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Unlocking Business Cash Flow Financing

Business cash flow financing often requires some ' straight talk ‘. The ability to finance your company with the right loan / loans properly is one of the most powerful success forces in Canadian business. But how does the business owner/financial mgr determine where new cash flow and working capital will come from, and where it went? Let's dig in.

Working capital type loans have a multitude of purposes; in some cases it might be long term growth planning in typical business initiatives such as traditional marketing or even digital marketing initiatives, r&d capital spending, or a more robust ' feet on the street ' salesforce.

In other cases new influxes of working capital and cash flow might be required for current facilities which may be ' maxed out ' due to the constant replenishing requirement of working capital as you invest in inventory, receivables, and the purchase of new assets. It's important to note that new assets that have a longer useful economic life should never be financed with short term credit facilities.

That's a cardinal rule of business financing that many business owners / financial managers realize a little too late! Equipment leasing and financing as well as standard equipment loans are best suited for the purchase of assets. The majority of companies in North America (industry statistics say 80% )utilize lease financing. A subset of the lease finance option is ' sale leaseback ' finance, allowing your firm to keep the asset, refinance it for additional cash flow, and regain ownership of the asset at the end of the term. Commercial real estate can also be addressed as part of the leaseback process.

The new paradigm in business today is often tied to a firms investments in technology. Technology finance and tech funding needs can require a major investment of business capital. The good news is that ' IT ' (information technology ) needs can easily be accommodated in the world of lease financing. Also, it is hopefully no surprise that software, albeit an ' intangible ', can be financed, and companies can also raise working capital/cash via financing their ' SAS ' ( software as a service ) contracts.


In many cases cash flow financing makes sense because your company might not be ' asset rich ' which is certainly the case in the new economy of service-based industries that are less capital intensive. That of course means they don't have that ' hard collateral ' that typically Canadian banks are looking for.

Often the case is that your firm requires a permanent working capital injection, typically best satisfied by a working capital term loan. Here the focus is on the cash flow of the business and the ability to satisfy monthly payments which are usually over a 3-5 year term. Here the key requirement for your company is to present a defendable cash flow projection which is usually included as part of an updated business plan.

In any working capital loan or asset refinancing considerable discussion should be generated around the flexibility of repayment


There is in fact a very harsh and simple reality around your business cash flows. The answer? You've simple bought assets, or generated new assets such as receivables and inventory via monies spent.


There is a natural flow in business - it's all about paying down your debt, keeping taxes up to date, building working capital assets, and generating and taking profits


How does the owner/mgr make the right choices in raising funding for your business and keeping your financials understandable - i.e. understanding where the cash in your business is ' flowing '.


Many firms are challenged by low owner equity, which compounds the owner's ability to take cash out of the company.


Is there a simple secret to managing and financing your cash flow? The pros call this whole process ' operating cash flow ' it’s simply your profit or loss for the month plus or minus your changes in working capital accounts - we’re back to those receivables and inventories again.


External financing for your business will come from either term debt of business credit lines. By the way those business revolving credit facilities will come from either a bank or alternately a commercial finance company offering asset based credit line facilities.


When it comes to business credit lines the facilities that are most manageable are those when the credit line fluctuates significantly. Banks or finance firms will always look more favorably on your ability to constantly draw done and replenish the facility via your receivable and inventory turnovers.


Assets that need to be financing in your business might include plant and equipment assets, vehicles, as well as technology / software etc. Here a term debt options such as lease financing will almost always make the most sense.


What's the bottom line in accessing outside funding and managing your balance sheet properly. We summarize as follows:


- Develop a strong sense of how cash flows in your business- a good cash flow forecast based on your historical inflows and outflows helps


- Ensure your provincial and federal taxes are paid on time- If you have tax arrears they can often be consolidated into a new re-financing of your business


- Determine your business line of credit needs - this is a critical area of business cash flow financing. Remember that Canadian chartered banks are NOT the only credit line providers


- Finance those long term assets with long term leases or loans


- Focus on building equity in your business via good gross margins and profits

The overall quality of your ability to generate cash flow will be a dominant focus for any commercial lender. The a/r turnover and types of customers you sell to will also be a factor, and in general your accounts payable turnover should be consistent with your 'DSO ' (days sales outstanding ) performance. Taking a holistic approach to these points via what the pros call ' the cash conversion cycle ' will determine your loan success. Other ' soft factors' such as the lenders impression of your mgmt team and experience as well as personal credit histories etc should never be overlooked as a component of any loan submission.

In any commercial loan proposal there are always some key documents and information that should never be overlooked or omitted. A business plan and cash flow are key, and it should cover your requirement and use of funds, management overview, company background, as well as historical financial statements. At 7 Park Avenue Financial we prepare that document for clients with a focus on financials, not ' marketing ' or an infomercial on the company that is high on promises and short on financial delivery!


