How To Finance A Franchise In Canada

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FUNDING YOUR NEW FRANCHISE BUSINESS LOAN

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

EMAIL - sprokop@7parkavenuefinancial.com

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

 

 

Financing Your Franchise in Canada: A Comprehensive Guide 

Introduction

 

Embarking on a franchise venture in Canada? Worried about financing hurdles? It's a common concern for budding entrepreneurs. However, understanding the nuances of financing franchises can turn this daunting task into a manageable one. Here's your essential guide to obtaining a franchise loan in Canada.

Decoding Franchise Financing Options

What’s Available to You?

 

Determining the right kind of franchise finance solution is the first step. Whether you're launching a service-based venture or stepping into the hospitality sector, you need to blend term loans with working capital. Understanding your franchise's cost and associated risks is paramount.

The Importance of Creditworthiness A strong personal credit score not only smoothens your franchise loan approval process but also fetches competitive interest rates. A solid financial plan further elevates your chances of acquiring optimal loan terms.

Franchise Popularity in Canada

 

An interesting insight by Franchise 101 reveals the growing popularity of franchises. With approximately 76,000 outlets and a new one opening every 2 hours, franchises are becoming a mainstream business model in Canada.

Personal Investments: The Equity Component

Your own financial Stake: It's imperative for franchisees to inject personal funds into their venture to demonstrate their own equity position. This showcases commitment to both lenders and franchisors.

For those questioning, "Can I finance a franchise without any money?" the answer is clear: No. A harmonious blend of debt and equity is essential for success. In many cases, financing via multiple lenders might be needed to cobble together a full financing.

 Importance of Business Plans and Cash Flow

Crafting a Viable Repayment Strategy Incorporate your equity investment into your cash flow projections. A comprehensive balance sheet, reflecting both equity and financing, offers a clear snapshot to financial institutions. 7 Park Avenue Financial specializes in creating robust business plans, ensuring they align with lender requirements.

Navigating Franchise Loan Structures

 

Understanding Loan Terms -  Common franchise loans span between 5 to 7 years, enabling you to offset your debt within that timeframe. While considering future needs like asset replacement or working capital, remember that government-guaranteed loans, such as the Canada Small Business Financing Program, offer reliable franchise financing solutions. A notable 2021 amendment even allows financing the franchise fee as a loan component.

 Maintaining Realistic Financial Assumptions

Grounding Your Projections: While optimistic forecasts can be tempting, it's crucial to ground them in reality. This includes factoring in revenue timing, asset costs, growth rates, franchise fees via the franchise agreement, and the need for business lines of credit around day-to-day operations.

Embracing Financial Fundamentals / Beyond Just Sales

 

 

While sales are essential, a deep understanding of repayment structures, profits, cash flow, and fixed costs is equally crucial. Grasping these elements can significantly impact your franchise's success.

 

 

Conclusion 

Conclusion Navigating the franchise financing landscape in Canada might seem overwhelming, but it doesn’t have to be. While external collateral might not always be required, ensuring that your financial projections are sound is vital. Leveraging expertise, especially from trusted Canadian business financing advisors like 7 Park Avenue Financial, can steer you toward your franchising goals with confidence.



    

FAQ: FREQUENTLY ASKED QUESTIONS    

 

 

  

What Is Franchise Financing?

 

  

The franchise business model will typically require a combination of owner down payment, aka personal equity, and external financing.  The capital provided to finance a franchise will be a combination of an acquisition term loan and potential combinations of lines of credit and equipment financing. In certain franchise models, real estate might be a component of financing required.

 

Franchise financing is the funding you need to start or expand a franchise business. In Canada, it's essential because it provides the capital necessary to enter the competitive franchise market and realize your entrepreneurial dreams via small business loans suited to the financing you require.

Generally speaking franchisor financing, i.e. funding from the franchisor, is not available- Franchisors sell franchises, they don't finance them!  The franchise disclosure document provided by franchisors is a key read for prospective franchisees.

 

Do banks give business loans for franchises?

 

Canadian chartered banks and some credit unions provide franchise loans at a good interest rate. Still, the process to complete a  franchise  bank loan might be considered time-consuming because of the need for business financial statements around business credit, and buyer information, - as well as the requirement to provide personal collateral in the form of mortgages, and home equity loans and lines of credit by the franchise owner/business owner backed by a good credit report and personal credit history and  minimum credit score in the 600+ range

 

  

What type of down payment do you have to put down to acquire a franchise?

 

Franchisees looking to fund a franchise will normally be required to put between 20-50% down. The down payment varies based on a number of factors, including the type of financing, loan amount, and creditworthiness of the borrower.

 

 

What types of franchise loans are available in Canada, and how do I choose the right one for my business?
 

Funding for franchise owners via Canadian franchise loans for a franchise purchase comes in various forms, including traditional commercial bank loan funding,  Government Small Business loans, and franchise-specific financing options from non-bank alternative lenders who compete with traditional lenders such as chartered banks and credit unions. Choosing the right one depends on your financial situation and business needs when it comes to franchise businesses.

 

Are there any unique benefits to franchise financing in Canada compared to other countries?
 

Yes, Canada offers stability, a strong franchising ecosystem, and government support programs for small businesses, making it an attractive destination for franchisees. These factors enhance your chances of success.

 

What challenges might I face when seeking franchise financing in Canada, and how can I overcome them?
 

Challenges may include stringent lending requirements and competition for loans. Overcoming them involves thorough business planning, financial preparation, and seeking advice from experts in franchise financing and the franchise brand you have selected. The International Franchise Association is a good source of franchise information.

 

How can franchise financing empower me to achieve long-term success in the Canadian market?

 

Franchise financing provides the necessary capital to launch or grow your franchise, giving you the resources to build a strong brand presence, attract customers, and secure a profitable future in Canada's dynamic business landscape.

