SR&ED Tax Credit Financing - 5 Things You Need To Know

As a Canadian business owner or financial manager your company should be taking advantage of Canada’s SR&ED (also pronounced sred) program for tax credits. The most obvious benefit of this program is that monies advanced to your firm are in the form of a non repayable grant. We tell clients you can’t get any closer to the concept of ‘free money’ in Canadian business that the SRED program.

Did you also know that you can turn that ‘grant receivable’ into a sred loan as soon as you file your claim – in fact in some cases with the right consultant you can generate funds even before you file!

Let’s explore 5 Key Things you need to know about SRED Finance

1. it’s a specialized finance – more on that later

2. If you have a claim you can finance a claim – it’s as simple as that

3. You can generate approximately 70% of the total value of your sred claim (combined federal and provincial portions) as immediate cash flow under a Sr&Ed financing or a sred factoring scenario

4. The time to complete a sred financing is usually two to three weeks – the sooner you start and plan the better

5. SR&ED Tax credit financing does not add debt to your balance sheet – your financing is collateralized by the sred itself

Let’s clarify all those additional points in more detail so you can be well equipped and informed to consider a sred financing.
A sred loan is clearly something that anyone outside of the sred environment hasn’t even heard of - and for the portion of Canadian business that does take advantage of sred claims we can assure you a good portion of that business population doesn’t even know you can finance of ‘ discount ‘ your claims . It’s more or less like selling a receivable that is due your firm –you are simply receiving the cash now.

In Point # 1 we talked about sred finance being specialized – you should clearly seek out and speak to a sred business financing advisor. That will allow you to understand the basics, determine how much you can receive based on claim value, and work through a basic application to get your transaction financing. A Sred loan should be really just viewed the same as any other business financing – getting back the usual application forms and our clients quickly understand that the essence of the financing doesn’t necessarily revolve around rations, covenants, outside collateral , etc, but in fact focuses on one item –your Sr&Ed claim itself .

Point # 2 revolves around the financing of your actual claim. Any claim is financeable, but we caution client that this type of financing makes more sense when it involves a claim in excess of $ 200,000.00 – That should not deter smaller recipients, small claims can be filed, but in reality they make less economic sense for the lender .

In Point #3 we referenced 70% as a guideline for most of sred financing in Canada. So what about that other 30% - lets clarify that. Your firm is advance 70% of the claim on filing – the other 30% of course still belongs to you. That amount is more or less viewed as a ‘holdback’ which helps carry some of the financing costs, and also covers off any possible downward adjustments that Ottawa might make on our claim adjudication. As SRED participants know your claim is viewed from both a financial and technological point of view.

Point # 4 involves of course the favorite questions of most clients - how soon can we get the funding?! As we stated, with your full co operation on providing copies of your claim, info on who prepared it, as well as basis business financing application criteria, you can receive funds in two to three weeks. Most firms are pleased to know that sred financing in Canada does not involve ‘payments ‘on the loan. In some ways the term Sr&Ed loan is a misnomer because it is really the factoring or monetization of your Sr&Ed receivable .Therefore you simply receive the funds and financing costs are deducted from the back end when Ottawa processes your claim and cheque.

As we have already stated the sred tax credit financing does not impact your financial statements, other than of course allowing you to put to use valuable cash flow and working capital as a result of the financing.
Consider a sr&ed tax credit financing when it makes sense to access additional working capital and cash flow and when you don’t want to wait for your funds over a long period of time!

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/SR_ED_Tax_Credit_Financing_canada.html

Franchise Finance – Info You Must Know re: Franchise Financing and a Franchise Loan In Canada

As a Canadian entrepreneur considers a franchise purchase you want franchise financing info re the Canadian environment. When we meet with clients the questions is always very clear –

What do I need to know about franchise financing and how can I get a fast track to franchise loan approval.

Let’s cover off the basics in order that you are well prepared for the full completion of a successful franchise acquisition. That of course includes selecting the right franchise for you ( we leave that up to you !) but lets ensure you are well equipped to cover off franchise financing success on your own or with the assistance of a trusted, credible and experience franchise financing advisor .
Many fundamentals in franchise finance are key, and you should ensure these are in order prior to contemplating a franchise loan for the purchase of a new or existing franchise. (Many of our clients contemplate existing franchises that are being sold for some reason or another – they feel they can better validate chances of success by assessing the business results, location, etc.)

