Here's What Really Matters With Inventory Financing Companies

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Little Known Factors That Affect Inventory Finance Solutions

Inventory finance lenders in Canada provide the solution to ongoing working capital challenges encountered by Canadian business owners and their financial mgrs. Inventory is often a key component in the current asset part of many balance sheets , particularly those in industries such as manufacturing . There are some critical factors in an inventory financing loan that need to be understood . Let's dig in !

Inventory financing is of course the collateralizing of your inventory for cash flow purposes . Where it gets tricky is that it has to work for yourself and the lender , and can also get a little tricky if you have existing financing in place as a part of your overall business strategy.

Most working capital solutions revolve around inventory and receivables - if your sales are growing and you have business accounts receivable and are turning your inventory you are a candidate for more working capital - especially as these two asset categories grow!


The key to facilitating a solid inventory financing, or purchase order financing in Canada is to help your lender get the feeling they will never have to realize on that inventory to collect their loan or financing proceeds! You want to be able to demonstrate that your inventory is marketable, and that you have the ability to control and count the inventory. A perpetual inventory accounting systems helps a lot in that process , so investigate that with your accountant.

In some cases a purchase order financing solution or an a/r financing facility might be very complementary to the inventory financing loan. This is especially true for firms that take on much larger contracts or clients / orders.


When clients ask us what can go wrong in an inventory financing scenario we often simply state that you must be in a position to be able to turn inventory over and demonstrate your products are marketable in a worst case scenario .


We mentioned earlier about the challenge of managing through an inventory financing facility based on your current borrowing arrangements. In a perfect world (we know it’s not a perfect world!) you secure both inventory and A/R financing via a chartered bank. The alternative to this is an asset based lending facility, or what is known as an ABL line of credit. This facility margins inventory and receivables to the maximum value, which great increases your ability to draw down on cash flow needs.


In a working capital or asset based line of credit situation you will usually have a larger draw down on receivable, but a proper inventory financing scenario can easily secure 60-80% of your overall inventory values and that is a lot of additional cash flow if you need to draw down on it.

BENEFITS OF A PROPERLY STRUCTURED INVENTORY FINANCING LOAN

The key benefits of a properly structured inventory financing facility are that it supplements your overall working capital needs. The facility should revolve, and you should only be paying for what you use. You should also have defined borrowing limits on inventory, and the ability to repay, or draw more financing at your option.


Your best inventory financing ability will ultimately come from your ability, as we said, for you to demonstrate proper accounting and reporting of inventory, as well as information on customer prospects, contracts, etc.


Pricing on inventory and purchase order financing varies with the size of the facility, lenders interpretation of the marketability of your product, and your ability to turnover inventory at equal to or better than industry standards based on your own business model. Focus on demonstrating clearly how inventory financing will grow your sales and profits, that’s a win win situation for you and your inventory lender.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your inventory finance needs.





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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

Stan Prokop

Factoring Services For Trucking Companies : Not as Difficult as You Think

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Interested In Transportation Factoring Companies?

Factoring services for trucking companies is a key part of the transportation finance landscape ,. Let’s look at some of the reasons for that.


Canadian Trucking and Transport firms have historically been significantly challenged in financing their company through traditional working capital methods – i.e. bank loans, bank lines of credit, working capital term loans, etc. When these are not available (for a variety of reasons!) Your trucking and transport firm, no matter what size, should consider receivable financing, also known as freight factoring .


In the past we have spoken of the ‘working capital gap ‘. Nowhere is this ‘gap ‘more evident in the trucking industry. Will it require rocket science to understand the gap? Not really, it’s as simple as this – your drivers, fuel suppliers and other want to be paid weekly, or within 30 days, whatever their terms are with your firm. You have receivable, but these tend to be collected in 60 days, sometimes more, sometimes less, mostly more!


That’s the working capital gap.


As a trucker or truck firm owner you are looking for a better way to finance your business. Truck factoring / freight factoring in essence give you an unlimited amount of credit line based on the receivables as collateral. As your business grows, so does your factoring facility.


This type of accounts receivable or invoice discounting facility allows you to pay suppliers and employees, and further allows you to focus on growing your business. What you are doing in essence is capitalizing your business with the proper amount of working capital. That’s common business sense, and allows you not to tap into either personal financial resources or enter into long term loans, assuming you qualify for those loans – many don’t in the somewhat challenging current financial and banking environment.