 

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

Turning Receivables into Cash: Exploring Debt Factoring

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Boost Your Business Cash Flow with Accounts Receivable Financing

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Financing & Cash flow are the  biggest issues facing business today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

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

 

Debt Factoring Financing Via Business Factor Companies | 7 Park Avenue Financial

 

Boost Your Business Cash Flow with Debt Factoring

 

 

Understanding Debt Factoring and Business Factor Companies in Canada

 

Introduction

For Canadian business borrowers looking for financing, understanding the intricacies of debt factoring becomes essential.

 

Often misinterpreted, this financial mechanism provides firms with a seamless way to generate cash flow without accumulating additional debt. Let's dig into the landscape of debt factoring/invoice factoring and financing in Canada and its relevance to businesses.

 

What Is Debt Factoring

 

Debt factoring is a financial tool that empowers businesses to access the cash in their unpaid invoices without waiting for extended credit terms.

 

Here's how it works: Businesses sell their accounts receivable to a third-party entity, known as a factor, at a discounted rate. In return, they receive immediate payment. The traditional a/r financing way this happens is that the finance firm takes responsibility for collecting the invoice when it matures, ultimately paying the seller the remaining balance after deducting fees. NOTE - Under non-notification a/r financing clients and bill and collect their own invoices, while still receiving all the benefits of financing receivables.

 

Debt factoring offers valuable benefits, especially for small and emerging businesses. It helps stabilize cash flow, ensuring they meet their regular financial obligations. This, in turn, enables businesses to maintain their operations smoothly while also establishing and preserving their credibility and reputation in the market.

 

Debt factoring provides businesses with the means to:

 

• Accelerate cash conversion cycles, leading to faster business cycles.
• Streamline receivables management and credit control tasks, reducing time and effort.
• Enhance business planning and forecasting accuracy thanks to consistent and predictable cash flows.

 

Does Factoring Serve as a Cash Flow Lifeline?

Business factor companies in Canada present their services as a cash flow lifeline. But the question remains: Does debt factoring, often called "receivable financing," truly serve its purpose?

Unveiling Debt Factoring

In finance, factoring is a transaction wherein companies receive cash in exchange for their sales invoices. Canadian businesses can expedite cash flow by "selling" these receivables to a factoring company. Whether a one-time transaction or a recurring one, factoring allows firms the flexibility to choose when and what they want to finance, ensuring strict obligations do not bind them.

Debunking the Misconception: Debt Factoring Isn't Debt!

Contrary to its name, factoring isn't a loan. Businesses aren't piling on debt; they're monetizing sales. Most Canadian factoring services operate on a recourse basis, which means that while companies can generate immediate cash, they're still responsible for collecting the owed amount from their customers. Time plays a pivotal role in this, with prompt collection benefiting the business significantly.

Decoding the Cost of Factoring

Understanding the cost structure of factoring is crucial and is often viewed as one of the disadvantages of debt factoring in Canada compared to bank financing  - It is important to understand basic terms such as :

    The Advance Rate - The percentage of the invoice amount financed.
    The Fee - A percentage deducted as the finance company's profit.
    Time - Duration for which the invoice remains outstanding until customers pay

Factoring becomes a formidable financing option for a business with reputable clients and undisputed invoices. Firms typically receive up to 90% of their invoice's value upfront, with the remaining balance (minus the factoring fee) being remitted upon the client's payment.

But remember, the finance company's profit is directly linked to the invoice's outstanding duration. This is why efficient accounts receivable management becomes paramount in invoice management and the focus on improved cash flow - The key is a focus on asset turnover!!

Choosing the Right Facility

For many businesses, a confidential A/R finance facility strikes the right balance. It allows firms to finance their sales while retaining control over billing and collection processes.

 

Confidential Receivable Financing -  Disclosed and non-disclosed A/R Financing

 

Disclosed factoring is commonly known as notified factoring. As the name implies, the seller will notify the buyers about the engagement of the factoring firm and instruct them to pay the invoice directly to the factor on the due date.

 

The seller does not disclose the factor's involvement in non-disclosed factoring arrangements. As a result, it is also known as a confidential factoring deal.

Conclusion

The unparalleled advantage of debt factoring lies in its ability to consistently churn out cash flow as businesses roll out their products and services. Meeting everyday obligations becomes easier, propelling growth without the burden of carrying the investment of heavy accounts receivable.

However, it's imperative to understand the associated costs. With financing fees ranging between .75 -1.5% from invoice factoring companies, businesses need solid gross margins to bear these factoring fees comfortably. Contrary to popular belief, these are fees, not interest rates.

At 7 Park Avenue Financial, we know numerous business owners grapple with cash flow and working capital management.

Debt factoring provides a respite, ensuring day-to-day operations run smoothly. Talk to the 7 Park Avenue Financial team,  seasoned  Canadian business financing advisors ready to bring you the right financial solution. We guide businesses towards effective debt factoring strategies, a bridge to more traditional financing avenues.

 

 FAQ 

 

What is cash flow debt factoring, and how does debt factoring work?

Debt factoring, or accounts receivable factoring, is a financial strategy where a business sells its outstanding invoices to a third-party invoice factoring company (factor) at a discount. This provides immediate cash flow, allowing the business to meet its financial needs via funding from the third party factoring company.

 

What are the benefits of invoice factoring services/invoice discounting for businesses?

Debt factoring offers benefits such as improved cash flow, reduced credit risk, faster access to funds, and the ability to focus on core business operations instead of chasing unpaid invoices.

 

How do business factor companies help with working capital management?

Business factor companies purchase a business's accounts receivables, injecting cash into the company. This cash can be used to pay suppliers, cover operating expenses, and invest in growth opportunities, optimizing working capital.

 

Are there different types of debt factoring?

Yes, there are two primary types of debt factoring: recourse and non-recourse factoring. Recourse factoring requires the business to buy back uncollectible invoices, while non-recourse factoring protects against bad debt.

Recourse Factoring:

• The factor doesn't assume credit risk or customer default risk.
• Customer defaults, factor seeks recourse from the client.
• Factor manages the sales ledger, but the client bears credit risk.

