Working Capital Business Financing Sources

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YOUR COMPANY IS LOOKING FOR CANADIAN WORKING CAPITAL AND BUSINESS FINANCING SOURCES AND ALTERNATIVES!

A Guide to Business Financing Sources for Working Capital in Canada

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

        Financing & Cash flow are the biggest issues facing businesses today

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

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

EMAIL - sprokop@7parkavenuefinancial.com

 

  

Leveraging Business Financing Sources to Optimize Working Capital in Canada  

 

Working capital and small business financing sources are available to Canadian business owners and financial managers in several ways. 

 

INTRODUCTION

 

When we speak to clients about their needs and answer their questions in this area, it is simply a case of pointing out all the alternatives available and discussing what features and benefits of each type of facility make the most sense for their particular firm and industry.

 

Working capital represents a business's lifeblood and measures a firm's operational liquidity and short-term financial status. For firms operating in Canada, identifying the appropriate business financing to preserve and enhance more working capital is critical to growth, expansion plans, and continued profits.

 

Procuring the ideal financing is essential to a business's growth success. Business funding provides the needed resources to finance day-to-day operations, enter new markets, and invest in new technology and assets.

 

Business owners must examine various financing options to ascertain the best-suited solution to their unique requirements and situation. Each alternative comes with its benefits and drawbacks.

 

CHOOSING THE RIGHT SOURCES OF FINANCING FOR YOUR BUSINESS

 

Choosing the right source of business financing is a vital business consideration. This decision calls for an assessment of numerous elements including the expense of capital, the level of control maintained, accompanying risks, repayment conditions, and harmony with the business model. The secret to success lies in striking a perfect equilibrium between cost and risk while simultaneously ensuring the funding source resonates with the company's immediate and future objectives.

 

WHAT IS WORKING CAPITAL FINANCING?

 

Working capital financing is employed to fund your company's investment in short-term resources such as the company's investment in inventory and accounts receivable on the balance sheet - Working capital refers to key liquid current assets - short term financing solutions are also providing liquidity to support everyday operations like salaries/wages, overhead expenses, and other miscellaneous costs. 

 

Gross working capital  is the total amount of funds a company has in current assets versus Net working capital, which is the surplus calculated after deducting all current liabilities from current assets in measuring short term financial health and temporary working capital needs.

 

Often, small and medium enterprises rely on this form of financing when existing assets fail to cover their immediate liabilities.

 

 

 

SECURED VERSUS UNSECURED LOANS 

 

Most working capital loans and financing alternatives are secured, but that is not the case 100% of the time. With reasonably good financial health and equity in your firm, a cash working capital loan can be achieved at solid rates, terms and structures. This is generally not the norm, though, as most lending to small and medium businesses in Canada is secured somehow.

 

TRADITIONAL FINANCING OPTIONS - CANADIAN BANK LOANS AND LINES OF CREDIT

 

Financing typically brings to mind traditional options like bank loans and credit lines, often the primary go-to for numerous businesses. Banks and similar financial institutions provide these solutions with longstanding reliability. Let's delve deeper into each choice:

 

Bank loans:  Term loans from banks are set financing amounts to be repaid over a set term, with interest. Suitable for businesses showcasing good business credit history and solid financial performance around cash flow, profits, and healthy balance sheets.

 

A bank loan provides stability due to the lowest fixed interest rates and repayment terms. However, startups or businesses with low credit scores might find bank financing not accessible - these firms should consider various alternative lending solutions.

 

Lines of credit: This versatile financing option permits businesses to borrow up to a defined limit, functioning similarly to business credit cards—Companies borrow and pay back as necessary, paying interest only on the borrowed sum, a revolving line of credit that fluctuates.

Lines of credit suit businesses needing short-term financing or those desiring a financial buffer for unforeseen expenses.

 

 

SMALL BUSINESS FINANCING VERSUS LARGER CORPORATE FINANCE SOLUTIONS

 

For larger corporations, unsecured cash flow loans are more often than not called ‘subordinated debt,' and they are term loans structured around the analysis of the company’s ability to repay based on future cash flow forecasting.

 

Small business financing for smaller firms is simply a working capital solution that might have some covenants attached relative to ongoing profits and cash flow metrics.  Again, we can summarize these offerings by saying that cash flow unsecured loans are generally only available to firms with very good financial health and prospects and qualify for bank loan criteria for approval.

 

ASSESSING TYPES OF WORKING CAPITAL LOAN SOLUTIONS

 

In certain cases, the working capital and cash flow loans we have described above often relate to acquiring a business, with the funding provided to acquire the business.

 

LOANS VERSUS CREDIT LINES

 

A more common ‘working capital loan' is, in effect, not a  business loan per se but the financing of receivables and inventory / raw materials. In effect, your firm leverages these assets and turns them into ongoing working capital as you create inventory and receivables on an ongoing basis. In a line of credit facility, the business will pay interest only on funds drawn under the facility in this working capital finance solution from a lending institution.

 

THE GOVERNMENT OF CANADA SMALL BUSINESS FINANCING PROGRAM

 

Many business owners come to us and ask if there are ‘government loans' for working capital. The reality is that there is nothing available in Canada in that regard. The most common, successful and popular government loan program is the CSBFL program; thousands of businesses utilize this loan. The program is one of Canada's best loans to small businesses - bar none.

 

A solid business plan is a key program requirement - 7 Park Avenue Financial prepares business plans for clients that meet and exceed bank and other commercial lender requirements.

 

  

WHAT DO GOVERNMENT LOANS FINANCE?

 

Government financing alternatives may present a viable business financing alternative for businesses satisfying certain requirements.

The Government Of Canada Small Business Financing Program:  SBL loans are loans for small businesses in Canada with less than 10 Million dollars in sales revenue. The government guarantees loans to approved lenders such as commercial banks and some credit unions.

 

Changes to the Canada Small Business Financing Program in 2022  provide for long-term loans, sources of working capital and line of credit solutions, and a new 1.1 Million dollar loan cap, including affordable working capital loans for seasonal variable working capital needs.

 

Small business loans via the federal government program are solid financial alternatives as they have competitive interest rates and extended repayment periods. They are appropriate for businesses that align with the Canadian government eligibility standards and provide funds for business needs, such as working capital, equipment procurement, or commercial real estate purchases.

 

Talk to the 7 Park Avenue Financial team about how we can help expedite government loan financing.

 

Grants: These are non-repayable resources granted by the federal and provincial governments or other bodies to bolster specific business functions, research, or projects. Grants, not requiring repayment, thus become an appealing option for businesses. However, they are highly competitive, and the application process can be intricate and lengthy.  Talk to the 7 Park Avenue Financial team about grant financing / matching solutions.

 

  

DON'T FORGET TO FOCUS ON ASSET TURNOVER AND REDUCE YOUR FINANCING COSTS  

 

Some critical factors must be assessed and addressed when looking for a working capital solution. Many firms we meet can cure their working capital solutions by affecting a better turnaround in their receivables and inventory. Those are any firm's key working capital components of any firm to help address the company's short term operational financing needs via retained profits, etc.

 

A business has access to internal and external sources of capital, such as trade credit and delaying payables to vendor and trade sources - internal sources of financing and cash flow management. Businesses can also offer customers a prepayment discount if they pay before the terms credit period.

 

 ACCOUNTS RECEIVABLE FINANCING / CONFIDENTIAL A/R FINANCE 

 

If your firm has been self-financing, you should consider a working capital or an invoice discounting facility. This injects immediate working capital into your company and is not treated as a loan on your books. You are simply converting accounts receivable money owed to the business into quick cash.

