The Art.. and Science of Buying a Distressed Company In Canada

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YOU ARE LOOKING AT BUYING A DISTRESSED BUSINESS IN CANADA! 

Buying Distressed Businesses in Canada: Risks, Rewards, and Financial Strategies

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        Financing & Cash flow are the  biggest issues facing businesses today 

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 Guide to Acquiring a Distressed Business in Canada: Insights and Financing Strategies

 

 

Introduction 

 

In Canada's dynamic business environment, investment opportunities in private company distressed businesses are ever-present.

 

Acquiring a distressed business may seem daunting for entrepreneurial individuals as prospective buyers or existing business owners.

 

But it can be profitable with the right strategy, guidance, and financing. This article will explore the essential factors to consider, the challenges to navigate, and the financing options available to support purchasing a distressed business in Canada.

 

Potential Rewards of Buying an Existing Business in Canada

 

Distressed businesses can represent a golden opportunity for determined entrepreneurs in Canada. With the economic struggles caused by events like the Covid Pandemic, businesses seek rescue or acquisition.

 

Financial institutions are lending again, paving the way for potential gains. Rigorous due diligence is imperative, as entering a bad transaction post-agreement can lead to unexpected challenges.

 

STARTUPS VERSUS ACQUIRING A DISTRESSED BUSINESS

 

Many startups stumble not because of incompetence but due to insurmountable obstacles that deter their success path. By focusing on acquiring distressed businesses, entrepreneurs can leverage existing momentum at a discounted price while working towards profitability, mitigating some of the risks associated with starting anew.

 

The Complexity of Buying a Troubled Business

 

The failure rate for new businesses can be overwhelming. The alternative of purchasing distressed companies across various sectors and turning them around can alleviate this fear and has it's own advantages. While the venture is still high-risk, the potential rewards are often worth the gamble.

 

Negotiations with Lenders and Creditors 

 

Generally speaking, when taking over a distressed company, liaising with creditors and devising a strategic, operational plan is crucial. A well-thought-out approach ensures that necessary improvements are made without drastically impacting cash flow. The ability to search public records for judgment liens etc is essential.

 

  

Your Due Diligence Process - The Essential First Step  

 

The world of distressed business acquisitions is rarely perfect. Understanding the "buyer beware" principle is vital in finalizing or negotiating a purchase price adjustment.

 

A thorough due diligence investigation is crucial when acquiring a distressed business, as there may be limited recourse after the purchase. This investigation must rigorously analyze why the company is struggling, including factors like debt, significant liabilities, loss of key management, or poor execution. Only after understanding these issues can the buyer and their team develop an effective strategy for the acquisition

 

Conducting diligent investigations before the purchase, including considerations for legal aspects, intellectual property, contracts, and patents, is crucial to protect oneself from unforeseen liabilities while evaluating potential distressed assets.

 

  

Managing Debt and Assessing Growth Finance Options  

 

Evaluating the level of debt when considering a distressed business for acquisition is a key factor. Proper business financing and a sound financial restructuring process will determine whether the company represents good value or just a cheap price.

Understanding why a distressed business fails is vital. Analyzing past management decisions and operational failures helps devise a solid plan to turn the business around. Has the company lost key management is a crucial question to investigate.

 

 Key Takeaways: 

 

Evaluating Your Opportunity:

 

1. Valuation and Potential Upside:

   • Is the valuation low enough to compensate for the risks?
   • Is the potential upside high enough?
   • Note: The price is the most attractive element of buying distressed companies.

2. Expertise Alignment:

   • Does the business fall within your area of expertise?
   • Caution is advised if you are not familiar with the market sector.

3. Potential for Turnaround:

   • What resources or plans can you provide that the owner didn’t have?
   • Identify the problems causing distress, and act like a doctor for the business.
   • Consider the quality of the post-transaction team, technology, automation, and customer stabilization.

Finding and Acquiring the Distressed Business: 4. Finding the Business:

• Via a broker specializing in distressed company transactions.
• Through word of mouth, business information sites, or online bankruptcy court filings.

5. Assembling a Team:

   • Consider hiring a lawyer specializing in distressed business transactions.

6. Types of Acquisition:

   • Through bankruptcy or a non-bankruptcy 'fire sale'.

7. Performing Due Diligence:

   • Talk with the company's employees to understand the internal state.
   • Retain the best workers and align their interests.

8. Understanding Customer Perspectives:

   • Speak with customers if the business is service-based.
   • Be aware of customer goodwill and potential problems during bankruptcy.

9. Benefits and Risks:

   • Acquiring distressed companies can grow the customer base and revenues cost-efficiently.
   • Carefully assess unique risks and rewards and assemble the right team for success.

 

Conclusion

 

Buying a distressed business should only be done if you understand the issues and plan to turn it around with a clear exit strategy.

 

The idea that purchasing a troubled business is a bargain is misleading, and such investments should be approached like any other, with careful research and due diligence. If the business is part of an industry with declining demand, making a reasonable profit might be unfeasible, and investing in a distressed company requires selecting one with a future demand for its product or service.

 

Still, Acquiring a distressed business in Canada is a complex yet potentially rewarding venture. Entrepreneurs can capitalize on these unique opportunities with careful planning, astute financing, and expert guidance, such as from 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with business acquisition requirements.

 

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK

 

What is Due Diligence?

Due diligence is a comprehensive investigation conducted before an asset acquisition to determine the value and purchase of assets. Thorough due diligence is vital for ensuring a fair and transparent transaction. It is a critical component in the buying process for businesses and ensuring you avoid unseen potential significant liabilities.

 

 What is a Stalking Horse Bid?

This term refers to a strategic bidding process where a potential buyer makes an initial offer before other interested parties or waits for others to bid to determine their position. This tactic is commonly used in distressed business acquisitions.

