Working Capital Financing : Study Finds .... Your Business Needs It!

 

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL FINANCING! 

WORKING CAPITAL FINANCING  BUSINESS LOAN SOLUTIONS IN CANADA

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

 

 

The Secret Sauce of Successful Businesses: Understanding Working Capital Financing 

 

Working capital financing alternatives are necessary to finance your growth... or if you're not growth-obsessed, just your survival. As our 'study' says - your business needs it. Let's dig in on all you need to know about the types of working capital financing!

 

 

 

INTRODUCTION  

 

Every business owner knows cash flow is the lifeblood of a company - but as business grows cash gaps occur  between sales and cash - Working capital finance solutions fund short term expenses and help prevent financial failure - Ensuing you understand the mechanics and value of tradition and alternative financing solutions is key.

 

HOW DO YOU DETERMINE YOUR WORKING CAPITAL NEEDS

 

 

Understanding  how much funding you actually depends on factors such as current cash position, short term needs, and long term investment goal - The working capital ratio ' formula '  simple -  On the balance sheet subtract current liabilities from current assets - this shows how much working capital is available - but business owners should ensure they take into account asset turnover in accounts receivable and inventory , as well as seasonality  and unexpected expenses.

That's where maintaining cash flow projections around sales and collections is critical - as well as monitoring your  cash conversion cycle, DSO , etc.

 

  

WHY IS WORKING CAPITAL IMPORTANT  

 

Ensuring  you have enough cash allows your business to meet short term obligations around liquidity and operating expenses . This sustains overall viability  and avoids financial strain and operating difficulties. The ability to bridge the gap between outgoing expenses such as payables against income receivables helps a business manage better on a day to day basis , while also considering business growth .

 

 

 

Expansion of your business via increased sales, new orders, contracts, etc., always demands more cash in the funding of your day-to-day activities. There are traditional and non-traditional ways for you to achieve business financing success. 

 

REVOLUTIONIZE BUSINESS OPERATIONS WITH WORKING CAPITAL CASH FLOW FINANCING

 

 

At 7 Park Avenue Financial more and more of our  clients realize that many non-traditional forms of working capital are become very traditional based on new alternatives available to finance your business and address short term funding needs around accounts payable and other short-term obligations.

 

Cash flow and working capital needs are being achieved more and more today by financing strategies for small businesses that were either unheard of, non-existent, or frowned upon in previous years regarding other business loans and finance solutions.

 

WORKING CAPITAL BUSINESS LOANS IN CANADA

 

Let's recap some of those traditional and non-traditional sources of financing. Suppose you feel you need assistance to understand the wide variety of solutions available for your firm. In that case, we strongly recommend that you talk to 7 Park Avenue Financial, an experienced, trusted, and credible business financing advisor to ensure you have choices.

 

 SMALL BUSINESS FUNDING 

 

Those alternatives for working capital finance funding options:

 

A/R financing - accounts receivable financing solutions - invoice financing that mirrors the credit line solution for funding business needs - Same business day funding for your sales/outstanding invoices - daily sales can be funded via the accounts receivable factoring solution.

 

SR&ED tax credit bridge loans - financing for your r&d costs in the development of new products and services

 

PO / Contract financing

 

Non-bank full business line of credit facilities -  abl business line of credit

 

Merchant cash advances/short term working capital loans - Financing  based on monthly sales - good credit score of owners required! These facilities can be accessed in a relatively short period with flexible repayment terms structured to your sales and cash inflows - these loans are on shorter terms, typically 12 months with monthly or weekly payments based on sales history.Many online lenders offer this financing option.

 

Equipment Leasing - address your needs for new equipment or technology via leasing companies or term loans for asset acquisition from traditional banks.

 

 

Bottom line? Therefore creativity and access to capital become a priority for the business owner to get working capital and avoid a negative working capital situation.

 

We're told that banks are lending again. If you believe that (sometimes we're not quite sure!), focusing on business bankers actively and aggressively looking for your business is essential.

 

 TRADITIONAL FINANCING OPTIONS 

 

For companies that qualify for bank traditional financing options solutions for cash flow include working capital term loans,  business lines of credit, business credit cards - etc.

 

Bank financing is one of the least expensive financing areas, but of course, it comes with loan covenants, ratios, and personal guarantees. Those very issues are why many Canadian business owners prefer to consider non-bank and independent finance company options.

 

GOVERNMENT LOANS / THE CANADA SMALL BUSINESS FINANCING PROGRAM

 

When it comes to banks, we'll also mention not to forget the CSBF loan, which in our opinion, is, bar none, the best business financing in Canada for companies with revenues less than 10 Million dollars. (Also called the Government Small Business Guaranteed Loan program). The program services a very specific need for early-stage businesses, franchises, etc.

 

 Real estate can also be financed under the program, and no personal assets are taken as security! Repayment terms are typically  2-5 year term loans with fixed installments. Interest rates are attractive under the program and a solid business plan is required, outlining your needs in the 3 financeable asset categories of equipment, real estate, and leasehold improvements. A minimal personal guarantee is required by borrowers.

 

In 2022 major changes to the SBL  program added numerous cash flow/working capital/line of credit financing to the program.

 

The term loan structure is the only alternative under SBL loans, the program is not a line of credit or lump sum cash loan. The total amount available is 350k, which is 1 Million dollars if real estate is financed. It's an excellent way to take advantage of attractive long term financing for your need to cover specific asset requirements or financing of leaseholds.

 

As a business owner, you can also consider putting new permanent capital into your firm via your own saving or a partnership with an associate or strategic partner - i.e. getting a supplier to provide financing via extended terms.

 

We also wish to point out that business working capital is somewhat generic and means many things to many people. The textbook tells us that you have the magic' working capital' number if you take your current assets and subtract your current liabilities.

 

That's great, but the actual number of ratios you get has no real meaning. The solution is simply analyzing your receivable and inventory turnover in conjunction with your accounts payable demands.

 

The textbook calls this your cash conversion cycle - but it brings real meaning to your day-to-day financing needs as it will show you how long it takes for one dollar to flow through your company from order to cash. Measuring those asset turns helps uncover the need for working capital loans.

 

 

 

  

CONCLUSION - WORKING CAPITAL FINANCING FOR THE ENTREPRENEUR  

 

Funding working capital properly is a business tool for managing  cash flows of your business - Understanding what types of traditional and alternative lending solutions work for your business is critical - allowing the company to cover expenses and grow sales revenues  - Different types of solutions are available based on the financial health of your business and its operational needs in your industry.

 

Small business owners are keenly aware of the importance of good cash flow. At that point, you can consider various strategies to improve cash flow based on your operating cycle of collections, inventory on hand, and supplier payment terms.