Firms with positive cash flow will always have a better chance of obtaining the required amount and type of loan they need. Every firm at certain times in its history experiences the ' cash flow crunch ' and growing too fast is not the worst problem to have, if you have the right financing solutions in place to address that situation. The ability to access funds to take on larger contracts, obtain preferred pricing from suppliers is a positive need for cash flow financing.

That growth in business often leads to a larger investment in receivables, sometimes augmented by slow-paying customers. In that instance solutions such as a/r financing, factoring, asset-based lines of credit, or Confidential Receivable Financing, the latter being our most recommended solution at 7 Park Avenue Financial. This type of facility takes away the 'notification' issue found in standard ' factoring' offerings and allows you to bill and collect your own a/r which at the same time achieving all the benefits of a bank type line of credit, ie the ' revolving credit facility '.

The Difference Between Cash Flow Loans & Asset Based Financing

KEY POINT: It is important to understand the difference between business cash flow term loans versus monetizing your assets across the multitude of solutions in the Asset Based Lending universe.

While both types of loans are ' secured ' monetizing your assets does not bring additional debt to the balance sheet. Each type of these two loans offers different benefits and risks. In each case your ' collateral ' is, in the case of the working capital loan the cash flow, while in an asset based loan it is the underlying collateral.

Working capital cash flows are always ' credit quality ' based, so the criteria we have talked about already such as historical cash flow, profit, type of industry, etc are key drivers in the approval process. Companies will typically want to be able to demonstrate good profit margins and a relatively clean balance sheet with acceptable debt/equity ratios.

UNSECURED CASH FLOW LOANS

Unsecured short term cash flow loans are all the rage these days - they come with higher rates by virtue of their unsecured status, but at the same time are much more easily accessible. A good rule of thumb is that your company can achieve loan approval for 10-15% of your annual sales volume. The popularity of these loans arose out of the Merchant Advance Loan industry in the U.S. which grew out of providing loans to retailers based on .. future sales and credit card receipts !.

These loans, unsecured for the most part, often fix a cash flow gap/cash crunch. They can fix the seasonality of many small to medium-sized businesses and can address those unplanned for emergencies that befall any business. Loans are often based on a one year term and payments can be made weekly or monthly at the discretion of the lender. Short term opportunities in buying product at an advantageous price.

ASSET BASED LENDING

The required amount of financing you need can often easily be acquired via the ' Asset Based Lending' process. These facilities mirror a bank line of credit, and allow you to margin and borrow against, on an ongoing basis your receivables, inventory and equipment/fixed assets. These are the ' collateral' components of the loan and historical cash flow is really a secondary factor in the approval process.


Asset lenders typically focus on larger deals and typical candidates are asset rich firms that might have profit and cash flow challenges. This is one way in which the non cash rich company can grow its business. Typical borrowing amounts are receivables at 90%, inventory at 30-50%, and the value of appraised assets. Companies requiring SME COMMERCIAL FINANCE needs can quickly see this type of financing will provide significantly more financing they could ever achieve via a bank. Customers are required to report, usually monthly at a minimum, on their a/r, inventories and payables. Your firm is a good candidate for asset based lending if you can report properly on your financial performance and are prepared to cooperate in the due diligence process leading towards an offer to finance.


Borrowing does not have to be a negative process - in many cases it allows your company to capitalize and seize on new market opportunities to grow your business. Most borrows can often easily find they can generate a solid return on investment for every dollar borrowed. A recent survey by a leading business capital provider in the U.S. stated that small businesses can achieve a 5x return on every dollar borrowed based on their planned use and turnover of capital borrowed.


If you’re focused on accessing the right finance solutions for your business seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your long term funding and working capital 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

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


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


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Business Cash Flow Financing In Canada: Improving & Understanding Access To Loans

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Business Financing At The Speed Of Light? You Decide!

Business finance in Canada, according to most business owners and financial mgrs we talk to, doesn’t seem to happen at the speed of light! So when the type of loan and cash flow needs your firm requires isn't happening as quickly as needed are there alternatives. These alternatives include bridge loans and other specialty lending solutions. Let's dig in and look at some of that finance for businesses and business lending.

In most circumstances specialty lending and bridge financing refers to non-bank borrowing, business loans that banks can't or otherwise won't make. A lot of that comes back to the ' credit box ', somewhat of a slang term for the ' risk appetite ' that any commercial lender is willing to take. There are, of course, numerous reasons why traditional bank financing can't accommodate your business financing needs - reasons such as lack of substantial profits, poor balance sheets, low owner equity, unsatisfactory collateral... and on it goes! Traditional lenders such as Canadian chartered banks, insurance companies, et al are in fact regulated around the types and amounts of loan risk they can take.