 

Financing a business through accounts receivable factoring involves converting outstanding invoices into immediate cash. In this process, the factoring company pays a large portion of the unpaid invoice total - typically in the 80-90 % range - Companies receive the remaining balance, less financing costs, when the client pays the invoice.

 

Factoring as a financing method and working capital example is available solely for businesses that operate on credit terms. In this arrangement, the borrower (the seller) delivers a product (or service) and bills the customer, expecting payment at a future date. This anticipated future payment is recorded as an account receivable (a current asset) on the seller's balance sheet.

 

 

  

THE SHORT-TERM WORKING CAPITAL LOAN REVOLUTION   

 

Sometimes, a merchant cash advance, known as short term loans / working capital loans, might make sense for your business. These loans also finance future revenue receipts from credit cards / future credit card sales, which might apply to a retailer.

 

Many business owners we meet don’t even do basic cash flow planning. A straightforward template you can set up can easily show you what cash is coming in over the next three months, for example, and you already know your fixed and variable expenses. It’s as simple as that.

 

Working capital needs can be either short-term or long-term in nature. The cash working capital term loan we discussed earlier is a long-term solution for permanent working capital. On the other hand, converting your receivables and inventory via a working capital facility via a non-bank is immediate short-term cash flow.

 

CONCLUSION - SOURCES OF FINANCING IN CANADA

 

Are those venture capitalists/ angel investors not in sight !? ( Venture capital in Canada is for the smallest percentage of borrowers in Canada - and requires you to give up owner equity. Friends and family are a solution, but rarely the right one unless you're bootstrapping a startup or are ok with an angel investor-type partner.

 

Selecting the appropriate financing option for your business is a major decision that could significantly influence the business's financial success. Understanding the advantages and disadvantages of various financing alternatives and assessing your specific requirements is critical.

 

 It's crucial to seek professional advice and do the right amount of research on any business financing alternative.

Navigating the business financing landscape to secure working capital is critical to the success of any business operating in Canada. Understanding the intricacies of these sources, analyzing business needs, and making educated decisions are crucial for companies aiming to increase their working capital and boost their growth.

 

Work with a trusted, credible, and experienced advisor in real-world Canadian Business Financing solutions for small businesses in Canada.

 

Let the  7 Park Avenue Financial team assess your needs, evaluate the solution, and focus on implementing a facility based on the benefits of that type of financing. That is cash flow and working capital planning 101 when you want to finance your business for the growth potential you want to achieve.

 

 

Let the  7 Park Avenue Financial team assess your needs, evaluate the solution, and focus on implementing a facility based on the benefits of that type of financing. That is cash flow and working capital planning 101 when you want to finance your business for the growth potential you want to achieve.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  

 

What are the benefits of alternative lending?

 

Some may think that when people need financing, they are forced into traditional methods like loans from banks and other traditional lenders. However, there is an alternative option for entrepreneurs looking for working capital and startup funding; it's called "alternative lending." 

 

Successful startups and growing companies need working capital to grow. With no funding, they may never get off the ground- a scary reality for any entrepreneur seeking success in today's competitive market. If you're looking to avoid a traditional lender route, many options are available that could help a  business thrive! Finding out more about alternative financing methods is the first step towards getting what you deserve when it comes time to grow revenues and profits.

 

What is purchase order financing?

 

Purchase order financing is a short-term commercial finance option that provides capital to pay suppliers upfront for verified purchase orders. In such an arrangement, a third party agrees to provide a supplier with enough money to cover a customer's purchase order. Purchase order loans can finance an order in its entirety in some circumstances or just a portion of it in others.

 

What is the merchant advance short-term working capital loan?

 

 In return for a portion of daily credit/debit card revenues in the future, one can obtain merchant cash advances (MCAs), which are up-front payments into the company bank account based on future sales. The MCA is a sale of future income rather than a loan. Although this type of financing is pricey, it can be the best option for a company that performs a lot of credit card transactions but has little or no credit history. Companies in a seasonal business might use this short term finance solution for funding operating expenses.

 

What are crowdfunding and peer to peer lending?

 

In recent years, alternative financing options for raising funds have gained popularity among businesses, offering new avenues to secure funding. These options leverage technology and the power of the crowd to provide financing for share capital. Here are two alternative financing options worth considering:

 

**Crowdfunding:** Crowdfunding platforms, such as Kickstarter and Indiegogo, have revolutionized the way businesses raise funds/capital. With crowdfunding, businesses can pitch their ideas or projects to a large audience and collect small contributions from individuals. Crowdfunding is suitable for startups and businesses with a compelling story or innovative product that can resonate with the crowd. However, it requires careful planning, marketing efforts, and the ability to create a compelling campaign to attract backers.

**Peer-to-peer lending:** Peer-to-peer lending platforms, like LendingClub and Prosper, connect borrowers directly with individual lenders. Businesses can apply for loans and receive funding from individual investors. Peer-to-peer lending offers flexibility, competitive interest rates, and faster approval compared to traditional bank loans. However, it may not be suitable for businesses with poor credit or those in need of large loan amounts.

 

What are the pros and cons of angel investors and venture capital for equity financing?

 

For businesses with high-growth potential, venture capital (VC) and angel investors can provide significant funding and expertise. However, these options come with their own set of advantages and disadvantages.

**Venture capital:** Venture capital firms invest in early-stage or high-growth companies in exchange for equity. They provide not only capital but also guidance and mentorship to help businesses scale rapidly. Venture capital is suitable for businesses with an innovative product or service, a large market opportunity, and the potential for significant returns. However, securing venture capital can be highly competitive, and investors often require a substantial ownership stake and influence in the business.

**Angel investors:** Angel investors are high-net-worth individuals who invest their own money in startups or early-stage businesses and can assist a company in raising short-term capital. They provide capital, expertise, and industry connections to help businesses succeed. Angel investors are more flexible than venture capital firms and often invest in businesses that are too small or risky for traditional venture capital. However, finding the right angel investor can be challenging, and the process often involves networking, pitching, and building relationships.

 

What are factors to consider when choosing a financing option?

 

When evaluating and comparing different financing options, several factors should be taken into consideration:

 

1. **Business stage and growth plans:** The financing option that suits a startup may not be suitable for an established business. Consider the stage your business is in and its growth plans to determine the right financing fit.

 

2. **Creditworthiness and financials:** Lenders and investors assess the creditworthiness and financial health of your business before providing funding. Understand your credit score, financial statements, and other relevant factors to determine which options you qualify for.

 

3. **Interest rates and fees:** Different financing options come with varying interest rates and fees. Consider the cost of borrowing and ensure it aligns with your financial projections and ability to repay.

 

4. **Collateral requirements:** Some financing options and working capital loans may require collateral to enable the business to raise funds,  such as real estate or inventory, to secure the loan. Evaluate whether you have the necessary assets to meet these requirements.

 

5. **Repayment terms and flexibility:** Consider the repayment terms, such as loan duration, payment frequency, and flexibility. Ensure they align with your needs around more working capital and cash flow for business operations.

 

6. **Industry-specific considerations:** Certain financing options may be more prevalent or suitable for specific industries. Research industry-specific financing trends and consider whether there are options tailored to your sector.

 

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

SR&ED Refundable Tax Credit Financing : An Untapped Resource for Innovation Financing

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YOUR COMPANY IS LOOKING FOR  SR&ED TAX CREDIT  FINANCE!

SR&ED FINANCING FOR YOUR SR ED TAX CREDIT /Research And Development Tax Credit Canada

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

Financing & Cash flow are the biggest issues facing businesses today.