Non-Recourse Factoring:

• The factor takes on credit risk and offers additional services.
• Even if the customer defaults, the factor can't be recovered from the client.
• Higher fees due to bearing the risk of non-payment.

 

• Non-recourse factoring typically has higher pricing when the factoring company assumes the risk

 

How can a business choose the right factor company?

Choosing the right factor company involves evaluating factors like fees, terms, reputation, and industry expertise. Finding a partner that aligns with your business's specific needs and goals is crucial.

 

 

What is the typical cost structure of a factor company's services?

A debt factoring company will charge a fee based on the invoice value and the time it takes to collect payment. These fees can vary, so it's essential to understand the terms before partnering with a commercial factor company.

 

Can factor companies work with businesses in all industries?

While many factor companies serve various industries, some specialize in specific sectors. Finding a factor company familiar with your industry's unique needs is essential. Trucking companies and personnel agencies are two industries that utilize a/r financing solutions.

 

What alternatives are there to debt factoring for business financing?

Alternatives to debt factoring companies include traditional bank loans, lines of credit, venture capital, and angel investors or small business loans that are working capital oriented, such as merchant cash advances. Each option has advantages and disadvantages, depending on the business's circumstances.

 

 

Do factor companies handle debt collection and customer interactions?

Yes, factoring companies often take on the responsibility of collecting customer payments. This can benefit businesses that want to offload the burden of chasing unpaid invoices as the debt factoring company takes control of collection practices

 

Can businesses use debt factoring service as a long-term financing solution?

 

Invoice financing is typically used as a short-term solution to address immediate cash flow needs. Businesses looking for long-term financing may explore options like equity or traditional loans.

 

What Is Supplier Guarantee Factoring?

• Also known as 'drop shipment factoring,' 'vendor guarantee factoring,' or 'supply chain factoring.'
• Involves three parties: the borrower, the factoring company, and the borrower's supplier.
• Factor guarantees payment to the supplier when the borrower's buyer accepts goods.
• Funds from factored invoices go directly to the supplier from the client's future receivables.
• Factor deducts fees, remitting the profit to the client.
• Factor plays a dual role: supplier payment guarantee and factoring service provider.
• Enables businesses to pursue new opportunities by securing credit from suppliers, previously unavailable

Unlocking the Power of Short Term Working Capital Loans for Canadian Businesses

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The New Wave of Financing: How Merchant Cash Advance Companies are Transforming Canadian Business

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        Financing & Cash flow are the biggest issues facing business today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

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Understanding Merchant Cash Advances Financing | 7 Park Avenue Financial

 

 

Understanding Merchant Cash Advances / Short-Term Working Capital Loans

 

For small businesses, retailers, restaurants, and similar entities in Canada, the options for achieving working capital and business financing can sometimes be limited. Enter a new solution, creatively named but referring to the same financing mechanism - The business cash advance.

 

  

What Are Merchant Cash Advances and How Does The Merchant Cash Advance Work?  

 

 

Often going by names like "merchant cash advance," "small business loan," or "credit card advance sales loan," these facilities cater to the short and intermediate-term cash flow and working capital needs of businesses.

The merchant cash advance rose to prominence as businesses, often retail-oriented, noticed the diminishing or non-existent traditional financing sources. Although this financing method is generally pricier than the conventional one, it serves its purpose, offering working capital based on future sales.

It's crucial to understand that this isn't a typical loan that burdens your balance sheet with heavy debt. Instead, it's an 'advance' against upcoming sales. Think of it as an immediate finance against the sales you make, which you repay via a percentage of your future sales.

 

  

A Practical Example  

 

To illustrate, if you're advanced, for instance, $10,000 for your working capital needs, a percentage (usually between 10-30%) of your future sales will go towards repaying that advance.

 

This method is most effective when you have a strong sales revenue model coupled with robust gross margins on your offerings.

 

 

Is It Suitable for Your Business? 

 

 

While it's a relatively new alternative financing form, it often becomes the go-to option when traditional bank financing avenues are no longer viable. Thousands of firms sell and finance their receivables. Essentially, with this method, you're selling and financing a portion of your anticipated sales, which, for many businesses, is a logical step.

 

It's worth noting that this financing is unsecured. The "collateral" here is the future sales, which, while expected, aren't guaranteed. The average monthly sales is reviewed in the context of repayment ability.

 

  

How Long Should You Rely on This Method Of Financing?  

 

 

As a rule of thumb, merchant cash advances are excellent for short and intermediate-term financial strategies. For the long haul, it would be wise to devise a longer-term financing strategy for your business.

 

 

Acquiring a Merchant Cash Advance

 

 

Securing a merchant cash advance or business credit card loan is generally straightforward and based on a short review of your business credit profile. The central requirement is to showcase your sales revenue through bank and/or credit card statements. However, it's common for small business owners to act as guarantors for this kind of unsecured loan financing.

 

  

Conclusion  

 

If you're in a small business and find yourself juggling financial needs daily, call 7 Park Avenue Financial, a trusted and experienced Canadian business financing advisor, about merchant cash flow advance / working capital financing.

 

FAQ

 

What is a Merchant Cash Advance?

 

A Merchant Cash Advance (MCA) is a form of financing where businesses receive an upfront sum of cash in exchange for a percentage of their future credit card sales. It's essentially an advance against your future revenues,  deposited into your business bank account, designed to provide immediate working capital.

 

How is a Merchant Cash Advance different from a traditional loan?

 

Unlike traditional loans, an MCA is not repaid in fixed installments or over a set period. Instead, repayment is based on a percentage of the daily credit card sales. Furthermore, short-term working Capital Loans often don't require collateral in the traditional sense, as future credit card sales serve as the "collateral." They typically have a faster approval process than conventional loans/bank loan-type financing.

 

How do businesses repay a Merchant Cash Advance?

 

 

Businesses repay the MCA through a predetermined percentage of their daily sales, including debit and credit card sales transactions. This percentage is automatically deducted daily or weekly (depending on the agreement) until the advance is fully repaid. This means that during higher sales, more is paid back, and during slower periods, less is paid back.

