financial, it's all about the various financial solutions that a business has access to for raising capital and funding. That might include traditional bank financing or the more significant number of newer financing solutions in the alternative lending landscape.

 

 

Financing solutions come with benefits and in some cases, drawbacks - so picking the right  Canadian business financing solution is all about choosing the best financing option for your business - allowing you to focus on job #! -  growth! 

We're focusing in on cash flow solutions, working capital financing and debt financing,

 

While it's debatable how great the current business climate is, many firms are nonetheless able to grow their business these days. Business lending from banks, alternative finance and working capital providers, and others seems to rise.

 

3 REASONS TO CONSIDER BUSINESS FINANCE SOLUTIONS TO RUN AND GROW YOUR BUSINESS

 

So why should the owner/manager consider new or enlarged sources of financing?  Here are our three reasons:

 

1. Today's competitive business environment requires continual investment in your business. Very simply speaking - your competitors are there already for their particular working capital needs

 

2. Timing has never been better - Canadian chartered banks tout SME lending, and alternative finance solutions from niche providers have never been more abundant

 

3. Borrowing rates and costs for both traditional and alternative financing are low and competitive, with the consensus being that rates can only go up in the future. Naturally, though, not all business financing is done at locked-in rates

 

 

HAVE YOU CONSIDERED THE GOVERNMENT OF CANADA SMALL BUSINESS FINANCING PROGRAM 

 

Even the Canadian federal government is willing to step in, having recently revamped the Government Small Business loan program to a certain degree, which guarantees most of your loan to the banks. The government-guaranteed loan's key advantages are still the same - flexible terms, competitive rates, and the ability to finance equipment (new and used) and leasehold. Companies with less than 10 million in annual or projected revenue can apply.

 

The government loan is not a lump sum cash flow loan or line of credit - it's a term loan with typical repayment amortization in the 2-5 year range. To apply for a small business loan under the government program and discuss eligibility, talk to the 7 Park Avenue Financial team. Thousands of firms like yours use small business government loans every year, and Industry Canada, the program sponsor, allocate billions of dollars to the program. New businesses/startups are frequent users of the program.

 

Companies also can review bdc loan requirements around different financing the Crown Corporation offers.

 

 

HOW TO ACQUIRE THE ASSETS YOU NEED TO  RUN  YOUR BUSINESS 

Many businesses require key technology upgrades. It's often a wise choice  .to utilize equipment financing for new or upgrades in computers, software, telecom equipment, and other application software required by your business. How do you acquire assets without depleting day-to-day working capital - There are some solid solutions in acquiring assets that you need to know about!

 

 

  

HERE ARE 6  SOLID BUSINESS FUNDING SOLUTIONS FOR BUSINESS OWNERS   

 

Suppose you believe top experts that business finance capital via small business loans or asset monetization for small businesses is critical to success.

 

 BEYOND BANKS - EXPLORE ALTERNATIVE BUSINESS CAPITAL FINANCE SOLUTIONS   

 

Exploring options such as:

 

A/R Financing / accounts receivable finance

 

Asset-based business credit lines

 

Cash Flowing of SR&ED tax credits

 

Inventory Finance

 

Sales Financing/ Royalty Finance

 

Sale leasebacks

 

Equipment Leasing

 

All are potential solutions to your capital conundrum. By the way, debt and asset monetization strategies don't dilute equity!

 

  

IS THERE ONE BUSINESS FUNDING SOLUTION FOR ALL YOUR BUSINESS GROWTH NEEDS

 

  

There's often no one solution to all your business needs, and the ultimate solution is a ' cobbling together' of various solutions to match your overall financial strategy. You want a solution with repayment terms/ interest payments tied to your needs and designed to help you grow your products or services.

 

  

CONCLUSION - UNLOCKING THE SECRETS OF BUSINESS CAPITAL FINANCING OPTIONS  

 

As your business grows, you will always need additional business capital to finance your business operations. That might be investing in new equipment or technology or adding staffing. Focus on the right financing solutions  and access the capital at the right interest rate you need to grow and thrive.