 

What is a distressed business?


A distressed business is a company struggling financially and unable to meet its obligations. It often needs urgent restructuring or acquisition to avoid bankruptcy and move toward a favourable transaction structure under fair consideration.


How can buying a distressed business be profitable?


Acquiring a distressed business at a discounted price and implementing the right turnaround strategy can generate significant profits as the company recovers and grows.


What are the risks of acquiring a distressed business in Canada?


Risks of a distressed target include potential hidden liabilities, extensive debt, operational challenges, and the possibility of failing to turn the business around, resulting in a bankruptcy process.


How can I finance the acquisition of a distressed business?


Financing options include bank loans, commercial finance companies, or seeking guidance from financial advisors specialized in acquisition finance like 7 Park Avenue Financial.


What is due diligence, and why is it essential?


Due diligence for prospective buyers of the seller's business is a thorough investigation of all aspects of the company, such as assets, liabilities, and potential risks, to ensure a fair and transparent transaction.


What's the difference between asset purchase and share purchase?

When acquiring a private company, the ability to purchase assets rather than shares/equity is generally preferable for two main reasons: obtaining a stepped-up tax basis in the assets and minimizing unwanted liabilities.

 

In the case of a severely distressed company, there may not be tax benefits to an asset deal. Still, it remains the wiser option to reduce liability/risk due to potential undisclosed liabilities or issues like potential tax liabilities and fraudulent activities. Each deal must be unique and negotiated with professional guidance, including tax counsel.

Asset purchase involves buying specific assets and liabilities, while share purchase involves buying the entire company's ownership. Asset sales often reduce risks and liabilities around any potential fraudulent transfer of assets of seller's creditors, for example, or successor liability claims.


How does management assessment help in buying a distressed business?


Assessing past key management decisions and operations helps identify the root causes of failure, guiding your strategy for turning the business around. Accessing key information in the target's business is critical to understanding past day-to-day operations and business dealings.

Assessing past key management decisions and operations helps identify the root causes of failure, guiding your strategy for turning the business around.

Accessing essential information about the target's business is critical to understanding past day-to-day operations and business dealings. It is necessary to build the best possible case that "fair consideration" or "reasonably equivalent value" will be paid for the business.



Can distressed businesses be found in all industries?


Yes, distressed businesses can be found across various sectors, each offering unique opportunities and challenges for potential buyers in a distressed asset sale under a competitive bidding process when other buyers are involved.

 

Several businesses for sale in all industries may be financially distressed, prompting management to seek a sale, even within entire troubled sectors. Specialist intermediaries with turnaround expertise can be helpful, especially if the buyer has proven to be decisive and efficient. Investors should be ready to sort through many poor opportunities and be aware that good ones may have competitive bidding, making the actual value of a distressed company hard to determine.


How can 7 Park Avenue Financial assist in acquiring a distressed business?


7 Park Avenue Financial offers expertise in acquisition finance, providing insights, advice, and support in acquiring distressed companies in Canada.

 

 

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

Why Do Companies Factor Receivables ? Cash Flow !

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YOUR COMPANY IS LOOKING FOR CANADIAN FACTORING FINANCING!

Cash Flow Revolution: How Factoring Receivables Could Be Your Business's Secret Weapon

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?

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

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Revolutionizing Canadian Business Financing: Unveiling the Power of Receivables Factoring

 

 

INTRODUCTION 

 

Receivables invoice factoring has a rich history in Canada, spanning over four decades. However, the surprising reality is that numerous business owners and financial managers remain unfamiliar with this potent financing tool and its mechanism of pledging receivables. This article delves into the factoring world, highlighting its dynamics/benefits.

 

 

SOME BACKGROUND ON FACTORING RECEIVABLES FOR CASH FLOW 

 

Interestingly, the origins of A/R factoring can be traced back to the fashion and garments industry. It's a peculiar twist of fate that factoring itself is now in vogue across various sectors. This section explores the evolution of factoring, highlighting its diverse applications and growing significance.

 

FACTORING VERSUS TRADITIONAL BANK LOANS - THE NEW SHIFT IN FINANCING

 

While many companies lean towards pledging receivables to secure a line of credit from traditional banks, the harsh reality is that numerous firms fail to meet the stringent criteria set by Canadian chartered banks.

 

As a result, alternative financing solutions like factoring and invoice discounting come into play, offering similar cash flow solutions albeit at a higher cost. This section compares the merits of factoring against traditional bank loans, emphasizing the accessibility and flexibility of factoring for businesses.

 

 

HOW DOES FACTORING WORK? 

 

For most Canadian business owners and financial managers, the limitations of a capped line of credit are well-known.

 

The borrowing facility is often tethered to personal guarantees, collateral, and loan covenants that curtail business operations. This segment uncovers the intricacies of factoring, detailing its function as an avenue to unlock immediate advances against accounts receivable. The constraints of traditional credit lines are contrasted against the advantages of factoring, highlighting its potential to accelerate growth.

 

 

DIFFERENT TYPES OF FINANCING TAILORED TO YOUR BUSINESS NEEDS 

 

In the realm of factoring, diversity thrives. Various options cater to different business requirements, from full notification invoice discounting to asset-based lending.

 

This section delves into the different facets of factoring, elucidating the nuances of each type. Traditional vs. non-notification facilities are explored, emphasizing how Confidential Receivable Financing empowers businesses to retain control over credit relationships and operational decisions.

 

 LET THE 7 PARK AVENUE FINANCIAL TEAM DISPEL FACTORING MISCONCEPTIONS 

 

 

Factoring in Canada is defying stereotypes that associate it solely with distressed companies. Contrary to these assumptions, many prominent corporations in Canada leverage factoring through asset-based lending arrangements. This segment challenges common misconceptions and underscores factoring is a strategic tool that drives growth and profit enhancement.