 

Working capital - it's essential; it's available to address your business growth and potential for new markets and customers  -  for more information, talk to the  7 Park Avenue Financial team  about our business financing services to understand your cash flow options to allow you to meet your financial obligations via solutions from traditional lenders and the new world of alternative business financing to address your particular business credit profile.

 

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

 

What is the role of working capital in business operations?

 

The role of working capital, also known as net working capital, in business operations is to finance day-to-day expenses. This includes paying for utilities, rent, salaries, and inventory. It essentially fuels the everyday operational functions of a business, ensuring that it can meet its short-term obligations.

 

How does a working capital loan differ from a regular loan?

 

A working capital loan is specifically designed to finance the daily operations of a company. Unlike a standard business loan, which can be used to invest in long-term assets or other large capital expenses, working capital loans are intended to provide short-term liquidity. They help businesses cover routine expenditures such as accounts payable and wages.

 

What are some common sources of working capital funding?

Common sources of working capital funding can be categorized into internal and external sources. Internal sources include retained profits and reducing current liabilities. External sources range from short-term loans, trade credit, merchant cash advance,  factoring, and invoice discounting. Businesses may also use bank overdrafts or establish a business line of credit. Lines of credit allow the business to pay interest on only funds drawn under the revolving credit  facility which can be unsecured or secured depending on the lender.

 

What are some benefits and risks associated with the aggressive approach to working capital financing?

The aggressive approach to addressing the  working capital ration in finance  entails keeping a lower level of current assets compared to current liabilities on a company's balance sheet. This strategy can potentially lead to higher profitability due to a lower cash-to-cash cycle time and higher asset turnover. However, it also carries a higher risk of liquidity problems. If the company cannot convert its assets into cash quickly enough, it may face difficulties meeting its obligations.

 

How does invoice financing work as a form of working capital finance?

Invoice factoring is a popular short term financing  method allowing  businesses to borrow money against unpaid invoices /  amounts due from customers.  It is not a small business loan per se, but a monetization of receivables on the balance sheet.Companies sell their accounts receivable (invoices) to a third-party company at a discount. This provides businesses with immediate cash, which can be used to cover operational expenses, thus improving their cash flow. It is particularly useful for businesses that have longer payment terms or those that struggle with late payments, or companies that don't qualify for a business revolving line of credit.

 

 What are three working capital strategies for a business? 

Three Working Capital Financing Strategies

1. Conservative Approach: This approach involves maintaining a higher ratio of current assets to current liabilities around short term business financing needs Although safer, this method can potentially yield lower profitability.

2. Aggressive Approach: Here, the business maintains a lower level of current assets to current liabilities. It may lead to higher profitability, but it also brings about a higher risk of liquidity problems.

3. Moderate Approach: This strategy strikes a balance between the conservative and aggressive approaches, maintaining a moderate level of current assets to current liabilities.

 

 

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

Unlocking the Power Of Business Financing Cash Flow: Discover Cutting-Edge Business Financing Solutions and Finance Alternatives

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YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!

Beyond Traditional Loans: Exploring Innovative Finance Options for Your Business

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

Financing & Cash flow are the biggest issues facing  the business owner today

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

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

 

BUSINESS FINANCING ALTERNATIVES IN CANADA 

 

 

Business financing ensures small business owners have the 'fuel' to operate and grow their companies.  But do some owners/financial managers sometimes fool themselves by thinking their current cash flow and finance alternatives work? We believe that might be the case regarding bank loans, cash flow lenders, and business finance.  Many options In cash flow based lending might be a good choice for your company. Let's dig in.

 

 

INTRODUCTION  - CASH FLOW BUSINESS FINANCING ALTERNATIVES IN CANADA

 

Whether you are bootstrapping your business for cash flow, every business owner knows that cash flows are vital to long term success - Understanding your alternatives that can help your business run smoothly and knowing what is available is key.

 

Companies with different types of assets require a complete understanding of how those assets can be liquidated, acquired, or monetized.  Sometimes, traditional bank loan lending might give your firm the lending solution you need. That's up to the bank and other lenders, for the most part, based on the overall financial condition of your business. In the long run, you might find that your financing is best suited to a non-bank alternative lender.

 

WHY ALTERNATIVE FINANCING? ALTERNATIVE BUSINESS FINANCING VS TRADITIONAL FINANCING

 

Business owners view banks as the go-to solution for secured and unsecured loans. However, banks will often require collateral to secure financing at the low rates provided by banks. However, banks typically only lend to companies with solid credit history, profits, and cash flows for repayment. Business owners also know that accessing approval on bank financing is very time-consuming.

 

Traditional business financing includes term loans and lines of credit from a bank or credit union. Commercial banking approval rates from banks are lower than those of alternative lenders. Approvals from banks may take a longer time.

 

Alternative lenders charge a higher premium if they offer funds to underfunded businesses. These lending methods are easier to apply for online. A business loan from a bank usually has a lower interest rate and a longer repayment term than alternative lending. You typically need at least two years in business to get a bank loan.

 

For those that can't access all (or any?!) of the finances, they need a revolving line of credit from an asset-based lender that will allow your firm to secure the type of cash flow/working capital you need.  It should also never be forgotten that simply managing payables and maximizing supplier credit is a key to overall cash flow management.  Companies with the potential to secure new large orders/contracts should also consider export guarantees or PO financing as an alternative to a small business loan.

 

There are some more esoteric and not always-considered options that, in the past, have been more exclusive and reserved for larger companies. These include 'securitizing' your sales or considering a convertible debt solution. That's another example of how alternative lenders provide business finance solutions to capital and cash flow needs.

 

A more commonly accessed type of funding for a cash flow loan is mezzanine finance, essentially unsecured cash flow loans. They are often reviewed as a 'bridge'; between debt finance and the dreaded 'equity' dilution that is not desired by owners wishing to retain full ownership and control.

 

 

 

HOW TO INCREASE CASH FLOW WITH ALTERNATIVE FUNDING  - ALTERNATIVE  SMALL BUSINESS LOANS 101!

 

Some individual and unique 'subsets' of asset-based alternative loan  strategies include:

 

Confidential Receivable Financing / Invoice financing for outstanding invoices/accounts receivable- this financing method is one of the most popular and accessible business funding solutions in Canada and a solid alternative to lines of credit for business.

 

It's a financing option that is paid back based on sales growth and helps to build business credit  - no debt is added to your balance sheet. Significantly less time in applying and approval is a big plus, unlike bank loans, which might take several months for many common types of bank financing.