 

Both traditional business loans and lines of credit to the broad spectrum of alternative financing solutions and funding options for the financial management of your business. Understanding debt financing, working capital loans, equipment financing, and other commercial loan options with interest rates and repayment terms suitable for our business and meeting your unique needs.

 

 

With knowledge and expertise, the bottom line can more easily eliminate those ' dark days ' often associated with business financing and succeeding in business loans of all types. Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your loan and asset monetization needs.

 

 FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION 

 

What are the main types of business capital financing available, and how do they differ in terms of interest rates, repayment terms, and eligibility requirements?

 

The main types of business capital financing via sources of finance include financing from traditional financial institutions such as banks that provide term loans and lines of credit. Alternative financing options include invoice factoring, merchant cash advance / short-term working capital loans via online lenders, and other alternative financing options such as non-bank asset-based lines of credit and tax credit financing solutions.  The eligibility requirements for each type of financing vary based on creditworthiness, interest rates, and repayment terms.  Some companies may wish to explore a loan to buy a business

 

 

What are the most common reasons that businesses seek out additional financing, and how can business owners determine which type of financing is right for their specific needs?

 

Businesses seek additional financing for a number of common reasons - Which include the ability to meet short-term cash flow needs as well as acquiring assets and technology to grow and expand the business. The key factor that determines the ability of a business to acquire the capital it needs is the overall business creditworthiness of the company - in some cases in small business financing solutions, the credit score of the business owner determines loan approval .. In all cases, the amount and purpose of the funding and repayment ability will affect the ability of the company to get the capital it needs.

 

 

 What are the risks associated with business capital financing, and how can business owners minimize those risks while still securing the funding they need to grow and expand their businesses?

 

 

Risks associated with business capital financing include the ability of the business borrower to meet repayment terms without defaulting on a business loan - For that reason, business owners and financial managers must assess their cash flow and repayment ability, as well as ensure the business does not take on too much debt financing. In every business capital borrowing transaction interest rats and fees should be assessed in terms of being manageable for the business. Business finance advisors can assist in making informed decisions around financing options best suited to the business.

 

How do you qualify for a BDC loan in Canada?

To qualify for BDC loan financing in Canada different factors are assessed by the business lender. Key factors in loan approval include BDC's overall assessment of business viability based on a review of financial statements and other key business information. The credit history of the owner as well as the cash flow viability around the repayment of loans is also assessed. In some cases in some types of loans collateral may be required, and owners must demonstrate an equity commitment to the business.

Other factors include general economic trends in the industry and an assessment of growth and long-term profit potential.  The business experience of the owner is also reviewed.

BDC financing options include term loans, working capital loans, as well as a venture capital division within the bank.
 

 

 What is a working capital financing policy? 

A working capital financing policy reflects a company's ability to manage short-term operating and finance needs- The working capital of the business is funding required to cover those day-to-day business needs around wages, suppliers, and other short-term obligations.

A good working capital policy will target the minimum capital the business needs to meet day-to-day operating needs through financings such as bank loans, business credit lines, and supplier trade finance terms. Companies manage risk in these areas by maintaining cash flow projections, as well as having an effective credit and collection policy around risk management in account receivables and inventories,

Effective working capital policies maintain liquidity in the business and minimize risk while allowing the company to grow sales revenues and profits.

 

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

 

Unlock Working Capital with Sale Leaseback: The Lease Back Bridge Loan For Business Needs

 

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YOUR COMPANY IS LOOKING FOR A SALE AND LEASEBACK SOLUTION!

Working Capital Woes? Sale-Leaseback Financing Can Bridge the Gap

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

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

 

BRIDGING THE GAP WITH SALE-LEASEBACK FINANCING - UNLOCKING THE VALUE OF BUSINESS ASSETS

 

A Sale-leaseback strategy, if executed properly, is a classic refinancing scenario.  In this financing arrangement, a business sells an asset/assets and then leases it back - this provides valuable working capital that frees up the equity that was in the asset - This type of ' bridge loan' provides needed liquidity for the cash flow/business needs of the company via short terms loans that are strategically structured around immediate business needs.

