Franchise Financing Canada – The Process and Approvals

Franchise Financing – Prospective franchisees in Canada want to know what is involved in obtaining the proper financing for their business. Many new franchisees are not aware of how franchises are financed and whats involved, so let’s share some critical information in this exciting and growing industry in Canada. Statistics show that franchises in Canada are in fact a huge part of the Canadian economy, and business and consumer franchises are involved in virtually every industry in Canada.

As a prospective franchisee you are either looking to purchase a turn key new opportunity from a franchisor or master franchisor, or you may perhaps be entertaining the purchase of an existing franchise that is already established . It goes without saying that you should carefully examine in that instance why the current franchisee is selling. More often than not it is because the current franchisee wishes to move on to another business or career, but you should examine why he is leaving for all the obvious reasons.

There are some innovative ways to finance your franchise in Canada. So how are franchises actually financed? The majority of them are done via a government programme called the BIL (also known as CSBFL) programme. This program is subsidized in rate and structure by the federal government and in our opinion is, bar none, the best small business financing program in Canada. It can of course be used for existing and new franchises. The program offers rates and structures that even larger corporations can’t achieve – i.e. Longer terms and amortizations, very competitive rates, and limited personal guarantees.

When clients approach us with transactions that are more difficult to structure an often used strategy we employ is the VTB. That stands for vendor take back, and allows the current owner in effect to reduce the total financing cost for the customer considerably. The owner takes a promissory note arrangement from you and these notes are structured for maximum flexibility to both parties. Lets to a quick example to show you the power of the strategy.

Lets say you are purchasing a franchise for 400,00.00 .00. The monthly payments on a 5 year loan for that amount of funding would be approx 7600.00. If the seller was willing to accept a 75,000 note from yourself to repay this portion later your new finance amount is 325,000.00 and your monthly payment are now only 6200.00. It goes without saying it’s easier to make a 6.2k / mo payment than a 7.6k/mo payment! In circumstances such as this good negotiating and the good intentions of all parties are required, that’s what makes a deal work, when both parties adopt a win win attitude.

Typical franchise loans tend to be in the 100-350k range in our experience. Much larger loans often involve the most well known names in their industry, and in many cases might have some real estate attached to the transaction.

We have found with great success that the ‘cobbling together’ of a franchise financing is, in the current economic environment, the most successful strategy. That usually involves our previously mentioned BIL franchise loan, perhaps some equipment leasing, and in some cases an unsecured working capital cash flow loan. A total package usually comes with a business Visa and an initial operating line of credit to suit the overall needs of the business.

To properly execute your franchise financing strategy you require a business plan and some carefull planning around what you need to purchase the business, and, as importantly how you will finance future cash flow, inventory, and growth needs.

In summary, franchise financing in Canada is unique and a specialized type of financing. We strongly suggest you seek and utilize a business financing expert in this area in order to help you determine your overall needs and how you will execute on a successful franchise financing. Its step one to being a new successful entrepreneur!

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Stan Prokop is founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :
http://www.7parkavenuefinancial.com/franchise_financing_canada_process_and_approvals.html

Equipment Financing Approvals – Toronto and Area

Equipment Financing Approvals – You are a Canadian business owner or financial manager who requires lease financing for asset acquisitions. Although a majority of leasing firms are located in the Toronto area lease financing is of course available across Canada. We encourage clients to seek out and develop a business relationship with a trusted and credible lease financing advisor.

So what is important in getting a lease approval? Unfortunately most clients tend to focus on only one thing – the interest rate. The actual accounting reality around lease financing is that the interest rate is not even a rate per se as you are utilizing the equipment but not necessarily owning it. Anyway that point alone is a discussion for another day.

Naturally the financing rate attached to the lease is important, but face reality – your rate is always going to be commensurate with your overall credit quality – if your firm has excellent financials, is profitable, has good cash flow, is growing and is in a good industry sector we can assure you that you will always have a competitive rate within a ¼ point or so.

The lease credit decision actually plays a large part of the entire lease financing approval cycle. Factors that determine your overall final approval are as follows:

- Overall credit quality of your firm – ( key factors include your balance sheet, are you profitable, years in business, and amount of financing requested
- Type of asset you are financing
- Dollar size of transaction
- Special structuring requests

Traditional lease financing focuses on your ability to demonstrate you can make the payments – no surprise there of course. But how does your lease firm make that decision. Fortunately or unfortunately it’s a very mechanical decision – it’s a case of taking your cash flow from your financials - i.e. net income and depreciation combined together, and determining if that cash flow supports on an annual basis the next 12 months of payments .So there, we have just shown you how you can influence and present your cash flow repayment ability.