 

Who can benefit most from a Merchant Cash Advance?

 

Short Term Working Capital Loans are particularly beneficial for businesses with strong credit card sales, such as retailers and restaurants. They're ideal for those needing quick access to capital, especially if traditional banks have turned them down or have exhausted other financing options. It's also suitable for businesses with fluctuating revenues as the repayment aligns with their sales patterns.

 

Are there any downsides to consider with Merchant Cash Advances?

 

While Short Term Working Capital Loans offer quick access to funds, they often come with higher costs than traditional loans. Since repayments are based on a percentage of sales, businesses must maintain healthy sales to manage repayments effectively. It's also crucial to understand the terms thoroughly, as some Short Term Working Capital Loans can have steep fees or less favourable terms than other financing methods. Businesses using business advance loans typically cant qualify for bank loans.

 

 

How are the interest rates or fees determined for a Merchant Cash Advance?

 

 Interest rates or fees for Short Term Working Capital Loans are often not presented as a traditional annual percentage rate (APR) but rather as a factor rate ranging from 1.1 to 1.5 or higher. This rate is multiplied by the advance amount to determine the total amount the business owes. The factor rate is determined based on the business's sales history, the amount of advance, the anticipated repayment time, and the perceived risk associated with the advance.

 

Can a business obtain a Merchant Cash Advance if it doesn't accept credit card payments?

 

While Short Term Working Capital Loans are traditionally designed for businesses that accept credit card payments, some providers offer advances based on overall sales through Automated Clearing House (ACH) withdrawals. In this model, the lender would look at the business's bank account transactions and sales volume to determine eligibility and repayment terms.

 

 

Are there any industries for which a Merchant Cash Advance may not be suitable?

Yes, industries with low credit card transaction volumes or high ticket but low-frequency sales might not be the best fit for an MCA. Examples include B2B companies, manufacturers, or wholesalers. Businesses with slim profit margins must also be careful, as the advance repayment could significantly impact their bottom line.

 

What happens if a business is unable to repay the Merchant Cash Advance?

 

If a business struggles with repayments, the MCA provider might offer to adjust the withholding percentage, extending the repayment term. However, unlike traditional loans, Short Term Working Capital Loans don't have a set maturity date, so there can be additional fees or consequences for prolonged repayment.

 

How quickly can a business access funds through a Merchant Cash Advance?

 One of the significant advantages of Short Term Working Capital Loans via a merchant cash advance company is the speed at which businesses can access funds. Once approved, businesses can receive the advance within 24-48 hours, making it an attractive option for those needing capital. However, the exact time can vary based on the merchant cash advance provider, the specifics of the application and the final formula around merchant cash advance payments.

 

 

 

 

 

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

DIY Equipment Finance & Leasing Canada? Best Companies for Asset & Lease Equipment Needs

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You Are Looking for Equipment Finance Companies for Asset Leasing! 

Equipment Finance Companies: A Comprehensive Guide for Canadian Business Owners

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

        Financing & Cash flow are the biggest issues facing businesses today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

 Email: sprokop@7parkavenuefinancial.com

 

Equipment Finance Companies Lease  Solutions |7 Park Avenue Financial

 

 

INTRODUCTION

 In the vibrant economy of Canada, business owners often face a pivotal question: to purchase an asset outright or to delve into the arena of equipment leasing?

 

This seemingly straightforward choice is riddled with layers of complexity, especially given the country's evolving landscape of equipment finance. This guide aims to unravel these complexities, offer insights into equipment leasing, and highlight the importance of making informed decisions or seeking expert advice.

When the Canadian business owner or financial manager looks to lease an asset instead of a purchase, it’s a great time to invest in some knowledge about which companies to approach for equipment finance needs.

 

But can you be expected to be a 'DIY' expert in this broad area of Canadian business financing? We are saying that it will pay you handsomely to either invest some time in understanding some critical fundamentals of equipment finance or work with an expert who can assist you.

 

 

  

Equipment Finance Companies: A Comprehensive Guide for Canadian Business Owners   

 

Why invest some time in this type of business acquisition? The Canadian lease landscape has evolved significantly over the last couple of years. A combination of the economy in Canada, the lease industry players, new accounting rules and a myriad of product offerings can make it seem daunting.

 

By the way, we're quite sure any business owner can work with lease companies and enter somewhat quickly into a lease for an asset, but is it the right lease, and what are the financial implications and benefits or lack of benefits around that transaction? That’s the $50,000 question!

 

The Significance of Equipment Finance in Canada  

 

Because almost 80% of all businesses utilize leasing in Canada - that’s why it sometimes is both easy and misunderstood. Many business owners don't understand the lease product/service offering or fail to recognize the benefits. Yes, it's only one method of financing an asset (you can consider a term loan)... but when a lessor/lease company recognizes that you know what you're talking about, you have increased your chances for success.

 

The Changing Landscape of Equipment Leasing

 

Lease and equipment finance doesn’t bring cash flow and working capital into your company, but it reduces the funds that go out of your firm!  The ownership of the equipment by the lessor for the lease term allows you to structure payments, write off payments as an operating expense, and, more importantly, keep you 'nimble' when it comes to assets and technologies that you finance over short or long terms. (Typical lease terms in Canada range from 3-5 years).

 

The Risks and Rewards: Making the Right Lease Choice 

 

Business owners might want to do the math, but we're pretty sure that if you work the numbers, it makes sense to enter into a couple of short-term equipment finance transactions rather than purchase/buy outright the same assets over several years.

 

 Understanding the Benefits of Lease Over Outright Purchase 

 

If you invest time in understanding some lease finance basics or work with an expert, you'll see that you can determine when it makes sense to upgrade, return, or renew any lease finance transaction.