 

  

EMBRACE NON-NOTIFICATION FACTORING  

 

The path to optimal factoring involves collaborating with a seasoned business financing advisor with a proven track record. By gaining expert insights, businesses can harness the advantages of a proper non-notification working capital factoring facility. This section emphasizes seeking guidance to make informed decisions that amplify growth and financial success.

 

  

 KEY TAKEAWAYS  

 

  

 Unlock Your Business's Capital: Invoice Factoring Is Fast and Flexible Funding for Small Business Owners

 Invoice factoring cash flows tied-up capital from outstanding receivables.

 A/R Financing is a reliable funding option for predictable cash flow. Numerous factoring companies cater to new, growing, and established Canadian businesses.
  The Process of Factoring: From Submission to Cash in Your Bank Account

   Businesses submit invoices for funding.

   Business owner receives cash minus a fee.

  The customer pays the factoring company as per invoice terms.

   Exploring Factoring Types: Tailoring Financing Solutions to Your Business

   Whole turnover, selective, and spot factoring options for small businesses

   Recourse and non-recourse factoring structures.

   Pros of Factoring: Debt-Free Funding and Quick Access to Capital

   Debt-free and non-dilutive financing.

   Faster turnaround compared to traditional bank loans.

   Unlimited capital access and time-saving benefits.

   Cons of Factoring: Considerations and Drawbacks to Keep in Mind

    Verification of invoices may require customer contact for companies not using Confidential  Receivable Financings.

    Understanding Factoring Costs: Funding rates are 9% / annum - 1.125% / mo range.
    Factoring applies to businesses of all sizes and industries.

    A common practice for commercial clients in staffing, oil and gas, freight factoring / trucking companies, and other manufacturing and distribution sectors 

 

CONCLUSION  

 

Factoring receivables is more than a financial transaction; it catalyzes transformation. As Canadian business owners embrace the diverse benefits of factoring, they pave the way for innovation, expansion, and sustainable growth. Want to work with a leading financing company/business advisor who wants to be a business partner?

 

Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor helping reshape Canadian companies' business financing landscape.

 

 

  

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

 

What exactly is receivables factoring, and how does it differ from traditional bank loans?

 

Receivables factoring is a financing solution where a business sells its accounts receivable to a third-party (factor) at a discounted rate in exchange for immediate cash. This contrasts with traditional bank loans that involve borrowing money and repaying it over time with interest. Factoring provides quicker access to funds without incurring debt.

 

 How does factoring help businesses overcome the limitations of capped lines of credit?

Traditional credit lines often come with restrictions like personal guarantees, collateral, and covenants. Factoring eliminates these constraints by converting outstanding invoices into cash, allowing businesses to maintain a healthy cash flow and fuel growth without relying solely on credit limits.

 

What are the different types of factoring available for Canadian businesses?

 Factoring comes in various forms, including full notification invoice discounting, asset-based lending, and non-notification facilities. Full notification involves managing credit and collections, while non-notification options like Confidential Receivable Financing let businesses maintain control over customer relationships and credit decisions.

 

Is factoring mainly for struggling companies, or can successful businesses also benefit?

 Factoring is not just for distressed companies. Many thriving businesses, including some of Canada's largest corporations, use factoring to optimize their working capital and enhance cash flow. Factoring can act as a strategic tool for growth and profitability.

 

 How can I ensure I'm making the right decision with factoring?

Seeking guidance from experienced business financing advisors such as 7 Park Avenue Financial is crucial. They can help you understand the nuances of factoring, tailor a solution to your business needs, and ensure you leverage the advantages of a non-notification working capital factoring facility for sustained growth and financial success while providing competitive factoring fees.

 

Is cross-border factoring available?

Yes, cross-border factoring is available from most firms who offer factoring services - Cross-border factoring involves companies from different countries engaging in factoring transactions. However, it can be more complex due to variations in legal and business practices between countries.

 

Is factoring available for startups also?

 

Yes, factoring can be available for startups from different factoring companies, although it might depend on the specific circumstances of the startup. Some factoring companies might require a certain level of operational history for smaller or a minimum volume of receivables from medium sized businesses before providing financing.

 

How does Receivable Financing / Factoring impact the balance sheet?

 

Factoring involves selling accounts receivable to a third party (the factor) at a discount. This transaction affects the balance sheet by increasing cash (or reducing accounts receivable) and increasing liabilities. The sale of receivables generates immediate cash but also creates a liability to the factor.

 

How Can Factoring Help With Business Expansion?

 

Canada Invoice Factoring /invoice financing can help business expansion for SME / Mediumsized companies by providing immediate cash flow from unpaid invoices. This cash can be reinvested into the business for various expansion activities such as purchasing inventory, hiring new employees, expanding marketing efforts, or entering new markets.

 

Is credit insurance available when factoring receivables?

 

Credit insurance is often available for receivable factoring from many of the best factoring companies as an add-on to factoring services. It protects the business against the risk of non-payment by customers if an invoice remains unpaid for goods and services delivered. This can be especially important when dealing with high-value invoices or customers with uncertain creditworthiness.

 

How does factoring a/r compare to traditional financing?

 

Factoring and traditional financing (like bank loans) differ in several ways. Factoring companies in Canada provide quick cash for immediate working capital based on outstanding invoices for a factoring fee. Traditional loans and bank financing involve borrowing a lump sum with periodic repayments. Factoring is often easier to qualify for and is linked to a business's receivables, while loans may require collateral and a strong credit history.

 

How is factoring a tool for working capital and cash flow management?