In many cases, certainly in the current more challenging business environment your financials might not be in a position to meet these cash flow calculations. That is where extra skill on your behalf (but more probably and properly achieved with a leasing advisor) is required to present what I have called ‘the weight of evidence ‘that you can make those payments and are worthy of an approval. Additional factors might include some potential restructuring of the lease term – i.e. a shorter term, or accelerate payments . Although many firms stress leasing as 100% financing the reality is that for the transaction to work for yourself and the lessor you should be expected to offer up a 10- 15% (sometimes more) down payment.

Typical other factors to be taken into consideration are your payment experience reports at a Commercial Credit bureau or Dun and Bradstreet, and miscellaneous factors such as years in business, cyclicality of your industry etc. In some cases offering up some additional equipment that isn’t financed as collateral will get you to the goal line.

In summary, lease financing approvals in Canada is a bit of both an art and a science .A proper presentation of your ‘weight of evidence ‘around your ability to pay should ensure you receive a satisfactory rate, term, and structure. And remember, it’s not always about the rate – pick a solid lease partner and work towards a long term relationship which will pay off ten fold over time relative to your lease financing needs.

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Stan Prokop is founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :
http://www.7parkavenuefinancial.com/equipment_financing_approvals_toronto.html

Working Capital Financing Canada – For Sales and Growth

Working Capital Financing in Canada is provided in a number of different ways to Canadian business owners and financial managers. Like anyone, you would prefer to deal with an ‘expert ‘in business financing, so we encourage you to seek and speak to a trusted and credible business financing advisor in your area of working capital need.

Working Capital solutions are provided by our banks of course and also by what we will call non-bank independent finance firms. Smaller and medium sized firms are often better served by non- bank firms who have a better understanding in many cases of their business needs as it relates to receivables financing, inventory financing, purchase order financing, equipment leasing, etc .

Clients always bring up the issue of ‘government grants and loans ‘. There are some grant type programs out there but in general they do not serve the needs of the average Canadian business owner as they relate to working capital.

There are two very viable grant and loan programmes in our opinion. They are the government guaranteed Small Business Loan , aka CSBFL , aka SBL loan, as well as the federal SR &ED program. The Small business loan provides equipment and leasehold loans to Canadian business owners, and is not capped at a new high of $ 350,000.00 . This in or opinion is a great term loan, and has excellent, we repeat, excellent rates, terms and structures. But the reality is that this is a term loan and is not a working capital loan per se. When clients come to us for ‘working capital loans ‘more often than not they are referring to cash flow needs for inventory, receivables, and equipment.

The other ‘ grant ‘ which in some ways could be construed as a working capital injection is the federal SR & ED program for your work on new products, services, and innovation in your business sector . This is a non – refundable grant that covers approximately 40% of all the cash you have spent in this area. We encourage all business owners in Canada, if it is applicable, to speak to an advisor in this area.

Most Canadian business owners are not aware of what is known as a cash flow loan. A more sophisticated finance term for this loan is a mezzanine or ‘sub debt’ loan. For smaller and medium sized businesses these loans tend to go up to the 250k range and are offered by a specialty lender which is funded by the Government of Canada. Larger cash flow and working capital loans tends to be in the 1 Million + range and are offered by non banks. These loans typically are unsecured, are used for working capital purposes, and have rates in the low to mid teens due to their unsecured nature.

In summary, working capital means different things to different business owners. Our focus has been on real cash flow and working capital for your business. Certain government programs might meet your needs in the areas of term loans, leasehold improvements, etc. But true working capital is the financing of current assets such as receivables, inventory, and purchase orders. Speak to a trusted credible financing advisor to determine which type of facility meets your needs.

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details :
http://www.7parkavenuefinancial.com/Working_Capital_Financing_Canada_Sales_Growth.html

Factoring – Financing Canadian Receivables

Factoringfinancing in Canada is a proven, and growing in popularity method of generating cash flow and working capital for your Canadian firm. It often works best in conditions when your firm is experiencing higher than historical growth, or in many cases you are a start up or early revenue company who requires additional cash flow that you might not be able to attain from Canadian chartered banks.

In speaking to many clients factoring is clearly mis – understood. Last week we got a call from a customer who inquired whether we purchase bad, uncollectible accounts receivable. We indicated to that customer that what she in fact wanted was a commercial collection agency! Factoring in fact is the opposite of that, it’s the purchase of your accounts receivable ( and we mean the collectible accounts ! ) for immediate cash flow .

Factoring in Canada is somewhat of a fragmented industry, so we encourage you to seek and speak to respected and credible business financing and factoring advisor. The type of firm you end up dealing with in factoring will often affect how successful you viewed this type of financing strategy. There are a number of different types of factoring in Canada. Technically speaking we can refer to the types of factoring in the following manner –

Full notification invoice factoring (This is the U.S. and British model)

Non notification factoring

Spot factoring

Factoring in the context of a true working capital or asset based line of credit facility

We are always concerned that customers, armed only with a little bit of information or their first contact with a firm who only offers one type of factoring, will get themselves into the wrong type of facility, thereby tainting any future positive thoughts they might have on this type of financing. The bottom line again – you can speak to an unbiased expert on how this financing can help your firm, or you can choose a hit and miss approach and enter into the wrong type of financing facility. We will take option # 1 any day!