Specialty lending from a finance company takes up where those traditional lenders leave off. Often only self-regulated they are prepared to take additional risk commensurate to the interest rates they will charge. Not in all cases, but certainly in the majority specialty lenders focus on collateral value and how you run your operations. Their ability and expertise in both valuing and realizing on their security if need be is the key to specialty lending and the specialty lender profile. In certain cases their business loan might be complimentary to another senior lender you might be working with.

Why Bridge Loans? What is Bridge Financing?

Although the specialty lending solution is always more expensive it provides the ability to do a deal, save a company, etc when that otherwise might not be accomplished via banks. Therefore the business owner/financial mgr. must be in a position to weigh the ' cost of capital ' against ' access to capital '! We recommend to clients they view the commercial lender bridge loan as a path to operational success and growth. Canadian business financing access is always viewed as a potential obstacle to success.

'Short term' is always the key in bridge loans, whether its a restructure scenario, a cash crunch, or supporting new business/orders/contracts for financing capital.

WHAT DO BRIDGE LOANS COST? HOW DOES PRICING WORK IN ALTERNATIVE FINANCE COMMERCIAL LOAN ?

Numerous factors come into play around the cost of bridging financing and alternative finance solutions. Key factors include the quality and value of assets, the ability of the borrower to utilize the funds properly and for the right reason, potential exit strategies by the lender, and of course the overall size of the facility relative to the equity of the borrower company. We can of course make the blanket statement that alternative lending/bridge loans, etc always cost more than traditional finance solutions.

As a borrower in the bridging loan process, you must be able to clearly identify the use of the financing and your ability to repay based on term requested. Many bridge loans have balloon payment scenarios/options. At 7 Park Avenue Financial, we always focus on the need for both a business plan and a cash flow projection that identifies where the business is going. As a commercial borrower you should be able to identify how and when you will exit alternative financing solutions.





The alternative to shorter-term bridge loans and specialized financing solutions might sometimes be equity investments, but that type of solution comes with longer timelines and ownership equity dilution.

Typical Uses for Bridge Financing & Specialty Lending Solutions

A firm can benefit in numerous ways when consideration is given to business financing solutions around the bridge loan and alternative finance.

Many times a company is looking to simply refinance existing credit arrangements. In other cases you or your firm might be looking to acquire a business or to replenish existing working capital and cash flow needs. In other cases key management might be looking to a management buyout or leveraged buyout utilizing the assets of the company.

In more challenging scenarios a company might find themselves in ' Special Loan ' at the bank and trying to satisfy the workout team at a bank. In the most severe circumstances, a firm with assets and a business plan will be looking for a ' debtor in possession' financing or exiting from a receivership. Traditional commercial lenders not always capable to work on those sort of circumstances.

Alternatives To Bridge Financing

A/R Financing facilities

Inventory Loans

Sale/leaseback loans on unsecured assets

Working Capital loans

SR&ED Tax credit loans

Asset based non bank credit lines

Purchase order financing



Commercial mortgages are very common in the bridge loan environment. They allow your firm to refinance the commercial mortgage at more favourable rates at a future point in time. In commercial loan and mortgage financing in Canada non-bank lenders are typically called ' B ' or ' C ' lenders, reflecting where they are in the credit risk profile. Those ' B ' lenders, for example, are typically ' one notch ' down from traditional Canadian chartered banks. These ' B ' and 'C' business lenders are looking to fill out the story when your financing needs don't match that bank ' credit box ' we've talked about.



The majority of term loans, as we've noted are usually on a 1-year term. That timeframe usually ( but not always !) allows the business to achieve the main purpose of the business finance need that arose, such as buying a company, refinancing, etc.


Business owners should expect to be asked for a first lien on any unencumbered enterprise asset. Perhaps even a second lien on working capital and other fungible resources. Also, you may request a personal guarantee as a sign of the owner’s intention to work with the lender in good faith to repay the loan. The guarantee may, in some cases, be limited to the amount of the financing.







Most bridge loans are ' secured' so they must take into account any existing financing your company has in place with any other lenders, which might often include a Canadian chartered bank.



Financing rates for specialized lending solutions will almost always come with higher financing costs. That is usually the case, but not always; larger firms who are more stable can often obtain bridge loans at more normal interest rates from commercial lenders.



Typical bridge loans are more often than not provided by commercial finance companies/niche lenders. These firms serve the SME COMMERCIAL FINANCE / MIDDLE MARKET needs of the Canadian business borrower.



Startup companies rarely fit the profile of companies who qualify for bridge financing, which typically is based on assets such as receivables, inventory, equipment, real estate, etc.

WHAT TO LOOK FOR IN AN EXPERIENCED BUSINESS FINANCE ADVISOR / COMMERCIAL LOAN BROKER EXPERIENCED IN BRIDGE LOAN / SPECIALTY LENDING

Your firm should be looking to access solutions that are tailored and flexible to your particular situation, taking into account your overall capital structure and the amount of time you require to put appropriate financing in place. In most cases financing needs around the bridge loan process might be complex and speed and expertise are the key requirements. Numerous industries have unique requirements around how they run and finance their business.