 

Factoring/accounts receivable financing via an invoice factoring company improves working capital and cash flow by converting unpaid invoices into immediate cash. Instead of waiting for customers to pay their invoices, a business can receive a significant portion of the invoice value upfront from invoice factoring companies via invoice factoring services that can help to cover operational expenses, meet payroll, invest in growth initiatives and meet their cash flow needs.

 

How do you qualify for factoring?

 

Companies with commercial clients selling on trade credit terms to generally credit-worthy customers are eligible for factoring finance solutions. Typically, companies do not qualify for traditional bank financing and are incorporated in Canada with reasonable sales revenues.

 

Do businesses need good credit for factoring?

 

Companies that do not have solid financial or good business credit are still eligible for factoring finance solutions. Financing is based on the credit quality of the clients of the business.

 

What documents do factoring companies need?

The requirements from a factoring company include the following:

Copies of invoices that are to be financed showing proof of goods and services delivered

General business application

Aged accounts receivable listing - invoices older than 90 days are not eligible for financing

Business bank account information

Articles of Incorporation / Ownership details / Business I.D. #

 

 

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

Why Equipment Leasing In Canada Dominates The Acquisition Of Assets For Your Business : Right Choice 101

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YOUR COMPANY IS LOOKING FOR CANADIAN  LEASE EQUIPMENT FINANCING! 

Why Lease Equipment Financing is the New Essential for Canadian Businesses

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?

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

EMAIL - sprokop@7parkavenuefinancial.com

 

 

Revolutionize Your Asset Acquisition with Lease Equipment Financing 

 

  

INTRODUCTION: The Growing Demand for Equipment Leasing Solutions  

 

Equipment lease financing has become a crucial part of the business landscape in Canada, providing an efficient and cost-effective alternative for asset acquisition.

With business credit often being a hurdle, the requirement for equipment financing options is rising. This solution is one of the most viable alternatives to traditional purchasing methods, especially for Canadian entrepreneurs.

 

  

What  Assets Can Be Leased?  From Construction to Computing - A Broad Spectrum  

 

The term "equipment" encompasses various business assets vital for Canadian enterprises. This includes but is not limited to:

• Construction machinery
• Aircraft
• Computers and Technology
• Telecommunication assets
• Software solutions (Yes, software too can be financed!)
• Manufacturing plant machinery and more.

 

  

The Bottom Line - Flexibility in Choice  

 

In essence, equipment lease financing can cover virtually any asset necessary for your business operations.

 

  

Crafting the Perfect Lease - Tailoring to Your Needs  / Competitive Rates and Beyond  

 

While many customers are initially drawn to the prospect of a competitive lease rate, we stress that selecting the right lease type, duration, and structure is equally essential. These factors must align with your business model, financial standing, and cash flow requirements.

 

 Seasonal Businesses and Unique Structures 

 

 

Whether you run a seasonal business that faces fluctuations or have specific industry needs like bulk orders during holidays, lease financing can be uniquely structured. Options for seasonal payments, quarterly or even annual payments can be crafted to suit your business’s particular needs.

 

Inclusive Financing – More than Just the Equipment

 

Lease structures often cover more than the equipment itself. The lease can encompass associated expenses, from financing taxes to installation and maintenance, such as computing technology or advanced shop floor machinery.

 

Preserve Capital & Lines Of Credit and Reap Financial Advantages

 

Our clients recognize the necessity for equipment but value the preservation of capital and working capital. Leasing enables them to maintain cash on hand or utilize bank operating lines or asset-based lending facilities.

 

Tax Benefits and More

 

Business leasing offers various financial and accounting advantages, including often tax-deductible lease payments, which set it apart from traditional bank loans and other financial instruments.

 

Lease versus Buy – Making the Right Choice

 

Conducting a thorough lease versus buy analysis is advisable to ascertain the optimal method for business asset acquisition.

 

Conclusion: Maximizing the Benefits of Equipment Lease Financing in Canada

 

The proper utilization of leasing offers both financial benefits and overall business advantages. Talk to 7 Park Avenue Financial, a trusted and experienced Canadian business financing advisor, to explore these opportunities.

 

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

 What is lease equipment financing, and how does it differ from buying equipment outright? 

 

Lease equipment financing allows businesses to use essential equipment by paying regular lease payments instead of purchasing the equipment outright. Unlike buying, leasing doesn't require a large upfront investment, providing flexibility in cash flow management. It can also include various options at the end of the lease term, such as purchasing the equipment at a reduced price or upgrading to newer technology.

 

Can any type of business equipment be leased, and what are some common examples? 

 

Yes, various business equipment can be leased, ranging from heavy machinery to software. Common examples include construction equipment, airplanes, computers, telecommunications assets, software solutions, manufacturing plant machinery, and more.

 

 

How can lease equipment financing be tailored to fit business needs or seasonal variations? 

 

Lease equipment financing offers flexibility in structuring payment terms to match a business's unique needs or seasonal variations. For example, a lease can be structured with seasonal payments for businesses that experience fluctuations in revenue, or it can include quarterly or even annual payments. This custom structuring helps align leasing costs with the business's revenue and cash flow patterns.

 

What are the financial advantages of leasing equipment instead of traditional bank loans? 

 

Leasing equipment often provides several financial advantages over traditional bank loans, including potential tax benefits, as lease payments may be tax-deductible. Leasing doesn't tie up capital in a depreciating asset and often allows for financing of the full cost, including taxes, installation, and maintenance. It also provides flexibility to upgrade or change equipment as business needs evolve.

 

How can I determine whether to lease or buy the equipment for my business?