 

The amount of money you can borrow under this funding method is unlimited and related to your sales growth and asset turnover in accounts receivables. Factoring is a practical solution for businesses with unpaid invoices - allowing the company to gain immediate cash flow. Invoice discounting/invoice factoring is Canada's most popular accounts receivable financing method.

 

Non-Bank Asset-Based Lines of Credit - Asset-based lines of credit via asset based lending is another popular non-bank option - providing revolving credit facilities and allowing the business to pay interest only on funds borrowed, given that the credit line fluctuates and replenishes with cash inflows. Asset-based lines of credit are secured by business assets such as receivables, inventories, fixed assets and commercial real estate - unlike a bank business line of credit which is typically unsecured.

 

Purchase Order Finance - Purchase order financing allows businesses to access capital when they receive large purchase orders or contracts - Business lenders provide funds required to fulfill orders, and lenders are repaid when customers pay. Supply chain financing and purchase order funding / Order fulfillment loans are creative ways to fund growth.

 

Inventory  Financing  - Financing inventories allows a business to leverage inventory to secure business funding - inventory financing for stock-based loans is often combined with receivables in a line of credit facility.

 

Revenue Based Financing - Revenue-based financing is a flexible approach to capital - Funding is based on a percentage of future revenues, giving a business a revenue-sharing financing approach without taking on debt on the balance sheet. Revenue-driven loans are prevalent in the ' software as a service industry.

 

Equipment Financing - The best acquisition tool for financing long-term assets for the small business owner - the most common leases are capital ' lease to own' options or operating leases signifying more of a short-term rental situation.

 

Royalty finance

 

Merchant Cash Advances  / Short Term Working Capital Loans for Small Businesses are a solid alternative to traditional loans with long amortizations - Poor credit history/credit score of owners can derail this type of funding -

These loans are lump sum loans typically repaid from sales or credit card sales over a 12-24 month period while covering business expenses - Small loans in the 25-150k range are typical under the merchant cash advance. These future ' sales-based loans ' evolved from retail merchant funding around credit card and debit card sales and are popular and accessible online. They provide a quick injection of funds for a percentage of future daily sales. A minimum personal credit score of the business owner is required.

 

Business Credit Card -  credit card financing is a convenient short-term solution to finance small business expenses under a revolving credit concept with predetermined credit limits, along with offering various awards

 

ALTERNATIVE FINANCING FOR SMALL BUSINESSES

 

Big Canadian banks approve only a portion of loans for small businesses, so it is prudent for business owners to explore financing solutions and funding alternatives.

Alternative lenders approved a large share of SMB loan applications. Alternative fintech lenders grew despite dwindling customer interest in traditional banking.
 

It should always be remembered that higher interest rates on alternative funding solutions are always more costly but provide access to capital.

 

Funding for startups can often be accessed through the Government Of Canada Small Business Loan program. Industry Canada delivers and sponsors. This solid program which is somewhat similar to a traditional bank loan. This program was modelled around the Small Business Administration ' SBA ' loan. Excellent credit, i.e. typically, a credit score of 650 is required by the

 

Interest rates/interest payments under the program are very competitive. Many entrepreneurs use the program for startup funding in the early stages of their business idea /project. Talk to the  7 Park Avenue Financial team to determine whether your local bank or credit union participates in the government-guaranteed loan and how to identify potential ' bad credit ' issues.

 

Grants and Subsidies: 

 

Governments and some other organizations often provide grants and subsidy programs to support businesses in specific industries or promote innovation. These non-repayable funds can be a valuable source of financing, allowing companies to fuel their growth, develop new products, or engage in research and development. Canada's Sr&ed program is a popular government funding program, and sr&ed refunds can also be financed.

 

Let the  7 Park Avenue Financial team help you with a winning business plan that meets and exceeds the requirements of banks and other commercial lenders.

 

These solutions distinguish themselves for many business owners because they provide billions of dollars of capital for SME COMMERCIAL FINANCE needs in... are you ready???... A very short period!

 

It's all about quick access to cash as far as most firms are concerned. At least, that's what business folks tell us. They hate it when financing stifles their ability to 'seize the moment' regarding new sales opportunities.

 

THE PERSONAL GUARANTEE ISSUE FOR SMALL BUSINESSES 

While personal owner guarantees are required for traditional bank loans and in almost all Canadian business financing for private firms, there is less emphasis on these guarantees regarding various alternative finance solutions. But for the most part, it's all about 'timelines' and the ability to access cash.

 

 

BENEFITS OF ALTERNATIVE FINANCING  

 

Alternative financing options offer several benefits, including more flexible borrowing requirements and faster approval. Many companies that can't access the financing they need from traditional financial institutions have access to numerous funding options in the alternative lending landscape in Canada. While many forms of alternative funding have higher rates, they can provide the capital access a company needs to fund day to day operations and access growth opportunities.

 

 

CONCLUSION - SOLVING YOUR CASH FLOW & BUSINESS GROWTH  

 

Boosting your cash flow is essential to the success of your business. Whether you choose a traditional or alternative financing option, evaluating each option carefully and considering the pros and cons is necessary.

If you're unsure which financing option is right for your business, consider speaking with an experienced Canadian business financing such as 7 Park Avenue Financial.

Managing cash flow is crucial for the survival and success of any business. By exploring cash flow financing solutions and finance alternatives, companies can optimize their cash flow, overcome financial hurdles, and position themselves for long-term growth.

 

Canada's business owners have several ways to secure business financing.  There are plenty of different options in terms of financing. Therefore your research on this will help determine the best solution for you. The good news is you never need only a traditional bank to get the funding for your business. Venture capital, peer-to-peer marketplace lending, and a crowdfunding platform are out of reach for ' raising money ' credit options.  They probably are!

 

Even traditional business loans are often not attainable for many firms. Funding small businesses in Canada can often be challenging - If your company is looking for some cash flow 'fuel' from forms of finance that will help you grow and run your business and for more information, speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you in taking your business to the next level. Stop pretending that newer financing options for business aren't for you!

 

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  

What is alternative lending?

Alternate lending describes loans that occur not within a conventional financial institution. Alternative loans are more flexible and often have a fast application turnaround. Alternative lenders often offer loans in smaller amounts than banks which often specify minimum loan terms that are too high for a small business.

 

Alternative lenders also offer unconventional lending options that enable businesses to leverage the assets like the account receivable or the sale of credit cards instead of borrowing on credit. Many types of alternative loans are available. Hence there will likely be an alternative loan out there that matches your situation, and many types of alternatives are available to banks and traditional lenders.

What are the benefits of alternative lending?