If you're focused on an interim ' bridge ' solution to capital and cash flow needs seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your specialized lending 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

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


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


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Business Finance In Canada: When Bridge Loans Or Specialty Lending Just Might Work!

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Buying a business in Canada. Talk About Temptation! We’re talking about acquisition financing solutions purchasing an existing business that's already profitable, or, on the other hand a firm that is challenged and due for your turnaround. In both cases current owners might be motivated to sell, but for different reasons!



How do firms for sale get themselves in trouble? Often it's lack of funding and too much existing debt, as opposed to operating problems which are a whole different kettle of fish.


It might be an obvious solution to use your own funds in financing a business acquisition. Those funds typically come from personal savings and investments, or equity lines of credit on homes, etc. However, as a business purchase gets larger in size it is less probable you will use all or a large part of your personal savings; therefore a combination of some owner investment, as well as business financing and possible participation from the seller (seller financing ) will most likely be the route you choose to pursue. That combination certain allows the buyer to consider larger transactions.

AT 7 Park Avenue Financial we often receive queries around the concept of ' 100% Financing ' in financing the purchase of an existing business . In general, this does not exist in the Canadian marketplace ( we can't speak for our more risk-oriented friends in the U.S. ! ) Both sellers of companies, as well as commercial lenders, want to see the proverbial ' skin in the game ', demonstrating the purchaser's commitment to the transaction.



Some immediate issues to look into are arrangements with current lenders. This is often the scenario of working capital being extremely limited due to the current financing structure.



There are numerous ' valuation techniques ' in business acquisition loans when establishing the right price for the business. If a business is already losing money and has poor or negative cash flows it's time to take a hard look at the assets. There is no perfect method for establishing the value of the business you are buying, and by the way, profits are not the same as cash!

A good valuation strategy is to spend the proper amount of time ' normalizing ' the financials of the business. That process allows you to take out or add in expenses not currently reflected in the business, as well as looking at how revenues are generated and recognized. Review both past sales and profits as well as your ability to estimate reasonable going forward projections. For larger transactions many firms turn to ' CBV's ' - Chartered business evaluators for valuation advice for the right price around the finance to purchase a business.



The good news about existing assets is there are numerous financing strategies to assist in finalizing a transaction with the right business acquisition loan.


These solutions include:



The Govt of Canada Guaranteed Small Business Loan (It finances assets and leaseholds and has a new maximum borrowing cap of $1,000,000.00



Sale Leasebacks - Equipment financing and leasebacks preserve cash and allow you to purchase new or used assets with minimum cash outflows - It is a solid way to match the useful life of assets with cash outflow



Asset Based Bridge Loans and Business Credit Lines - Leveraging the assets of a business allows the buyer to consider a commercial asset based lender to facilitate financing the transaction. Not only does this minimize the amount of funds you have to invest personally it allows you to capitalize on the true value of the business you are looking at ; those assets typically able to be leveraged include fixed assets, real estate, inventory, and receivables.


Seller Financing - At 7 Park Avenue Financial numerous we find that numerous new clients looking to  buy a business do not consider the vendor financing scenario. This is a very viable component of your financing package and the amount of the loan from the seller, as well as the terms, can vary significantly. Suffice to say that the seller finance component also reduces the amount you will have to finance, which is positive from both purchaser and business lender perspectives.

In many cases the seller will be more open to sharing very detailed and critical information on the business as the seller has a vested interest in closing the deal, as well as preserving the legacy and reputation of the business. Since the seller is not a commercial lender the terms and rate structure around the ' VTB ' are often more generous than could be obtained from banks or finance companies. It should be noted that traditional banks and finance firms will always insist on their financing security ranking ahead of the seller finance component! Nice try seller!!

It would be unusual for the seller component to be larger than what is financed through external commercial lenders but it still is sometimes a good portion of the final transaction.
We can assume that almost all sellers will want full disclosure from the buyer on credit history, business experience, future plans for the company, etc, given they have a vested interest, in you, their ' new partner ' for at least a period of time.



Naturally the quality of the assets is key, whether they are fixed ' hard' assets or the assets that represent working capital components - i.e. accounts receivable & inventories. Key point - book values don't tell the true value of the assets, and in some cases you might need to make an investment in new technology - i.e. computers/software, etc (Equipment Leasing is almost always the best way to acquire tech assets given their cash outflow flexibility)



Service companies that have few assets are always more challenging to finance given lack of hard assets.



While new owners will almost always be required to put some of their own cash into the business many financing solutions will also drive the minimum and maximum amount they will need to put up. Asset based lending strategies will often help minimize owner equity investment.