 

A CREATIVE FINANCING SOLUTION FOR WORKING CAPITAL NEEDS

 

Leasebacks can be accomplished via business asset or real estate financing solutions for a property sale and leaseback lease financing or under various asset-based lending solutions in corporate financing In Canada.  Sale Leasebacks provide business liquidity without the company considering additional capital investment or debt financing as part of its financial planning for additional financial flexibility. The equity release in the refinanced asset is a solid alternative financing option for many businesses.

 

How does the lease back work as a finance source, and whether it’s a bridge loan or finance lease, what are the key benefits and mechanics of this financing solution when you might be at your borrowing limit?

 

 

WHY A LEASEBACK - EVALUATING THE PROS AND CONS OF BRIDGE LOAN 

 

 

It greatly appeals to small and middle market companies looking for business financing options, a financing rate, and lease terms that match their particular needs when they don't have access to more sophisticated capital markets and still want to keep the utility value of assets in question. In some cases, this type of transaction allows cash distribution to the owner/owners. Let's dig in.

 

 

WHY CONSIDER THIS TYPE OF FINANCING -  LEASEBACK BENEFITS FOR EXPANSION AND GROWTH

 

Sale leaseback transactions are typically utilized when a firm such as yours is looking to generate cash proceeds and working capital from unencumbered business assets and who at times are unable to access bank financing from business credit markets while giving you at the same time bargaining power regarding your assets.

 

These assets on the balance sheet can be almost any tangible asset, including trucks/vehicles, real estate assets, technology, shop floor equipment, etc.  In the case of real estate it's an alternative to mortgage financing. An owner-occupied real estate investment is a great investment to keep for the long term. They still have operating value to the firm. Proceeds of a company sales transaction bring value back to the balance sheet.

 

 

 

HOW DOES SALE LEASEBACK WORK? 

 

The legalities of the transaction are simple. As the owner of the asset, your firm sells it back to a leasing company. That creates a lease financing (or, in some cases, a bridge loan) which not makes your company the lessee or borrower in the transaction as part of a short-term or long-term lease agreement.

 

 

CASH GENERATION / MAXIMIZING LIQUIDITY 

 

Naturally, the key benefit of the deal is your ability to generate cash from the deal, while at the same time using the asset to hopefully generate profits and operational efficiencies within your firm at a time when all the bank credit you need is not available.

 

DETERMINING TRUE ASSET VALUE

 

A key factor in the whole transaction is, of course, the value of the asset. As we've experienced over the years business owners tend to place a higher value on the asset or assets in question as opposed to the lender!  So how then is this problem or challenge addressed?

 

POTENTIAL NEED FOR AN APPRAISAL

 

Typically the answer is a third party appraisal. Larger sale-leasebacks are rarely consummated without an appraisal. In years gone by, lenders were skeptical of this method of refinancing simply because they viewed it as a ' cash grab ' by the customer.  These days, when properly structured and valued, it’s a solid mechanism of refinancing that, more often than not, makes a lot of sense when it comes to a tailored lease payment to your cash flow via market lease rates, etc.

 

FINANCING ALTERNATIVES

 

Companies looking at financings such as a  mezzanine debt financing tool from alternative finance and mezzanine lenders will generally find that sale leaseback transactions are less costly and extension options deliver maximum flexibility in areas such as lease expiration.

 

  

THE IMPORTANCE AND VALUE OF APPRAISALS  

 

A common mistake many business owners and financial managers make is to solicit an appraisal on their own looking for greater value in the asset. That problem complicates two main things -

 

Lenders like their own appraisers, not yours!

 

Dollars can be spent on the wrong type of appraisal (there are three types)

 

Obviously, the best solution is when you and your lessor or lender agree on who will be performing good due diligence efforts via the appraisal, and what type is mandated for a timely investment decision and an offer price acceptable to both parties. The three types of appraisals include

 

FAIR MARKET VALUE VIA MARKET RESEARCH

ORDERLY LIQUIDATION

FORCED VALUE LIQUIDATION

 

Lenders and lessors will more often than not  ' go conservative ' on the asset and focus on the dollar value of the orderly and FLV asset liquidation prices. Because most (not all) lessors and lenders don't have significant asset expertise in diverse industries they want to know they can be disposed of an asset quickly in a worst-case scenario, even a real estate asset.