Every business needs working capital to flourish. With poor funding options, startup enterprises will likely be forced into a slowdown quickly. Avoiding traditional bank loan routes may seem impossible, but there is a whole range of small business financing options accessible for entrepreneurs. Understanding the most competitive financing options will increase a  company's longevity and chances of survival. Have the right analysis that helps you get the proper credit options to suit your business needs.

  

What exactly is cash flow business financing?

  

Cash flow business financing refers to various strategies and methods businesses use to manage and optimize their cash flow. It involves accessing funds to cover operational expenses, invest in growth opportunities, and ensure smooth day-to-day operations from the business bank account.

 

 Why is cash flow financing important for businesses? 

 

Cash flow financing is crucial for businesses because it helps ensure a steady inflow and outflow of funds. It allows businesses to meet their financial obligations, manage working capital, seize growth opportunities, and maintain a healthy financial position in the business's cash flow.

 

 What are some common finance alternatives to traditional bank loans for businesses? 

 

 Finance alternatives include invoice financing or factoring, non-bank business line of credit, merchant cash advances, crowdfunding, angel investors and venture capital, peer-to-peer lending, grants and subsidies, and bootstrapping. These alternatives provide businesses different avenues to secure funds based on their specific needs and circumstances.

 

 How can cash flow financing solutions help businesses in challenging times? 

 

Cash flow financing solutions versus a traditional business loan can provide businesses quick access to funds during challenging times, such as economic downturns or unexpected expenses. They offer flexibility, speed, and tailored approaches to address immediate cash flow needs, helping businesses weather financial uncertainties and maintain stability.

 

What factors should businesses consider when choosing between different finance alternatives?

 

Businesses should consider factors such as their specific funding requirements, repayment terms, interest rates or fees, eligibility criteria, long-term implications, and the alignment of the financing option with their growth plans. It's crucial to assess the pros and cons of each alternative and determine which option best fits their unique situation and goals.
 

 What are some Alternative options for financing?

Alternative financing options for small businesses include cash flow lending solutions such as peer-to-peer lending, business credit cards, crowdfunding, microloans, invoice financing, and merchant cash advances. These options are becoming increasingly popular, especially for businesses not qualifying for traditional financing.

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

Factoring and Invoice Cash Can Boost Your Business

 

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING!

Unlocking the Benefits of Factoring and Invoice Cash: A Comprehensive Guide

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

 

SOLVING THE CHALLENGES OF BUSINESS CASH FLOW

 

 

INTRODUCTION 

 

Businesses often face  numerous challenges when it comes to managing their cash flows and the ability to maintaining a steady cash flow is vital for any business to stay afloat.  With often limited resources, many businesses may struggle to secure loans or lines of credit from traditional financial institutions.

That is when invoice financing / factoring comes in as a viable solution - allowing a business to cash flow their receivables / unpaid invoices , thereby improving cash flow without the need to take on any balance sheet debt .

 

  

WHAT IS  INVOICE FACTORING AND HOW DOES IT WORK?  

 

Invoice cash - can a factoring or working capital facility actually reduce your financial expenses and allow your business to grow at any rate profitably?  Invoice factoring involves 3 parties - the company , the customer, and the factoring company.

Factoring is a business financing solution that allows business to finance accounts receivable in exchange for immediate cash . Under traditional ( we can call them old school ) invoice factoring companies can also assume responsibility for payments to the company -  At 7 Park Avenue Financial our recommended solution for factoring finance is Confidential Receivable Financing, allowing a company to bill and collect  its own invoices, with no notification to clients.

Businesses that have good quality receivables can receive approx 90% of the invoice value as invoices are generated - ie the factoring company pays same day! The balance of 10% is returned to the company when the client pays, less financing factoring cost.

 

 

 

TRADITIONAL FINANCING OPTIONS FOR BUSINESS  

 

Traditional financing options for businesses / small business owners in Canada  include term  loans, lines of credit, business credit cards, etc.However, these options may not be suitable for all  businesses and  bank loans require collateral and a strong business  credit history as well as a good personal credit history from owners . Some traditional finance options take on additional debt to the balance sheet which can add an additional layer of risk for the business.

 

 

 FACTORING / FINANCING ACCOUNTS RECEIVABLE A GREAT SOLUTION  FOR BUSINESS CASH FLOW?

 

When is comes to  understanding the challenges of business cash flow it often becomes an issue of being unable to predict  sales revenue and cash inflows. 

 

Businesses will experience fluctuations in sales revenue for a variety of factors - Some of those factors include:

 

Seasonality or Cyclical trends in the business and industry

General economic downturns in the economy

Unexpected expenses

Inability to access  working capital loans or business lines of credit from traditional financial institutions due to their limited financial history or lack of collateral.

This can make it difficult for small businesses to access the capital they need to grow and expand their operations.

 

FACTORING FINANCING IS A GROWING TREND IN A BUSINESS FINANCING STRATEGY

 

Canadian business owners and financial managers keep hearing about firms that 'factor' their accounts receivables, their 'invoices. ‘  This is a growing trend in Canada that has caught on to a financing strategy that has been successful in the U.S. for several years. Any company with outstanding invoices and  good receivables can qualify for invoice factoring , aka invoice discounting and can use invoice factoring profitably.

 

WHAT DOES  INVOICE FACTORING  COST?

 

Is there a ' perfect ' financing solution for your firm that provides you with unlimited working capital and is actually cheaper than bank financing when you realize that you are carrying receivables 30, 60, and 90 days on your balance sheet? 

 

While we might agree there is no 'perfect' financing solution for all Canadian firms everywhere, we strongly feel that we can very EASILY demonstrate that invoice cash, known as factoring or receivable discounting, will take your firm to the next level of sales and profits.

 

IS FACTORING A CHEAPER ALTERNATIVE TO BANK FINANCING? YOU DECIDE

 

Let’s get back to our statement of how you can reduce your financial expenses and grow your sales at any growth rate. We will even add that you can 'profit' from this financing strategy.

 

HOW FACTORING CAN REDUCE FINANCE EXPENSES AND GROW SALES REVENUE AT ANY RATE PROFITABLY

 

We have to get a little technical here, but bear with us! --

 

AN EXAMPLE OF A FACTORING  TRANSACTION

 

Let’s say your firm has sales of 1 Million dollars, you have 40% gross margins, and you have operating costs of 38%, leaving you a 2% net income on your sales. Included in those costs are your bank financing costs from, for example, a Canadian chartered bank. We would point out that your bank credit line has a limit, and at a certain point, your customers are paying you in 30, 60, and 90 days. You are fully utilizing your line of credit.  Are you able to take new orders and contracts without new external financing - we don’t think so!

