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Canadian Business Financing - Tips on Securing Financing For Your Business
Business financing is a challenge anytime, from the entrepreneur's dream of a small start up to major corporate needs.
The current economic downturn makes the above noted challenge even more daunting. Whether a firm is established and doing well, or experiencing financial distress or working capital or growth needs - the challenge remains the same.
What is the 'challenge'? Simply speaking it is identifying the proper financing solution , determining whether the solutions is a short term fix or a long term solution , and then, most importantly executing with experience the proper financing solution.
The business owner must be able to properly position the current shortcoming as both an opportunity and risk appropriate.
Proper financing begins with the owners and his advisors ability to identify the current financing challenge. The owner and advisors must provide a compelling reason for the lender to assist in an appropriate financial solution.
Who are these 'advisors'? Typically they are internal financial staff, i.e. CFO/Controller, etc, or alternately third part accountants and experienced financial intermediaries with a track record of success.
Business Financing is complex - However at the end of the day the financing solutions are actually very well defined - They are as follows:
Leases and Term Loans
Working Capital Loans
Asset Based Lines of Credit
Bank credit lines
Non bank credit lines
Receivables purchasing
Inventory Lines of Credit
Purchase Order Financing
Commercial mortgages
Tax Credit financing
The business owner, and their advisor, should have a very clear focus - That focus is as follows: What is the best financing solution on either a short term or an intermediate/long term basis for the business. Does the business owner or executive clearly understand all the financial options available - what are the criteria for these different options - what are the rates/terms and structures for each option.
When sourcing financing for your business, choosing the wrong firm can be an expensive
mistake, and costly delays can have disastrous results. We’re experts at Toronto Ontario
business financing.
We focus on building relationships with our customers; we want to hear your point of
view and earn the right to become your trusted financial advisor. We can work with you to
overcome all obstacles to financing success.
When sourcing Toronto Ontario business financing for your organization we will be
flexible, while providing an acceptable turn around time. Each solution is custom tailored
and specialized to match your specific needs.
We strongly believe that quality service cannot be mass produced!
What are you waiting for? The business financing your business is looking for is just a
call away. Contact us today so we can help you secure the capital needed to grow your
business!
Factoring and Working Capital Financing in Canada – What is the difference?- By Stan Prokop - 7 Park Avenue Financial
When business owners and financial managers think of ‘cash flow ‘two terms are almost synonymous, factoring, and working capital. Is there a difference. Yes, a major difference.
We believe that when Canadian businesses think in terms of working capital that is often in the context of permanent working capital. This can be in a couple forms, a term loan, a mezzanine loan, or subordinate debt. These are the key terms of ‘high finance’ for working capital loans! With loans such as these businesses typically use the working capital derived from the loan to invest in sales and marketing, implement new products and strategies, and purchase inventory and materials for further corporate growth.
There are numerous advantages to a working capital term loan. Repayment of the loan is typically in the 5 -7 year range. As such that clearly frees up cash flow. Let’s do a quick example – If a Canadian business borrowed $ 150,000.00 and was successful in getting a term loan in place the monthly payments over a 5 year period would be approximately $ 3000.00 per month. (We used an interest rate of 8% just as an example).
Depending on the flexibility of the lender payments can be structured, or even potentially deferred, based on the nature of the customer’s needs and overall financial situation.
Naturally any financing scenario as positioned above is long term permanent working capital, which is generally viewed positively by business owners and their lenders. It is in effect a form of ‘patient working capital ‘.
Long term working capital loans in effect ‘compliment ‘your existing secured creditor relationships. For the purposes of this article we won’t dwell too much on the aforementioned subordinated debt and mezzanine debt – we will simply say they are unsecured ‘ cash flow ‘ loans, long term in nature, with rates substantially higher than chartered bank rates due to the general unsecured nature of the loans . The lender is simply taking a position that your firm will be able, based on historical and present financials, to repay the loan out of cash flows.
