Business Loans & Working Capital Financing Options for New or Smaller Canadian Companies - By Stan Prokop - 7 Park Avenue Financial
Canadian chartered banks, usually by virtue of their ‘relationship’ with business owners and entrepreneurs are in a position to pass on valuable financing tips and information on business loans and working capital for start up or smaller firms. Although the banks are a solid source of such information the banks themselves, by virtue of their charters and credit policies, are unable to directly satisfy the financing needs of the customer.
Business owners are often therefore encouraged by banks to ‘self finance ‘the venture via equity or owner capital and commitment. It is clearly a misconception that banks play a key and major role in the financing of new ventures. Possibly the only exception to this statement is the fact that the banks offer up, in their role as administrators, the Government Small Business Loan, which is a Canadian federal government program providing loans up to , in some cases 500,000.00$ for purchase of real estate, business assets, or leasehold improvements . (The more typical loan amount maximum is 350,000.00$)
We may or may not agree with Canadian banking policies on start up and young venture financing, we should however appreciate the banks stance – they are lending out our capital at very low rates, with potential to lose the entire investment if your firm can’t repay loans and financing.
How can the small or newer business succeed in financing options? Businesses of the size that we are discussing need thousands, literally millions of dollars of financing to fuel their growth in Canada. In our commentary that we are providing it is important to note that as companies develop along the ‘stage of development ‘timeline they of course have much more access to traditional bank and private equity financing. We are primarily talking about earlier stage companies, who may be still developing products and services and may not be yet profitable as they start delivering and billing for those products and services .
So what are the immediate challenges of firms that are unable to provide traditional financing and what are, more importantly, some immediate solutions?!
The challenges tend to be painfully obvious to the Canadian business owner or financial manager that has worked to get traditional bank and equity financing. They are as follows:
Perceived industry or product risk
No collateral
Uncertain financial projections
Limited Performance history
How can the Canadian business entrepreneur overcome these very traditional roadblocks and challenges? There are a number of ways.
First of all, all alternative methods of financing should be pursuing. Alternative financing methods are most non dependent on the above noted risks and challenges. Those alternative methods of financing might include:
*Business Angels or strategic partners (think suppliers!) for short term arrangements
*Equipment Lease financing
* Sale leasebacks on equipment already purchased and paid for
*Asset based lending arrangements that provide working capital facilities against initial receivables, inventory, and purchase orders (These facilities don’t have the same requirements as banks)
* Sr Ed Tax Credits – Customer who have filed claims can finance those claims for cash
* Invoice / Receivable Financing – Immediate cash for your firm’s receivables (these facilities can be of any size)
In summary, newer or smaller firms fall into the ‘ void ‘ area of financing, where very few traditional financing strategies can be implemented, at a time when cash flow and working capital are most critical .
Business owners should review non alternative strategies which can be of great assistance in early growth periods.
Thinking about business financing to take your company into the future?
For business owners who are looking for solid business financing to take their company forward and into the future, 7 Park Avenue Financial is the reliable choice. We want to help you grow and shape your business into what you’ve always dreamed it could be, but perhaps just didn’t have the resources to get it there. Take a look at our track record, which shows how we originated over a million dollars in financing between March and April of 2008 alone!
While we believe that our track record speaks for itself, we recognize how important it is for you to choose the right firm for your Brampton Ontario business financing. Choosing the wrong firm can have drastic financial repercussions, and 7 Park Avenue is committed to taking your business from where it is to where you want it to be. Our unique business solutions are what set us apart from everyone else.
Not only are we committed to helping you with our unique solutions, but we believe that you – the customer – come first in everything we do. That means we’re not willing to settle for a substandard financing option, because we know that isn’t what you have invested your time, money, and trust in us for. We want to keep your trust and build a long-term relationship with you, not simply throw you a standardized solution and send you on your way.
7 Park Avenue Financial works with you every step of the way, ensuring that your Brampton Ontario business financing does everything you need it to do. Your business has its own needs, and that’s where we come in – to offer real solutions that work to grow your business, without sacrificing quality.
We’re here to face your unique financing needs with timely solutions!
If you’d like to secure the right financing for your business needs, why not call 7 Park Avenue and talk to one of us today?
Phone: 905 829 2653
Email: sprokop@7parkavenuefinancial.com
What is 'DIP' Business Financing?
Many business people and financial managers are not aware of the term 'DIP' Financing - which stands for 'Debtor in Possession' financing.
DIP financing revolves around companies who are in distress and more often than not, in fact almost always, in a bankruptcy proceeding. Why would any firm want to finance a bankrupt company?
The answer is that many firms, especially those that are larger and have significant assets have a strong chance of emerging from bankruptcy, obviously as a stronger company ( less debt of course ) and a more reasonable chance of being successful and profitable again. We say ' less debt 'of course because the original secured lenders of assets,etc are in fact going to take a partial, or in some cases whole loss on their original financing.
DIP is clearly a very specialized area. Lenders who are specialized in this area enjoy the highest level of security over the assets they are temporarily financing.
Naturally the goal of the company while it is in a temporary bankruptcy (U.S. = Chapter 11 - Canada = CCAA ') is to emerge with new financing. The players and leaders in this specialized area of financing tend to be banks and specialized independent finance firms with significant capital and expertise. It is of course ironic that many of the banks that finance firms and take losses also have specialized DIP divisions which provide capital to the bankrupt firm.
The essence of DIP financing is that the DIP lender is given a super priority security on the assets of the firm. It goes without saying that when a company is in a bankruptcy preceding that the interest rates on the financing can in many cases be quite a bit higher than the customer enjoyed in its normal operating business model.
The advantage of a DIP lender are several - many times they are in fact over secured. That is to say, as an example, that a DIP lender may be providing a 5 Million dollar financing for the customer during bankruptcy, while the total assets might be values significantly higher. In many cases DIP financing are very large, and in that case two or in fact a number of lenders, band together to create the temporary working capital financing for the firm as it re - organizes.
In some cases DIP lenders may intend to take a future partial ownership in the post bankrupt firm, as well as of course,their place in line as priority lender over all others.
Many larger institutions actually create large multi million (billion?) funds that focus solely on making investments in DIP financing and partial future ownership of the firm. In general the competition for DIP financing is in fact growing - as ironic as it seems to the lay person and non finance professional, there is money in bankruptcy!
Naturally if a company is in bankruptcy there is still certain, if not a large amount of risk involved in DIP financing and the chances of a final successful emergence and re-financing of a firm. That is where experience comes to play, as seasoned DIP lenders know their industries and work out and re-finance strategies very well.
When a firm does successfully arrange DIP financing most finance professionals take that as a sign though that there is a strong chance that the company will re-emerge. Most importantly, as yet undiscussed, is the fact that DIP financing allows the company to continue on to sell, pay suppliers, employees, etc. Stopping a company in its key operating activities is of course highly risky with respect to a successful re-emergence of the firm.
Brampton Ontario Business Financing
<h5>Brampton Ontario business financing</h5>