 

DOUBLED SALES / NO EXTERNAL FINANCING / INCREASED PROFITS

 

So what's the solution?! We have one for Canadian business owners or their financial managers. Let us set up a working capital factoring facility for you. The kind that we prefer is 100% non-intrusive - that is to say, you will continue to bill and collect your own accounts receivable.

 

We call it non-notification. Ask any other firm if they like how their factoring facility works. If they don’t have a non-notification facility, they will tell you they don’t necessarily like it for several reasons, mainly customer intrusion, etc.

 

So we have our facility set up. You take on new orders and contracts and double your sales to 2 Million dollars.

 

 Your competitors start talking about you!

 

Using the factoring or invoice cash facility, you get paid the same day that you invoice clients.. At the end of the year, your sales are 2 million, they have doubled! Your net profit would be 130k, not 20k; you would have paid 70k in factoring and financing costs and still have made a lot more profit - in our example 110k more profit.

 

  

THE CASH CONVERSION CYCLE - FACTORING AND ASSET TURNOVER IMPROVE RETURN ON ASSET / RETURN ON EQUITY AND NET PROFIT !

 

  

Again, we realize we're getting a little technical and accounting oriented in our example and explanation - so what is the layperson's bottom-line explanation of what just happened - It is as follows -

 

You doubled your sales, you had no concerns about external financing or taking on new debt, and your profits went up a lot!

 

Technically what happened is what KPMG calls on their website the ' Cash conversion cycle ' - you have turned over assets much quicker. Therefore you have a greatly improved return on assets, return on equity, and net profit.

  

BENEFITS OF FACTORING FOR  A BUSINESS FINANCE SOLUTION  

 

Benefits of factoring for business include

 

Improved working capital  - companies can meet short term obligations and avoid temporary cash flow shortages

No additional debt or financial obligations - Factor Finance does not add debt to the balance sheet

Access to capital - companies unable to access traditional financing can secure business capital to grow and expand

Reduced administrative burden -  Businesses who utilize notification type factoring  can transfer credit and collection responsibility to the factoring finance company

 

 

 CONCLUSION - 

 

Factoring offers several benefits -  including improved business  cash flow, access to capital, and reduced administrative expenses around the credit and collection cycle . Factoring is not a loan per se , so small businesses do not take on additional debt or financial obligations. Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. Factoring can be a viable solution for small businesses that are experiencing working capital shortages or need access to capital to grow their operations.

 

In summary, invoice cash, factoring, receivable discounting, or whatever you want to call it (at our firm, we call it a working capital facility) works. It can work for you.

 

Call  7 Park Avenue Financial,  a trusted, credible, and expert business financing advisor, and run the numbers. You will find you just got off the cash flow merry-go-round, and that’s a good thing.

 

 

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

 

 What are Common misconceptions about factoring 

There are several common misconceptions about factoring - so it is important to understand how to use this financial tool -

Factoring  business receivables is expensive -

Factoring fees can vary depending on the size of the accounts receivable and the creditworthiness of the customers as well as the size of the credit facility However, factoring fees are typically lower than the interest rates charged by traditional financing options such as long term loans - In some cases factoring can be less expensive than bank financing

Factoring will damage customer relationships -

Factoring companies are experienced in handling customer relationships and will work to maintain positive relationships with the customers. Additionally many companies have the option of considering non-notification factoring financing solutions - allow them to bill and collect their own invoices -  factoring can allow a  business to offer more flexible payment terms to their customers, which can improve customer satisfaction and increase sales Slow paying customers can also be financed, as long as the  unpaid invoice is less than 90 days old.

Factoring is only for businesses with poor credit -

Factoring is used by companies of all size, including large corporations - Factor finance is based on the creditworthiness of the accounts receivable base , so any company with good customers can benefit from receivable finance.

 

 How do business owners  choose the right factoring company for a business?

Choosing the right factoring company is essential for small businesses to maximize the benefits of factoring. When choosing a factoring company, small businesses should consider the following:

 Fees - financing costs  vary, so small a company considering a/r finance  should compare fees from different lenders  to ensure they are getting a competitive rate.

Customer service  - Businesses should choose a factoring company that offers excellent customer service, including prompt  same day payment and efficient collection of accounts receivable.

Industry experience

Some factoring companies specialize in certain niche industries, for example trucking and staffing agencies - Businesses should choose an invoice  factoring company that has experience working with businesses in their industry and is properly geographically located

Companies should carefully review the contract terms offered by the factoring company, including the length of the contract, the termination clause, advance rates,  and any miscellaneous  fees that occur when comparing invoice factoring vs other types of working capital financing or bank loan financing.

 

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

Condo Corp Loan Financing In Canada: Condo Term Loans Make Absolute Sense In Numerous Circumstances

 

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YOUR CONDOMINIUM CORPORATION NEEDS A FINANCE SOLUTION!

CONDO CORPORATION FINANCING 101 -

Surviving the Special Assessment: A Condo Owner's Guide to Unexpected Costs

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?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

CONDOMINIUM CORPORATION LOANS CANADA

 

Condo corp loan financing is a growing need arising out of numerous situations confronting the condo corporation directors and the owners they represent. 

 

 

 

INTRODUCTION - CONDOMINIUM CORPORATION LOANS  

 

Condo association /Condo corporations can borrow money to fund major repairs and upgrades to the condominium corp - Talk to the 7 Park Avenue Financial team about making this process easy and ensure the proper steps are in place to avoid any complexity around the loan and ensure financing reflects condo fees paid by owners.

 

 

  

BENEFITS OF CONDO CORPORATION LOANS   

 

The condominium corporation has many benefits from taking out a condo loan. The first is maintaining a  healthy reserve fund, which will help them if any project or building unit repairs go wrong.

Maintaining strong finances helps keep the functioning of a condo corp going more smoothly while also protecting investment in unit owners' condominium property values via effective condo corp term financing solutions. Adequate financing via properly structured condo loans eliminates a special assessment and prevents owners from paying a  large lump sum.

 

Repairs and upgrades can be addressed immediately as required without waiting to reserve funds to accumulate.

Financing costs are competitive, and the cost of the financing can be amortized over the life of the project - it's a common sense financing strategy to match the useful life of assets with the term of the financing - that helps minimize the impact on condo fees to the owners.

 

While it may well be that cash and reserves cover needed investment to repair the common property or to address major repairs/upgrades and renovation costs, the condo board and the property management firm must consider borrowing via condo term loans when funding major maintenance et al.

 

INSURANCE

 

In numerous cases, some damages or repairs may be covered by the insurance policy of the condominium corp. This will depend on policy coverage and the types of damages, repairs, and upgrades the board may require.