 

That worst case is of course a business failure. Equipment proceeds and real estate proceeds can bring significant cash to the balance sheet via sale leaseback proceeds. In the real estate this scenario for property owners will be more expensive than mortage rates but less expensive than mezzanine finance - these days any basis points make a difference. 

  

 

  

DO YOU NEED A BUSINESS PLAN?

    

 

For certain transactions, it might be appropriate to have a business plan in place - particularly more significant transactions where your firm is trying to position the true value of a transaction. 7 Park Avenue Financial prepares business plans that meet and exceed bank and commercial lender expectations.

 

SALE AND LEASEBACK ADVANTAGES AND DISADVANTAGES

 

Sale-leaseback financing brings immediate benefit in the form of cash flow and working capital from the equity in business assets and or real estate. This short-term infusion of cash allows businesses with assets/equity ownership to maintain the use of the assets while gaining access to business capital. Due to the specialized nature of these financing options, sale-leasebacks come with various tailored terms and structures customized to the needs of the business borrower.  Assets that were originally financed at high-interest rates can be refinanced in a lower-rate environment.

 

It's important to note that a leaseback or bridge loan has some tax purposes and accounting implications, so generally, sale-leaseback accounting should be reviewed with your financial team or 3rd party accountant. In some cases tax savings and book values of assets will come into accounting play.  When it comes to financing rates the interest rate on your transaction will vary with transaction size and overall credit quality of your company and the asset/assets.

 

CAPITAL VERSUS OPERATING LEASES

 

There are two types of leases in Canada - capital and operating. Operating leases are less in vogue due to international accounting standards being rewritten. So most often, the sale-leaseback/bridge loan is constructed as a full payout capital lease with fixed interest rates and monthly payments. The bottom line is still the same - new cash on your balance sheet.

 

 

In a small number of cases, equipment already under the lease can be refinanced also, although this is not really a classic leaseback... it’s just refinancing an unencumbered asset such as real estate or equipment. In some cases, an alternative to the lease back is to simply pledge the asset or asset in question under another type of financing arrangement, depending on overall credit strength.

 

  

CONCLUSION - UNLOCKING WORKING CAPITAL WITH SALE-LEASEBACK FINANCING

 

  

Our bottom line for the business owner looking to benefit from some asset company sale transaction?  Let this method of refinancing existing assets make sense for your firm when the planets align relative to asset value, cash needs, your growth objectives and accounting sense and as an alternative to mezzanine capital.

 

 

If you are forced to maximize liquidity with sale-leaseback financing arrangements, speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with your refinancing needs - it's a great short-term solution to a long-term problem of capital structure and your company's balance sheet.

 

  

 FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO /ASK MORE INFORMATION   

 

What is sale-leaseback financing, and how does it work as a bridge loan for working capital?

 

Sale-leaseback bridge financing is a business financing solution whereby a company can sell business assets or property it owns and then enter into a leaseback transaction structured as a   term loan or lease; the equity in the asset allows the company to receive cash for short-term funding to cover operations or other business needs from appropriate bridge loan lenders or other alternative lenders.

 

 What are some of the risks associated with using sale-leaseback financing as a bridge loan for working capital?  

Business owners should consider any risk involved in sale-leaseback financing/bridge loans. In certain situations, the terms of a transaction can be regarded as onerous as it relates to interest rates and financing costs. Additionally, companies should consider the potential depreciation of the asset or assets being refinanced. A default in the leaseback arrangement could trigger business disruption and risk losing required assets. Bridging loans can be accessed much more quickly than financing from traditional financial institutions such as banks - Financing can also be used to retire government super priorities.

 

    

What is the main advantage of a bridge loan?   

 

 

 

The main benefit of bridge debt financing is that bridge loans typically can be accessed relatively quickly. Borrowers in some cases, may pay high-interest rates, but most bridge loan structures are typically short-term loan structures with some associated closing costs and an origination fee.  Typically a bridge loan is not a long-term financing solution - allowing the company instead to meet some urgent current expenses.

 

 Are bridge loans/leasebacks expensive? 

