Business Acquisition Financing In Canada

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Buyout And Acquisition Finance Solutions

What Is Acquisition Financing?

It's the capital required to buy another business, as simple as that. The purchase of a business will require external capital, namely business acquisition loans . That is the challenge of financing a takeover. Acquisition opportunities are available and ongoing in every industry.


Acquisition financing in Canada almost always involves validating the price you're going to pay to purchase a small/medium enterprise. One reason is that companies in the SME sector don't always have the same talent available to price real value. Business people should of course rely on their trusted advisors for professional help in that area, but this article will hopefully give them insight and advice into their challenge.

There are a number of reasons why a smaller company might purchase another firm, it could be to simply get 'scale ' as opposed to current organic growth in the company. Bank loans and alternative sources of financing for term debt and lines of credit are the common way to buy a business and finance it successfully.

Government loans and seller financing are other methods to complete a business purchase.

A successful acquisition loan will facilitate the purchase of another business. The type of financing you require will depend on whether the business is a start up, or a more well-established firm.

HOW DOES ACQUISITION FINANCING WORK?

The good news is there are numerous ways in which you can finance the purchase of a business. In the new economy both traditional and alternative financing sources are available. The ability to procure reasonable rates based on the overall credit quality of the transaction is important when putting your financial strategy in place. Flexible terms and reasonable financing costs will help propel the purchase towards higher sales and profits.


In the current environment many transactions do not meet the lending criteria of traditional Canadian chartered bank financing. Alternative lenders may well provide the solution you are looking for - the challenge is to ensure rates and flexibility match your business goals. Banks in Canada look for key metrics such as growing revenues, profits, and a clean balance sheet. Alternative lenders will often focus on hard assets, receivables, etc, versus the traditional cash flow demanded by the bank underwriters.

Government of Canada Small Business Loans should not be overlooked as a potential source of financing. For many acquisition targets in the SME enterprise area, as well as in the booming franchise sector the government guaranteed business loan is a perfect match.


Note though that the program is focused on 3 asset categories, equipment, real estate, and leasehold improvements. Down payments are at a minimum and the program has rates and loan flexibility repayment that rivals that of larger corporations. Entrepreneurs applying for this loan should ensure they have reasonable personal credit and net worth, which are key lending criteria for the program.

SELLER FINANCING / OWNER FINANCING

One method of business acquisition financing that brings substantial creativity to the process is the ' seller finance' strategy. This method of financing has the seller/sellers of the business providing a payment contribution to the total purchase price. Purchasers then make installment payments or in some cases' balloon payments ' on the seller financing portion, typically with favourable rates and flexibility. This finance strategy can sometimes be the missing piece that takes your transaction over the goal line!




The terms involved in financing a business you are buying can themselves be overwhelming to those who don't regularly work with

EBITDA, intangible assets, capitalization and discount rates, lbo financing mbo financing

We would point out that as technically overwhelming as some of those issues might be, there is even a whole additional layer of complexity around longer term issues down the road. These would include:


- Owner and management compensation


- Insurance planning


- Estate planning


- Exit strategy



With reference to our last point on ' exit strategy ' imagine the look on some purchasers' faces when they have not even completed the deal and are encouraged to talk about an ' exit strategy '!



At the heart of the matter around the final price paid for a business is the concept that both parties feel they have reached a fair deal. As we all know the buyers and sellers' perceptions of the same deal might vary greatly. Ultimately all the technical jargon around buying a business comes down to a term such as 'reasonable market value'.


As common sense as this may sound it also has its challenges since is it only a hypothetical value based on all the different financial elements related to the purchase of a business.



The most commonly used valuation of a business is known as the ' value of future earnings '... Accountants and financial advisors often project earnings out as far as ten years and try and then place some value and normalcy around those future profits. Our advice in this area is simply that owners should not focus solely on future earnings potential; there are other factors to be taken into consideration.



Some of those other factors of course include the true value of the current business assets, such as equipment, real estate, fixtures and leaseholds, etc. We can only say that as critical as those assets are they must be supported by the company's ability to generate the cash flow to support those assets and grow the business.


Buyers and sellers frequently disagree on the total purchase price, with all sorts of psychology kicking in around prices being set artificially high for negotiation purposes, the buyers focus on a low- ball offer, etc.