 

Deciding between leasing or buying equipment requires careful consideration of various factors, such as your business's financial standing, cash flow, growth plans, and the type of equipment needed. Conducting a thorough lease versus buy analysis, considering aspects like total cost, tax implications, and flexibility, will help you determine the right path for your business. Consulting with a financing expert specializing in lease equipment financing can also provide valuable insights tailored to your situation.

 

What are the tax benefits of leasing assets in Canada?

 

Some common tax benefits associated with leasing assets include :

1. Deductibility of Lease Payments: Generally, lease payments for business-related assets are considered operating expense and can be deducted for tax purposes. This can lower the taxable income for a business.

2. No Capital Cost Allowance (CCA) Complexity: When purchasing an asset, a business must use the Capital Cost Allowance (CCA) method to depreciate the asset over time. Leasing avoids this complexity, as the lessee does not own the asset and, therefore, does not need to calculate the CCA. This can simplify accounting and tax reporting.

3. Off-Balance Sheet Financing: Depending on the type of lease, it may be considered off-balance sheet financing. For example, an operating lease/ fair market value lease does not appear as a liability on the balance sheet, which may enhance the appearance of a company's financial position.

4. Flexibility: Leasing may offer more flexibility for businesses that need to adapt to changing technology or business needs. This flexibility may not have direct tax benefits but can have overall financial benefits, particularly for assets that quickly become obsolete.

5. Potential GST/HST Benefits: In some cases, the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) on lease payments may be recoverable as an Input Tax Credit (ITC) if the asset is used for commercial activities. This can provide a tax benefit to businesses by offsetting some of the costs of the lease as a business expense

6. Cash Flow Management: Since leasing often does not require a substantial upfront investment like purchasing, it may help with cash flow management when structuring monthly lease payments. While this is not a direct tax benefit, it can improve a company's financial position.

It's worth reiterating that Canadian tax law can be complex and subject to change, so it's always a good idea to consult an equipment finance specialist or a  Canadian tax professional who understands your situation. Different provinces may also have unique tax considerations relating to leasing so that local expertise may also be valuable.

 

What are other financing options versus equipment leasing?

 

Equipment Leasing

• The lessor holds the title to the equipment in equipment finance
• Offers the option to buy at the end of the lease via customized solutions
• Can provide fixed-rate financing for the monthly payment
• Equipment leases typically do not require a large down payment to the leasing company

Business Loans

• Allows you to retain the title to the purchased equipment around traditional financing such as a term equipment loan versus solutions via leasing companies
• Secures the purchase against existing assets.
• Interest rates may fluctuate throughout the loan term, causing budgeting issues.
• Often requires a larger down payment, sometimes up to 20% of the total equipment cost.

Invoice Factoring

• A method of purchasing equipment by leveraging accounts receivable.
• Allows quick conversion of outstanding payments into cash by selling invoices to a factor.
• Ideal for startups and small businesses, with up to 90% of the value paid depending on customer creditworthiness.
• Funding is usually available in a matter of days, making it popular in industries like manufacturing and transportation.

 

How does equipment leasing affect the balance sheet?

 

Equipment leasing affects the balance sheet depending on the type of lease entered into: either an operating lease or a capital (finance) lease. Here's how each affects the balance sheet:

Operating Lease

• Asset: The leased equipment is not recorded as an asset on the lessee's balance sheet.
• Liability: Lease payments are typically considered an operating expense, so there's no long-term liability recorded.
• Expense: Lease payments are expensed on the income statement, reducing net income.
• Impact: Since the asset and corresponding liability are off the balance sheet, the company's debt ratios might look more favourable.

Capital (Finance) Lease

• Asset: The leased equipment is recorded as an asset on the lessee's balance sheet, reflecting ownership or control over the equipment.
• Liability: A corresponding liability is recorded, representing the obligation to make future lease payments.
• Depreciation and Interest: The asset is depreciated over its useful life, and the interest on the lease liability is expensed.
• Impact: This approach aligns more closely with traditional financing, where an asset is purchased with borrowed funds, potentially affecting financial ratios like debt-to-equity.

In summary, the classification of the lease will determine how it's accounted for on the balance sheet and its impact on the financial statements and ratios. The chosen method should align with the accounting standards relevant to the entity's jurisdiction.

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

Tax Credit Financing In Canada : Maximized | Financing Canadian Tax Credits

 

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YOUR COMPANY IS LOOKING FOR CANADIAN TAX CREDIT  FINANCING!

Funding Your Future: Tax Credit Financing for Canadian Businesses

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?

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

EMAIL - sprokop7parkavenuefinancial.com

7 Park Avenue Financial
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Oakville, Ontario
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Email = sprokop@7parkavenuefinancial.com

 

Tax Credit Financing in Canada: Maximizing Government Incentives for Canadian Businesses

 

INTRODUCTION

 

For Canadian business owners seeking financing solutions to optimize their government tax credits, Tax Credit Financing in Canada provides an excellent option.

 

This alternative financing avenue is particularly beneficial for companies eligible for the SR&ED (Scientific Research & Experimental Development) program and various Canadian film tax credit programs.

 

The  Canadian Government has implemented various initiatives, including offering refundable tax credits to eligible corporations and other types of businesses.  These tax credits are powerful incentives, allowing businesses to engage in research and development while expanding their market share, achieving higher earnings, and enhancing productivity across almost all industries in Canada. 

 

The financing of these tax credits helps companies access these lucrative incentives soon.

 

 

How Your Company Can Leverage  SR&ED Tax Credit Financing 

 

When you opt for tax credit financing, such as SR&ED, you effectively generate cash flow and working capital for your business, recovering expenses already incurred. The best part is that funds from SR&ED and film tax credits are non-repayable, essentially functioning as a type of grant.