 

Deciphering Lease Finance Basics: When to Upgrade, Return, or Renew

 

Can our DIY lease financing business owner affect the final credit and structure approval of his or her transaction? The reality is that stricter credit standards have existed since the 2008-2009 global recession and the recent COVID-19 pandemic. Therefore, the industry focuses on creditworthy lessees- but the good news is that some basic structuring around any transaction can still make your deal happen. Issues such as terms, pricing and down payment can be negotiated to the point where it makes sense for the lessor and your firm.

 

The Tax Implications of Equipment Leasing in Canada:

 

Companies considering leasing should consider the tax benefits and considerations when opting for equipment leasing. Explore how leasing can offer tax deductions, the difference between capital and operating leases from a tax perspective, and the impact of taxes on the overall cost of leasing.

 

The Value of Expertise: Working 7 Park Avenue Financial

 

Working with an experienced Canadian business lease financing advisor can ensure you get the best pricing and structure and achieve the benefits you're looking for.

  

CONCLUSION  

 

So, everyone’s talking about 'DIY' these days. Why not invest some time in developing a solid relationship with a lease advisor? Success in asset leasing allows you to grow your company with the assets you require... today!

 

In a world where 'DIY' has become the mantra, understanding equipment financing holds a unique place for Canadian business owners. While leasing can offer numerous benefits regarding flexibility, cash flow, and staying updated with technology, making well-informed choices is imperative. Whether you invest time in mastering the basics or collaborate with a seasoned lease advisor, what's paramount is ensuring that your options align with your business objectives.

Remember, success in asset leasing isn't just about acquiring assets; it's about acquiring them smartly and strategically to fuel your business growth today and tomorrow. Call 7 Park Avenue Financial, a trusted, credible, experienced business financing advisor.

 

FAQ

 

What exactly is equipment finance?

 

Equipment finance refers to securing assets or equipment for business operations through leasing or loans instead of purchasing them outright. It's a financial solution that allows businesses to access essential equipment while preserving cash flow and potentially taking advantage of certain tax benefits.

 

 

Why would a business lease equipment from leasing companies rather than buy it outright? 

 

There are several reasons:

• Cash Flow Conservation: Leasing can allow businesses to conserve cash, as it often requires a smaller initial outlay than purchasing, as well as tailored monthly lease payments for capital lease or fair market value leases that make good business sense
• Tax Benefits: Lease payments can sometimes be written off as operating expenses and business expense under equipment lease financing rules offering tax advantages. Companies should talk to a tax advisor on larger transactions to maximize benefits.
• Flexibility: Leasing can provide businesses the opportunity to upgrade to  new equipment and newer technologies quickly once their lease term ends via customized solutions
• Preserve Credit Lines: Leasing doesn't tie up credit lines, preserving them for other business needs where traditional financing from banks might be more suited to grow your business - New or used equipment can be financed.  A sale leaseback solution can be considered when refinance existing assets to improve cash flow.

 

 

How has the Canadian lease landscape evolved in recent years?

 

Over the past few years, the Canadian lease landscape has witnessed significant changes due to economic shifts in Canada, entrance and exit of lease industry players, changes in accounting rules, and a plethora of product offerings. Moreover, after the 2008-2009 global recession, credit standards became tougher, placing more emphasis on creditworthiness.

 

What's the typical term for equipment leases in Canada?

 

Typical equipment lease terms in Canada range from 3 to 5 years. However, the exact duration can vary based on the type of asset, the leasing company, and the specific needs of the lessee.

 

 How can a business ensure it's getting the best deal when leasing equipment?

 

Businesses can increase their chances of securing the best leasing deal by investing time in understanding lease finance basics. It's also beneficial to work with an experienced lease financing advisor such as 7 Park Avenue Financial , who can provide insights, assist in negotiations, and ensure the lease terms align with the business's objectives.

 

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

Construction Manufacturing Equipment Financing – Options for New and Used Equipment

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YOUR COMPANY IS LOOKING FOR CONSTRUCTION MANUFACTURING EQUIPMENT FINANCING

OPTIONS FOR NEW AND USED EQUIPMENT HEAVY EQUIPMENT FINANCING

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

 

Construction Equipment Financing | 7 Park Avenue Financial

 

The Role of Construction Equipment Financing in Canada

Construction Manufacturing Equipment Financing plays a considerable role in the Canadian economy. Business owners and financial managers such as you want to ensure they have the best leasing and financing options available to them – It has been proven that financing equipment via leasing is very cost-effective.

 

Benefits of Matching Lease Terms with Equipment Use

One of the many essential features of such financing is the ability to match the lease term with your expected use and the residual value of the equipment.  Generally, lease financing for used and new manufacturing equipment can be arranged for terms varying from 3 to 5 years.

 

 

Understanding the Economic Life of Assets 

 

No one knows better than the business owner what the useful expected equipment life of the asset will be, and we encourage clients to match the lease financing transaction term with the asset's economic life.  The reality is of course, that trucks/rolling stock and  construction manufacturing assets  / heavy duty equipment have significantly longer useful expected values – (as compared to assets such as  technology and computers!)

 

 

The Importance of Consulting a Lease Financing Advisor 

 

We encourage clients to work with a trusted, credible, experienced lease financing advisor. The benefit of such knowledge can save you many thousands of dollars based on the overall rate, term and structure of your lease transaction.

 

Comparing Financing Options: Leasing vs. Loans

There are other financing options when it comes to acquiring such assets – those options could include a government small business loan or a term loan from banks. While these might have a lower rate to the overall transaction, they come with much more stringent credit criteria – heavy emphasis is placed on your firm's balance sheet and income statement. Leasing, in general, places a larger emphasis on the expected value of the asset during the term and at the end of the lease.

 

 

Financing Additional Costs and Leveraging Existing Assets 

Many customers don’t realize that some of the additional costs related to the acquisition of used and/or new construction manufacturing equipment can also be financed via leasing companies – these include maintenance, installation, shipment, etc. That’s a massive cash flow and working capital benefit.