So it all sounds kind of easy, do it not. There are of course issues you have to both understand and address. One if of course fees, which range in Canada from 1-3% per month. As a business owner of financial manager of a truck or transport firm there are numerous ways in which you can offset part, or in some cases all of your financing charges. One of these very obvious ways is to use the new cash and working capital that you generate from your factoring and accounts receivable discounting facility to pay suppliers on time and take their discounts.


When we talk to Canadian business firms, including truck or transport firms more and more of their time is focused on looking for cash flow solutions and not on running and growing their business. With a proper accounts receivable and factoring facility you can focus on growing your firm’s sales and profits.


In Canada factor solutions for truck and transport firms, how they work on a day to day basis, and their costs differ greatly, and we mean greatly. We recommend you talk to a trusted and experienced advisor in this area to maximize the solution that’s best for your firm in terms of rate, structure, and day to day paperwork.


Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of financing success to assist with your cash flow needs.





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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



Stan Prokop

Why Do Companies Factor Receivables ? Cash Flow !

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Do You Qualify For Factoring Receivables ?

Factoring receivables in Canada is well over 40 years old in Canada. So why though do so many business owners and their financial mgrs. not know about the types of factoring and how pledging receivables work . More about that ' pledging' later !

Ironically A/R factoring has its roots was in one particular industry, fashion and garments .We can say tongue in cheek now that factoring itself is in fashion!

While many companies would be perfectly willing to arrange pledging receivables to their bank for a business line of credit the hard truth is that many firms don't qualify for Canadian chartered bank financing based on all the criteria that banks demand for business credit lines. That is why alternative finance, via solutions such as factoring and invoice discounting provide the same cash flow solution, albeit at a higher cost.



Most Canadian business owners and financial managers know only two well that their line of credit is capped at a certain financial amount. And that borrowing facility is subject to personal guarantees, sometimes other additional collateral, and most importantly loan covenants and ratios that restrict your business in a number of ways.




Many Canadian business owners know full well that if they do have a bank operating facility it is a low rate facility, i.e. the interest rate is great. But what if that facility cannot meet your business needs. In effect you have a small, or smaller let’s say line of credit than you need, its cost effective, but, guess what? Your company finds it difficult to grow without working capital.

So what about the different types of factoring ? Yes Virginia, there are numerous types, from old school full notification invoice discounting to asset based lending which monetizes your a/r much like a bank facility, allowing you to do all your billing and collecting with no notification to your clients .


Traditional U.S. and European factor firms with branches or subsidiaries in Canada offer the traditional version of factoring, which has the factor finance firm also involved in your credit and collections and credit extension. While this works for many firms we recommend to our own clients that they utilize a non notification facility . We call this Confidential Receivable Financing ! Your firm has all the financial benefits of factoring, and you in charge of their own destiny via customer relationships, amount of credit extended, etc.



When factoring is employed you receive an immediate advance against your accounts receivable . Moreover you are only paying for what you use, and , if you have structured the right type of facility you are not locked in, you have a competitive factoring or discount rate, and your are turning over receivables and inventory much faster than before . Those faster inventory and A/R turns translate into increased profits and owner equity.



Factoring in Canada is quickly overcoming a stigma that it is for companies in distress – the exact opposite is many times more true – which is that some of the largest corporations in Canada utilize factoring through asset based lending arrangements of their receivables, and inventory .


Speak to a trusted, credible, and experienced business financing advisor with a track record of business financing success to ensure that you understand the benefits of a true non notification working capital factoring facility.








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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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



Stan Prokop

What Type Of Receivable Financing & Working Capital Solution Works Best For Your Firm?

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Why Take Chances With The Wrong Type Of Cash Flow Financing ?

Cash flow enabling is of course the top priority for every business owner and his or her financial manager. More often than not firms that search for asset based loans such as factoring or invoice financing are looking for a short or intermediate solution - the hard reality being that traditional financing from Canadian banks may not be available.