Speaking generally, you should ensure that you have a reasonable credit history and personal credit score. Whether you like it or not the two main credit bureaus in Canada allocate a score to every consumer and borrower in Canada – we can generally say that your personal bureau score should be in the 650+ range to acquire the best, and proper franchise loan approval.
Many clients we talk to believe the ‘franchising fee ‘being charged by the franchisor can be financed. You need to understand that is what people in the finance business call a ‘ soft cost ‘ and you should generally be prepared to use your own working capital for that issue as apart of your total financing plan . Naturally that amount still counts as a part of your overall equity contribution.

We should focus in on that point for a bit – You do not borrow in Canada ‘successfully ‘using the OPM model. OPM stands of course for other people’s money. Business borrowing, whether you are General Motors or an independent franchisee, has to be based on a combination of debt and owner equity. While in some cases you can achieve successful financing in Canada with a 10% deposit, in general the current economic climate calls for a 25- 40% or so owner equity contribution.

Where do clients get this ‘personal equity contribution’ that is a critical part of your franchise plan. In general it comes from savings, the liquidation of investments, or in many cases a collateral mortgage. The one positive feature of a collateral mortgage equity contribution is simply that rates, terms and structures are low and variable. I.E. low rates due to the current rate environment in Canada, and flexible repayment structures, i.e. no pre payment penalties, etc.

The positive advantage of arranging franchise financing for a resale franchise is that you can validate the profit and cash flow potential of the business. We should add that we are always a little bit concerned when a client assures us he or she can over turn the financial position of a failing franchise. Clearly a case of buyer beware we would say.

However, as we have stated, purchasing an existing franchise gives you great insights into the ownership and running of the business – including insights from the owner, i.e. the current franchisee. One can forgive the franchisors for being bullish and optimistic on their business, as their business is of course selling franchises.

We recommend all clients incorporate a business when applying for a franchise loan, if only for the reason that it is prudent to separate your business life from your personal life re liabilities, assets, etc.

So whats our bottom line – it’s simply that franchise finance in Canada is as complicated as you want it to be. Work and seek out a trusted, credible and experienced franchise financing advisor who will assist you in putting together the right franchise loan structure that meets lender and personal needs. That’s a solid financing plan!

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/franchise_finance_franchise_financing_loan.html

2 Reasons Why Working Capital Financing via a Business Line of Credit is the best Asset Financing for your Business

A business line of credit may or may not be achieved via a bank facility .only. One of the fastest growing trends in Canada revolves around a concept known as an ‘asset based line of credit ‘. Ironically when we meet with many clients they are not even familiar with the term, let alone its benefits!

So what are the two reasons this type of business financing is in fact better than a Canadian chartered bank line of credit. They are as follows:

1. The facility will bring you higher levels of liquidity, cash flow and working capital based on your asset base

2. You qualify much more easily for a facility that is in fact even higher in line of credit requirements

In recent years the term asset based lending had somewhat of a negative effect or perception when it was discussed by business owners. But, guess what – time changes, and nothing changes faster than trends in business. The 2008 and 2009 global economic meltdown forced thousands of businesses, small, medium and even large to re assess their financing. In some cases that was simply because their financier disappeared! This happened less so in Canada, but the ripples of global liquidity clearly touched Canada also!

So let’s get back to our premise #1 which is that utilizing an asset based line of credit brings you greater liquidity. Why is this so? It is simply because the asset based facility focuses solely on the assets. Traditional financing, as you may have so painfully discovered, focuses on balance sheet ratio, profitability, external collateral, and personal guarantees. The reality is that if your firm is selling shoes to WALMART then historically your bank or lender had no sense of what those shoes were worth or what to do with them in a worst case scenario.

Enter asset based lending! Working with a credible, trusted and experienced asset based lending advisor will allow you to truly leverage assets to borrow for more liquidity, working capital and profit growth.

So what are those assets you can leverage – they are as follows:

Receivables
Inventory
Equipment (that is unencumbered)
Real estate

Look at your current working capital and credit facilities – you may have these through a bank, or even more challenging, you might be self financing. If you could leverage tomorrow 90% of your receivables, 50-70% of your inventory, and borrow on a monthly basis against fixed assets would that work for your firm? We have a feeling that in many cases we just doubled and tripled your borrowing power.