 

 

 

BREAKING DOWN CONDO FINANCING AND UNDERSTANDING  SPECIAL ASSESSMENTS, RESERVE FUNDS  

 

The financing of Condo corps has long been an underserved market sector for their funding needs for necessary repairs when traditional business banking solutions are not available for providing term loans for the growing demand in this real estate sector via funding of majors repairs to the common elements  Let's dig in on a deep understanding of this subject.

 

 

 

 

WHY DO CONDOMINIUM CORPORATIONS BORROW? 

 

Loans for registered condo corporations make funds available and finance capital expenditures related to major repairs or replacements from things such as plumbing fixtures down through exterior finishes and whatever affects the general living conditions within these premises via replacements, add ons and repairs and alterations.

 

Long-term care and upgrades of existing condominium supply will remain essential to Canada's high-profile housing situation around individually owned units and exploding condo developments on the Canadian landscape.

 

Condo loans work and can assist projects that are either primary residences, vacation homes, or investment properties.

 

 

SPECIALIZED CONDO TERM FINANCING 

 

There are numerous reasons, many of which we will cover for condominiums to seek special financing. Of course, financing is the alternative to depleting the condo corp reserve, or... Heaven forbid, issue a special assessment to each condo owner.

 

WHAT IS  A SPECIAL ASSESSMENT

 

The condo boards and property managers will have to approve a special assessment for any repairs needed if financing is unavailable if the reserve has no or does not have enough money, and when owners pay or have to pay special assessments to replace or repair common property. Owners have a key interest in the ongoing resale value of their property.

 

The condo boards and property managers will have to approve a special assessment for any repairs needed if financing is unavailable or if the reserve has no or does not have enough money, and when owners pay or have to pay special assessments to replace or repair common property. Owners have a vital interest in the ongoing resale value of their property.

 

 

Special assessments are the funding that is required when the condo corp's reserve fund is either unable to bear the cost of a significant repair or upgrade to common elements  - That involves the board of directors of the condo corp levy a specific assessment to individual condo owners to cover the costs of repairs of upgrades - It is common to spread the cost of the repairs and upgrades equally among unit owners relative to their proportionate interest ownership.

 

In any case, while many condominium owners and their management might maintain a positive and healthy reserve, the full depletion of that reserve is highly undesirable.

 

FINANCING CONDO CORPORATIONS  / CONDOCORP TERM FINANCING

 

While good planning, cash flow forecasting, and reserve analysis are the essence of any solid condo mgmt owner/mgmt team, surprises often occur, as they do in any business. That's when a condominium corporation loan might make sense to save the day.

 

Condo repair and upgrade financing is a specialized form of financing. In many cases, the transaction certainly isn’t ' collateralized' in the same manner as a typical business corporate entity might be. So it's clear that solid loan application expertise is required for the condominium corporation to borrow effectively. That ability to translate the condo corps' payment ability into the real world of cash flow is critical.

  

 

 CRACKING THE CODE OF CONDO CORPORATION FINANCING   

 

In many cases, Canadian chartered banks don't offer this type of financing; it's highly specialized, as we have noted. Considering that the individual owners move and the board and condo mgmt company can also be in flux over the years, the term 'specialized finance ' makes tremendous sense.

 

What documents are critical to a solid borrowing plan from a lender's perspective? Key elements include a budget and cash flow forecast, historical and current financials, and specialized docs specific to a condominium, such as a reserve study.  That cash flow analysis is reviewed carefully as with any other regular business operating entity.

 

While in theory (and law!), the condo corp can issue special assessments and ' liens' on the property. Those actions are highly undesirable and not how the boards of condominiums like to operate. By the way, boards that intend to borrow require a solid bylaw to be in place, ensuring the board of directors has full authority to borrow.

 

  

Funding majors Repairs To Common Elements Of Condominium Property 

 

Lenders will also want to ensure proper use and disbursement of funds vis the reserve and operating expenses. Characteristics of a good condo cor loan are that they are for proper repairs warranted in  ' common element' areas. Condominium repair loans are typically structured as term loans with fixed interest rates. Larger projects might be funded in stages via ' progress payments.'

 

Careful care should be taken by the board (and the lender!) to ensure cash outflows match the asset or improvement's useful life or repair.

 

  

 CONCLUSION - FUNDING MAJOR REPAIRS IN THE CONDO CORPORATION  

 

If you're looking for financing for registered condominium corporations and expertise in condo finance for repairs and improvements that bring financial flexibility and health to your condominium corporation, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who has a long successful track record and who can assist you with condo term loans that make sense.

 

Let the 7 Park Avenue Financial team show you how providing tailored financial services and effective condominium corporation financing for Canadian condominium corporations helps and increases the equity/ownership value of your property and the health of condo financials. We're a boutique financial services company that can help you with your economic challenges.

 

   

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

 

 What is a reserve fund?

Financing significant repairs to the condominium corporation invoices the spending of reserve funds.

Also called a  ' sinking fund, this is a savings account into which a condominium corporation regularly contributes. The fund is intended to cover the cost of significant repairs or replacements of the condominium's common elements, such as roofs, elevators, boilers, and parking garages. The amount to be saved is typically determined by a reserve fund study, which is an in-depth analysis of all the major components and systems of the condominium, their remaining lifespan, and their  replacement cost.

 

 

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

Acquisition Financing In Canada - How To Finance A Business Acquisition

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YOUR COMPANY IS LOOKING FOR  FINANCING TO BUY A BUSINESS

FINANCING A TAKEOVER VIA  DEBT FINANCING AND CASH FLOW FINANCE

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?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

FINANCING AN ACQUISITION

 

Business acquisition financing of another company, appropriately done, plays a crucial role in helping to grow a business. Profitably!

 

INTRODUCTION

 

Financing your business acquisition with the proper financial planning plays a crucial role in purchasing an established business - Proper financing allows the entrepreneur to expand operations and leverage existing assets.  It is important to understand financing options and the various implications that come with those funding options, and whether they are available for entrepreneurial success in buying a business.

 

 

While there are some common ' go to ' solutions when buyers seek acquisition funding, such as lines of credit, traditional loans, etc., other financing options are available to enhance business operations. Specialized financing via non-bank private lenders is often a final solution, and these alternative solutions come with less strict criteria than those requirements by traditional financial institutions.

 

Bank financing for an acquisition focuses heavily on stable sales revenues, good cash flow, profits, and collateral. In some cases, those aren't always all available!

 

 

DO YOU HAVE THE INFORMATION YOU NEED TO BUY A COMPANY?