In some cases though asset based financing solutions can work in the long term also - but newer businesses with less of a track record, or high growth / fast growth companies need access to working capital..now . In some cases investments might be being made in other aspects of the business, perhaps r &d, or acquiring capital assets . ( Note - SR&ED Financing and Equipment Leasing also can alleviate spend in these two areas )

But inevitably it will come back to short term daily financing needs requiring a working capital solution . Companies with proven cash flows and historical financial success can of course access term loans in the working capital / mezzanine finance area.

When you are examining asset based financing, and a/r factoring specifically . These solutions allow business owners to raise cash quickly to capitalize on short term opportunities, for example new clients, large contracts, foreign sales , etc. It's no secret that traditional lending sources such as Canadian banks take a significant amount of time to complete .

Asset based financing such as factoring always costs more than the low bank interest rates - but the good news is rates in the asset finance area are the lowest they have ever been, and all indications point to more of the same! Also in the experience of our firm, 7 Park Avenue Financial the competition to secure your financing business is the strongest it has ever been.

Rates in the asset financing area are dependent on a couple of obvious factors, ie transaction size , quality of assets such as receivables or inventory, and other collateral in the firm such as equipment, etc. In some cases an appraisal, altho it might come with a modest cost can enhance your firms overall ability to get financed.

Having up to date an quality financials also is also key to successful and abundant asset financing . Your firms ability to bill, collect might seem simple and basic, but proof of adequate accounting and controls is key to loan approval .

Bottom line ? Your firm needs cash flow to run and grow the business. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success who can assist you with your business loan and cash flow needs.




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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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



Stan Prokop

Important Decision Making On Working Capital Loan And Receivable Financing Invoice Solutions

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Cross The Threshold On Invoice Finance Solutions

Receivable finance solutions that are offered in Canada ( there are several types ) are a valuable strategy for companies looking for alternative finance solutions when traditional financing is not available . Typically when we are talking about traditional financing we are talking about Canadian chartered banks of course !

So what does the business owner and financial manager need to know when it comes to invoice financing and complementary cash flow strategies ? For a starter A/R financing is not a loan per se, your firm is of course simply monetizing one of the main current assets on your balance sheet.

Years ago we venture to say that many business owners were not aware of alternative finance strategies . That of course also means that many of the benefits derived from factoring or Confidential Receivable Finance finance solutions. At 7 Park Avenue Financial we always strive to ensure our clients understand the various options available to meet their unique individual needs.

Our Cdn banks of course do not tout the benefits of a/r financing / factoring if only for the reason they do not offer this type of financing . That has sometimes tended to create an image that firms utilizing factoring finance are financially challenged . That's very wrong - in fact business folks might be surprised to know that some of the largest companies in Canada utilize this for of cash flow financing - in some cases they call it by a fancier name - Securitization .

Alternative finance solutions almost always cost more . Important to understand though that actual factoring of invoices tends to not be priced at an interest rate , as opposed to a selling cost of margin reduction - typically 1-2% for companies who have good paying clients.

Example - On a $ 10,000 invoice you would have a cost of $200.00 to finance the invoice . The benefit? Cash is available immediately after you invoice and ship /provide your service.

So our take away here of course is that a/r finance pricing is in fact a huge stumbling block to many clients, but only when they don't understand it.

A/R Financing only works when you have sales, so firms that are in severe distress or have seriously declining sales rarely are encouraged to utilize this method of cash flow finance.

Receivable financing solutions typically only work for business to business firms , aka ' B2B'. Firms that sell on credit or cash to consumers are best suited to working capital cash flow loans that monetize future sales based on your historical sales levels . As an example companies in the retail sector can typically achieve a working capital loan of 10-20% of their annual sales.

What else is important in the invoice financing area ? Simply that choosing a partner firm to access your financing needs.

If you are looking for the straight goods on which method of invoice receivable finance works best (We favor confidential A/R finance), how pricing is determined, and how the facility works on a day to day basis.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in crafting the facility that meets your working capital financing needs.




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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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

Stan Prokop

Looking For The Best Accounts Receivable Factoring Company - The Answer Is ' Confidential '

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A Few Quick Tips to Help You Find the Best Factoring Receivables Company

Most people agree that Canadian business model and the Canadian psyche differ from those of our friends in the United States .