Let’s talk a bit about factoring in general as opposed to focusing on which type of factoring best suits your firm.This type of financing is essentially the purchase of one or all of your receivables, on a one of, of on going basis, to facilitate immediate cash flow.

Remember also that you are not incurring any debt when you are factoring – in fact your balance sheet improves because you are turning over receivables / working capital in a more efficient manner.

Because there is a cost associated with factoring you should generally be comfortable that you have the proper gross margins for the factoring of your accounts receivable.Very low margin businesses, even though they have good turnover are not always best suited for this type of financing.

In summary, factoring is growing in popularity. At the same time the myriad of types of firms that offer this financing, as well as the way in which they offer factoring can ultimately affect whether your firm is a successful user of this financing strategy. Investigate the benefits of this type of financing, ensure you understand who is offering it to you and which ‘factoring model ‘they use, allowing you to better determine if financing in this manner suits your cash flow and working capital needs . That ‘s proper business decision making!

Film Tax Credit Financing in Canada

Film tax credit financing in Canada is a unique and specialized type of financing. While many of the larger film, tv, and digital media firms in Canada are aware of and are utilizing this type of financing, many smaller and independent firms are either unaware that the financing exists, or alternatively know there are substantial tax credits, but were not aware that they can be monetized into immediate cash flow for either project completion, or even moving on to your next project.

All of this activity stems from federal and provincial legislation that was recently amended to increase tax credits to Canadian firms in the three aforementioned sectors:

Film

Television

Digital Media – i.e. Animation, etc

All these program obviously boost Canadian content and help foster Canadas reputation in the industry, and the government, both at the federal and provincial level seems keenly comfortable that these tax credits and incentives, which are non repayable in most cases (yes we said non repayable) generate additional tax and revenue for Canada many times in excess of the tax credit values.

While federal legislation is of course standardized across the country each province has different organizations under different ministries to handle the provincial portion of the grants.

In Ontario as an example you can claim tax credits for 6 different credits – but did you know that if properly claimed you can generate immediate cash flow and financing of these film credits. (The six credits are: Production services/book publishing/sounds recording/interactive media/film and tv/computer animation).

How can these credits be financed ask our clients? Simply speaking if you have valid tax credit claims and the proper certificates in place you can monetize these into immediate cash flow. From a terminology perspective we can almost say that you are monetizing, factoring, or discounting your claim now based on cash flow you will receive from the federal and provincial authorities. In effect they are accounts receivable now on your special purpose entities (i.e. your current project/production) balance sheet.

Clients also ask what qualities or additional information must be in place in order to generate immediate financing of your tax credit. The answer is that you must have your affairs in order, namely the ability to confirm your eligibility, ensuring you have the right certifies either in place or set to be in place, and of course maintain proper records showing your disbursements, etc.

In certain cases , where proper documentation is available and has the ability to be maintained ‘accrual financing ‘ is also available – by that we mean cash flow is made available during your production prior to final certification . This is a true temporary cash flow and working capital benefit for many independent type productions.

A recent paper by the prestigious firm KPMG referred to these tax credits as ‘hidden money ‘. We would point out that the financing of these credits is in fact the true hidden money that could be the final spoke in your productions wheel!

In summary, if your project is eligible for tax credits take advantage of them. If you wish to monetize those credits immediately into additional working capital and cash flow then speak to a trusted, credible and experienced firm in this area. It’s a great cash flow and working capital strategy in one of Canada’s most exciting industries.

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/FILM_TAX_CREDIT_FINANCING_3.html

How to Finance a Canadian SRED (SR&ED) claim for Cash Flow

Canadian business owners and financial managers who file SR ED ( aka SR&ED , aka SHRED ) claims in Canada are keenly aware that it is one of the true ‘ government grants ‘ that many people are referring to when they are researching the broad topic of government grants and loans .

Funds approved in your SR ED claim are non repayable, and we cannot think of a better program in Canada that both assists Canadian firms in ongoing research and development, as well as allowing Canadian to maintain momentum in new products, processes, and technologies .

Our is certainly not to questions why the government provides such non repayable grants, they simply do, and as a Canadian business owner you want to be able to maximize your claim.

SR ED credits are applied for every year when you file your tax return. Our focus is on ensuring the reader understands that this tax credit filing is the trigger that allows you to, if you choose, to also finance your claim. These claims are not traditionally financed by Canadian banks, as the banks we feel probably aren’t fully comfortable with the collateral. Most Canadian business owners also know that there is some risk involved in having your claim cut back a bit after it is reviewed by the appropriate department in Ottawa that hands SR ED claims.