 

  

Sale Leasebacks   

 

In some instances, your firm might already own such assets, and you might want to consider leveraging them through a sale-leaseback for additional cash flow and working capital. That is an excellent financing strategy that many firms have taken advantage of over the last year, as cash flow and working capital availability tightened significantly during the global credit crisis of 2008 and 2009 during the COVID-19 pandemic of 2019. Owners adopted a strategy of leveraging their asset equity to stay liquid and competitive.

 

 Lease Financing as a Cash Flow Strategy 

Many financial managers view lease financing of such assets as a solid cash flow strategy; you minimize payments and match them to the overall benefits of the equipment you are acquiring.

 

 Conclusion: The Importance of Strategic Lease Financing Planning 

 

Both loans and leases offer distinct advantages and financial flexibility when it comes to financing equipment.

With loans, you're actively building equity with each payment, and by the end of the repayment period, you own the equipment outright. This mode of financing also allows for the depreciation of the asset for tax purposes, and the equipment stands as an asset on your balance sheet, enhancing the financial standing of your business. Generally speaking, a high credit score is required for bank loans and term loans for financing assets.

 

Another advantage is that there are no constraints on how much you can use the equipment in terms of hours and wear. Essentially, installment payments mean you're not just paying for usage, but also accumulating ownership.

 

On the other hand, leasing is particularly beneficial for businesses looking to reduce initial costs. Typically, lease payments under a lease contract are lower than loan installments, making it a cost-effective short-term option.

 

Instead of tying up equity in machinery, businesses can allocate their funds to other operational areas. The essence of leasing is that you're paying for the use of the equipment, and once the lease term concludes, you have the flexibility to either return the equipment or buy it. This flexibility extends to replacing machinery, as you can easily return and upgrade to newer models at the end of a lease, ensuring your business always has access to the latest equipment without the hassles of ownership.

 

 Heavy Machinery Financing And Leasing - Loans Canada 

 

 

Call 7 Park Avenue Financial,  a trusted credible and experienced business financing advisor. Focus on which benefits of lease financing are most important to your firm. Structure and acquisition that makes sense from a cash flow, rate, and term structure based on the asset's value and your current financial condition. That is solid business planning for growth.

 

  

FAQ:  

 

What is construction equipment financing?

Construction equipment financing refers to the various financial products and services that allow businesses to acquire construction machinery and equipment loan options for their job site without paying the full amount upfront. Instead, they can lease or finance the equipment, paying for it over a set period, often with interest. Often 100% financing is available on most equipment and heavy machinery, so no large down payment is required for the right equipment selected by the borrower.

How does leasing construction equipment differ from purchasing it outright?

Leasing construction equipment allows businesses to use the machinery for a specified period without owning it. At the end of the lease term, they can choose to return the equipment, purchase it, or renew the lease. Purchasing equipment outright means the business owns the asset immediately, bearing all the ownership responsibilities. Leasing for construction companies can offer more flexibility and might be more cost-effective in the short term, especially for equipment that quickly depreciates or becomes obsolete via tailored loan payments/lease payments.

What factors should businesses consider when leasing and buying construction equipment?
 

Businesses should consider several factors, including the equipment's expected lifespan and technological relevance, their current cash flow, the tax implications of leasing versus buying, the total cost of ownership (including maintenance and potential resale value), and their long-term equipment needs. Additionally, the flexibility of updating equipment and the potential impact on their balance sheet might influence the decision.

Are there any additional costs besides the equipment's price in construction equipment financing?

Yes, depending on the financing or leasing agreement terms, there can be additional costs in heavy equipment leasing - Along with interest rates on financed amounts, service and maintenance fees, insurance costs, and potential penalties for early lease termination or missed payments. Some agreements might also include provisions for additional expenses related to equipment delivery, installation, and training.

Can businesses finance used construction equipment, or is it limited to new equipment?

Businesses can typically finance both new and used construction equipment via a heavy equipment loan or lease in the construction and manufacturing industries. Private sales are not allowed, so financing is limited to dealers . The terms, interest rates, and duration might vary based on the age and condition of the used equipment. Financing used equipment can be a cost-effective solution for businesses that do not require the latest models or for those looking to maximize their budget. However, ensuring that any used equipment is in good working condition and meets the business's needs is essential to borrow money for used equipment.

 

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

How Does Asset Based Lending Work?

 

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The Future of Business Financing in Canada: Asset-Based Lending

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The Power of ABL Facilities: Guide to Asset Credit Line Solutions in Canada | 7 Park Avenue Financial 

  

Unlocking the Power of ABL Facilities: A Guide to Asset Credit Line Solutions in Canada  

 

 

Introduction

 

In alternative financing, Asset-Based Lending (ABL) facilities stand out as a robust solution for Canadian businesses across the spectrum—be it startups, SMEs, or large corporations.

 

Notably, despite ongoing debates in leading financial publications like the Globe & Mail and Financial Post about the state of business credit in Canada, ABL has proven to be a beacon for those struggling to meet the stringent criteria set by traditional financial institutions for working capital borrowing needs.

 

This article aims to demystify ABL facilities, emphasizing why they're increasingly becoming the go-to resource for savvy Canadian business owners.

 

 

What is ABL and Why Does it Matter in Canada?

 

ABL, or Asset-Based Lending, involves consolidating various business assets into a single credit facility. This unique arrangement accommodates new ventures and is a hit among growing and mature companies.

 

Despite the prevailing perception that Canada is flush with capital, the reality at 7 Park Avenue Financial reveals a different story: Businesses frequently approach us in search of feasible financing solutions.

 

The Canadian Context

 

Canada certainly ranks higher regarding financial stability in the grand scheme of global economies. Yet, the needs and complaints of Canadian business owners can't be ignored. ABL is a versatile tool, enabling operational finance and facilitating the acquisition of competitive businesses by leveraging existing assets for more capital.

 

The Advantages of ABL Over Traditional Lending

 

Traditional lending avenues like banks often fall short when addressing businesses' varied needs. They impose a gamut of prerequisites, from solid balance sheets and profits to collateral, which many companies find challenging to fulfill.