We would also point out the buy/sell challenge is accentuated when it relates to a ' service' firm as opposed to a product firm. Many experts agree that ultimately the valuation of the business was so far out of whack that this clouded any possible attempts to negotiate a fair price for buyer and seller.


The bottom line: buying or selling a small to medium enterprise has its challenges. If owners are aware of the key basics around the technical aspects of the matter they can successfully utilize third party assistance (accountant, lawyer, trusted financial advisor) to consummate a successful transaction.

Buyers and sellers must focus on tangible issues as well as all the intangibles that come into play in order to assist in a proper (and a successful) buy or sell. Methods to finance a purchase depending on the overall size and credit quality of the business.

LOANS TO BUY A BUSINESS IN CANADA / BUYOUT ACQUISITION FUNDING SOLUTIONS

Commonly used financing techniques in acquisitions and mergers include:

Asset Based Loans ( The assets of the target company can often help to finance the purchase )


Non bank asset based lines of credit


Govt Small Business Term Loan


Cash flow loans/ Mezzanine Debt


Traditional bank financing

Accounts Receivable Finance & Inventory Finance - financing working capital through a/r financing provides valuable cash flow for day to day operations and the ability to finance inventories helps accelerate the cash conversion cycle of the business


Sale leaseback strategies


Vendor take backs


Working capital needs also need to be addressed, proving that buyouts and acquisitions require specific solutions to facilitate your transaction.


If you're looking to successfully explore the key aspects of buying and selling a business seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business acquisition success, who can assist you with buying or selling your business.



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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion.

He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.









Stan Prokop
7 Park Avenue Financial/Copyright/2020

You Need A Business Plan : Here's Why

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Business plan requirements are a common need for many of our clients at 7 Park Avenue Financial. Whether its a start up business plan, or one for an established firm we prepare and deliver on many business plans to our clients. There are a variety of needs when it comes to business plans, but our focus is typically on obtaining financing for our clients.

 The ' business plan ' is really a financing proposal - that's how we look at it at 7 Park Avenue Financial and our ability to customize your plan is our ' secret sauce '

Many bankers and commercial lenders and financiers have referred their customers to 7 Park Avenue Financial for such a document. They know we will deliver a professional industry-driven final document that's realistic and what the bankers and lenders want/need to see. They realize that a free business plan is worth just that ! Clients want more than just a business summary .

The sad truth is that many business plan templates available online are very marketing, or even ' ego ' driven. Our executive summaries and cash flow and financial projections are focused on obtaining financing for the products and services of our clients.

What Makes A Great Business Plan?

We're often asked ' how to write a business plan ' . It involves a significant amount of business expertise. Whether its a market analysis, a strong executive summary, or financial projections our focus is on creating a plan that attracts debt or cash flow financing and funding. An appropriate level of research is required for a good business plan, allowing your business to differentiate itself from the competition.

Cost of A Business Plan

Plans prepared by our firm are very reasonably priced and are almost always well below the price of other business plan preparers. Our plans are delivered in a timely fashion, but we stress to our clients that some key input and information around the business is required.

Almost every lender, banks included agrees that entrepreneurs and owners need business plans with a clear goal and outline for their business model.  Our plans are geared toward getting a loan, outside financing, or in some cases equity investment.

 The plans will show you bankers, financiers, investors, and potential acquisitors how you make money and how they will be repaid or in some cases earn a return on their investment. While some firms focus on clever ' pitch decks' and Powerpoint presentations they rarely are a replacement for a good business plan .

It's all about ensuring you have a document that includes data on your industry and information and statistics that prove financing viability . 

What Are The Key Components Of A Business Plan?

What's Important When Your Want To Create A Business Plan?

The format of a typical plan includes some key financial statement information such as opening balance sheets, 3 years of cash flow and revenue projections, and information on the owners and the team. Our plans include your website and social media strategy if applicable. Those digital and social media items certainly were not part of traditional elements of plans of the past! 

Remember also that the lender works for someone and it is key that your final document communicates the proper criteria for determining business loan or financing approval. You should be prepared to understand that in some respects the plan will be ' attacked ' by the lender, so your ability to show ' upside potential ' and to generate enthusiasm on your company is key.

It might, (but shouldn't ) come as a surprise that your full plan is not read in totality by lenders. Some experts refer to the ' 5 minute read ', with careful emphasis placed on financial and management experience. That's advice worth knowing. The takeaway? It's not always about the font and the pictures!