Bridging loans can be expensive as a typical leaseback/bridge loan might include an interest rate as well as an origination fee or closing fee - It is important to note that bridge finance solutions such as the leaseback are usually short-term financing solutions with a goal towards a long term financing permanent solution that might be more traditional. The rate of interest in a bridge loan lease solution might be either a monthly payment structure or; interest will accrue with no monthly payment or interest payments under a balloon loan type structure,

 

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

How To Finance Your Business With an SR&ED Tax Credit Secured Loan SR&ED Tax Credit Financing - Cash Flow For Your Innovation

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HOW SR&ED TAX CREDIT SECURED LOAN FINANCING CAN DRIVE YOUR INNOVATION AND GROWTH

 FUNDING YOUR SR&ED ( SCIENTIFIC RESEARCH & EXPERIMENTAL DEVELOPMENT ) CLAIM

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Let us help your firm just like our hundreds of other satisfied clients.

        Financing & Cash flow are the biggest issues facing businesses today

   ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Or Email us with any questions on Canadian Business Financing

      Email - sprokop@7parkavenuefinancial.com  

                                 

 

"The government's role should be to facilitate entrepreneurship and capital formation, not stifle them with regulations and unnecessary barriers to entry." - Charles Koch

 

 

WHAT IS A SR&ED TAX CREDIT LOAN FINANCING FOR INNOVATION? 

 

SR&ED credit is treated as a future receivable, and businesses are provided with an advance loan (a cash flow facility). Businesses can draw down on this funding, to provide themselves with general working capital within their business.

 

Let's investigate how unlocking funding opportunities via sr&ed secured loans can drive your company's innovation!

 

This means they have the opportunity for improved liquidity at crucial moments of need, such as when there’s too much fluctuation in available funds or when companies are experiencing sudden growth due to increased market demand.

 

FUEL YOUR  BUSINESS GROWTH WITH INNOVATIVE FINANCING

 

To qualify, your firm should have an eligible claim, typically prepared by a ' sr&ed consultant', and be a private company in a pre-profit financial status.

 

The most significant upside that comes from SR ED program tax credits being treated like a pre-payment option via a sred tax credit secured loan? It offers better protection against fluctuations in revenue streams.

 

  

MAXIMIZE THE TRUE VALUE OF YOUR R&D CREDITS - LEVERAGING SECURED LOAN FINANCING FOR CASH FLOW  

 

In today's quickly changing and highly competitive business environment, the key to success is innovation. And when you're an innovative company with a great product or service that could be so much more if only you had enough money for it - then our SR&ED financing just might be your answer!


The Canadian government has invested in research & development (R&D), which means they are willing to support innovators like yourself who want their products developed further but don't have the cash needed for investment tax credits.

 

This funding will allow businesses of all sizes and stages better access to reliable capital at affordable rates while providing them complete flexibility by not tying up any collateral or equity stake from investors

 

  

WANT TO FINANCE YOUR SR&ED TAX CREDIT BEFORE YOU FILE? THINK OF IT AS YOUR SR&ED LINE OF CREDIT!   CAPITAL AS YOU NEED IT!  

 

 

Just as sr&ed financing is non-dilutive when it comes to not having to dilute or raise additional equity funding, your sr&ed claim in advance of filing is a tremendous cash management tool.   A simple application process allows you to access your refundable sr&ed tax credits while conducting ongoing research before filing your claim.

 

That allows you to accelerate funding and manage cash flow needs in the business to fund day-to-day operations and ongoing research.

 

The process is simple! .. Allowing your company to access investment tax credit financing for work you have accrued and documented on your sr&ed claim.

 

 

WHY SR&ED? WHAT ARE SR&ED TAX CREDIT INCENTIVES?

 

Research and development (R&D) is a huge part of a company's success. Canadian businesses can use the SR&ED tax credit program to help conduct research, develop new products or processes, and improve existing ones. The SR ED refund tax credit loan in Canada provides funding for companies that are conducting qualifying R&D activities such as: 

 

 Product development & testing;

 Process improvement, including automation;

 Designing equipment needed for production, such as machines or computer software

 

and more!

 

Companies can also apply this money towards owner salaries responsible for the work being done on these projects. If you have questions about how to claim your SR&ED expenses under the tax credit program, contact 7 Park Avenue Financial!