 

The Allure of ABL

 

The popularity of ABL financing has surged because it concentrates more on your business's tangible assets and revenue streams rather than exhaustive paperwork and financial history. It's worth noting that in the U.S., ABL accounts for nearly half of all business credit lines!

 

Its growing prevalence in Canada underscores its effectiveness as an innovative business finance solution.

 

The Core Differences: The 'Naked Truth'

 

The first significant advantage of ABL is the higher margin of assets, allowing for an elevated level of borrowing. This is particularly beneficial for inventory, which traditional lenders may overlook. Secondly, the asset based line of credit focus focus shifts from cash flow covenants to asset valuation, thereby making it more accessible to a broader range of businesses in Canada.

 

Operational Flexibility and Reporting in ABL

 

Asset based lines of credit offer unparalleled flexibility in accommodating the fluctuating financial needs of your business. However, it's essential to maintain detailed monthly reports on the company's assets eligible accounts receivable, inventory levels, physical assets,  and sales to sustain the ABL facility. This reporting framework also gives businesses insights, aiding in more informed decision-making.

In certain cases, intellectual property may be included in the facility, as can commercial real estate.

 

Conclusion

 

Asset-based lending could be your way out if you find yourself handcuffed by traditional financing options.

As a solution tailored to diverse needs, ABL focuses on leveraging your existing assets rather than restricting you with inflexible criteria.

 

To fully understand the ins and outs of ABL financing, call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor -we're ready to offer you the unfiltered truth about how ABL can unlock new growth avenues for your business.

 

FAQ

 

  

What is Asset-Based Lending (ABL)?

Asset-based loans (ABL) are a form of financing where your business assets, such as inventory, receivables, and equipment, serve as collateral for a  revolving line of credit. This allows you to maximize your borrowing power based on your assets rather than traditional credit criteria.

 

How does ABL differ from traditional bank loans?

Traditional bank loans as the primary banking relationship often require a strong balance sheet, good credit history, and even personal guarantees as well as financial covenants. In contrast, an asset based loan focuses on your tangible assets such as eligible receivables as the primary basis for financing, allowing for higher borrowing levels when a business draws funds,  and with more flexibility.

 

Is ABL only for large corporations or can small businesses also benefit?

 

ABL is beneficial for businesses of all sizes. Asset based lines of credit can be customized to meet your specific financing needs, whether you are a startup, a growing SME, or a large corporation.

 

What types of assets can be included in an ABL facility?

The ABL facility asset credit line can include different assets for eligible collateral, from accounts receivable and inventory to equipment and real estate. This diversified approach to collateral gives you a broader borrowing base for firms with substantial assets that can't meet bank credit criteria that often come with a financial covenant list!

 

Highly liquid assets such as receivables and inventory receive a higher borrowing margin, almost always higher than bank margins if they have an existing line with a bank or other commercial finance firm.

 

Are there any reporting requirements for maintaining an ABL facility?

Yes, asset based lenders usually require you to submit regular reports on various business metrics like inventory levels, sales, and accounts receivable. This helps the lender assess your current financial state and empowers you to understand better and manage your business.

 

 

How quickly can I get approved for an ABL Facility?

The speed of approval for an Asset-Based Lending facility can vary depending on the lender's requirements and the complexity of your financial situation. However, since ABL focuses on tangible assets, the approval process is often faster than traditional loans, sometimes taking as little as a few business days.

 

What are the interest rates for ABL compared to traditional loans?

 Interest rates for Asset-Based Lending facilities may be slightly higher than those for traditional bank loans due to the perceived risk associated with asset-based financing. However, the added flexibility and speed of access to capital often make ABL a more attractive option for businesses needing quick liquidity.

 

Are there any industries where ABL is particularly advantageous?

Asset-based lending is versatile and can benefit various industries, from manufacturing and retail to healthcare and technology. Businesses that have a significant amount of tangible assets like inventory or machinery will find ABL particularly advantageous.

 

Can ABL facilities help businesses going through restructuring or turnaround?

 

Asset-based lending can be an ideal solution for businesses undergoing restructuring or a turnaround. Traditional lenders may shy away from such scenarios due to perceived risks, but ABL focuses on assets, providing the necessary capital to navigate through challenging periods.  

 

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

Unlocking the Secrets of Canada's Small Business Loan (SBL) Program

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South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
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Understanding  Government-Guaranteed Loans Through Canada's SBL Program |  7 Park Avenue Financial

 

Guide to Navigating Government-Backed Loans in Canada

 

 

Government-guaranteed business loans in Canada are unique and vital for financing small businesses in Canada.  (The program defines  ' small ' as any new business with fewer than 10 Million dollars of actual or projected revenue)

 

UPDATES ON SOME CHANGES TO THE PROGRAM

 

Recent changes to the small business financing loan program are intended to ' enhance' the program's level of attractiveness, eliminating some of the ' design flaws' associated with the program in the past on eligible purchases and types of financing.

 

1. Purpose: Helps small businesses obtain loans from financial institutions by sharing risk with lenders.

2. Historical Data: Over the last ten years, 53,000 CSBFP loans have been received, totalling $10 billion.

3. Eligibility:

   • Businesses operating in Canada with annual revenues under $10 million.
   • Farming businesses are not eligible.

4. Max Loan Amount: $1.15 million per borrower.

   • Up to $1,000,000 for term loans; max $500,000 for leasehold and equipment improvements; maximum $150,000 for intangible assets and working capital.
   • Up to $150,000 for lines of credit.

5. Application Process:

   • Handled by financial institutions.
   • Discuss business needs with a financial officer at a bank, caisse populaire, or credit union.
   • Loan registered with Innovation, Science and Economic Development Canada (ISED) after approval.

6. Usable Financing:

   • Term loans cover land, buildings, equipment, leasehold improvements, intangible assets, and working capital.
   • Lines of credit for day-to-day expenses.

7. Interest Rates:

   • Term loans: Lender's prime rate plus 3% (floating) or mortgage rate plus 3% (fixed).
   • Lines of credit: Lender's prime rate plus 5%.