While Canadian chartered banks are a great source of financing for acquiring existing profitable businesses they are somewhat more than reluctant to finance firms with obvious financial challenges. Banks will almost always focus on a business plan, mgmt experience, the balance sheet and owner personal financial statements.

Most purchasers of an existing business will often experience difficulty in accessing total bank financing for the transaction. While your business plan and future cash flow projections might be impressive the banks have a total focus on ' assets ' and ' cash flow '. They will also place a large reliance on business experience in the industry in question and will be looking for borrowers to demonstrate good personal credit history combined with a reasonable net worth.

On certain transactions you may have to, or choose to, assume the debt of the existing company as part of the financing package. This typically is more advantageous to the seller than the owner for liability type reasons and should be reviewed carefully if this is a part of your strategy. Suffice to say current lenders must also approve the buyer for any assumption of debt.



While it is not a ' direct ' bank loan per se, many purchasers of small businesses should consider the Government of Canada Small Business Loan program. This program also works extremely well on franchises. While there are some minimal conditions around the loan program, administered by Industry Canada, the program offers good interest rates, flexible repayment, and minimal personal guarantees. All of those should be very attractive to the potential borrower.

Prospective purchasers should not forget that a business can be purchased, from an accounting and tax and legal perspective as a ' share sale ' or an ' asset sale '. Purchasing a company from a share sale perspective entails certain risks as you may be acquiring hidden liabilities. Also buying a business has certain legal fees and miscellaneous costs associated with your transaction. These should be included in your cash flow assumptions, and they might include expenses such as appraisals, legal fees, business advisory fees, etc.

TRANSACTION CLOSED! WHAT'S NEXT?

OPERATING THE BUSINESS EFFECTIVELY VIA THE RIGHT TAKEOVER FINANCING STRATEGIES

In the rush and stress to close an acquisition we find that many prospective purchaser don't give full consideration to the financing of ongoing day to day operations. While it is not impossible for a firm to be self-financing if its ' cash conversion cycle ' is less than thirty days it is certainly the most unlikely of circumstances. If your firm does not have a positive cash flow management can undertake numerous ways to refocus efficiencies - that might include improving days sales outstanding and focusing on better inventory turnover, and better payables management with the risk of alienating key suppliers.

That need for constant working capital and cash flow replenishment will often focus the business owner and financial manager to look at a business line of credit.

The business line of credit is the cornerstone of operational financing. These revolving facilities provide cash as you maintain your investment in accounts receivable and inventory. Naturally service based industries do not have to concern themselves over the inventory component on the balance sheets of many industrial companies.

SOLUTIONS FOR THE BUSINESS LINE OF CREDIT REQUIREMENT

Various subsets of asset based lending provide solution funding for ongoing day to day operations post the acquisition phase. These solutions include:

Asset Based Non-Bank Lines of Credit - These credit lines are based on all the collateral of the business and usually imply a larger amount of financial leverage. These borrowing facilities are usually a bridge to getting a company back to traditional bank financing and don't come with the often more severe covenants and ratio requirements required by our chartered banks.


Invoice Factoring / Confidential Receivable Financing - A/R financing strategies are probably the most popular cash flow solution in current times ; they allow a business to cash flow their sales immediately and assist in avoiding the waiting period to collect receivables which can easily run anywhere from 30-90 days - At 7 Park Avenue Financial we will often recommend Confidential Receivable Financing, allowing you to get all the benefits of factoring as well as being able to bill and collect your own invoices


Equipment Financing / Sale-Leaseback Equipment leasing and leaseback strategies minimize cash outflows for the purchase of new and used equipment, including technology finance requirements



Purchase Order Financing / Inventory Loans - P O Finance solutions allow your suppliers to be paid directly by the commercial lender for large orders and contracts that your firm might otherwise not be able to finance based on the current working capital structure. Inventory financing can be a standalone finance solution or combined with various a/r and working capital solutions such as factoring.


Financing Refundable Tax Credits - For firms in Canada that utilize the federal government SR&ED program companies can cash flow their refundable credits via a SRED loan, allowing the company to recoup valuable r&d capital through the programs refundable tax credits


Supplier Credit - Many purchasers neglect to investigate the potential of supplier financing which generates cash flow given that extended payment terms delay the outflow of cash


For purchasers and businesses not focusing on a larger transaction that might have the benefit of private equity, mezzanine financing, venture debt etc it is important to consider all financing options available. Various combinations of alternative finance and traditional Canadian bank lending must be investigated.

In any type of business purchasing leverage is the ultimate double-edged sword. A solid financing package will ensure you are not over-leveraged with debt while at the same time assuming you will have operating financing facilities in place. It is exceptionally difficult to recover from over leverage in any environment, especially when sales are declining.