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

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

EMAIL - sprokop@7parkavenuefinancial.com

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

Leveraging SR&ED Financing for  Business Growth

 

SR ED refundable tax credit financing could well be called the perfect marriage of cash flow and the maximization of government tax credits for research in Canada.

 

These ' SRED LOANS '  for your research and development spending help to power the economy in several ways - which is, of course, why the Canadian government provides billions of refunds each year to qualified claims via sr&ed credits and the sr&ed tax credit program. Let's dig in.

 

 

INTRODUCTION 

 

Discover the power of SR&ED refundable tax credit financing! This Canadian government program incentivizes businesses to invest in research and development through refundable investment tax credits. Businesses can leverage these credits to access upfront funding, unlocking the full potential of a business. By exploring the benefits of this financial tool, you can enhance cash flow, support growth initiatives in r&d efforts, and maximize your financial potential.

With SR&ED refundable tax credit financing, you can receive funds before your claim is processed and approved by the Canada Revenue Agency (CRA).

 

1. Eligibility:

   • SR&ED tax credits are available to certain types of companies.
   • Canadian Controlled Private Corporations (CCPCs) are eligible for refundable tax credits, while other companies qualify for non-refundable tax credits.

2. How it Works:

   • SR&ED financing provides a loan based on the anticipated return from the SR&ED tax claim around sr ed projects
   • This helps address cash flow challenges, especially for startups and small businesses that require reinvestment in their operations and can't access  traditional financing via financial institutions such as banks and credit unions

3. Application Process:

   • The application process requires a detailed claim of the research and development work performed, along with associated costs as well as documentation around the claim

4. Benefits and Risks:

   • Benefits of SR&ED financing include immediate access to cash.
   • Risks can include financing costs ( but sred finance interest rates are low and competitive)  and the possibility of the SR&ED claim being denied or reduced by the CRA.
   • A SR&ED investment tax credit  can be deducted from income tax as well as also being a refund in the tax year

5. Case Studies:

   • There are hundreds of case studies of successful companies using SR&ED financing to support research that can illustrate its real-world implications and benefits.

6. Comparison with Other Funding Options:

   • Comparing SR&ED financing with other funding options like grants, traditional loans, and equity financing provides a broader understanding of available R&D funding choices - SR&ED funding is non-dilutive  to owner equity and brings no long-term debt to the balance sheet

 

 

CRA CANADA REVENUE AGENCY REFUNDABLE TAX CREDITS

 

We're the first to admit and agree that even the program's name is a bit too fancy and might well turn off many applicants. (SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT  ... aka ' SRED'!) That conjures up men and women in white coats, labs, etc. Yet the reality is that thousands of firms in almost every industry in Canada regularly successfully file claims for those billions of dollars we've mentioned. While some folks call them ' sred grants, ' they are, in fact, refundable tax credits and not a grant!

 

UNDERSTANDING SR&ED REFUNDABLE TAX CREDIT FINANCING

 

Refundable tax credit financing is a financial strategy that empowers businesses to access funds based on the value of their SR&ED tax credits. Instead of waiting for future tax credits, businesses can secure immediate cash flow through specialized financing companies. This unlocks the potential of SR&ED credits, enabling businesses to invest in growth initiatives and enhance their financial position.

The advantages of refundable tax credit financing are significant. It offers instant access to funds and allows businesses to utilize their tax credits without affecting their cash flow. This is especially beneficial for startups and small businesses that may lack the necessary capital for operations and research and development endeavours.

 

 

 

SR&ED & CASH FLOW!

 

 

Cash flow is essential for the survival and success of any business. It represents the movement of money in and out of a company and is vital for its day-to-day operations. Positive cash flow allows a business to meet financial obligations, pay employees, and invest in growth.  Negative cash flow can lead to financial struggles, missed opportunities, and even the risk of financial failure.

Managing cash flow becomes particularly challenging for businesses involved in research and development (R&D) activities. These projects often require significant upfront investments, with returns realized over a longer timeframe.

This creates a cash flow gap, where businesses struggle to cover expenses while awaiting the benefits of their R&D efforts.

 

To address this challenge, refundable tax credit financing provides a solution. By unlocking the value of SR&ED tax credits, businesses can bridge the funding gap and ensure a consistent cash flow. This empowers them to sustain their project investments, attract business talent,  and pursue growth opportunities without the limitations of limited capital.

 

 

WHY CASH FLOW YOUR SR ED  CLAIM REFUND? THE SHRED PROGRAM CANADA

 

 

Cash flowing your claim maximizes and accelerates funds for eligible applicants, typically private companies and partnerships. Many business owners and financial managers who either are not fully aware of the program or misunderstand it for sr&ed funding somehow feel they need to show profitability or other forms of creditworthiness to both files and finance their claim.

 

Let's explore the benefits of utilizing refundable tax credit financing:

1. Immediate access to funds: One of the key advantages of refundable tax credit financing is the ability to gain immediate access to funds. Rather than waiting for future tax credits, businesses can receive upfront cash, enabling them to invest in their operations and growth initiatives right away.

2. Enhanced cash flow: By monetizing their SR&ED tax credits, businesses can improve their cash flow significantly. This infusion of funds provides the necessary resources to cover expenses, meet payroll obligations, and invest in crucial research and development activities, reducing reliance on existing capital reserves.

3. Flexibility and control: Refundable tax credit financing offers businesses the flexibility to allocate funds according to their specific needs. Whether it's expanding their workforce, acquiring essential equipment, or entering new markets, businesses have the freedom to utilize the funds in a manner that aligns with their growth strategies and objectives.

4. Risk mitigation: Research and development projects inherently carry risks, making financial stability paramount. By leveraging refundable tax credit financing, businesses can mitigate some of these risks by ensuring they have the necessary funds to support their operations. This reduces the financial burden and allows businesses to focus on innovation and achieving their goals with greater confidence.

 

THE ROLE OF YOUR SR&ED CONSULTANT IN PREPARING A QUALIFYING CLAIM

The fairly technical work in preparing a claim is usually handled by an SR&ED consultant. These folks prepare the majority of claims, and having a credible/experienced consultant is one key factor that enhances your claim's ability to be financed.

 

Qualified consultants help to maximize a claim add credibility to their approval from Canada Revenue and, as we noted, help the financing approval.

 

When businesses aim to claim SR&ED benefits, they are required to submit a comprehensive T661 Technical Narrative. This document outlines the project's objectives, the technical hurdles encountered, and the efforts made to overcome them. Claims can be made for three types of expenditures: employee and owner salaries or wages, fees paid to Canadian subcontractors, and material costs.

 

While businesses cannot claim the full amount of these expenses, they are eligible to claim significant portions, with Canadian Controlled Private Corporations (CCPCs) typically having higher claim potentials compared to non-CCPCs.

 

PREPARING YOUR REFUNDABLE TAX CREDIT SR ED CLAIMS VERSUS FINANCING YOUR CLAIM

 

The total cost of preparing and financing an SR&ED tax credit filing claim for the r&d tax credit in Canada is really two separate matters. Preparation consultants typically work on a contingency fee, although the fee for service preparation is absolutely available also. We've observed business owners appear to prefer consultants on contingency because these folks absorb all the time and financial risk involved in filing a claim.

 

SR&ED LOANS ARE SHORT TERM BRIDGE LOANS WITH NO MONTHLY PAYMENTS ON YOUR REFUNDABLE TAX CREDIT

 

SRED Loans are usually ' bridge loans ' - your company receives 75% of the total claim as a cash flow loan - no monthly payments are made in the interim period while you are waiting for claim approval. That other 30% of your funds? You receive it as soon as the claim is approved and funded by the govt, less financing costs.