 

 

Understanding SR&ED, FTC, and OIDMTC Programs 

 

The programs relevant to tax credit financing in Canada include sr ed claims under the  SR&ED program, Film tax credits, and OIDMTC animation credit. Each of these government initiatives provides different opportunities for Canadian businesses to access funding and enhance their financial position.

 

The terms "FILM Tax Credit" and "OIDMTC" (Ontario Interactive Digital Media Tax Credit) refer to specific incentives designed to encourage the production of media content within certain jurisdictions.

 

1. Film Tax Credit: The Film  Tax Credit usually refers to incentives provided by governments to encourage film, television, and sometimes even digital media production within a particular region. These credits can differ from one jurisdiction to another but often provide rebates or reductions in taxation related to production costs. These incentives are created to attract producers to shoot and/or produce their content within that region, fostering the growth of local industries and providing employment opportunities2.

2. OIDMTC (Ontario Interactive Digital Media Tax Credit): This is a specific tax credit available in the Canadian province of Ontario. The OIDMTC provides a refundable tax credit to companies that develop and market their own interactive digital media products within Ontario. This includes a wide array of digital media, ranging from video games to educational content. The intent of this tax credit is to stimulate growth in the digital media sector within the province, encouraging innovation and the creation of high-quality, skilled jobs.

 

Both of these credits have specific criteria and guidelines that must be met to qualify, and they are often overseen by particular government agencies or departments that manage their administration and compliance.

 

 

Streamlining  The Tax Credit Financing Process With 7 Park Avenue Financial

 

7 Park Avenue Financial assists customers in generating financing once they have filed their claims. Typically, SR&ED claims are filed simultaneously with corporate tax returns. The financing process can be completed within 14 days, although certain complexities and financial issues might cause some delays.

Ensuring there are no CRA tax arrears is crucial to prevent claim offset, and in cases where arrears exist but are smaller than the claim, arrangements can be made to pay Ottawa and secure the remaining financing benefits.

 

SR&ED Claims can also be financed on an accrual basis, prior to a formal filing of the claim for their work in scientific and technical knowledge r&d.

 

First-Time SR&ED Claims and Financing

First-time SR&ED claims require additional due diligence to assess the claim's quality and the company's overall financial standing. However, financing can be secured for first-time claims with proper preparation and the assistance of reputable SR&ED preparers, who can bolster the claim's credibility.

 

 

Understanding Loan-to-Value Ratio  - How Does The SR&ED Loan Work? 

 

Regarding SR&ED claims that undergo financing, the typical loan-to-value ratio stands at 75%. This means that upon financing approval, approximately 75% of the total provincial and federal claim amount is provided as working capital.

 

Repayment occurs in full once the claim is adjudicated when the business has filed its income tax return, is approved, and receives funding from the government, eliminating the need for monthly payments.

 

 

 Utilizing Funds for Working Capital

 

Canadian business owners and financial managers often utilize tax credit financing funds for short-term working capital needs. This strategic approach helps businesses maintain liquidity and address operational requirements efficiently.

 

The Cost of Tax Credit Financing Versus Debt Financing -  A New Source Of Growth Capital

 

7 Park Avenue Financial has been assisting clients with SR&ED and Film Tax Credit Financing since  2005! We offer the best financing rates on sr&ed and film tax credits and the Bank Of Canada's rate changes generally do not affect tax credit financing.

  Film Tax Credit Financing 

In specific scenarios, particularly in the film tax credit financing domain, projects can receive funding before filing the final claim, subject to demonstrating eligibility. Proving successful filing and approval in previous years further strengthens the chances of obtaining early access to funds.

 Conclusion: 

 

Tax credit financing presents a creative financing solution mechanism for companies looking to tap into the potential of government tax credits at both the federal and provincial levels

.

Unlike traditional financing options that involve diluting ownership through equity investments, tax credit financing enables companies to access funds without giving away ownership equity. Therefore the financing is non-dilutive and ensures that businesses can maintain full control over their operations while gaining access to much-needed capital in earlier stages of growth - especially important for startup and pre-revenue firms.

 

For Canadian businesses looking to optimize their government tax credits, Tax Credit Financing offers a viable and attractive solution. By leveraging programs like SR&ED and film tax credits, businesses can access non-repayable funds to enhance working capital and fuel their growth.

 

Talk to the 7 Park Avenue Financial team, a trusted, credible and experienced Canadian business financing advisor who is an expert in traditional and alternative business financing solutions.

 

Seeking advice from experienced advisors can further enhance the benefits of this Canadian alternative financing strategy.

 

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

 

How Can Tax Credit Financing  Help Fuel Business Expansion

 

The availability of tax credit financing expedites the process of accessing the benefits of government tax credits. By obtaining financing against their eligible tax credits, businesses can accelerate their growth plans and innovation initiatives. This financial boost empowers companies to invest in research and development, expand their product offerings, and explore new markets both domestically and internationally. As a result, Canadian businesses can confidently embrace expansion opportunities and compete at the global level.

 

How Can Startups Benefit from Tax Credit Financing In Canada

 

Startups and small businesses often face significant challenges when it comes to funding their ambitious projects and growth plans. Tax incentives and tax credit financing level the playing field, providing these emerging ventures with an opportunity to access crucial capital without the need to secure traditional loans or seek external investors. By empowering startups and small businesses, tax credit financing contributes to the diversification of the economy and encourages entrepreneurship across various sectors.

 

Why Should A Business Consider 7 Park Avenue Financial for Tax Credit Financing

 

While tax credit financing offers tremendous advantages, navigating the intricacies of government programs and processes can be daunting for businesses. Partnering with experienced advisors and financial experts well-versed in tax credit financing becomes essential for maximizing the benefits. These specialists guide businesses through the application and financing procedures, ensuring a smooth and successful journey to accessing the incentives they rightfully deserve.