8. Registration Fees:

   • 2% fee on term loans based on total loan amount.
   • 2% fee on lines of credit based on the total amount authorized.
   • Fees payable by the borrower to the lender and can be financed.

9. Financing Terms:

   • Option for unsecured personal guarantees.
   • Must take security on assets financed or other business assets.

 

 

WHO SPONSORS AND ADMINISTERS GOVERNMENT LOANS IN CANADA

 

Financial assistance via an ' SBL Canada '   financing comes under the jurisdiction of INDUSTRY CANADA.  Somewhat misunderstood by many potential borrowers is that the program is delivered ' by our Canadian chartered banks. 

 

WHO USES GOVERNMENT LOANS IN CANADA

 

The successful funding of start-ups and smaller existing businesses in Canada is a cornerstone of the program's success - with up to approximately 8000 businesses being funded annually. 

 

The government, via Industry Canada's CSBF program, guarantees a large part of the financing you receive under the loan proceeds. The maximum loan amount has been increased to 1 Million dollars, although equipment and leasehold improvements can be financed. The ability to finance real property improvements is a huge bonus for small business owners or their financial managers.

 

SBL'S ARE NOT A CASH FLOW OR WORKING CAPITAL LOAN

 

Contrary to popular belief, the loan can now be a cash flow loan or for working capital costs and needs. The asset categories are equipment, leaseholds, and real estate / commercial property.

 

FARM BUSINESSES HAVE AN ALTERNATIVE GOVERNMENT LOAN PROGRAM

 

Farming businesses in Canada have a separate version of the program suited to the agriculture industry for farms seeking loan and credit approval under the same government guarantees as the SBL program.

 

 

 

ONE CRITICAL KEY TO BEING SUCCESSFUL IN GOVERNMENT LOANS! 

 

A part of the challenge for being successfully funded under the program is that our banks tend to interpret the loan guidelines differently. So, finding an experienced banker or Canadian business financing advisor is critical to sourcing the right financial institutions.

 

A Business plan is also required - 7 Park Avenue Financial prepares business plans that meet and exceed bank and commercial lender requirements.

 

 

WHAT DO SBL LOANS FINANCE?

 

Commercial loans in Canada for start-up or simply smaller businesses are often difficult to obtain. So, the ability to finance equipment, leaseholds, computers, software, and even real estate under the program is a tremendous boon to Canadian borrowers in the SME (small to medium enterprise) market. In the 2022 program change, intangible assets can also be funded.

How much financing is required should be carefully assessed by the borrower.

 

PROGRAM RATES AND TERMS AND CONDITIONS FOR GOVERNMENT LOANS

SBL loans in Canada are structured as term loans. Amortizations are generous and typically in the   3-7-year range after receiving loan approval.

 

Interest  Rates under the program are only 3% over the prime rate based on monthly lump sum payments required,  which provides an attractive interest rate alternative to those firms seeking alternative financing, which would typically come at much higher rates. This business loan has a registration fee, and many start-ups are well-suited to apply for this type of financing.

 

 

While government-guaranteed loans (“SBL " ) are typically used for legally incorporated companies, it is also available for registered partnerships and proprietorships.

 

RISK SHARING BENEFITS THE BORROWER

 

Given that the bank and the government share the loan risk, the program is also very attractive to entrants into the Canadian franchise industry.

 

HOW TO QUALIFY FOR GOVERNMENT LOANS IN CANADA

 

Positively approaching the loan submission helps guarantee financing success. You or your advisor should ensure a business plan or executive summary and information on mgmt, an opening balance sheet, and a cash flow projection are available. (Loans are repaid from cash flow!) 7 Park Avenue Financial prepares business plans that meet and exceed bank and lender requirements.

The business owner's good personal credit history and personal credit score must also be satisfactory when qualifying for the program. Is your business eligible? Talk to the 7 Park Avenue Financial team today!

 

CAN YOU BUY A BUSINESS WITH THE GOVERNMENT SBL LOAN?

 

Don't forget that you may buy a complete existing business via SBL Canada loans. Many franchise financing loans are done under the program - a huge benefit for new franchisees.

 

 

 CONCLUSION 

Small business financing is a challenge - no argument there! When traditional bank or commercial financing is not attainable, speak to  7 Park Avenue Financial, a  trusted, credible and experienced Canadian business financing advisor who can help you eliminate those ' design flaws ' of financing to ensure loan success.

 

FAQ 

 

What is the primary purpose of the Canada Small Business Financing Program (CSBFP)?

The primary aim of the CSBFP is to make it easier for small businesses in Canada to secure loans from financial institutions. The program helps eligible small businesses access capital for various operational and growth-related expenses by sharing the financial risk with lenders.

 

Who is eligible to apply for a loan under the CSBFP?

Businesses operating in Canada with an annual gross revenue of $10 million or less are eligible to apply for the CSBFP. However, it's worth noting that farming businesses do not qualify for this program; they have a separate program called the Canadian Agricultural Loans Act Program.

 

How much financing can a business secure through the CSBFP?

A qualified borrower can secure a maximum loan of $1.15 million through this program. Out of this, term loans can go up to $1,000,000, with no more than $500,000 allocated for leasehold improvements or equipment purchases. For intangible assets and working capital, the limit is $150,000. In addition, lines of credit can go up to $150,000. The amortization period is negotiable for term loan structures for assets purchased.

 

What kinds of expenses can be financed through the CSBFP?

The CSBFP is quite versatile in what it allows you to finance. You can use term loans to buy or improve land, buildings, new or used equipment, and even leasehold improvements. Intangible assets and working capital costs, up to $150,000, are also financeable. For lines of credit, the funds can be used for day-to-day operating expenses of the business.

 

How are the interest rates and fees structured for CSBFP loans?

The interest rates for term loans and principal payments can be floating or fixed. For floating rates, the maximum chargeable is the lender's prime lending rate plus 3%.

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