Here's Why Banks and other Commercial Lenders Want a Plan and Why Writing a Business Plan Summary  is so Important

That ability to provide clarity and a vision to your business will help attract the financing you need. So the step-by-step process of knowing what resources will best lean in your favour is key. Your final plan should identify yourself and your team as doers, not dreamers!

The sign of a well crafted business plan is one in which you have conveyed that you have a strong understanding of your industry, the costs of entering that industry, and competitive issues that will have your firm stand out, with customers clearly wanting to buy your product or service.

What Are The Key Elements of a Effective Business plan template  - What Business Plan Tools Are Required ?

Here is a list of the key elements of a business plan that we utilize at 7 Park Avenue Financial :

Executive Summary

Financial models - sales, expense, and profit projections ( Upside potential/profitability)

Marketing Strategy

Pricing/Product / Profit Margins

Industry / Management overview

Operations

Competition Analysis

Target market / customer

It is important to remember that business plans are usually used for different circumstances, in some cases they might be focusing on a startup business, while in other cases it might be for a loan or additional financing for equipment or expansion. Note also that a great business plan can simply be used as an internal document highlighting to management and employees the mission statement and financial goals of the company. In that case it should be designated as company confidential, rights reserved, and it can grow with your business .

In summary, we do not mean or infer that a plan is in fact absolutely required required for a lender or financing but a business owner or entrepreneur with no plan is, outside of luck, may be guaranteed to fail.

Seek out and speak to a trusted, credible and experienced business plan consultant who can assist you with your needs.

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


Stan has over 40 years of

business and financing experience

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









Stan Prokop

7 Park Avenue Financial/Copyright/2020

SR&ED Tax Credit Loan Financing

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SR&ED financing is simply the method by which you can, at your own firms own option, monetize or ‘cash flow ‘ you Sr&Ed tax credit and generate needed working capital and cash flow for ongoing operations or of course further investment in your r&d capital processes and development. All Canadian privately owned companies in every industry are eligible under the program.



The ' SRED ' program is one of the best, yet somewhat underutilized ways of recovering research and development expenditures. When both the federal and provincial tax credits under the program are combined they can return up to 50% of your r&d spend.



We have all seen the oil change commercial where the mechanic states ‘you can pay me now or pay me later ‘. Well financing your sred claim has a similar ring to it – of course you have the option of waiting for the government at the federal and provincial levels to mail your firm your cheque – that could take anywhere from 1-12 months – Or you can arrange to finance that claim now and utilize those funds for any business purpose.

Are we eligible to finance our sr&Ed claim? Clients often ask. We can only replay that if you have a claim, and have filed it, you are in fact eligible. In fact, under certain circumstances it can be arranged to receive funds even prior to filing.



That's what we at 7 Park Avenue call a financial incentive! Spending items covered in your refund includes items such as salaries, work done by subcontractors on your project, and items purchased relevant to your specific project. Your claim is filed with your T1 tax return in conjunction with your accountant and SR&ED Consultant.





Clearly the purely financial benefits of the sred grant program in Canada are numerous – you receive significant amounts back from expenditures made on research, including wages and salaries associated with that research, as well as major portions of material and equipment expenses.

All of those above noted expenses are ‘cash out ‘to your firm – the funds have been spent. So why not consider financing your claim and receiving those funds back in an extremely timely manner.

We can almost hear some of your questions now as you review our information, as they are typical of what many clients ask:

How exactly do I monetize the sred claim

What exactly is a sred loan – is there additional debt involved

How long does it take and what does it cost?



Let’s cover off some of those very basic questions so you can feel comfortable about the sred financing process. The sred financing, or the monetization or cash flowing of you sred claim is simply a business financing that uses the actual sred claim as collateral. You receive approximately 70% of the full federal and provincial total as a short term cash loan that is collateralized by the sred itself. Of course the additional 30% is still yours, it is simply held back as a buffer for any adjustments that are made to your claim.

No payments are made on your sred loan, and the final cheque to your firm (you have already received 70%) is the holdback amount less the financing costs. So you have pure cash flow and additional working capital, no long term debt associated with a loan per se, and no payments are made. That is truly creative business financing for which most Canadian business owners are not even aware.

The typical process to create a sr&ed financing is approximately 2-3 weeks, you should quite frankly view it as any other business application – the usual business info and backup on your firm, plus of course the details of the sred financing.