The bottom line? When buying an existing profitable or challenged business have a strong understanding of your opening balance sheet and the proper mix of current assets and debt. Understand the value of your hard assets and ensure you have financing in place to cover working capital needs.


Looking for a loan to buy a business in Canada? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor to assist you in the financing to buy an existing business.





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


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


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Buying A Troubled ( Or Successful !) Company In Canada? Finance Strategy 101

Revolving Loans And Business Credit Facilities In Canada

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Business credit facilities in Canada increase your firm’s ability to access the cash flow and working capital you need to run and grow your business. At the same time, the challenge of accessing these revolving loans has many firms feeling as if they are temporarily ' off the grid ' when it comes to business financing needs. Let's dig in.


Properly structured revolving loans allow your business to access credit for day to day operating facilities. In some ways they are the ultimate in flexible financing given how they are repaid, and ' revolve ', allowing you to constantly ' re-borrow ' to meet cash flow needs. It is critical to not confuse an operating line of credit with term loans, which have fixed repayment, typically on a monthly basis for anywhere from two to 5 years most often.

Interest rates are a key consideration in a revolving credit facility and rates are typically not fixed when a bank facility is in place. Alternative lenders who offer non-bank business lines of credit typically do not utilize variable rates for their facilities. At the end of the day both Canadian bank and Non-Bank lenders provide solutions that allow you to fund and replenish working capital for ongoing operations and growth. The non-bank lender will charge more for their facilities but in most cases the amount of credit they provide to your firm would typically not be available from a bank.

WHAT TYPE OF BUSINESS CREDIT LINE IS BEST FOR YOUR FIRM?

It is important to distinguish between secured Business credit facilities  as opposed to unsecured lines of credit. Typically banks and Asset Based lenders will offer a facility that is secured by the assets of the business, as well as a focus on the firm's ability to generate sales. The current assets of the firm, typically cash on hand, accounts receivable, and inventory are the main security for the majority of facilities. External collateral will often be secured under the same facility, and that will be fixed assets and real estate if applicable.

Typically the 'ABL ' ( Asset Based Lender) will offer a larger facility as their ability to understand and work with your asset based is a key differentiator in non-bank lending. They will almost always margin receivables and inventory to a larger extent than Canadian chartered banks. Their focus on the value of the assets is very different to bank lending which has a larger focus on operating cash flows, profits, balance sheet ratios, external guarantees of owners, etc.

Many facilities these days are offered under the term ' Working Captial Loans '. These facilities are in effect short term loans based almost solely on the sales of your firm. They are not tied to margin formulas around a/r and inventory, instead, loans are made based on the annual sales revenue of the business. Loans typically are based on a formula of 15-20 percent of your annual sales and are paid back on a daily, weekly, or monthly basis, specifically geared to your cash inflows.

These loans are quite expensive, and around out of the MERCHANT ADVANCE industry that provided credit to retailers who to don't sell in the B2B/Business to Business marketplace. No collateral is taken on these loans, and they often rank behind any of your other secured creditors or senior lenders . The personal credit history of the owner is a key discussion point in the approval process. These ' unsecured' facilities are not really a line of credit for businesses in the true sense of the word.

TERM LOAN OR BUSINESS LINE OF CREDIT? WHAT TYPE OF BUSINESS CREDIT SOLUTION SUITS YOUR FIRM?

We've shown the differentiation of a business revolving credit facility versus short term working capital loans. The other item to consider is whether a term loan of a revolver facility is best for your firm. Term loans are typically cash loans based on the historical cash flow of the business. Loans are typically 2-5 years in length and provide a permanent cash flow injection into the business.


Qualifying for a term loan is significantly more different than a business credit line , given the credit line is focused more on the assets of the business, both current and fixed, while term loans are repaid typically monthly, over a defined period of time, based on cash flow. It would not be unusual that a business line of credit would be repaid and used many times over during the time that a term loan would be in place. So think of the credit revolver as your short term operating needs, accessing funds based on sales and asset turnover.



When firms are ' off the grid ' they are financing themselves successfully - they are business finance ' self-sufficient '. What then are the qualifications your company needs to access business credit lines, and are there choices?



Revolving loans always come down to borrower assets. This type of loan is either offered by a Canadian chartered bank, as well as independent commercial finance companies.

BANK LOANS FOR BUSINESSES

Canadian banks offering a revolving facility are focused on a credit limit that will fluctuate according to the borrowing limit. Paying that facility down regularly as you generate sales and collect receivables is key to a bank type facility. For a commercial line of credit you are only paying for what you have drawn down on the facility and interest costs decrease with less use of the facility. This allows your business to capitalize on sales opportunities.

Bank credit lines usually are margined against only inventory and receivables and margins are more conservative than asset-based lending facilities. Banks structure lines of credit as 'demand' loans callable at any time. Normally the bank facility is shown under current liabilities as typical credit lines are reviewed annually with the current liability limit of 12 months.