If you wish to finance a Sr Ed claim it is important that you follow a much defined process. Let’s review that process and provide you with some additional tips and information on how the claim is financed and what benefits might come out of the cash flowing of your claim.

There exists in Canada a small boutique market in SR ED financing. Given the unique and specialized nature of this financing we strongly recommend that you work with a trusted, experienced and credible advisor in this area of Canadian financing. That will allow you to maximize the size of the financing we believe, but probably more importantly speed up the process.

When clients ask us how long it takes to finance a claim we generally advise on 2 to 3 weeks, assuming the full co operation of your firm in the usual back up to such a transaction with of course includes:

Application to Finance Sred
Related back up to the application – i.e. financial statements, etc
Copy of the SR ED (SR&ED) claim itself
Copies of prior year claims that were approved, if applicable

It’s basically as simple as that.

‘What amount of funds can we receive for our claim?’ That also is probably questions number two from clients – and the answer is that claims are generally financed at 70% loan to value, which means simply that for every $ 100,000.00 of claim you should expect to receive 70,000.00$.

SR ED financing is structured to your firm’s benefit – that is that they are loans that have no payment during the term of the loan. The term of the loan is of course as simply as long as Ottawa takes to process your claim. Various factors are involved in the timing – we can generally say it takes anywhere from two to twelve months to process your final refund cheque from Ottawa. At that time the other 30% of the claim is returned back to you by the SR ED financier, less the financing cost, or the ‘total time to carry the loan’

So in summary, you can of course wait from 3-12 months for your refund cheque for your sred claim, but why not consider putting that working capital and cash flow to work now. In reality all you are doing is collecting a receivable (the s red claim) faster than waiting for a long period of time. Put that money to work into more R&D to stay competitive in your industry, reduce your payables, or invest in additional marketing or machinery. Take advantage of SR ED financing to inject immediate cash flow into your company. Talk to a SR ED finance advisor today!

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/How_To_Finance_Canadian_SRED_SR_ED_Claim.html

Canadian Franchise Financing – Made in Canada Solutions!

Canadian franchise financing requires solutions that are not necessarily part of mainstream business financing . As in all types of business financing we urge clients to consider working with an expert who is credible and experienced in the Canadian franchise financing environment .

There are a solid handful of franchise financing alternatives in Canada . Franchising is growing increasingly popular, and the industry as a whole is a key part of Canada’s relatively strong economy after the difficult challenges of 2008-2009.

Franchise financing in Canada consists of the same two elements that exist in any business financing – debt, and equity . Our work with clients has found that it is more beneficial in financing a franchise for your equity portion of your deal to carry some of the major soft costs . In general, and this is news to many new franchisees, soft costs such as franchise fees, pre paid rents, etc cannot be financing .

As we have stated , your financing is completed via two areas – your equity that you put into the business, and what you borrow . You naturally would have a much stronger chance of success if you put up all the funds yourself, as your franchise would not be carrying any debt – but the reality is of course that is not generally possible .

In discussing franchise financing with clients we point out that financing has to consist of two different mind sets – the financing you need to get the business purchased and going, and then, equally as important , the ongoing working capital needs . Many franchises are ‘ cash businesses ‘ ( example – restaurants ) that require little or no investment in receivalble and inventory . Alternatively your franchise might have a non cash business focus on you need carefull planning on the level of financing you need for a/r and inventory, etc .

Franchises in Canada are financed in 5 ways in Canada . It is extremely important you are aware of those five sources – Naturally the 6th source , unmentioned, is yourself, as you are of course required to make some level of personal investment also .

The Golden 5 ! Franchising in Canada is financed by one major international finance firm , as well as the Canadian banks, who have special departments set up for this type of financing . It is incredibly important to ensure you are dealing with the right group at these two institutions , otherwise you will waste significant time and erase some of the credibility around your financing request .

Our firm supplements the above two sources of financing with leasing for various assets, and in some cases unsecured working capital loans . The final component is the franchisor itself, or the franchisee from whom you are buying an existing franchise . While many franchisees who are selling to your will consider offing vendor takeback financing in general this is tenuous – additionally franchisors themselves are in the business of selling you a franchise , not lending you funds !

In summary, franchise financing in Canada is a focused and specialized niche lending . It is accomplished through a combo of traditional and somewhat non traditional sources . Determine what financing you need to acquire the business, as well as ongoing working capital needs . The words ‘ franchise financing expert ‘ should become a top priority , as an expert will help you cobble together your total financing solution that meets your personal needs .

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Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies, specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see:
http://www.7parkavenuefinancial.com/Canadian_Franchise_Financing_Solutions_in_Canada.html