From the government's perspective the amount of time it takes to validate your claim or inquire about any specific details might be from 2-6 months depending on the size of your claim. Your actual Sr ed credit is the main collateral for the loan; Canadian firms are tired of waiting for their refund, so they explore the refundable tax credit financing option. This short term working capital loan is a key source of cash for many younger and growing companies, with many in still in 'start-up' mode. They can't wait for long periods of time to recover expenditures related to future sales prospects - SRED finance loans allow the firm to grow faster.



In summary, have your claim prepared by a qualified sred consultant - recent submission rules and styles have changed.

If you have unlimited cash flow and working capital resources by all means wait for your cheque – if you want to cash flow or discount your claim speak to a credible, experienced and trusted business financing advisor in the area of SRED Financing.





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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


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









Stan Prokop













Working Capital Via SRED Finance

Purchase Order Financing Canada 101 ! P O Financing & Inventory Finance Solutions

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Generating profits Via Inventory & Finance Solutions

Purchase Order Financing Canada 101 ! P O Financing & Inventory Finance Solutions

What is Purchase Order Financing?

The need for P O Financing is often viewed as a good news / bad news scenario Your firm has the ability to receive  customer orders or contracts but you are challenged with restrictions or unavailability of inventory and PO (purchase order) financing. Growing your business and financing a business based on assets such as inventory and orders in coming in has never been more of a challenge in Canada.

Benefits of P O Finance

The key benefit of purchase order contract is your ability to fulfill orders that might not have been made given finance limitations . That allows a business to grow and generate additional profits. The ability to fill your client order with no serious cash flow implications to your day to day operations is key .


When we speak to clients we advise there is no one method that seems to handle all inventory and po finance challenges. But the good news is that via a variety of effective business financing tools you can employ you are in a position to generate working capital and cash flow from these two asset categories. Let’s examine some real world strategies that have made sense for clients.
The attractiveness of this type of business finance is that it can be accessed quickly, typically in days, not months !

The root of the problem is simple, you have orders and contracts, but those will potentially be lost to a competitor. Conventional wisdom is that you go to your bank and ask for financing to support inventory and purchase orders. As you may have experienced, we aren’t big believers in conventional wisdom on that matter!

However, utilizing a conventional purchase order funding source does allow you to purchase a product and get your suppliers paid, thus facilitating your ability to deliver to your customers. In some cases more established firms may wish to consider EDC financing via the Government crown corporation, typically for international sales .

One of the main benefits that many clients don’t realize in purchase order finance is that inventory financing and purchase order contract financing doesn't necessarily require your firm to have a long or strong credit history; the focus on structuring the transaction is around the inventory being financing and the general creditworthiness of your client, who will be paying yourself or the inventory or P O financing firm

How Does Purchase Order Financing Work

The overall process is fairly simple and easy to understand when it comes to putting the transaction together successfully. On receipt of your confirmed purchase order your supplier is paid via cash or a letter of credit. Your firm of course completes the final shipment of the product, which typically involves some additional time on your firms part.

To qualify your firm must be able to prove you have a credit worthy supplier and customer . Because Purchase Order Finance is a more expensive form of financing you should ensure you have healthy gross margins in order to absorb the financing cost ; that should typically be at least in the 15-20% range . Tranasaction should always be a B2B ( Business to Business ) sale . Goverment purchase orders and contracts can be financed also ! It is safe to say that goods must be tangible in nature.

On shipment and of course payment from your customer the transaction is in effect settled. In a true pure PO financing scenario the P O funder is paid immediately on your invoicing of the product. That is facilitated by your firm selling the receivable via a factoring type transaction as soon as you have generated the invoice.

This type of financing works best when it can assist a smaller firm to increase revenues when normal cash flows can’t finance these sales . Smaller businesses obtaining large orders get immediate access to working capital

Many fast-growing businesses come to a point where sales outpace incoming revenues, leaving them without enough cash flow on hand to cover operating expenses or new orders. PO financing and invoice factoring help small businesses stabilize their cash flows and gain access to working capital.

There are always limitations to this type of financing - so things we look for early in the transaction are the ultimate remarket ability of your product in case there is a transaction risk. Naturally, as we stated, the overall creditworthiness of your customer is key, his receipt of goods and payment in effect closes the transaction.

