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SMALL BUSINESS REFINANCE & RESTRUCTURING SOLUTIONS
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Business refinance in Canada might often require some ' financial engineering.’ If that is in the cards' for your firm, what are the issues that might need to be addressed? What solutions for commercial refinancing loans, new debt, or asset monetization might make the most sense in your particular situation? Let's dig in.
GROWTH FINANCE OR RESTRUCTURING?
Whether it’s a turnaround situation or propelling your company to future growth, it's all about knowing your finance options.
HERE ARE 2 KEY OBJECTIVES
What then are the business owner/ financial manager's objectives for assessing those finance alternatives? They include :
Understanding the amount and type of working capital you need
Implications that come with those financing strategies.
There are various tools the owner/manager can utilize to analyze why some strategies might work while others might not. It's difficult to undo the wrong financing strategies and expensive! And by the way, how you manage your assets is equally as important as how you finance them.
IS IT ALL ABOUT CASH FLOW?
Cash flow management is, of course, key in succeeding in business. When owners/managers have a handle on their cash flow cycle ' it's almost as if they can visualize how cash is used and how changes in A/R and inventories and payables affect the inflows and outflows of cash. Business owners are also conscious of the interest rate on any transaction.
HERE ARE 5 WAYS TO RE-ENGINEER YOUR BUSINESS FINANCES
Finance re-engineering strategies for capital inflows to your business can only be accomplished in really 5 different ways.
Let's take a look at those and determine which strategies might work for your firm.
1.Taking on new debt of a long-term nature - This can be achieved via equipment financing, temporary bridge loans, sale-leaseback strategies, and consideration for working capital term loans. Here it's important to ensure you have the right maturity on any loan. Your considerations should be around cost; any risk posed to the business, and the restrictions that some types of debt bring with them - i.e. covenants, personal guarantees, etc.
2. Increasing equity capital - While long term equity is often desirable, it also dilutes ownership, and negotiations, discussions, and terms via Angel investors, VC's, and Private Equity Groups can bring in significant capital its often a journey that most businesses can't sustain - let along be worthy of
3. Sales increase working capital - simple as that. Many business owners find out the hard way is that the build-up in receivables and inventories increases working capital; they do that by textbook definition only. That investment in receivables and goods decreases cash flow. That's where the prudent management of current assets comes in.
4. Decreasing current assets - It's here the business owner/manager will find the most options around proper financing engineering of their business. They include:
Canadian chartered bank credit lines/term loans
ABL (Asset Based Lending) non-bank business lines of credit - ABL loans can also be used for commercial real estate transactions and via a bridge loan are an alternative to commercial mortgage financing for a company owner commercial property
Tax credit loans (Primarily SR&ED tax credits)
Sales/Royalty financing
Receivables and/or inventory financing - these are subsets of the Asset-based lending solution.
5. Selling fixed assets or utilizing a proper sale-leaseback strategy - Refinancing your commercial property can also be addressed via the lease back, and monthly payments are typically structured carefully to address your cash flow needs - Here, transactions are often ' interest only ' with a balloon payment due at the end of a year - where refinancing may again be resumed for a new loan amount- Interest rates and closing closes should be considered with proper due diligence to ensure they meet your needs - some commercial lenders may also charge an origination fee - Interest rates may be at a fixed or variable rate. Monthly payment calculations will, of course, vary regarding the final amortization used. A typical loan to value will not exceed 75% as debt service is a key part of real estate financing on company-owned commercial facilities.
The leaseback is often a bridge loan on a short term versus 10 years, 25 years, or 30 years amortization in traditional mortgage finance.
CONCLUSION
If your company can, or needs to, benefit from a business refinance strategy that makes sense for your business/industry, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help ensure you that it is ' in the cards' that a financing re-engineering is around the corner.
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Stan Prokop
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