 

 

CAN YOU UNLOCK THE VALUE OF YOUR SR&ED CREDIT? 

 

Can you finance your Canadian business by monetizing an SRED tax credit secured loan? Absolutely, positively... maybe. We say maybe because if you don’t have an SR&ED tax credit, then it is of course not possible. However, if you participate in Canada's primary R&D tax credit refundable tax credit program, you're potentially on your way to increased cash flow and working capital.

 

 

 

 

WHAT IS SR&ED FINANCING? 

 

One of the biggest problems in small businesses is that they accumulate SR&ED tax credits over a long period, but there can be months or years before you submit your return to  CRA CANADA REVENUE AGENCY.

 

This means it's difficult for companies with tight cash flow issues and operating costs to access this money while waiting on potential refunds from the government because some funds are tied up until returns are submitted. Let the 7 Park Avenue Financial team show you how a company like yours can access advances against their accrued or filed! .. SR&ED credit investments as collateral instead of having this key receivable sitting idle- not making any interest gains!

 

 HOW FAST IS IT TO RECEIVE YOUR SRED FUNDING? 

 

SR&ED Financing can be structured in several ways.. It can come as a bridge loan from filing your SR&ED claim until you receive your refund checque from CRA. However, you can also get a cash advance as early as 3 months into your tax year - more than a year before filing for most claims if you have some historical claim experience.

 

 

Recent articles in the Canadian business press have criticized the need for the government to even further increase these tax credits. Typically most Canadian business owners and financial managers think that the SRED tax credit applies only to manufacturing, which is the farthest thing from the truth.  A recent article in the Globe and Mail, one of Canada's premier business publications, stated clearly that firms in the resource, services and technology sectors also participate vigorously in the program. 

 

If your firm innovates and spends money on R&D, the last thing you can be criticized for is under-investing in your future. Therefore monetizing your tax credit after it is filed (it can also be cash-flowed before filing in certain circumstances) makes excellent financial sense.

 

Is monetizing your tax flow credit risky in any sense of the word? Our clients hardly think so, as you are simply 'cash flowing', or 'discounting' your claim today, and you are not even adding debt to your balance sheet. Consider the SRED credit as a current asset; it’s a receivable, and you are simply collateralizing a bridge loan against your SR&ED claim.

 

SR&ED tax credits are more often than not prepared by an external consultant, although some firms choose to prepare the claim itself - we suspect it's because they think that they have a better handle on the nature of the claim. The reality is, however that you gain an additional 'brownie point' - if we can call it that by having the claim prepared by a professional SRED consultant.

 

Many firms in Canada aren’t aware that these consultants will even prepare your claim on a contingency basis - so if they are prepared to take the risk of time and expense on your claim, you can quite rightly assume they feel it will be approved, as professionals rarely choose to work for free!

 

While the Globe and Mail survey indicated that 70% of Canadian businesses thought the tax credits currently in place were not as generous as they thought they should be, let's be honest and can't we agree that receiving  40-50% back of every dollar you spend on R&D isn’t that bad of a start! And if you can turn your spent funds into instant cash flow by monetizing your claim, doesn’t that give you a leg up on your competition? We certainly think so.

 

  

 THE SRED APPLICATION PROCESS MOVES QUICKLY    

 

Cash for research tax credits is not a complicated process. A short overview is as follows - have your claim prepared in a manner that suits the government’s current filing process. File your claim with your tax return.

  

 

  

MANAGING YOUR CASH FLOW THROUGH THE SR&ED CYCLE!

    

 

If your business has an investment in research or technology, SR&ED funding can act as a continuous positive cycle. As you grow and continue to invest in R&D, the financing will flow back into more innovation under those tax incentives and help your competitiveness around the commercialization and monetizing of your products or services  - so if your company hires an additional programmer, as an example, with SR&ED loan approx. 33% of their wages are added to a larger tax credit at the end of the year! At  7 Park Avenue Financial, we think that's good business!