Let’s look at our premise # 2- you qualify for more capital with less stringent qualification requirements. This point somewhat dovetails on our point #1 – that is to say that the total focus of an asset based line of credit revolves mostly around one work - the ‘ Asset ‘ ! The values of your assets in fact determine your total operating facility – it is not pre determined by balance sheet ratios, covenants, etc. Most business owners and financial managers use the facility for the primary purpose of providing day to day working capital and liquidity to their firm. Asset based lending has less stringent overall requirements, but we should mention of course that it generally is more expensive than bank financing.

In summary, an asset based line of credit can be used for:

Acquisition of a Competitor
Growth
Turnaround
Asset Purchasing

Speak to an expert in this area and determine if the benefits of a true asset based line or credit or non bank working capital facility work for your firm.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/business_line_credit_asset_financing.html

Small Business Loans in Ontario for Working Capital – 3 Solutions!

Small business loans for working capital in Ontario and the rest of Canada for that matter are similar to shoes - they come in various sizes and styles! Let’s explore what you as a business owner are looking for when you discuss working capital needs.
Part of the problem we tell clients is simply the terminology. Working capital means different things to different business owners. What it means to you, clients ask.

If we want to keep things simply working capital can be achieved successfully, and in a fairly timely fashion in the following three manners:

1. A cash working capital term loan that injects permanent working capital into your firm and is paid back over a specific period at a fixed rate

2. Monetizing your current asset accounts – i.e. advance high levels of margin against your receivables and inventory

3. Receivable Discounting – otherwise known as factoring your receivables for immediate working capital and cash flow

Those are the three main ways in which we advise clients on achieving working capital fulfillment for their business. We would point out that there are a couple of spin offs of variations of the above strategies – one is so simple that you probably know it intuitively but haven’t focused on it. So what is that strategy?

We will call it our internal strategy – You can increase your working capital tomorrow at no cost – we repeat, no cost by doing the following:

- Collecting your receivables more quickly
- Turning your Inventory over faster
- Slowing down your accounts payable

All of those require management skills and a greater level of customer intrusion – which is to say you do so at the risk of potentially offending suppliers and valued customers. But it is the perfect way to achieve working capital nirvana... trust us on that.

The current business environment makes it very challenging for you as a business owner to achieve any level of working capital via a loan or monetization of your current assets.

Canadian chartered banks are among the most respected in the world, but business owners know that it is extremely difficult to achieve working capital via traditional bank financing. As a business owner you need two things – reliable financing, and financing to grow your business. If you have bank financing and are unable to replace it the situations becomes of course even more challenging, because you become ‘self financing ‘at a good point.

Key Business Point – If your firm has positive working capital (subtract current liabilities from your current assets) you need external financing. For a starter you are essentially stopping or at a minimum hindering your growth when you are self financing or have financing challenges with traditional institutions.

One of the best pieces of advise we feel we give business owners is to not focus on one solution only as the ‘ holy grail ‘ to their working capital challenges . The reality, in our experience is that the solution to cash flow challenges will come from a variety of different sources, certainly two at a minimum that will allow you to achieve working capital and cash flow piece of mind.
We have discussed simply better internal controls around working capital accounts to self achieve better cash flow. There is a finance expression we recall – we believe its along the lines of ‘ assets in the barn ‘ – what that simply means is that your firm might have unencumbered assets ( the best examples are equipment , machinery, real estate ) that can effectively be monetized into a bridge loan or working capital loan .

Most alternative financing structures come with high rates than traditional banking. We address this issue with clients by saying that in some cases these solutions will actually save your firm from extinction, but on a more positive note, they can, despite their costs, help you grow sales and profits, thereby offsetting much of the perceived higher costs.

Factoring is a good example of that, as we have shown many clients that this can be an effective way to borrow capital at almost no cost if they use the tool effectively and enter into the right type of facility. That is just one example.

Don’t be afraid to consider new or alternative working capital sources, it might be the best business financing decision you ever made.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/small_business_loans_working_capital_solutions.html

Leasing Construction Equipment New and Used

Leasing construction equipment new and used is a huge part of Canada’s equipment financing industry. The fact that used equipment can be financed at satisfactory rates terms and structures is sometimes news to Canadian business owners and financial managers.

The reality is that this type of financing is a somewhat specialized area of finance and we urge clients to seek a trusted, credible and experienced lease and financing consultant or advisor in this area of Canadian business financing.
Used equipment, particularly in the construction industry, (but in reality a variety of other industries) is financed to the tune of hundreds of millions of dollars annually.

The equipment plays itself out in a variety of different ways – Companies grow, the acquire other firms, some firms go unfortunately, out of business , yet at the same time the values of equipment hold up significantly due to the quality and nature of the products .