 

One top expert compares your SRED claim under Canada's sr ed program to a well-executed high school class experiment that’s well documented and supported by Canada Revenue Agency CRA.

 

CASE STUDIES / EXAMPLES

 

Let's explore some real-life case studies that demonstrate the effectiveness of refundable tax credit financing: At 7 Park Avenue Financial we've worked with many technology companies that include startups and firms focused on software development such as tech firms specializing in developing cutting-edge software solutions.

 

To create their groundbreaking product, these firms conduct extensive research and development activities and encounter cash flow gaps due to the upfront costs involved.

 

By utilizing refundable tax credit financing, they can access immediate funds based on their SR&ED tax credits. This injection of capital allowed them to hire additional developers, enhance their product, secure new contracts and grow sales revenues. The financing provided the necessary cash flow boost, positioning them for rapid growth and success.

 

Manufacturing companies that heavily invest in research and development will often have multiple ongoing projects requiring significant capital investments, they can turn to refundable tax credit financing.

By leveraging their SR&ED tax credits, they access funds that enabled them to expand their operations, acquire new equipment, and develop innovative products. The financing solution around nd the sr ed refund ensured a positive cash flow, empowering them to continue innovating and staying competitive in the market.

 

 

CONCLUSION - Scientific research and experimental development tax incentive program 

 

 

SR&ED financing has the potential to revolutionize businesses seeking to strengthen their research and development endeavours, enhance their capacity for innovation, and gain a competitive advantage. As the Canada Revenue Agency (CRA) streamlines the application process and expands its acceptance of diverse projects, the SR&ED program becomes a vital pathway for Canadian businesses aiming to elevate their innovation strategies. It is imperative for businesses to grasp the program's intricacies, recognize the potential benefits it offers, and make informed choices that propel their innovation aspirations forward.

 

 

Our final point on tax credits today for Canadian businesses? Simply that if you're not familiar with either the program itself or the financing of your claim, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in that beautiful marriage of cash flow and the govt refundable sr ed credit.

 

 FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION 

 

 

How does sr&ed refundable tax credit financing work?

Refundable tax credit financing is a relatively straightforward process that involves working with specialized financing companies. Here are the general steps:

 

1. Eligibility assessment: Determine if your business qualifies for SR&ED tax credits by evaluating your research and development activities to conduct research and expenses against the government's eligibility criteria around scientific and technological uncertainty and furthered technical knowledge - i.e. Did the effort involve formulating  a result specifically aimed at reducing or eliminating  uncertainty

2. Application and filing: File the necessary documentation, such as technical reports and financial statements, to apply for SR&ED tax credits. Ensure accuracy and completeness for maximizing potential credits

3. SR&ED review and approval: Your application will be reviewed by the government to assess eligibility and determine the value of tax credits. Additional information or clarification may be requested based on the technical challenges involved. Once approved, you will receive a Notice of Assessment.

4. Engaging with a financing company: Explore options for refundable tax credit financing with a reputable company specializing in SR&ED tax credits, considering their industry experience in the sr ed claim process. Accrued sr ed claims can also be financed prior to filing for more effective and immediate cash management

5. Agreement and funding: Enter into an agreement with the financing company, specifying the funding amount of the eligible sr ed loan,  fees, interest rates, and repayment terms. Once signed, funds will be provided based on the value of your SR&ED tax credits

6. Using the funds: Utilize the funds to support your business activities, such as research and development of continued sr ed expenditures, expanding operations, or improving cash flow. Have a clear plan in place to ensure effective use and contribute to business growth.

 

What are the eligibility criteria for SR&ED and refundable tax credits?

 

• Scientific or technological advancement: Research and development activities should result in advancements beyond current knowledge or availability.

• Systematic investigation or search: Activities must involve a systematic approach to advance scientific knowledge or create new technologies.

• Experimental development: Projects should include experimental development to achieve technological advancement or create new products, processes, or materials.

• Technical uncertainty: The projects must address technical uncertainties that require investigation and experimentation.

• Documentation and record-keeping: Maintaining detailed documentation and records, such as technical reports, financial statements, and project descriptions, is essential to support SR&ED claims of these tax incentives

 

It's important to consult with tax professionals or specialized consultants to ensure you meet the eligibility criteria and maximize your chances of qualifying for SR&ED tax credits.

 

What is the role of a sr&ed consultant?

 

Working with specialized consultants or tax professionals who have expertise in SR&ED tax credits can significantly improve your chances of success. These professionals can help you navigate the complex eligibility criteria, ensure accurate filing, and maximize your refundable tax credit financing options.

 

What are  4 Common misconceptions about  sr&ed and refundable tax credit financing

Despite the many benefits of refundable tax credit financing, there are some common misconceptions that prevent businesses from taking full advantage of this financial tool. Let's address these misconceptions and provide clarity:

 

1. Misconception: It's too complicated.

   • Clarification: Working with specialized consultants or financing companies simplifies the process and provides expert guidance.

2. Misconception: It's only for large businesses.

   • Clarification: Refundable tax credit financing benefits businesses of all sizes, including startups and SMEs.

3. Misconception: It's too expensive.

   • Clarification: While there are fees and interest rates, the immediate access to funds and increased cash flow offset the costs. Evaluate the long-term impact on business growth and profitability.

4. Misconception: It's risky.

   • Clarification: By partnering with reputable financing companies and conducting due diligence, risks can be mitigated. Choose a financing partner such as 7 Park Avenue Financial with a proven track record and industry experience in Canadian business financing and investment tax credit financing and sr ed tax incentives

 

What are some Alternative financing options for businesses

While refundable tax credit financing is a powerful tool, it's essential to explore other financing options that align with your business's needs and objectives. Here are some alternative financing options to consider:

 

1. Traditional bank loans:

   • Lower interest rates and longer repayment terms
   • May require collateral and have stringent eligibility criteria

2. Grants:

   • Government funding for specific costs
   • Non-repayable funds
   • Specific eligibility criteria and detailed application process

3. Venture capital:

   • Suitable for high-growth potential businesses
   • Equity investment in exchange for funds
   • Provides significant capital and industry expertise
   • Involves giving up partial ownership and control

4. Government funding programs:

   • Beyond SR&ED, explore other government funding programs
   • Grants, loans, or subsidies available
   • Supports various purposes like export development, innovation, and job creation
   • Research and understand specific programs and eligibility criteria in your jurisdiction

 

What is The Economic Impact of SR&ED Financing on Canadian Innovation

1. Encourages R&D investment by providing tax incentives and grants.
2. Stimulates economic growth through increased innovation and technological advancements.
3. Enhances productivity and competitiveness of Canadian businesses.
4. Attracts foreign investment and skilled talent to the country.
5. Strengthens collaboration between industry, academia, and research institutions.
6. Diversifies the economy by promoting innovation in various sectors.

These factors collectively contribute to Canada's long-term competitiveness and prosperity by fostering a thriving innovation ecosystem.

 

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

7 Ways To Finance A Business Acquisition in 2023

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YOU ARE LOOKING TO BUY A BUSINESS!

 HERE IS  YOUR INSIDE INFORMATION ON FINANCING A BUSINESS ACQUISITION IN CANADA

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

Financing & Cash flow are the  biggest issues facing business today

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

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

 

 

 

SMALL BUSINESS ACQUISITION FINANCING  IN CANADA  

 

 

Acquire a company?  That’s one way to beat the ‘organic growth ‘path to business success, and it can be a proven strategy  ... when done properly.  How then does the owner/entrepreneur successfully finance a business acquisition?