Inventory financing and PO financing are generally more expensive than traditional financing, due mainly to the significant transaction risk that the lender takes. Therefore we strongly recommend that your firm has solid gross margins in the 25% range to cover the associated costs of a PO financing, inventory financing transaction that also factors in the time it takes to get paid by your client, as that typically adds 30-60 days on to the whole cycle of the transaction.

What Comes First? Invoice or Purchase Order

There is a key difference between purchase order financing and invoice factoring/invoice discounting , but both have the same goal in site, ensure you can cash flow your business revenues . Financing the receivable happens after you have sold your goods, the P O process is of course prior to the sale .


One of the best ways to ensure the maximum financing of your sales, p o’s and contracts is to consider an asset based line of credit for cash flow needs . Coupled with a facility that will finance your purchase orders this is the ultimate working capital tool that will allow you to grow business quickly and significantly. This type of facility is generally a non bank facility and is offered by independent finance firms.

Speak to a trusted, credible and experienced Canadian business financing advisor and financing company  with a track record of finance success  who will assist you putting together a working capital and cash flow solution that works!







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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


Stan has over 40 years of

business and financing experience

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









Stan Prokop

Business Credit Needs ? Working Capital Via Alternative Financing Sources

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Business Financing Alternatives In Canada

Business credit requirements involve securing external additional business capital for your company. That involves working capital as well as appropriate finance for a business that might come from traditional Canadian chartered bank financing or alternative lending solutions.

No secret that every business, even larger corporations, eventually finds itself in a situation where it needs to secure additional capital. It doesn’t matter if it’s a startup trying to get itself off the ground or an established company looking to cover a cash flow gap. The point is that having reliable access to working capital is crucial to your business and its success.

Solutions might come from working capital loans or for larger businesses term loans can mezzanine type cash flow loans. Another key focus for many growing companies is to monetize current assets, typically a/r and inventory, that will allow you to cash flow your sales as you grow revenues.

Entrepreneurs , Business owners and their financial mgrs looked to alternative lending sources when a traditional banking solution won't deliver on your ' cash flow gap '. That is whey alternate lenders have become increasingly popular in times of crisis or economic uncertainty.

Business credit needs are anything if not... consistent! In many cases the access to capital/ loans/ financing is one of the biggest obstacles to growth for a large section of companies constantly searching for SME COMMERCIAL FINANCE solutions. So how does the owner/mgmt ensure they access to commercial financing needed to grow the company. Let's dig in.

When new clients at 7 Park Avenue Financial discuss their financing needs they typically have three questions :



What are our financing alternatives?


Which are the best financing options


Can we finance working capital without a loan or taking on external term debt

What is working capital?

Let's discuss some potential solutions? When we're talking to clients we discuss the need first, not the solution! Thankfully those needs can be nicely broken down into several categories as follows: day to day operating capital, immediate growth needs for new opportunities, equipment and asset acquisition, hard asset refinancing.



Business Credit Lines - These facilities aren't necessary emergency facilities, they should be sought after and used by every business. Whether it's business credit cards for smaller businesses or business line of credit canada revolving facilities or non bank asset based lines of credit it's all about a day to day operating facility that works for your company. Approval lead times for these facilities are much shorter than when your firm contemplates longer-term loans from a senior lender.

In smaller companies a lot of the approval focus on these facilities hinges on the personal credit of the owner as it relates to credit scores, etc.

Receivable Financing - The ability to finance your invoices as you generate sales is a very attractive option for most SME firms in Canada, There is literally a renaissance of a/r financing solutions that allow you to cash flow sales as you generate revenue. Typical advances against your sales are in the 90% range. At 7 Park Avenue Financial we recommend Confidential Receivable Financing as the most effective solution.

Short Term Working Capital Loans - These loans have exploded onto the Canadian marketplace and are a popular borrowing option. The loans are typically in the range of 10-20% of your firm's annual sales and are repaid according to your business cash inflows, so that might be weekly or monthly as an example. These are unsecured loans with no external collateral required, although the lender might choose to register a financing statement against your business under Canada's PPSA laws. Important to note also that this type of business finance should not be considered if your firm is in a downward sales spiral .

Unsecured Cash Flow Loans / Mezzanine Financing - This funding option requires no external collateral or pledging of business assets. Naturally, your company must demonstrate it has a history of solid cash flow performance, with the loans typically tied to a 3-5 year maturity.