 

We're talking about the proper buy-side strategy in acquisition financing in the Canadian market,  whether that's m&a financing, a management buyout, or simply loans to buy a business in Canada. Let's get you to the goal line in your business buyer letter of intent to purchase a business and that final sale and purchase agreement.

 

Your purchase might sometimes be part of a succession planning process in transferring business ownership and a management buyout. Let's dig in on business acquisitions and the various types of acquiring a company with alternatives suited to your specific needs! Think of it as your buying a business checklist from 7 Park Avenue Financial.

 

ESTABLISHING VALUE IS  CRITICAL TO A SUCCESSFUL FINANCING OF A BUSINESS PURCHASE

 

Buyers can use various business valuation methods to determine the target company's value. In some cases, buyers can analyze the amount of time and cost it would take to start a similar business in areas such as technology, sales costs, financing costs, acquiring assets, hiring staff etc.; that is a lot of work!

 

Some purchases can use analytical techniques such as the company's net asset value or compare comparable prices to earning ratios of public companies in a similar industry.  Other methods, such as net present values of future cash flows in the analysis of the financial statements are more technical and might require the help of an experienced business valuation professional,

 

The Harvard Business Review has an excellent article on ' paying too much '  when buying a business - Click HERE for the article.

 

WHAT IS ACQUISITION FINANCE

 

Acquisition finance is all about the different types of capital that can be sourced to buy a business or, in some cases, merge with another. Funds can come from a variety of sources in Canada. Given the potential complexity of any deal, successful acquisitions and financing services will always have a plan attached to them.

 

In most cases, one type of financing may not provide the total solution, so a ' cobbling' together of different financings will ultimately lead to a successful transaction.

 

In some cases, established businesses might be looking for what is known as a tuck-in or bolt-on acquisition - considered for augmenting an existing business.

 

The question? What are the best sources of financing and business capital to complete your transaction based on financial flexibility and the cost of capital? The buyer can focus on the best acquisition financing solution to establish the target company's value.

 

CONSIDERING THE  ' DEBT VERSUS EQUITY ' QUESTION IN BUYING A BUSINESS

 

Financial professionals tell us debt is cheaper than equity  - a reasonable debt level will ensure no risk of diluting owner equity  - Naturally, debt levels are always a concern. Long-term debt can be a challenge to the financial health of a business. The key  benefit of more owner equity in a transaction is that it does not require repayment and will allow a company to assume more debt under the right circumstances,

 

 

WHAT ARE THE KEY WAYS TO FINANCE YOUR TRANSACTION 

 

Sales of business are completed by either a share sale or an asset sale, naturally for public companies, a significant share transaction.  Cash may also fund your transaction, often unlikely in the private sector, given the potential deal size. Most firms are acquired through debt and the cash flow monetization of assets - and in some cases, an acquisition bridge financing solution as a path to a complete transaction.

 

Most transactions are a combination of senior debt via a term loan based on assets or cash flow financing ability, which typically is the bulk of the total solution and complemented by an operating credit line or unsecured mezzanine cash flow loan.

 

Mezzanine loans/mezzanine financing is cash flow-based, and historical and present cash flows are analyzed carefully. Mezzanine finance is unsecured debt and ranks behind other secured lenders, meaning a higher risk level for the ' mezz ' lender.

 

Debt is much less expensive than equity, a financial point not always contemplated by many business purchasers. Cash flow financing, or mezzanine finance, might include a smaller equity component. Mezzanine financing provides additional flexibility to your transaction.

 

Key elements of your acquisition analysis include the target firm's profitability, overall cash flow potential, and the amount of debt it can manage post-acquisition.

 

When a transaction cannot be completed on a 'cash flow ' basis, the ability to assemble a proper asset-based finance solution is key. Asset-based finance - ' ABL' used the key assets of the target company to complete the transaction.

 

Those assets include equipment, real estate, accounts receivable, and inventory.  A strong asset-based will always help in a transaction with more leverage than typical.

 

As a potential business purchaser, you need to focus on financing your deal and converting that purchase price into a successful transaction within proper due diligence in m&a financing.

 

 

 

REASONS FOR PURCHASING A BUSINESS OR FINANCING A TAKEOVER

 

Why would you consider purchasing an existing business?  Reasons vary but are not limited to:

 

- Growing revenues faster

- Expanding into new markets or geographies

- To eliminate some existing costs and therefore increase profits

-  capitalize on new technologies /products/clients

 

 

Naturally, firms can grow ' organically' via various means, such as the introduction of new revenue sources, marketing strategies, and new clients - That takes time, of course, which is part of the appeal of buying another firm, allowing you to reach synergies and economies of scale. In some cases, real estate acquisition loans can be a part of a transaction, requiring additional expertise.

 

Various critical parts of the existing balance sheet can play a vital role in the financial acquisition of your purchase correctly. A solid example of this is to table the issue of a  ' vendor take-back / seller note ' that can alleviate the amount of capital you have to either put in... or borrow.

 

Those elements will shape your final financing structure and your equity investment in the business. That becomes your proof of commitment to your bank or commercial business lender.

 

Naturally, not all sellers are motivated to stay in the deal. Still, a fair vendor take-back note has two great advantages in financing the transition to new ownership  - reducing the amount you need to borrow and enhancing some of the cash flow requirements that a lender might be concerned about.

 

It might be opportune to mention to a seller that, in some cases, a higher sale price can be achieved with a Vendor take-back type deal.

 

The existing accounts receivable must be addressed in transactions we have worked on. Putting some... or all of the existing A/R into the deal may offer particular advantages to you as a buyer.

 

So let's get to the ' nub ' of our issue -  Funds can come from various sources!

 

WHAT FINANCING STRATEGIES AND LENDING SERVICES ARE MOST COMMON IN ACQUISITIONS FINANCING

 

The most commonly used and almost always successful (if done properly!) include these solutions from acquisition financing lenders ->

 

 

 

ACQUISITION FINANCE STRATEGIES IN CANADA / BUSINESS ACQUISITION FINANCING OPTIONS

 

Government Business Loans ( The SBL Guarantee Loan now has a limit of $1,000.000.00 )   Remember that this type of loan only finances equipment and leaseholds, so another form of financing may be required to complete your transaction.

 

Nonetheless, it's a classic small business loan for smaller companies with the help of the Government of Canada.  The federal government loan guarantee allows many small businesses to be purchased successfully - The program is similar to the U.S.  SBA loan under America's Small Business Administration. It provides a lower down payment requirement and competitive interest rates.

 

Borrowers must meet minimum requirements regarding net worth, income, good personal credit scores, etc. Ask the 7 Park Avenue Financial team if this loan program works for your business purchase.