 

Some experience in the area helps - given that different sources of finance in this area demand different approval criteria for successful advantages of acquisition to eliminate financing risk in financing an acquisition. Let's dig in.

 

 

INTRODUCTION 

 

Acquiring a business provides business owners and entrepreneurs with opportunities for growth and expansion. However, financing such an acquisition is a crucial aspect that requires careful consideration to eliminate acquisition risk around the target company.  Understanding the different methods of acquisition financing will provide buyers of a business with the opportunity to acquire a company successfully.

 

 

UNDERSTANDING ACQUISITION FUNDING / FINANCING  

 

Acquisition finance is all about the business capital you need to fund the purchase of a business. It provides the immediate resources you need to complete the acquisition and commence operations and benefit from areas such as the economy of scale.

 

 

  WHY BUY AN ESTABLISHED  BUSINESS?  

 

The ability to buy a company with a working and successful business model can't be overestimated - employees, existing assets and a revenue base are all good things! ' Time to market is virtually eliminated, via an established client base, given that building a brand and market share takes time!

Existing cash flows make it more feasible to attract additional financing to grow the business. These days it is all about the supply chain in your industry, so an existing network of suppliers, vendors and systems and processes is more than invaluable!

 

For more info from the Harvard Business Review on those ' rules ' and benefits to acquiring a business, click here for the article. We particularly like HBR's rule # 5 on how to acquire a business with a loan  - don't buy a failing business!

  

 

  

WHAT FINANCING STRUCTURE WILL MAKE YOUR TRANSACTION WORK?

    

 

 

When buying/acquiring a business or merging your business into another (That’s the 'M ' in m&a), it’s important to visualize the company's ultimate structure. While it's preferable that your target business has little or no debt, strong cash flow, and valuable assets, the reality is that's not always going to be the case. Therefore different types of acquisition financing are required to shore up the overall ' business valuation' of the target company in connection with your process of due diligence and a better guarantee of being successful with acquisition financing lenders.

 

  FOCUS ON THE FINANCIAL STATEMENTS AND DUE DILIGENCE 

 

As we have said in the past, financial statements don't provide a ' magic number ' for value, but properly completed (and available), they should show you the business's cash flow situation. Again, the past is not the future, so careful examination of future financial potential is key in a financial acquisition.

 

Prior to pursuing closing a business acquisition buyer should focus on a proper level of due diligence which will typically involve a solid analysis of the target business and close examination of financial documents such as a business credit report, the financial statements / federal income tax returns,  quality of assets, liabilities and areas around sales and marketing such as market position and growth potential. Solid due diligence = informed decision-making.

 

It is often appropriate to seek the advice and guidance of a trusted business finance advisor such as 7 Park Avenue Financial, as well as your accountant or lawyer - all of whom can provide expertise in evaluating risk and financing options, and terms of sale, and ensure an optimal financial structure is achieved.

 

  

 

SHARE PURCHASE VERSUS  ASSET PURCHASE?  

 

Buyers must also determine if they are buying the ' shares' of the business or the ' assets.' There's a big difference in tax obligations here, and this is where it's best to consult your lawyer or external accountant.  Sellers need to consider the fact that there is no real ' market ' for private company shares.  The buying and selling of businesses rely then on proven ' formulas' for valuing a business.

 

  

HOW ARE BUSINESSES VALUED?  

 

Different industries are valued in different ways  - Valuation may be done on income,  market comparables, and valuation of assets. etc. Prospective purchasers should focus on gross and net income and what adjustments might be needed to make those numbers make sense in the acquisition -

 

Smaller businesses need to be looked at differently as they typically generate only small profits. Numerous adjustments must be made to ' normalize ' the financials. That process will provide a more accurate picture of cash flow and profit.

 

Those valuations typically include giving a multiple to cash flow, profits, sales, or some combination of those. In some cases, it's all about the business's assets,' so both a buyer and seller would benefit from a third-party independent appraisal of any assets on the balance sheet if required. While sellers will maintain an overall ' glossy ' outlook on assets... it's buyer beware when it comes to sellers' risk.

 

On larger, more complex transactions, a 'fairness opinion' will help a transaction - that type of solution to value is much less rate in the SME/SMB marketplace for acquisitions and buyouts.

 

Example: Specialized assets will require additional due diligence. A good example of that might be intellectual property.  Additionally, real estate might often be a part of your transaction. That can be addressed in several ways - as that type of asset is typically, but not always, held in a separate holding company as part of a long-term owner strategy. 

 

The quality of the financials and the business's performance historically dictate what type of financing you will need to complete a transaction when financing an acquisition with debt. Poor profits, high levels of debt, and other operational deficiencies will dictate finance solutions. Ultimately understanding the working capital and assets is key. Remember also that in the small to medium enterprise area, ' Goodwill  ' is rarely, if ever, financeable on that balance sheet.

 

The ability to  ' sell yourself ' as a manager with skills is key.

 

  

7 WAYS TO FINANCE  A BUSINESS PURCHASE IN CANADA   

 

Let's get back to our actual financing options when acquiring a business and those sources of funding.

 

They include:

 

Canadian chartered banks - Bank loans and lines of credit from traditional financial institutions such as credit unions and banks  can offer the ability to secure loans and lines of credit for acquisition financing at favourable rates via cash flow lending solutions. Purchasers seeking bank financing must meet strict loan criteria and the ability to demonstrate sales revenues, profits, and an asset base of collateral. Owners should be able to demonstrate a minimum credit score in the 650 range via a personal credit report.

 

 

The Government  of Canada guaranteed ' Small Business Loan.'  The government of Canada's federal loan guarantee program can finance business acquisitions under 1 Million dollars. It provides financing for purchasing an existing business with low down payment requirements and offers competitive interest rates and flexible repayment terms under a term loan structure.

 

Similar to bank financing borrowers must meet traditional loan requirements around net worth, personal credit score, business and income history, etc. Many franchises are financed under these government small business loans via this program in Canada, and changes to the Government SBL program in 2022 increased loan size and type of financing available. The program is similar to the U.S. SBA loan and variable-rate loans are also offered, as well as a limited personal guarantee.

 

Asset-based loans and lines of credit - are utilized for leveraged buyouts and asset-intensive companies, thereby providing maximum leverage on assets for the existing company

 

Sale-leaseback strategies on owned assets with loan payments around tailored cash flow needs

 

Unsecured cash flow term loans / Mezzanine Finance

 

Seller financing participation - i.e. the 'VTB.' / Vendor financing and seller financing in a business sale.  Establishing a creative earn with the seller will almost always help your transaction. This type of finance contributes to the buyer's down payment and benefits both buyer and seller as it brings some financial flexibility into the transaction and reduces borrowing costs around the buyer purchasing the existing business outright.

 

Buyer equity - equity financing vs debt financing must be balanced according to your goals and capability to successfully complete the transaction.

 

One or more often, a combination of these finance solutions will help finalize a financing structure that works best for your purchase. The interest rate on any debt financing will vary based on deal size and type of financing.  A business plan for financing will almost always be required to effectively present your transaction most positively. 7 Park Avenue Financial business plans meet and exceed bank and commercial lender requirements.

 

Taken into consideration also must be the financing for equipment that might be needed to grow the business - that is most often accomplished via effective equipment leasing to conserve working capital.

 

While larger deals might be able to secure private equity or a public listing for financial success, the real meat and bones of the small to the mid-market area of acquisitions rely on those 7 strategies ( or combinations of them ) that we highlighted above. Many firms are also acquired via a management buyout - Click here for information on buyout financing solutions.