Naturally we have just gone through one of the most difficult times in the global economy ever, and , as such , for some of the aforementioned reasons there is a variety of equipment for sale and for re financing .
We would point out to clients that it is very prudent to liken the acquisition of used construction and heavy equipment to renewing your mortgage. By knowing you are pre approved at certain rates and structures gives you significant purchase leverage when negotiating a final price. Even though some industries and sectors, geographic and otherwise are in a slump there is still a deal to be made on a variety of heavy equipment.

When you are acquiring used equipment, construction or otherwise, you should be looking for the same type of leases that you would entertain for other business equipment financing. You have, as always, two options – lease to own, known as a capital lease, or a ‘lease to use’, more commonly known as an operating lease. Given the high dollar values of some of the larger equipment it clearly might make sense to entertain an operating lease if that type of lease can be negotiated satisfactorily. That comes of course with off balance sheet flexibility, and, as importantly, the ability to purchase, upgrade or renew at the end of the lease; and that’s your decision at the time, not the lessors!

Just look at the benefits of such financing. If you can derive both productivity and profits from a piece of used equipment, and get financing in place that is satisfactory in overall pricing, terms and structure you have saved many thousands of dollars in purchase price .

All of the traditional flexibility that is associated with lease financing accrues towards used equipment financing also – they include better cash flow management, the ability to control obsolescence, and the ability to put ‘good debt ‘on your balance sheet – i.e. assets that will be used for production and profits. You should also remember that you can negotiate to include soft costs in your used construction equipment financing – they might include warranty, maintenance, delivery and installation.
Years ago the American firm CIT did a study on why contractors and firms leased equipment – the results were very interesting:

- Many firms leased because they saw a limited need for the asset – i.e. not a permanent need

- Unexpected need for equipment often came up as a driver in lease financing

- Interestingly enough cost was never really the major driver in the lease or purchase decision – as you thought it might be of course

- Continually upgrading leases was also cited, given the need to stay current and competitive

So whats our bottom line – simply that you should consider the used equipment construction market for asset acquisition when it makes sense – and by working with an expert lease partner you should be able to maximize the benefits of your acquisition from both a financing and productivity viewpoint . That’s solid Canadian business financing sense!

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/leasing_construction_equipment_new_and_used.html

Computer Equipment Leasing in Canada – 3 Things You Need to Know

Business Equipment Financing, including computer leasing, telecom equipment etc is the method by which some of the most sophisticated and largest companies in the world use to acquire technology.

If you are an informed business owner or financial manager you can use some of those sophisticated options for your acquisition needs.

Let’s cover off three critical things you need to know to give you the edge on computer and technology financing. These are:

1. The type of lease you choose can dramatically affect the financial and technological aspects of your acquisition

2. Software and soft cost can be included and financed!

3. Your end of term options choices need critical evaluation – now

Today’s rapid changes in computers, telecom equipment and other technologies require of course that you stay ‘leading edge ‘. Naturally there is a cost to acquiring the newest and the best. In our first point we ironically are encouraging you to immediately start thinking about the ultimate use and benefit and value of the equipment. To do this you need to have the basics on two types of leases. What are those two types? They are ‘Capital’ and ‘Operating ‘.

How can we more clearly define how you should think of those two types of leases? It is simple – As a Canadian business owner or financial manager you want to ask yourself two questions - Do I want to use this asset and return it when it’s reached its useful life, or do I want to own it at the end of the term of my lease. The industry puts many technological, financial, and marketing spins on these two choices, and this is where business people get confused, so simply focus on two words, use or ownership.

If you wish to own the assets – i.e. computers, telecom equipment, high tech business equipment for your production, printing presses, etc, then you should focus on a capital lease. At the end of the term of that lease you will own the asset. The reality though is that technology changes rapidly – our most obvious example is computers. As such you want to seriously consider returning the equipment at the end of the lease. That will more often than not lower your cost, and in some cases have huge financial benefits around your balance sheet and operating expenses and taxes.

Our second point, i.e. our critical tip # 2 is that you should full understand that most soft costs, example – software – can be included in your purchase. Software can be financing, which many business owners and financial managers either didn’t know or didn’t consider. In today’s environment hardware assets tend to be more of a commodity and it’s the soft costs and software that are the true drivers of technology. The costs of software and other related items to our business equipment acquisition can be staggering, so consider bundling the soft costs into your total solution.