A bank line of credit approval has requirements that are very clearly defined, as businesses must demonstrate shareholder financial commitment and growing sales and profits, as well as the ability to produce properly qualified financials and more often than not a business plan or cash flow projection.


The two asset categories primarily driving your ability to access a business credit line are accounts receivable and inventories. While these two ' current assets' on your balance sheet can be financed separately they are best combined in either a bank credit line or commercial asset based line of credit.




Understanding the approval process is key to success in business credit lines. Factors that a bank or commercial lender will consider will be the size of your facility, the overall credit profile of the business and your ability to generate cash flow from sales to ensure the facility revolves properly. While banks might place emphasis on personal credit scores this is less so when dealing with a non-bank asset based lender .

How Does The Revolving Line Of Credit Facility Work?

The use of the business line of credit is tied to your need for funding your daily operations as they relate to working capital and cash flow, In any business sales fluctuate for a variety of reasons and expenses will not always match incoming and outgoing cash flows. The ability to draw on your line of credit facility and then replenish it as receivables are collected is the key to credit availability. Typically banks will review the facility annually, sometimes more often and ongoing credit will be based on sales and the circumstances around your financial performance as they relate to profits and cash flow generation.



Companies can in a way almost pre-determine their qualified credit line borrowing amount. That's because both the banks and commercial finance firms lend between 75-90% against receivables and specific percentages against inventory. While not all companies carry inventory these days it's important to note for those that do the actual quality and marketability of the inventory play a key role in assigning a borrowing percentage.



Companies who do best in accessing business credit lines from banks or finance companies typically demonstrate that they can ' turn over' assets - specifically collect their receivables and generate inventory turns. That type of positive operating performance distinguishes many firms who successfully can access revolving business credit facilities.



Rates and financing costs associated with revolving loans vary. While the lowest cost and flexibility is associated with banks the non-bank commercial asset based financing industry almost always address the needs of borrowers with assets, albeit at a higher cost.



In today’s competitive financing market many ' niche ' subsets of business credit facilities exist. These potential alternate solutions include:



P O Financing

Tax Credit Finance

Letters of Credit

Royalty Financing


Business owners and financial managers should review the need for a credit line facility as the requirement to bridge the cash flow gap in your cash conversion cycle - helping you fund the working capital needed as a dollar flows through your business in different timelines.



If your firm wants to get ' back on the grid ' when it comes to commercial borrowing needs seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help your firm identify best financing solutions.





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


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


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Revolving Loans Business Credit Facilities 7 Park Avenue Financial

Business Loans For Debt Refinance And Business Refinancing

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Back To Basics In Company Restructuring For Cash Flow

Business refinancing .. its a fact that business loans and debt refinance via commercial loans must be reexamined to ensure new or better financing is in the best interests of your current business position.

WHY COMPANIES CONSIDER BUSINESS DEBT RESTRUCTURE ?

Your company might be considering a reorganization of its debt obligations via corporate refinancing ; in some cases that might mean totally or partially replacing debt or other times a full restructuring of the business. Naturally the main reason to consider such an effort is to improve the overall financial position and capital structure of the company.

It might mean a better overall interest rate and cost of funds. Rates have consistently dropped and remain low so companies doing well can certainly benefit from the low rate environment in loan refinancing.


Leveraging the owned assets in your business can also provide significant collateral liquidity . This can be accomplished by a sale leaseback process for both fixed assets and real estate. Those funds can be used to pay down debt or put back into the company for projects around marketing and research and development. Business owners should be reminded that investments in r&d capital tax credits can be financed for working capital under a SR&ED Tax credit loan. Refinancing a premise you own via a commercial mortgage refinance is a classic business refinancing strategy, notwithstanding the fact these assets are often held in a related company .


In other cases it might be ' credit driven ' - allowing you to consider other more flexible financing options. Suffice to say that in many cases these days, pandemics included, it's a case of fixing the business that might be exhibiting some sort of distress. The ability to complete a loan refinancing successfully typically will deliver more cash and working capital to the business for daily operations and long term success.

While it is not always about ' the rate ' when it comes to the refinancing of debt it is safe to say that firms doing better do have the options of a refinance strategy that will allow a lower cost of funds. That typically can lead to more growth opportunities when restructured loans are well thought out and executed properly.

Naturally, most refinancing of loan opportunities also have different costs attached to the process, and it's important to consider those. Those refinancing costs might include the fees of business advisors, lawyers, and accountants, that ultimate business triumvirate! In certain cases, certainly when including real estate in the mix up to date appraisals might be required, as well as early prepayment penalties being considered.