 

 POST ACQUISITION FINANCING  

 

 Buyers of a business should ensure they have solid post-acquisition financing in play with a realistic plan to ensure financial viability s the newly acquired business moves forward - This includes lines of credit, lease financing of new asses and technology, and good financial management and cash flow and cost controls.

 

  

  

BALANCING THE ADVANTAGES AND DISADVANTAGES OF BUSINESS ACQUISITION  

  

 

Most of the advantages of buying an already established business are obvious, most notably, eliminating the challenge of starting a  business from scratch. However, there are also some potential risks and disadvantages, such as the costs associated with the value placed on assets, brand, goodwill, proprietary technology, etc. If you as a buyer have limited expertise in the target company industry, the learning curve can be steep - As one of our mentors once said, ' tuition is costly in the school of experience'!

 

Other issues to contend with are the potential inability to address employee issues or properly assess future financing needs. We all hate surprises, and the surprise around potential product/service and client issues can be a major challenge. In the technology environment, reinvestment in outdated assets can prove to be a financial burden.

 

Naturally, with a proper level of due diligence, the vast majority of issues can be addressed in the early stages of preparing your offer to purchase.

 

  

CONCLUSION - NEED TO FINANCE AN ACQUISITION?   

 

Acquisition finance should be viewed as strategic planning around the various financing options available, ensuring the business is best positioned for a successful acquisition. Focusing on due diligence and getting the right advice on purchase considerations is key and will help maximize the benefits of the

 

If you're looking for expert help and real-world financial solutions to buying a business, seek out and speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in your business acquisition finance needs. When it comes to finance a small business acquisition, let our team help you finance the purchase of an existing business.

 

FAQ: (FREQUENTLY ASKED QUESTIONS) / MORE INFORMATION / PEOPLE ALSO ASK

 

How Do You Finance A Business Acquisition

After a potential purchaser establishes a value on the target company they wish to buy, a value/purchase price must be established around the amount needed for a business acquisition loan.

The most common way to establish value is the ability of the company new generate profit. A common formula is ' EBITDA' - which is calculated by earnings before interest, taxes and depreciation. An industry multiple is then put on that number.

 

Why is Goodwill An Asset?

Goodwill on the balance sheet of a company is the amount over the value of tangible assets of the business. It is viewed as an asset because its benefits are long-term and extend beyond the financial statements period. Components of goodwill might be brand value, client lists, propriety technology etc. There is often a challenge in financing goodwill in business acquisition loans based on the fact it is an intangible asset.

 

 What are the common options for acquisition financing?

 

The common options for acquisition financing include traditional bank loans, lines of credit, private lenders, Small Business acquisition loans under the Canada Small Business Financing Program, debt security (such as issuing bonds for larger transactions ), and owner financing.

 

What factors should I consider when choosing an acquisition financing method?

 

When choosing an acquisition financing method, consider factors such as interest rates, repayment terms, collateral requirements, eligibility criteria, associated fees, and the financial stability of the acquiring and target businesses.

 

How can due diligence impact the success of a business acquisition? 

 

Due diligence plays a crucial role in the success of business loans in acquisitions. It involves conducting a thorough analysis of the target business, including its financials, assets, liabilities, market position, and growth potential. Effective due diligence helps mitigate risks, make informed decisions, and assess the viability of the financing arrangement.

 

 What are some best practices for managing finances after acquiring a business?

 After acquiring a business, it is essential to create a realistic repayment plan, manage cash flow effectively, control costs, and integrate the acquired business's operations seamlessly. Seeking professional advice from financial advisors, negotiating favourable terms, and implementing sound financial management practices are also recommended.

 

 

 

 

 

 

 

 

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

Alternative Financing For Business Cash Flow In Canada

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Financing & Cash flow are the  biggest issues facing businesses today

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

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

 

 

Accounts Receivable Factoring In Canada 

 

Alternative business financing for some folks might mean thoughts of their ' first trip to the rodeo '.

 

Not us though, so we're sharing some of the best invoice factoring company cash flow solutions for immediate financing for your sales revenues that are available in Canada today.

 

INTRODUCTION

 

Factoring is an alternative financing solution that addresses the cash flow struggles of business owners.

It allows businesses to convert the investment in accounts receivable into immediate cash, providing a boost to positive cash flow and supporting ongoing growth and business needs.

Traditional financing options often fall short for businesses seeking working capital, particularly small to medium-sized enterprises and SME companies in Canada help power the economy.

Financing receivables in different ways available offers an attractive alternative, enabling businesses to cash flow their accounts receivable.

 

  

WHAT IS FACTORING?  

 

Factoring is a financial transaction where a business sells its accounts receivable to a third-party factor at a discounted rate. This provides the business with immediate cash instead of waiting for customers to pay their invoices.

 

The factor takes over the responsibility of collecting payment from customers, allowing businesses to access funds for expenses, growth initiatives, and maintaining cash flow. Factoring is well-suited for industries with extended payment cycles, such as manufacturing, wholesale, and transportation. It enables businesses to unlock the value of their unpaid invoices and convert them into working capital, addressing their financial needs.

 

Many private companies in search of SME COMMERCIAL FINANCE solutions have the one prerequisite for this type of financing: Sales and a customer base!  These firms often cannot secure funding from what we term ' traditional banks  ' because they can't satisfy some of the basic criteria for bank loans and business revolving credit facilities to draw funds

 

. An investment in a/r will find the business needs large amounts of cash if cash flow decreases drastically, or the time period for a relatively low level of cash flow lasts long.

 

 

 

ACCOUNTS RECEIVABLE FINANCING - BACK TO A HEALTHY BALANCE SHEET! 

 

Therefore invoice discounting becomes a logical and readily available solution for the business owner as your firm receives cash for a significant portion of the invoice value ( typically 90% ) before customers pay. This funding option is preferred by many businesses because it does not involve a long-term commitment.

 

 

WHAT ARE THE BASIC REQUIREMENTS IN ORDER TO GET A FACTORING FACILITY IN PLACE 

 

Those requirements? Strong financial statements, assets, collateral, cash flow, and positive credit history. Have we forgotten anything? Yes, that focus is on personal guarantees.  (Note - Personal guarantees are a part of almost any financing for small to medium businesses - but with Canadian banks, they are a key focus point) Due diligence is often completed very quickly via an efficient application process.

 

FACTORING VERSUS TRADITIONAL FINANCING OPTIONS

 

While factoring offers numerous benefits, it's essential to understand how it compares to traditional financing options from traditional financial institutions such as Canadian banks.

Here are some key differences:

 

1. Creditworthiness: Unlike traditional financing options that prioritize a strong credit history and collateral, factoring relies on the creditworthiness of customers. This enables businesses with imperfect credit or limited assets to still access capital through factoring without collateral or emphasis on personal guarantees.

2. Time to funding: Traditional financing methods via banks and business-oriented credit unions involve lengthy application and approval processes, causing delays in accessing funds. In contrast, factoring offers immediate same-day cash as a company generates sales revenues, ensuring quick and seamless access to working capital via a streamlined financing process.

3. Debt vs. sale: Traditional financing involves taking on additional debt with interest charges and repayment obligations. Factoring, however, entails selling accounts receivable without incurring debt or interest charges, providing businesses with cash reserves and funds without adding to their debt burden. No debt comes onto the balance sheet!

4. Credit management: With traditional financing, businesses must handle credit and collection processes themselves. Factoring allows businesses to outsource these tasks to the factor, saving time and resources. Past due payments in excess of invoices older than 90 days cant be financed as they infer uncollectibility.