 

 

"Governments don't create jobs; entrepreneurs do." - Mitt Romney

 

 

CONCLUSION - SECURING SR&ED TAX CREDIT FINANCING FOR YOUR R&D PROJECTS

 

Speak to   7 Park Avenue Financial, a trusted, credible and experienced business financing advisor who will work with you to complete an SRED financing application - it is not dissimilar to any other business financing application you have ever filled out. Include your SRED claim as additional back up, as it is in effect the collateral for your SRED loan. Claims can be financed in two to three weeks after basic due diligence.

 

Financing SRED puts you in line with other firms to get your share of the 3 Billion (yes that’s billion!) dollars of non-repayable cash grants. Turning your claim into a cash infusion makes great sense if you are a small to medium-sized firm needing additional working capital.

Monetizing your claim will drive cash flow, which will undoubtedly inspire your firm to further innovation.

 

A FINAL TIP?

 

Be proactive about SR&ED to avoid headaches. Use SR ED financing strategically to ' bridge the gap ', overcome funding challenges, and maximize growth and funding opportunities. Canadian start-ups, early-stage firms, and pre-revenue companies can access sr&ed bridge loans and take advantage of government incentives / financial assistance.

SR&ED is a lot of work and a commitment  - and if you proactively track your expenses, then it becomes easier when filing taxes because you can get quarterly advances on accrued SR&ED instead of waiting for the CRA's refund checks that can take up many months from the start date or often  9+ months from the fiscal year-end filing of your claim and year-end tax filings.

 

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION / PEOPLE ALSO ASK

 

  

What is the Canadian R&D Tax Credit  

 

For many Canadian companies, the SR&ED investment tax credit (commonly also referred to as shred credits) is a cash flow saviour. With 35%+ of eligible expenditures reduced in taxes or paid out in cash for Canadian controlled private corporations (CCPCs ) - the combination of federal and provincial programs allows firms to recoup up to 55% of r&d capital spent.

 

Canada Revenue Agency / CRA funds over 20,000 claims annually for billions of dollars in total - In 2021 alone, those fundings totalled almost 4 Billion dollars!  For companies not using  sr&ed finance solutions for funding sred credits, the process involves filing the r&d claim annually in connection with the business's year-end financial statement filing.

 

CRA reviews those claims and, over a period of months, processes and or audits claims. The waiting period for many firms restricts cash flow owing to the firm under the investment tax credit.

Canadian businesses view the sr ed program as a valuable part of the research and innovation process in Canada and the government's investment in the program helps foster innovation and makes research and development more accessible.

 

What are SR&ED Tax Credit Incentives?

 

Canada's Scientific  Research and Experimental Development Program .. aka  ' ' SR&ED "  is an investment tax credit program which helps businesses in every sector of the Canadian economy to conduct r&d.   The incentives can be a refundable tax credit or a deduction against reported income for technical challenges documented under program eligibility.

Privately owned ( i.e. non-public) companies, individuals, partnerships, and trusts can qualify for eligible credits under the tax incentive program.

  

 

What type of work is eligible under SR&ED  

Categories of work under the SR ED Program include :

Basic research

Applied Research

Experimental Development

 

Questions in areas such as " did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty .."  is a cornerstone of the program

Supporting documentation in these three areas might include operations research, computer programming/software development, collection of data, and testing.

Items not eligible for sr&ed tax credit claims are items such as market research, quality control,  and exploration  and drilling in areas such as mining and oil

 

 

What is the CRA SR&ED Self-Assessment Tool? 

Canada Revenue Agency provides a self-assessment tool that helps companies determine if the r&d work they do qualifies under sr&ed. It allows a company to do preliminary calculations around the amounts that might be eligible for sr&ed claims and provides tools for assessing the documentation and information the company may need to support a sred claim around the firm's work in scientific or technological uncertainty.

 

 

What are the benefits of financing sr&ed tax credits 

The benefits of financing a sr&ed tax credit claim include the ability to access capital and additional funding for a business, as well as reducing the financial risk around research and development initiatives. Properly structured sr ed bridge loans improve cash flows and offer opportunities for additional growth and innovation in a business. 

 

Companies benefit from the fact that no loan payments are made during the loan's duration and the simple application approval process around financing sr ed claims under a sr ed project.

 

 

 

 

 

 

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