Accounts Receivable Factoring goes back to the 1400's and is an accepted way of doing business . Simply speaking it is the ability of a company to immediately obtain cash for their receivables , thereby augmenting cash flow . Factoring is generally viewed as expensive , as the company views the discount rate as the ' interest rate ' on the transaction .


In both the U.S. and Canada very typical rates on factoring range from 1 1/4 % to 2 % per month. Issues that drive the overall rate are the over all transaction size, the credit quality of the debtor , and the historical time that the debtor has taken to retire invoices .


To be clear, when we talk about the participants in a factor transaction, there are three, the company selling the receivable, their customer ( the debtor ) and the finance or factoring firm .


Customers choose factoring , or are forced into considering factoring, when they do not have bank financing, or the financing that is in place is not sufficient to fund working capital .


Companies in Canada have been slow to utilize factoring - there are numerous smaller finance firms that offer the service, and more predominantly, the landscape is covered with branch firms of U.S. and U.K. companies who are established leaders in their respective countries .


A few in Canada offer factored facilities, a fact not generally known to the Canadian business market .


More often than note smaller and medium firms who don't have access to traditional bank lines of credit utilize factoring . They use this financing facility to grow their business, maintain acceptable levels of cash flow, and ensure debt and government payments re taxes, etc . are made on time .


Typical advance rates on factored invoices are in the 80-90% range . Firms utilizing factoring are often not aware of the mechanics of how these facilities are priced on a daily or monthly basis. Two different business models exist within the industry, recourse, and non- recourse . If the debtor does not pay the invoice a recourse transaction forces the company to pay back the factored amount, or replace it with another invoice .


As stated, many firms do not properly focus on the many nuances of the factoring transaction . These include the amount held back by the factor firm, when the hold back is released, and most importantly the paper flow involved in the transaction.


Canadian firms have tended to view factoring as very intrusive . They , unlike their U.S. and U.K. counterparts , have not appreciated that their customers are contacted regularly by the factor firm to verify invoices, demand payment, etc.

Here's What Really Matters in Factoring Receivables

Ultimately the Canadian market seems to desire a non-notification factor model which is not widely available . 7 Park Avenue Financial calls this Confidential Receivable Financing


Prudent business owners and financial executives , both in the U.S. and Canada , can enhance their use of factoring by negotiating arrangements specific to their business , re receivable size, quality, customer time to pay, etc .

Many firms also quickly realize the cost of the factoring can be significantly offset by the use of additional cash to negotiate supplier discounts, take trade discounts offered by suppliers, and in general , improve supplier relations . Key benefits of factoring, also known as invoice discounting, are improved cash flow and maximized cash flow .





About 7 Park Avenue Financial :
We are located in the Toronto area, but we have financed customers all over Canada, from B.C. to Quebec in the east
Financing solutions from 7 PARK AVENUE FINANCIAL can improve cash flow, enhance key operating efficiencies, strengthen working capital and enhance revenue, improve production capabilities - Ask us how!
You are a business owner who wants options and alternatives and the right financing for your business . Commercial financing can be complex - we will make it simple for you .





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

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



Stan Prokop

How To Eliminate Your Company's Computer Hardware Financing Challenges Once And For All

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Take A Giant Step In Understanding How To Finance Your Computer , Software and Other Technology Needs

Many companies are not aware of the significant benefits related to computer hardware financing , as well as available software finance solutions . The proper term for this type of financing is ' Technology life cycle management '. Most business owners simply consider the following question : ' Should I buy or lease my firms new computers and software and related products and services ? '



Two old adages related to leasing still ring true when it comes to the technological aspect . That is that one should finance something and depreciates, and one should buy something that appreciates in value . Most business owners, and consumers as well know very well that computers depreciate in value . Systems we paid thousands of dollars for years ago are now hundreds of dollars . Walk into any ' big box ' retailer and see the dramatic moves in technology .



Business owners who finance technology demonstrate a higher level of cost effectiveness . The company wants to reap the benefits of the technology over the useful life of the asset , and , importantly, more evenly match the cash outflows with the benefits . Leasing and financing your technology allows you to stay ahead of the technology curve ; that is to say you are always using the latest technology as it relates to your firms needs .