 

The interest rate and flexible payment terms are a key part of the success of this program which is utilized by thousands of entrepreneurs every year. Buying a franchise in Canada is a common use of the Canada Small Business Financing Program. Talk to the 7 Park Avenue Financial team if this loan makes sense for your business purchase.

 

The vast majority of business purchases with government loans tend to be a small businesses or a franchise, given that the term loan portion of the transaction has a limit of 350k. A real estate component is often handled separately from an operating business.

 

Bank Term Loans/ Revolver and lines of credit facilities - These are critical elements of finance to buy a business - Receiving financing through your bank as the financing institution involves understanding the requirements of traditional bank loans to secure the funding you require via a bank financing term sheet. Canadian banks will, of course, strongly emphasize financial covenants and final debt ratios / EBITA calculations, etc.

 

Asset-based loans / leveraged buyouts:  These loans finance all or parts of receivables, inventory, and equipment, as well as provide revolving credit lines for the ongoing business. Asset-based lending via lender financing can help solve some of the traditional challenges of buyouts and acquisitions as an acquisition financing ' lbo model. '

 

Asset-based financing acquisitions are a solid solution for business purchases that don't meet criteria around cash flows. Using the target company's assets, such as accounts receivable, inventory, real estate, and even potentially intellectual property, allows for a business purchase that relies less on covenants and guarantees. Any business acquisition around a solid asset base can use those business assets to unlock capital versus a ' cash flow analysis' type of valuation in due diligence.

 

Utilizing ' ABL ' via leveraging assets is a reliable method to maximize the potential financing needed. Structured or  Leveraged acquisition finance via an asset finance solution can shorten the timeline of your transaction as alternative finance solutions tend to be arranged much more quickly. However, financing rates and fees can be higher than a bank solution.

 

Focusing on the actual value of assets such as accounts receivable, inventories, and equipment maximizes finance potential. Asset-based lending is higher cost but can help you achieve business purchase success.

 

It's essential to consider the share purchase vs asset purchase choice as the transaction has positive and negative aspects for both the buyer and seller depending on which deal closing is agreed upon.

 

Unsecured cash flow loans and Term Loans

 

Franchise Loans (Franchising is a huge part of the Canadian economy)

 

Let's not forget seller financing/owner financing, sometimes known as ' vendor take-back financing ', allows the buyer to reduce the funding required to complete the transaction.  A Properly crafted vendor take-back loan will reduce the amount you are required to finance and are a common way of engineering a successful deal when the seller agrees to participate in your transaction. In some cases, a creative earn-out payment with the seller might be able to be negotiated.

 

Seller financing is, in effect, a deferred purchase price deal.

 

Owner financing, aka a ' seller note, 'can be a very creative way to complete an acquisition - The strategy also helps sellers to sell a business more quickly via their participation in the transaction- Buyers benefit from reduced costs of financing and seller finance strategies often come with more flexible terms and reasonable interest rates.

 

When buying a business, questions should always include whether the seller would help with vendor finance.

 

At 7 Park Avenue Financial, we get many inquiries around  100 percent acquisition financing on an acquisition deal,  which is generally not available in Canada as Canadian commercial lenders/banks, etc., require your proof of personal commitment to the transaction.

 

That equity financing commitment will not be the lion's share of your transaction but still varies based on various factors, including the type of transaction, industry, deal size, and overall perceived credit quality.  A potential solution might be a third-party investor or partner.

 

Large Canadian transactions might consider private equity firms, although this is rarely an option in the ' small business' SME/SMB company regarding a leveraged buyout.

 

CONCLUSION - BUSINESS ACQUISITION LOANS CANADA

 

Acquisition financing is a required tool for buyers looking to purchase a company. Understanding how it works and ensuring you are up to date with various business finance options helps the business owner make informed decisions and allows for leveraging the benefits of different traditional and alternative business financing methods. Whether it's conventional loans from banks, government loans, alternative loans via asset-based lending, or a combination of own equity and seller financing will allow the business purchase to realize financial objectives.

 

Financing is often a factor in the proper preparation of a transaction. If you're focused on obtaining financing and a commitment letter on the acquisition of a business and if you need expert advice on business acquisition and the right financing solutions properly.

 

Speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with buying and financing a business properly with acquisition debt financing that makes sense. Grow your new business with proper financial solutions to make a successful acquisition.

 

We'll work closely with you to finance an acquisition and determine the best acquisition finance structure and the methods of valuation you might employ to complete your transaction and understand earnings quality to achieve your desired future growth strategy in financing acquisitions.

 

That final capital structure and company recapitalization is your key to entrepreneurial success. In many cases, the more information you have, the better prepared you will be to succeed with a loan to buy a business in Canada when financing a takeover.

 

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

 

What is acquisition financing, and how does acquisition financing work?

 

Acquisition finance refers to business capital used to purchase another business via debt and equity finance. The financing provides the resources required to close a transaction between a buyer and seller on favourable terms for both parties. All cash deal transactions are rare in SME acquisitions, and typically, a bank loan /alternative debt funding and owner down payment make up a final capital structure.

 

  

What are the common choices for acquisition financing?  

 Common choices include lines of credit, traditional loans, Government Small Business loans, debt security, and owner financing, and each type of financing requires a risk assessment.

 

  

How can companies secure acquisition financing from traditional banks or specialized lending services?  

 

Companies can apply for loans through traditional banks or specialized lending services by meeting their requirements, such as demonstrating steady revenues and profitability.

  

 What happens to debt in an acquisition?   

When a company acquires, it will either assume the target company's debt on its balance sheet, deduct it from the total sale price, or repay it before closing the deal. The buyer can negotiate with the lender and reduce the target company's debt to lower the total acquisition cost.

 

How does a bridge loan work in acquisitions?

 

Bridge loans are types of acquisition financing acquisition loan that are a means of quick funding to fill a gap until a company can obtain long-term financing or if the transaction requires more equity capital. These are short-term loans for companies to secure and fund a business acquisition or a leveraged buyout with asset backed financing or mezzanine debt, or subordinated debt based on the company's cash flow when there is enough free cash flow to support debt.

 

What is an earnout?

An earnout in the acquisition financing process on target companies is a financing mechanism that provides additional payments to the seller's shareholders if the business achieves specific financial metrics or milestones. An earnout is used when the acquiring company wants to buy the target firm for a lower price, but the seller believes the valuation should be higher based on projected cash flow and profit margins.

In case of an earnout, both parties will agree to the transaction at the lower price, but the seller is guaranteed they will "earn" a portion of sales and profit after the acquisition is closed. The earnout period is typically between 1-3 years but can last up to five years.

 

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