Businesses that do need to pay income tax can still receive refundable tax credits and be eligible for tax credit financing.

 

What are business tax credits In Canada?

 

1. Business tax credits are incentives provided exclusively to companies for eligible activities to reduce their tax liabilities and access government funding.

2. There are two types of business investment tax credit: refundable and non-refundable.

   • Non-refundable credits are applied against income tax payable and depend on the amount of tax owed.
   • Refundable credits/ cash refunds , like the first $3M of an accrued SR&ED refund, are granted to Canadian controlled private corporations regardless of their income tax payable status under the sr ed tax incentive  program via scientific and technical knowledge research including scientific of technological uncertainty

3. Refundable tax credits benefit even pre-revenue companies, allowing them to receive government incentives for eligible expenses, such as research and development (R&D), without owing taxes.

4. Eligible business activities for tax credits include infrastructure upgrades, digital expansion, technological advancement , sustainability efforts, market diversification, and areas of innovation like the sr ed tax credit program for scientific research and experimental development (SR&ED).

5. Tax credits differ from tax deductions. Tax credits directly reduce a business's tax liability, while deductions lower taxable income. Business tax credits are more substantial incentives specifically tailored for companies.

 

How Does Tax Credit Financing Work with 7 Park Avenue Financial?

 

Canadian businesses receive significant funding through tax credits for eligible expenses, but accessing these funds can be a waiting game, with disbursement typically happening annually after tax claims are filed. However, with the assistance of 7 Park Avenue Financial, organizations can access these funds sooner through tax credit financing.

 

As a financing company, 7 Park Avenue Financial leverages the security of future tax credits to extend loans to enterprises, providing them with the capital needed to invest in growth and innovation projects. By using refundable tax credits as collateral for financing, businesses can utilize the funds to support ongoing activities or undertake other eligible ventures, ultimately enhancing the refund they will receive from the  Canada Revenue Agency 'CRA".

 

 

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

How To Decide if Financing Receivables Is a Solution for Your Working Capital Funding

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The R R Factor: A New Approach to Financing Receivables & Working Capital Funding in Canada

 

 

Understanding the Receivables to Revenue Ratio (R R Factor) 

 

We call it the Receivables to Revenue Ratio or simply the R R factor. Unlike rest and relaxation, the R R factor will guide Canadian business owners in recognizing the right time to explore advanced methods of accounts receivable financing and working capital funding.

 

The receivable-to-revenue ratio is a financial metric that provides insight into a company's ability to turn its accounts receivable into cash. It measures how effectively a company manages its credit sales and collections and helps alert to negative working capital.

 

Here's how you can calculate it:

 

Receivables to Revenue Ratio = (Accounts Receivable / Sales Revenue) x 100

 

 

Interpretation: What does the Receivables to Revenue Ratio Tell  Business Owners 

 

• Accounts Receivable: This is the amount of money owed to the company by its customers for goods or services that have been delivered but not yet paid for.

• Sales Revenue: The total amount of money the company earns from its products or services sales.

 

Measuring Your Receivables Revenue Ratio

 

• High Ratio: A higher ratio could indicate inefficiency in collecting and converting payments into cash. It may mean that a company is extending credit to customers who are not paying their bills promptly, which can impact cash flow and liquidity.

• Low Ratio: A lower ratio could indicate that a company efficiently converts its credit sales into cash quickly. It may imply strong credit policies and collection practices, ensuring that the money owed is collected promptly.

•  

In short, a receivable-to-revenue ratio is essential in assessing a company's liquidity and cash flow management. It offers insight into how well a company manages its credit policies and how quickly it's turning credit sales into cash. If mismanaged, it could lead to potential cash flow problems and increased risk, mainly if a significant portion of sales are made on credit.

 

The Importance of Calculating the R R Factor

 

Here's a powerful tool that's straightforward and potent in assessing cash flow challenges. It's called the receivables to revenue ratio, and by examining your year-end balance of A/R and translating it into weeks of sales, you'll have a historical perspective on your cash flow and working capital needs.

 

Tackling Working Capital Funding Challenges with Receivables Financing

 

But what does a company do when traditional borrowing for working capital seems daunting? Increasingly, Canadian firms are turning to factoring or accounts receivable financing. This method might seem complex, but it's quite simple once you comprehend the pricing and day-to-day functioning.

 

  

The Simple Solution -  Invoice Factoring / Financing Accounts Receivables  

 

Choose daily, weekly, or monthly intervals to sell your receivables on the company's balance sheet. When you make a sale, you receive immediate cash, transforming accounts receivable into an ATM for Canadian entrepreneurs and finance managers. Discovering this ultimate cash flow solution can be a game-changer for small businesses and companies of all sizes. But what are the downsides?

 

   

The Two ‘Catches’ of Financing Receivables

   

While accounts receivable financing might seem attractive, there are two 'catches' that businesses need to understand and address.

 

Cost of Financing

The first is the cost compared to a traditional bank loan / unsecured financing, which typically ranges from 9%  per month in Canada and in some cases, 1.15%/mo, referred to as a discount fee. Though this might seem expensive many business owners do not consider the carrying cost of the receivables and the 'opportunity cost' – the potential for higher profits using cash flow from receivable financing.

 

Why Isn’t Every Canadian Business Using Receivable Financing?

 

The reality might surprise you; large Canadian firms often utilize this financing method for funding a company's sales revenue. Their financial strength allows for more flexibility in managing this facility daily, often enabling them to bill and collect their receivables - something rarely found in the Canadian market. 7 Park Avenue Financial's recommended solution is Confidential Receivable Financing, allowing a business to bill and collect its receivables while achieving all of the cash flow benefits of A/R financing.