Businesses that lease and finance their technology needs are often working better within their capital budgets . Simply speaking they can buy more and buy smarter .



Many companies that are larger in size have balance sheet issues and ROA ( ' return on assets ' ) issues that are compelling . They must stay within bank credit covenants and are measure often on their ability to generate income on the total level of assets being deployed in the company . Lease financing allows those firms to address both of those issues . Companies can choose to employ an ' operating lease ' structure for their technology financing .

This is more prevalent in larger firms, but works almost equally as well in small organizations . Operating leases are ' off balance sheet ' . The firm adopts the stance of using technology, not owning technology . The lessor/lender owns the equipment, and has a stake in the residual value of the technology .

The main benefit for the company is that the debt associated with the technology acquisition is not directly held on the balance sheet . This optimizes debt levels and profitability ratios .

Little-Known Factors That Could Affect Your Computer Hardware Financing

At the end of those operating leases, which are usually 36 months long, the customer has the option of:



1. Returning the equipment



2. Buying the equipment ( not likely though )



3. Negotiating an extension of the financing for continued use of the computers, technology, etc .

Make Computer Hardware Financing Work for Your Company

Companies that have recently acquired computers and technology can in fact negotiate a' sale leaseback ' on those same assets. This financing strategy brings cash back into the company , as the firm has employed a leasing and financing strategy building on our above noted them - using technology, not owning technology .



Benefits of Computer Hardware Financing


In summary , the key benefits of computer and technology lease financing are :



* The company can stay ahead of the technology curve



* Computer leasing and financing has significant balance sheet and income statement benefits



* The firm has flexibility with respect to buying new product, returning existing technology, and generating cash flow for purchases already made



Many of the benefits we have discussed relate to leasing in general . However, technology and lease financing are very perfectly suited to the business financing strategy of leasing .



Many businesses, both small and large do not realize that software can be leased or financed . Although software financing is unique in some manner, in general it has many similarities to equipment leasing.

It is also proper to ensure that right finance firm is utilized , as many lenders are somewhat risk averse to financing this asset . However, many others are looking for business in this area !

Contrary to popular opinion software as an asset in many cases has more value that a depreciating hard asset . It has also been confusing for lenders when it comes to the registration of collateral under Canadian PPSA ( PERSONAL PROPERTY SECURITY ACT ) legislation .

In its broadest term the financing or leasing of software that can't be transferred to another user . The business owner does also of course not own any development rights in the software . Software financing is treated as a financing mechanism, it is not a true lease per se .

Some additional key points around the technicality of software leasing/finance are as follows :

The right of a customer to use the software gives the company no right in the intellectual property surrounding the developers rights in the software code. The best example of this is when we look at our EXCEL spreadsheets that we use in finance and home matters . We use the software, but Microsoft of course owns it .

The problem in the past around the financing of software revolved around the fact that lenders did not know how to collateralize and register their security . Under current PPSA legislation intangibles and software can be collateralized. Therefore the software financing lender/lessor can be very confident that the software can be secured.

At the heart of the software financing issue is the true value of the software to the business owner . He runs his business on it , i.e CRM programs, office software, manufacturing software, etc. Software lease payments tend to be made since the asset is indispensable to the value and on going concern of the business . Unless companies are liquidated in total bankruptcy most lessors and finance firms recover fully on their software leasing - Source - Journal of Equipment Leasing
In many business bankruptcies the software lessor or lender is treated as a secured creditor .

Also key to the software financing issue is that many software firms offer maintenance , support, and updates around their product . This enhances the lenders asset as it is used for longer lengths of time, and often constantly upgraded. Quite frankly it becomes less obsolete than computer hardware!

Many software lessors and lenders also finance the service and maintenance contracts associated with their customers software acquisition.

We do acknowledge in this article that it is more difficult to finance customized software although it is possible based on the overall credit strength of the borrower . Many customized software deals are done with only investment grade borrowers where credit risk is minimal . Many smaller ticket lessors and lenders however do now lease software . In general these transactions are full payout capital leases .

In summary , software lease financing is available and should be considered by every business owner in the same context as a capital equipment finance transaction . The computer hardware industry has grown with leasing , and the software industry is doing that also . The same considerations an owner gives to lease vs buy apply to a software finance acquisition .





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