TIMING IS EVERYTHING IN CORPORATE RESTRUCTURING

At 7 Park Avenue Financial our experience in working on restructuring and refinancing transactions has taught us that one ' cost ' of refinancing is the amount of time and management involvement in working through the whole process. It is certainly not unusual for a positive restructure to take at least a few months that might include the preparation of business plans, cash flow forecasts, lender negotiations, due dilgence, and on it goes!



KEY POINT?  Allow time for the process of restructuring Loans



The greatest cost of corporate debt restructuring is the time, effort, and money spent negotiating the terms with creditors, banks, vendors, and authorities. The process can take several months and entail multiple meetings.


As we have noted, it's not always ' doom and gloom ' in the refinance process. Companies doing well might be facing strong growth challenges, or in some cases addressing seasonal or one time large orders and contracts. In many situations, a company can avoid taking on long term debt in the financing of large orders and contracts by considering purchase order financing and A/R financing solutions. Leverage sales via those latter two solutions avoid costly and time consuming refinance, so the ability to proactively analyze your needs carefully is key .

An examination of your financials with the help of your accountant or advisor should be able to pinpoint the right solution, and here cash flow forecasting is key.




Certain external events might also lead to a refinance process - that could be an owner equity infusion or perhaps a large receipt of funds from, for example, a customer. An owner equity infusion, as we have referenced above has the effect of improving debt to worth ratios and making other refinancing more possible. The ability to combine loans or extend terms can have a very positive effect on cash flow.




While we have discussed many of the positive aspects of a business refinance there are numerous circumstances that may have placed a company in some level of distress. A formal or informal organization might be required, if only for the sake of keeping a company in business. It's at this time that careful thought and time must be given to negotiating with banks and other secured creditors.

The focus now becomes reducing debt, achieving an interest rate and cost of funds that a company can live with, and ensuring terms match the long term prospects of the company. Although rare in some cases certain creditors may be persuaded to forgive debt or take some sort of ownership or warrant position in the business. The ability to save a company from any sort of formal bankruptcy or receivership becomes the total focus of management and their advisor.

PREPARING THE TURNAROUND REFINANCING PLAN


Various problems precipitate a turnaround requirement, falling sales and negative cash flows and losses are near the top of the list. Therefore being able to pinpoint the key sources of the need for restructuring is critical. As you and your mgmt and advisor put forth the right turnaround it's essential to be able to provide key documents to interested or vested parties.

Key parts of your package should include:

Mgmt analysis of the problem/solution

Historical and interim financial statements

Cash flow forecast/business plan

Details on secured creditors/collateral held

Aged Payables / Receivables

Personal financials of shareholders/owners

Having that type of package in place allows your restructuring to be viewed positively from a viewpoint of being prepared.

In certain cases your firm might be in the Special Loans section of your banks restructuring unit ; working with a bank through a forbearance agreement when your demand loan is called will often require the expertise of an experienced Canadian business financing advisor.




Changes will always occur in your business and owners and financial mgrs must evaluate the cash flow and debt position of the company.

So what some of those reasons that loans are refinanced, or new financing structure is brought into the company? In some cases certain gains in the value of assets of the business allow owners to take out equity, or in some cases totally ' cash out '. Current management might be focusing on a management buyout or some form of succession planning might be taking place when you redo or consolidate loans.

Interest rates play a key factor in business refinancing - in a perfect world rates might have declined and allowed your business to refinance under better terms. In other circumstances loans are refinanced to either reflect a more positive cash flow - or more often than not new credit lines are required to reflect the growing need for working capital due to higher sales, larger contracts, etc.

In many cases merger and acquisition opportunities arise. Here loans are combined, and new financing structures might be introduced to reflect positive financial statements for the combined business.

Currently there is large popularity around short term working capital loans, allowing companies to generate immediate cash needs without taking on the burden of significant long term debt. Lease financing is often restructured to reflect the useful life of assets, which can either depreciate or appreciate based on the nature of the asset.

On occasion the actual business owners may wish to address personal guarantees that are in place around current debt guaranteed by the business owner.

If there is a bottom line on a company's ability to refinance business loans it's simply that each industry and company has different financing needs, and those needs change over time. That covers the gamut from financing distress to high growth.

IS REFINANCING REALLY THE SOLUTION ?

In numerous instances a simple amendment to existing debt might be a logical and simpler solution; augmented by additional cash flow financing via solutions such as non-bank asset based lines of credit, short term working capital loans, including easy cash flow solutions such as accounts receivable financing, factoring, etc. At 7 Park Avenue Financial our most recommended solution in this area is Confidential Receivable Financing , allowing you to bill and collect your own receivables and turn them into instant same day cash.



A detailed analysis of your company's overall financing structure will often point to the need to refinance. Those all important loan covenants or guarantees need to be reviewed to ensure proper refinancing action can be taken.

We can therefore say that refinancing or restructuring debt in some cases can be viewed as an opportunity, so speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success.





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






Stan Prokop
7 Park Avenue Financial/Copyright/2020