5. Funding limits: Traditional financing options often have funding limits based on collateral or creditworthiness. Factoring provides funding based on the value of accounts receivable, allowing businesses to access a larger amount of capital. As a company grows the factoring facility grows also.

 

 

WHAT ARE COMMON MISCONCEPTIONS ABOUT FACTORING RECEIVABLES?

 

Factoring, despite misconceptions, offers several benefits that debunk common misunderstandings about funding receivables -

1. Factoring is not only for struggling businesses: Factoring is utilized by successful businesses of all sizes as a strategic tool to manage cash flow and support growth. It is suitable for startups as well as well-established companies across various industries. Some of the largest businesses in Canada utilized this method of financing - Larger corporations call it securitization!

2. Factoring is cost-effective: While factoring involves fees for the funding of the unpaid invoice, the value it provides in terms of improved cash flow, working capital access, and outsourced credit management often outweighs the cost. Additionally, factoring can help offset expenses by taking advantage of early payment discounts from suppliers.

3. Control of customer relationships is maintained: When partnering with a factoring company that offers non-notification a/r financing businesses retain control of their customer relationships. The factor acts as a financial partner, not a customer service representative. Businesses can continue to communicate with customers and uphold existing relationships.

4. Factoring is a proactive financing solution: Factoring is not a last resort but a proactive approach to financing. By leveraging accounts receivable, businesses can access the capital in their business bank account at their current financial institutions - no need to change banks! - Allowing the business to capitalize on opportunities and achieve growth objectives. Factoring empowers businesses to take control of their cash flow and drive profits and growth.

 

 

 

WHY A/R FINANCING WORKS!

 

Why does accounts receivable financing, aka ' invoice factoring' work so well then? For one reason it's because your clients are often broadly diversified and represent a good credit risk to the lender in terms of diversification. Firms whose client base includes larger well-known companies find themselves in even better shape when it comes to negotiating receivable finance rates and terms.

 

WHAT IS  THE BEST A/R FINANCING SOLUTION?! - SPOILER ALERT - ITS ' CONFIDENTIAL'

 

Our recommended solution in this whole area? We thought you would never ask! It’s CONFIDENTIAL RECEIVABLE FINANCING – Allowing your firm to bill and collect its own invoices, thereby financing all your sales, with no notification to any supplier, client, etc.! Check it out. The factoring fee is also very competitive.

 

Firms that are ' service ' firms find themselves even in greater need than typical mfg type companies. That's because one of their prime expenses is payroll which creates a high cash flow need, coupled with the fact that they don't have a heavy investment in fixed assets, inventories, or other collateral. In the cases of ' tech ' firms, their assets might in fact often be the intellectual property of intangibles such as software, etc.

 

Even if your clients are overseas/international those receivables can also be financed under a factoring solution by adding a credit insurance component to your borrowing facility as a strong add-on tool for a  small business expanding internationally.

 

  

  

  

 

 WHY DO COMPANIES UTILIZE INVOICE FINANCING?        

 

If there is one reason (among many) that thousands of business owners/financial managers utilize invoice factoring / A/R financing is that it's fast and flexible. In the case of growing companies, the problem is even more basic:

 

Their revenues are growing faster than their access to credit lines!

 

Why does the factoring company itself like your business? Simple! They aren't lenders per se, they don't offer business debt, they are simply purchasing your receivables on an ongoing basis in order to provide your firm with the working capital it needs. No new debt comes on your balance sheet.

 

Unlike our regulated Canadian banking system factor firms don't have any of the legal or regulatory issues that challenge major Canadian financial institutions such as banks and insurance companies.

 

  

CASE STUDIES AND SUCCESS STORIES   

 

At 7 Park Avenue Financial, we've worked with numerous companies that have utilized an a/r financing solution or a full-service asset-based lending line of credit -

 

1. Company A, a manufacturer in the industrial equipment sector, overcame cash flow challenges by utilizing factoring. The immediate cash obtained from factoring invoices allowed them to meet supplier payments and invest in new equipment. With improved cash flow, Company A experienced significant growth, fulfilling larger orders and expanding its customer base.

2. Company B, a transportation company, utilized factoring to address fuel costs and payroll challenges arising from delayed customer payments. Financing receivables allowed the company to secure immediate cash flow and utilized it to maintain its fleet, cover expenses, and hire additional drivers. This improved capacity and cash flow positioned Company B as a reliable and competitive player in the transportation industry.

3. Company C, operating in the staffing industry, faced payroll obligations due to lengthy payment terms from their clients. By partnering with a factoring company, they accessed immediate cash for their invoices, ensuring timely payment to their employees. This improved cash flow allowed Company C to attract more clients, expand its workforce, and diversify service offerings.

 

 

 

The bottom line - any company selling business to business with valid accounts receivables for products or services delivered can benefit from accounts receivables financing.

 

 WHAT INDUSTRIES USE FACTORING AS A WORKING CAPITAL SOLUTION? 

 

Factoring is a versatile financing solution that can benefit businesses across various industries. Here are some examples of industries that can leverage factoring:

 

• Manufacturing: Factoring helps manufacturers bridge cash flow gaps caused by long payment cycles, enabling timely payment to suppliers and investment in production capacity.
•  
• Wholesale: Wholesalers can utilize factoring to access immediate cash for invoices, ensuring a continuous flow of working capital to restock inventory and meet customer demand.
•  
• Transportation: Factoring assists transportation companies by providing immediate cash for invoices, allowing them to cover expenses, invest in equipment, and expand their operations.
•  
• Staffing: Factoring supports staffing agencies in meeting payroll obligations by offering immediate cash flow, ensuring timely payment to employees and attracting new clients.
•  
• Construction: Factoring benefits construction companies by providing immediate cash for invoices, ensuring timely payment to subcontractors and suppliers, and facilitating the pursuit of new projects.

 

 FACTORING AS A GROWTH STRATEGY?

 

Factoring offers small businesses a powerful growth strategy by unlocking the value of their accounts receivable. Here are ways in which factoring contributes to the growth of small businesses:

1. Increased working capital: Factoring provides immediate cash flow, enabling small businesses to cover expenses, invest in marketing and sales, and pursue growth opportunities.

2. Improved cash flow management: Factoring bridges the gap between invoicing and customer payments, ensuring a consistent cash flow. This helps small businesses meet financial obligations, pay suppliers on time, and maintain a healthy operation.

3. Ability to seize opportunities: Factoring provides working capital that allows small businesses to seize growth opportunities. This includes investing in equipment, hiring staff, and expanding into new markets.

4. Outsourced credit management: Partnering with a factoring company allows small businesses to outsource credit management tasks. The factoring company handles credit evaluation, payment monitoring, and collections, freeing up resources for core operations and growth strategies.

 

  

 

KEY TAKEAWAYS  

 

Factoring offers several key advantages that make it an attractive financing option for businesses:

1. Improved cash flow: Factoring ensures a steady stream of working capital and cash flow by providing immediate cash for invoices, allowing businesses to meet short-term business needs and financial obligations as well we investing in growth opportunities.

2. Access to working capital: Factoring is accessible to a wide range of businesses, providing them with access to working capital that may be unavailable through traditional financing options.

3. No debt on the balance sheet !: Factoring involves the sale of accounts receivable, not taking on additional debt. This means businesses can access funds without incurring interest charges or repayment obligations.

4. Outsourced credit management: Factoring companies offering traditional a/r factoring handle credit evaluation, payment monitoring, and collections, saving businesses time and resources to focus on core operations.