We’ve discussed the ‘permanent ‘ working capital loan and have seen its characteristics, i.e. term loans, longer repayment schedules, fixed rates, terms and structures .Now lets look at totally immediate working capital/ cash flow, which many customers in Canada are achieving by a factoring or working capital cash flow facility .
The factoring solution is immediate. Transactions and facilities can usually be approved in a much shorter timeframe. Every customer is different of course, and in many different industries, but based on a review of your financials and your tax returns customers receive immediate significant advances (typically 90%) of their invoices.
Since the heart of any business cash inflow comes from collected receivables business who ‘struggle’ with the collection process often face cash flow shortages due to slow paying customers. Conversely, as receivables and inventory build up for good reasons (good reasons = more sales) the companies investment in receivables and inventory grows.
Factoring, or receivable discounting as it is also known, is based on the overall size, quality, and collection experience related to your billings. It is very safe to say that current invoices are more easily factored (sold) than 65 day unpaid invoices from slower paying customers.
Many factor firms assume the role of your collection department, some business owners actually welcome this as they have in fact utilized the very popular concept of ‘outsourcing‘re their collections .
So is factoring all goodness. Certainly not, what type of financing is. In factoring there is a much higher cost to finance you’re A/R portfolio. In Canada there are tens and hundreds of nuances and administrative procedures around the factoring process that many business owners struggle with. Factoring should be used for growth, not survival, and other strategies can be explored at a lesser cost and less intrusiveness to your business.
In summary, business owners considering the ‘ working capital/cash flow ‘ conundrum can consider long term working capital loans or short term receivable financing strategies for growth . There are a number of options around both of those financing, and in fact other options (example: a sale/leaseback of your assets or a real operating margined facility with a Canadian chartered bank) should also be potentially explored.
Review al options, and worked with trusted, credible, and experienced business financing advisors to find your optimal working capital solution .
Toronto Ontario Business Financing
CASH FLOW - You can be Forgiven for misunderstanding the term - By Stan Prokop - 7 Park Avenue Financial
We find that the term, or concept ' cash flow ' is widely misunderstood - having different meanings to different parties.
There are at least 7, if not more, methods in which the term is utilized in a number of areas of finance.
First of all the term is of course just a general term used in finance literature and textbooks relating to investments, etc.
When we see a company financial reports in the press there are often references to cash flow in the financial reports of the firm.
Getting even more specific, there are three parts to any financial statement, the balance sheet, the income statement, and the Cash flow statement. In older times this cash flow statement was called the Sources and Uses statement - simply indicating where a company got the money, and where they spent the money.
Some financial analysts refer to a company's ' funds statement ' and designate the total funds provided by operations as ' cash flow '.
Confused? We're not there yet. Financial managers and business owners use various types of analysis when making long term investments for the company. They use sophisticated financial analysis known as rate of return, payback analysis, and, guess what ' discounted cash flow ' analysis.
When a business owner is planning he will often prepare, and refer to, his ' cash flow ' budgeting.
And finally, business owners and financial mangers refer to; cash flow;
controls as they monitor the flow of funds and the control of those funds inside any company, small or large.
What becomes clear is that ' cash flow ' has become somewhat of a ' catch all ' wording and is somewhat confusing as more often than not it does not reference actual ' cash ' on hand, or evens the flow!!
Most financial people would probably agree the purest form of ' cash flow ' is in fact one of the items we have mentioned above - that is to say its the cash referred to in the company’s CASH FLOW STATEMENT - we referred to it as one of the three pillars of any financial statement . The common calculation of this number is the net income of the company, plus the depreciation, which was not an actual cash outlay.
In summary, we have seen that the term cash flow means a lot of different things to different people - Business owners, and financial managers should know what method of cash flow they are utilizing, its uses, and how it will be interpreted by lenders, financial analysts, shareholders, etc.
And yes, you are forgiven for misunderstanding the term!