The common ' go to ' solution in the eyes of ownership/mgmt is to solicit chartered bank financing in Canada. If your firm has a strong balance sheet, profits, established history and additional collateral etc you'll find all the financing you need from our chartered banks who have virtually unlimited financing potential.

That's easy for us to say, but the majority of clients we meet simply can't qualify for all business credit and working capital they need to survive and grow. Typically they have some traditional financing but not enough, or, in a more severe case, do not qualify for traditional bank lending in the Canadian landscape. So what's the plan

When the going gets tough, the tough get going goes the expression, so it is a case of getting somewhat ' creative' in your search for working capital. If your firm has assets and growth prospects we firmly believe you can get most, if not all the financing you need.

Alternative Lending Solutions - Risk / Reward

Alternate financing for many firms in Canada, particularly in times of economic or industry crisis may provide the only business capital for your company. It's accessible, comes with a larger level of flexibility, and almost always comes with faster approval times when compared to traditional bank financing.

However, interest ratesand other terms should always be considered when looking for the best business financing option.

Asset based and cash flow monetization strategies can be achieved in a number of ways. This includes monetizing your current assets via a working capital facility for receivables and inventory. Properly set up you should congratulate yourself - You just negotiated unlimited working capital! The reason? These facilities allow you to borrow on an ongoing basis relative to the size of your current asset investment in accounts receivable and inventory.

We referred to the generalization of terms such as cash flow, working capital , etc - the lending we have just described is best known as asset based lending, and in many cases can cover off purchase orders and new contract financing also.

What about acquiring new assets for your business? Equipment financing and sale-leaseback financing for either new or owned/unencumbered equipment are great solutions to acquire or refinance capital acquisitions. In Canada lease financing is available for all asset and credit qualities for any amount, from small amounts to transactions in the millions of dollars.

Although the majority of clients we discuss working capital needs with are private firms your firm might be public, as a result, you might be in a position to consider an equity line of credit, with the equity questions being your stock.

If your firm has revenues under 5 Million dollars and is privately owned you should consider the best financing available in Canada - it's the government BIL/CSBF loan that is underwritten by our good friends in Ottawa., Industry Canada. This program is the Canadian equivalent of the U.S. ' SBA' loan program.

Note that these Government loans are available for hard assets such as equipment, leaseholds, real estate, etc. You can even be a start-up and qualify. The financing rate is incredibly attractive, guarantees are limited, and terms and structure flexible. This program is one of the great secrets in Canadian business financing.

It’s always about the bottom line, so what’s our bottom line today? Focus on what type of financing you need, determine if you qualify for traditional financing and if you don't get creative with a multitude of solutions available in alternative business solutions for business credit and working capital.

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




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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


Stan has over 40 years of

business and financing experience

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




Stan Prokop

Financing A Business And Solving Working Capital & Funding Needs

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When  Is  A  Working Capital Loan is Right for Your Company! Financing A Business For Your  Working Capital And Funding Needs

 

Many business owners turn to working capital loans any time they need to get their hands on some quick cash. The truth is that this type of loan is better used when you need to stay afloat, cover general operating expenses, and pay bills with invoice financing. These products essentially buy you some time so you can come up with new ways to generate revenue based on your existing assets and resources.

Financing a business always seems to come back to that tried and true (cliché?) term of cash flow to finance the daily needs of your business. So when it comes to loans for businesses in Canada it is no surprise that cash flow is often called the lifeblood of your company day to day operations.

What Is A Working Capital Loan Used For?

It's all about your day to day operations, not long term financial commitments such as leases for equipment financing, term debt, etc. The most common day to day cash needs include payables, the financing of accounts receivable, salaries, and fixed costs such as rent, utilities, etc.



No matter how overused the term might be most business owners and financial mgrs would not dispute the need for the right amount, and type of business funding . That involves taking a hard look at your balance sheet and reviewing the relationship of the current ratio items, namely your short term assets such as a/r and inventory, as well as obligations such as payables, loan payments, etc. That current ratio drives your working capital and cash flow loan needs.



The downside of not having, or being able to arrange cash flow and working capital financing is simply that you have a lesser ability to grow sales, maximize profits and take advantage of new opportunities.

So what in fact are the working capital and financing issues that are raised on an ongoing basis for your business?