5. Flexible financing solution: Factoring can be customized to fit the specific needs of each business, offering ongoing working capital or a one-time boost as required.

6. Potential for growth: Factoring unlocks the value of accounts receivable, providing funds for investments in equipment, staffing, and market expansion, fueling business growth.
    

  

  

 

CONCLUSION - RECEIVABLE FACTORING    

 

Factoring is a powerful alternative financing solution that provides numerous benefits to businesses of all sizes and industries.

 

It improves cash flow, offers access to working capital, provides outsourced credit management, and enables growth opportunities. By unlocking the value of accounts receivable, businesses can overcome cash flow challenges, invest in expansion, and achieve growth objectives.

 

It is important for businesses to carefully assess their needs and consider options like factoring, supply chain finance, or PO financing to support their growth and success. The ultimate goal is to choose the financing solution that aligns with their specific requirements.

 

Financing via a factor solution is a strong viable alternative for Canadian businesses that cannot access traditional bank financing. It's a solution that monetizes assets and brings cash, not debt to the balance sheet. The ability to convert sales into cash immediately is a key differentiator of this type of business capital solution.

 

If you’re tired of chasing down financing solutions that make the best sense for your firm and industry call   7 Park Avenue Financial,  a trusted credible and experienced Canadian business financing advisor in alternative funding who can assist you with your cash flow and factoring company needs via a wide array of finance solutions.

 

  

  

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION    

 

What is factoring and how does it work?

Factoring is financial transactions when firms sell their receivables (also known as invoices) to other parties at a discount. Account receivable finance is a definition that describes a type of investment in credit to customers. Factoring is an excellent alternative form of financing to complement your cash flow needs supplied by factoring companies and some factoring loans via online lenders. 

Alternative financing options such as a/r financing provide businesses with funding by allowing a business to sell its outstanding receivables.

It can be especially beneficial for businesses that have not been in business long and may lack business assets and an established credit history with traditional lenders, but still need some way to get paid immediately as a firm generates sales. The application process is typically easy compared to traditional financing via banks, etc.

The personal credit score of the business owners is not a key factor in factoring finance approval for a factoring agreement. Some factoring firms provide online lending solutions for invoice factoring, similar to online loans for short-term working capital. Companies qualify for invoice factoring based on the value of their receivables.

 

The working capital loans differ because they are term loans in structure and are sometimes also known as a merchant cash advance,  which can come with high-interest rates, unlike when a business sells unpaid invoices for factor finance funding according to payment terms provided to their clients for approved invoices.

 

This ongoing access to cash flow via a factoring service is key to the benefits of commercial funding of a/r via invoice factoring companies. Late payments from clients are a negative cash flow factor that factoring solves without long-term contracts. Most startups can also use this method of financing as an alternative to a business loan/bank loan.

 

Factoring companies provide an affordable and flexible alternative to traditional financing for companies that have good gross margins.  Factored invoices allow small businesses without long-established banking records to have the opportunity for working capital. The Commercial Finance Association is the industries trade association for asset-based lending and factoring in the U.S. and Canada.

 

 What is alternative finance? 

 

Alternative finance refers to forms of financing outside the traditional financial system and Fintech is a category in alternative finance improving on these methods. Alternative finance is an ecosystem of companies, technology, and processes that aims to improve traditional methods for financial transactions.

These non-traditional methods are used to fund enterprises with firms that have the software and back-office functions for business funding.  Fintech solutions allow other companies to finance operations successfully when traditional financing may not be available.

 

 What is invoice factoring, and how does it work?

 Invoice factoring is a type of alternative financing where a business sells its outstanding invoices or accounts receivable to a third-party company, known as a factoring company. The factoring company pays the business a significant portion of the invoice amount upfront, providing immediate cash flow. When the factoring company collects the full payment from the customer, it then pays the remaining balance to the business, minus a fee for the service.

 

 What is the difference between recourse and non-recourse factoring?

 

 In recourse factoring, the business agrees to buy back any invoices that the factoring company cannot collect payment on. It's the most common type of factoring, as it limits the risk to the factoring company. Non-recourse factoring, on the other hand, means that the factoring company assumes most of the risk from customers who don't pay their invoices. The terms of non-recourse factoring can vary, and not all factoring companies offer this type of factoring due to the increased risk.

 

 What are some benefits of invoice factoring?

 

 Invoice factoring offers several benefits. It provides businesses with immediate access to cash, which is especially beneficial for small businesses that may struggle with cash flow due to long payment terms. It also often comes with easier approval than traditional bank loans, as the factoring company bases its decision primarily on your customers' payment history rather than your credit score. Other benefits include outsourcing accounts receivable activities and maintaining good customer relationships as the factoring company handles collections.

 

What are some disadvantages or risks associated with invoice factoring?

 

 Despite its benefits, invoice factoring comes with potential drawbacks. The cost can be higher than traditional financing, with fees often ranging from 1 to 5% of the total invoice amount. The factoring process also requires the business to depend on the payment habits of its customers, which could affect the cost of factoring. Other challenges include the potential loss of control over customer relationships and the risk of being unable to recoup costs if customers don't pay their invoices (in the case of recourse factoring).

 

 What are some alternatives to invoice factoring?

 

There are several alternatives to invoice factoring, including supply chain financing and purchase order (PO) financing. Supply chain financing allows businesses to assume the credit profile of their customer, often leading to lower interest rates and fees. PO financing provides funding to fulfill specific purchase orders, which can be beneficial for businesses facing cash flow constraints due to large or unexpected orders.

 

 How does factoring work? 

 

The process of factoring is relatively straightforward. Once a business decides to factor its invoices, it enters into an agreement with a factoring company. The business submits its outstanding invoices to the factor, which then evaluates the creditworthiness of the customers and determines the amount it is willing to advance.

Upon approval, the factor typically provides an immediate cash advance of around 80% of the invoice value. The remaining 20% is held in reserve and released to the business once the customer pays the invoice in full, minus the factor's fee. The factor takes on the responsibility of collecting payment from the customers, saving the business time and resources.

Factoring is a flexible financing solution that can be tailored to the needs of each business. Some factors offer recourse factoring, where the business is responsible for buying back any uncollectible invoices. Others offer non-recourse factoring, where the factor assumes the risk of non-payment. This allows businesses to choose the option that best suits their cash flow needs and risk tolerance.

 

What is the role of Fintech in alternative financing in Canada

 

Technological advancements have expanded the options and accessibility of alternative financing for businesses. Some of these ' equity oriented ' solutions include -

1. Peer-to-Peer (P2P) Lending: P2P lending platforms connect lenders directly with borrowers, bypassing traditional financial institutions, and how this form of alternative financing works.

2. Crowdfunding as a Financing Option: Different types of crowdfunding (donation, reward, equity, and debt)  are available and businesses can choose to investigate how these platforms can be used to raise funds for businesses.

3. Venture Capital and Angel Investing: While very few businesses are eligible for this type of equity financing many tech companies are potential candidates if they can demonstrate high growth and traction

4. Understanding Merchant Cash Advances:  a merchant cash advance is a short-term working capital loan on an installment-term loan basis

5.  

 

What is the difference between Invoice Factoring vs. Invoice Financing

 

Although invoice factoring and financing may seem similar, they operate differently. In invoice factoring, the factoring company takes ownership of the invoices and handles the collection.

In contrast, invoice financing provides a business with a cash advance, with the invoices serving as collateral. The business is still responsible for collecting payment. The best option for a business depends on its cash flow needs and its comfort level with handling collections.

 

 

 

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