ASSET BASED FACTORING
Asset Based Factoring also known as Asset Based Lending will be the funding method of choice for many businesses coming out of the recession. Historically during times of economic uncertainty factoring is proven to be a viable financing option. When credit tightens and lending becomes restricted, the reality of paying a little more for working capital has proven acceptable by small and mid-sized business owners.
The following are frequently asked questions about asset based factoring.
1. How is asset based factoring different than a bank loan?
When applying for a traditional bank loan, bankers look at the credit worthiness of your business. The primary difference is a bank will lend your business money that has to be repaid, and will require you to pledge your companies assets to receive a loan.
Unlike a factoring arrangement when funding is approved based on the credit worthiness of your customers, and your company will incur no debt to be repaid.
2. Can my business receive accounts receivable funding if my business already has a bank loan?
The real answer is maybe. If your bank has filed a lien against your accounts receivables, you need to let your factor know right away. Some banks will agree to subordinate their liens depending on the circumstances.
3. If my business is behind on taxes, can I still get approved for asset based factoring?
Again the real answer is maybe. In some cases the IRS will work with factoring companies and subordinate their lien position understanding that additional working capital may be just what is needed to allow the company to grow.
4. Is asset based factoring an option if my company is going to file bankruptcy or has just filed bankruptcy?
Factors will only finance companies in chapter 11 bankruptcy. These situations will be considered on cases by case basis; however with the approval of the bankruptcy judge, most factoring companies will step in and fund companies in chapter 11 bankruptcy.
5. What is involved in the application process and what information is needed?
The application process is quite simple, typically a 3 to 4 page application, a detailed customer list, an accounts receivable aging, an accounts payable aging, and articles of incorporation or other state validating the businesses authorization to operate.
6. How long will it take to get funding?
From start to finish, it takes between 3 to 10 days to approve the initial funding based on receiving all the information timely from the customer. After approval, your company will receive funds within 24 hours of invoice verification.
7. How many of my customers will an accounts receivable factoring company fund?
The answer is 100% of all credit worthy customers.
8. Will a factoring arrangement hurt my relationship with my customers?
Asset Based Factoring is an accepted form of funding and large companies are comfortable working with this method of financing. For them, there is no difference in processing payments.
The last thing a factor wants to do is interfere with a companies ability to grow and do additional business. The factors success is built on your success and they will manage customers in a professional manner.
9. How does factoring work?
Factoring is the sale of a companies invoices for immediate cash. Simply put, a strong cash flow is essential to the success of any business. Without adequate cash flow, businesses struggle to cover payroll, taxes and suppliers therefore hampering operations and restricting growth.
Factors will release 80% to 90% of verified unpaid invoice within 24 hours of them being submitted, and the outstanding balance will be paid less a discount immediately upon receipt of payment from the customers. For examples, a company invoices $ 10,000 and the advance rate is 80%, and let's assume the customer will pay in 30 days with a discount rate of 2%
In this example, upon submitting the $ 10,000 invoice to the factor, the factor will verify the invoice with your customer and upon approval will transfer $ 8,000 immediately. In 30 days when your customer pays the $ 10,000 invoice to the factor, the factor will send your company $ 1,800. $ 2,000 less the 2% fee or $ 200 equals $ 1,800
10. How does asset based factoring differ from a quick payment discount offered to customers?
One you can control and the other you can't. When offering payment discounts, your business is at the mercy of your customer's decision to pay or not to pay early. Many companies will offer their best and largest customers a 2% or 3% payment discount to pay in 10 days or less. Unfortunately not all large customers take advantage of the discounts and gain a greater benefit by paying their bills in 30, 45, or maybe even 60 days.
Factors will step in and solve that problem; Factors will pay immediately for invoices submitted therefore improving cash flow by providing instantaneous access to working capital.
Why Asset Based Factoring?
Factoring provides immediate access to working capital and in light of today's tightening credit environment more companies find themselves working with factors to grow their businesses.
Darren Grady has over 25 years of private business and funding experience. Mr. Grady owns and maintains http://www.smallbusinessfactoringanswers.com as a resource for small business owners and additional information on Asset Based Factoring can be found there.