Factors To Consider When Financing A Business

Key is understanding how your receivables, inventory, and other assets come together to drive working capital and cash flow. And, to our point, how do you finance those assets and those needs?



What are the real drivers in funding need - typically it's growing revenues, expanding, and in some cases buying or merging with another business.



Although most business owners/financial mgrs can't imagine having too much capital for their business that overabundance would actually mean you are not using capital properly! The bottom line, as experienced by most business folks, is that financing a business is actually a balancing act when business capital is sought.



One of the main things you should focus on is your ability to pay your current debt - On the balance sheet, your accountant shows that as ' current portion of long term debt ' - You always want to be in a position to meet these obligations as failure to do that means you are bordering on insolvency. All of that snowballs into major issues with your bank, your suppliers, and other creditors such as leasing or finance firms.



So as we have said, you need to be able to calculate, or measure working capital, and then address how you will satisfy the need that comes out of those numbers. There are some easy calculations you can perform in measuring your overall cash flow - it's really simply understanding your inventory and A/R turns, as well as having a handle on your accounts payable days outstanding.



If it was a perfect world you could raise all the working capital you need internally. How would that work?! Well, using an extreme example if you collected your receivables in 45 days, and turned your inventory in 45 days, and were able to pay your payables every 90 days you would be very self-financing.



Sounds great, except you can hear your suppliers and creditors now I bet... Also, the profits that you generate out of your business obviously become a new additional part of the working capital component and would even further benefit your overall position.



But let's get back to the real world, which states that if you have more current assets than current liabilities you 99% of the time need external working capital.



Canadian business owners achieve that additional working capital in a number of ways - the most beneficial is bank lines of credit, or in some cases, if your firm meets the criteria, a cash flow working capital loan. If you are unable to meet bank criteria and are still in a challenged or growing position then we advise clients to consider a non bank working capital or asset based lending facility.

How To Get A Working Capital Loan

Numerous new solutions in financing a business have emerged in Canada. That includes cash advance merchant lenders as well as common subsets of what is known as alternative financing. Those subsets, actual real world solutions include a/r financing, working capital term loans, tax credit financing, inventory finance, and mezzanine cash flow loans for more established firms.

When it comes to the merchant advance lenders the focus is on typical business credit optics such as how long your company has been in business, what your annual revenues are, and the overall turnover of current asset categories such as receivables and inventory.

Depending on the size of the transaction the personal credit history of the owner/owners is also a subject point in the overall decision. As far as ' working capital loan repayment ' works the formula is actually quite simple - a short term loan based on approx 10-20% of your annual sales that is repaid monthly, or sometimes weekly based on a review of your cash inflows.



If those receivables we discussed tend to be your main current asset than a factoring or invoice discounting facility makes the most sense. Most Canadian business owners don't fully understand how factoring in Canada works, and are often confused by the costs and process. At 7 Park Avenue Financial our recommended funding solution in this area is Confidential Receivable Financing. This is not a receivables loan but a true sales based cash flow financing facility.

It is critical to ensure that you are matching your business financing needs against either a long term or short term solution. When your company needs new equipment, real estate, etc the business owner and financial manager must explore options such as equipment loans or commercial mortgages where payments are fixed and amortized over longer terms.

When it comes to an ' operating loan ' solutions for your company include a traditional bank revolving credit facility or in some cases an alternative lending solution such as a non bank asset based lending facility.



The Canada Small Business Loan financing program, unfortunately, does not cover working capital needs, although the government's crown corporation non bricks and morter entity does offer long term working capital loans that come with prerequisites of profits and a reasonable balance sheet.



Export Development Corporation ( EDC Direct Lending ) and the somewhat related financing of refundable tax credits are solutions, but these facilities take a significant amount of time to set up. When exploring government loans or related financings it is strongly recommended that you use the services of a business financing consultant with expertise in this area.

Alternative lending Canada based solutions are continuing to dominate Canadian business financing needs and compete regularly with traditional business offerings provided by Canadian chartered banks and are truly an advanced alternative lending solution when traditional financing doesn't solve your business capital needs.

So what’s our bottom line recap - it’s simple!

Understand how much financing you need - that means ' measuring' your needs, as well as what type of funding suits that need. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a financing track record of success.






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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



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



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

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

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

business financing consultant

.

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


Stan has over 40 years of

business and financing experience

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









Stan Prokop