  

Conclusion  

Seek out the unique 1% solution that allows this flexibility. Your business can secure competitive working capital funding and virtually limitless cash flow growth.

Call 7 Park Avenue Financial,  a trusted,  credible, and experienced Canadian business financing advisor who will ensure you have the best and lowest cost capital funding solution tailored to your business, allowing you to unlock growth solutions and profits.

 

  

 FAQ:   

 

What is the Cash Conversion Cycle?

The Cash Conversion Cycle (CCC) is a critical metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It encompasses three stages:

1. Days Sales Outstanding (DSO): Time taken to collect payment after a sale.
2. Days Inventory Outstanding (DIO): Time  taken to sell inventory.
3. Days Payable Outstanding (DPO): Time taken to pay suppliers.

The formula for calculating the  company's cash conversion cycle 'CCC ' is:

$\text{CCC}$$<span\; style="font-size:\; 16px;">=</span>\text{<span style="font-size: 16px;">DSO</span>}<span\; style="font-size:\; 16px;">+</span>\text{<span style="font-size: 16px;">DIO</span>}<span\; style="font-size:\; 16px;">-</span>\text{<span style="font-size: 16px;">DPO</span>}$$\text{CCC}=\text{DSO}+\text{DIO}-\text{DPO}$

Keywords related to CCC include working capital management, liquidity, operational efficiency, cash flow management, inventory turnover, and accounts payable/receivable.

 

What is Debt Financing Versus Equity Financing?

 

Debt Financing: This involves borrowing money, typically through loans, bonds, or other debt instruments, to be repaid with interest. It's a way for businesses to raise capital without giving up ownership. Keywords include interest, principal, creditors, leverage, and fixed obligations.

Equity Financing: This entails raising capital by selling shares or ownership in the company. Unlike debt financing, there's no obligation to repay the funds. Instead, shareholders may receive dividends and have a say in the company's operations. Keywords include shareholders, dividends, ownership, dilution, and capital structure.

 

3. What is the Impact of Currency Exchange Rates in A/R Financing?

Currency exchange rates are vital in accounts receivable (A/R) financing, particularly for businesses dealing in multiple currencies. The fluctuation of exchange rates can:

• Affect the value of receivables, leading to currency risk.
• Impact on the cost and availability of A/R financing.
• Create complexities in managing international trade credit.

 

What are Alternative Financing Options for Receivable Financing in Addition to Factoring?

In addition to factoring, alternative financing options for receivable financing include:

• Invoice Discounting: Selling invoices to a third party at a discount but maintaining control over collections.
• Asset-Based Lending: Utilizing assets like receivables and inventory as collateral for a loan.
• Supply Chain Financing: Collaborating with suppliers and financial institutions to optimize working capital across the supply chain.
• Peer-to-Peer (P2P) Lending: Leveraging online lenders and their platforms to match borrowers with individual lenders.

 

 

What is a working capital loan?

 

A working capital loan is a specialized type of loan designed to finance the daily operational expenses of a business. Unlike traditional loans, often used to finance long-term investments or capital expenditures, working capital loans cover short-term needs like payroll, rent, inventory purchases, and other day-to-day expenses.

This type of loan is particularly beneficial for businesses with cyclical or seasonal revenue patterns, where there might be gaps in cash flow. It helps companies maintain smooth operations when expenses or income are high.

There are various types of working capital loans, including:

1. Line of Credit: Offers flexible access to funds up to a specific limit, allowing businesses to draw and repay as needed.
2. Term Loans: Provides a lump sum of capital paid back over a set term with interest.
3. Invoice Financing: Advances funds based on unpaid invoices, enabling businesses to manage cash flow without waiting for customer payments.
4. Trade Credit: Involves obtaining goods from suppliers with a deferred payment agreement.

The primary goal of working capital loans is to ensure liquidity and financial stability in the short term, allowing businesses to continue operating smoothly regardless of fluctuations in revenue or unexpected expenses.

 

What is the difference between a working capital loan and financing receivables?

 

Both working capital loans and receivables financing are essential tools in managing a company's cash flow and liquidity, but they serve different purposes and function in distinct ways. Here's an outline of the key differences:

Working Capital Loan

1. Purpose: Aimed at funding the day-to-day operational expenses of a business, such as payroll, rent, utilities, and inventory. It's a tool to smooth out cash flow fluctuations.
2. Structure: This can be a term loan, line of credit, or other forms of short-term financing. The structure is often flexible, catering to the general working capital needs of the business.
3. Collateral: May or may not require collateral, depending on the lender's requirements and the borrower's creditworthiness. If needed, collateral can include various business assets.
4. Approval & Terms: The lender assesses the overall financial health of the business, including credit history, profitability, and financial stability. The terms can vary widely based on these factors.

Financing Receivables (e.g., Accounts Receivable Factoring or Invoice Discounting)

1. Purpose: Leveraging unpaid invoices or accounts receivable (A/R) to generate immediate cash. It helps bridge the gap between invoicing a customer and receiving payment and avoids the need to borrow money via term debt.
2. Structure: Selling or using the A/R as collateral to get an advance from a financial institution or factoring company. The advance is typically a percentage of the invoice's face value.
3. Collateral: The collateral is the receivables themselves. The lender's security is tied to the quality and collectibility of the financed invoices.
4. Approval & Terms: The lender's focus is often on the creditworthiness of the invoiced customers rather than the company seeking financing. The terms are closely tied to the receivables' value, age, and risk.

While working capital loans provide a more general form of financial support for daily operations, financing receivables is a specialized method tied to leveraging unpaid invoices to improve cash flow. The former takes a broader view of the business's financial health, while the latter is closely related to specific transactions and the creditworthiness of the company's customers.

 

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