Lets move on to our final point – which is putting some solid care and decision making into what will happen to your asset at the end of the term of your lease . When we say term we simply mean that is the amount that you desire or agree on to financed the equipment acquisition. Typical terms are 3-5 years – however terms for 2-7 years can sometimes be negotiated depending on the dollar value of the asset, the type of technology you are financing, and your firms overall credit quality .

If you choose the more ‘ sophisticated ‘ approach to technology financing – i.e. our operating lease option, then you have automatically given yourself 3 choices for end of term decisions . And it is you, not the lessor that makes those choices, thereby empowering you to drive the true value of the acquisition. Those choices are return the equipment, upgrade the equipment, or purchase it for fair market value if you still fee it has a useful economic life.

Speak to a trusted, credible, and experienced lease financing advisor to determine which options most suits yourself, and you will also get assistance in walking your firm confidently through the sometimes turbulent technology financing maze.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/computer_equipment_leasing_business_equipment.html

Factoring Receivables – Factoring Companies That Don’t Charge Interest in Canada

More and more Canadian business owners and financial managers are considering factoring as a viable alternative financing solution. Everyone seems to tell you that ‘factoring is expensive ‘. If that’s the case why would you want to choose this financing solution? Even moreso, is it even remotely possible to achieve interest free factoring or factoring at zero cost? Let’s show you why that premise is defensible and we will let you decide.

If you are a small or medium sized business you know the true value of financial serenity when you have positive working capital and cash flow. Actually, cash flow is great, if you have positive working capital that simply means that you have a major investment in accounts receivable and inventory, and that isn’t necessarily great, especially if your balance sheet accounts such as receivables aren’t turning over every 30 days.

Does anyone ever pay in 30 days anymore? We don’t think so, that’s for sure.

When your firm is able to more efficiently used cash flow generated from accounts receivable you have easier ability to grow your business. In fact as a business owner you quickly realize that the single largest asset on your books is often accounts receivable. In the current economic environment it takes easily one, often two, and sometimes 3 months to collect the average receivable. When you delay payments to suppliers you are increasing your cash flow from operations, when you grant credit to your customers you are decreasing that same cash flow – it’s a daily battle that plays out every day.

Factoring, or receivable financing allows you to collect and immediately invest those funds back into your business.
A quick example offered by a firm called the Receivables Exchange (U.S. based) is as follows –

Let’s say your firm earns 20% on the money it invests in itself, therefore in 44 days your firm can earn a 2.2% return.
Now let’s get to the root of our premise. Factoring companies don’t charge ‘interest ‘per se, because you are not borrowing funds. You are simply monetizing your receivables at a discount for immediate cash today. Let’s use a typical factoring discount rate of 2%, which is certainly not uncommon. That’s a 30 day rate. There is better pricing, and there is higher pricing.
But look at what we are saying – if you can immediately, on the same day you generate an invoice get cash , re invest in your business , and earn a profit, ( we will use our example of 2.2% return in 44 days ) haven’t you in effect achieved zero interest charges on your working capital financing .

Let’s make a more clear and dramatic point – Use our example again of a 2% discount fee for 30 days. What if your receivables for the month were $ 300,000 and you were factoring them at our 2% discount rate. If you have immediate cash for that $ 300,000.00 do you think you could pay major suppliers immediately and subtract 2% for their stated net 30 day payment terms. Also, do you think you could meet with your major and valued suppliers, advice them you were in a position to pay cash on the basis of getting better pricing, and would they accept!

We hear the saying ‘cash in king ‘everyday in business – after the 2008 economic meltdown Cash ruled supreme. By offering to pay your suppliers more promptly and buy in greater quantities we have had many clients tell us they have achieved as much as a 5% saving in some cases.

Let’s recap the premise of our information. It’s simpler that it may sound:

**Factoring offers you immediate working capital, and purchases your invoices at a discount – it is incorrect to view these funds as a loan, or an interest rate per annum.

** If you got the typical fee of 2% as a discount charged on factoring by your factoring company and had unlimited cash flow and working capital could you purchase more effectively and pay suppliers more promptly, taking a discount all along the way . Yes we believe you could.

You will never get a letter from a factor firm that states you are being charge no finance charges – but we have effectively shown that the cost of that financing, balanced against carrying your customers and being able to take supplier discounts and purchase more effectively can add thousands of dollars to your bottom line . And at the same time you have removed the business person oft greatest worry – lack of working capital.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/factoring_receivables_factoring_companies.html