Is Venture Capital Right For A Business?

Venture capital financing is only for a very small amount of the business landscape - Typically this tends to be for technology companies with ultra-high growth potential. To compensate for their risk venture capitalists take significant equity ownership in the business and focus on very high returns for their investment via future public listing potential, etc The expertise and knowledge and contacts they bring to a business can be significant.

Business FInancing Options - Asset Finance Loans & Funding

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BUSINESS LOANS AND BUSINESS FINANCING IN CANADA FOR SMALL BUSINESS OWNERS

Financing in business and those searching for business loans via asset based lenders in Canada sure could use a secret weapon for their loans and funding needs.

WHICH BUSINESS FINANCING OPTIONS ARE RIGHT FOR YOUR BUSINESS?

The importance of financing for any business cannot be overstated. Accessing capital through various means is vital in ensuring that the company can meet its obligations and continue operating, even if it's only temporary until funding becomes available again or being able to secure a line of credit with traditional financial institutions or one of many alternative financing solutions.

For a business owner looking to borrow money, adopting a positive attitude in business financing sure helps, and that's achieved when you're confident of the alternatives and solutions. Finding the appropriate financing for your business can sometimes be confusing and overwhelming - Talk to the 7 Park Avenue Financial team to help determine what is appropriate for your business.

BYPASS TRADITIONAL FINANCIAL INSTITUTIONS / TRADITIONAL LENDERS ?

The reality is that for many established businesses certain business financing strategies and tools work better than others based on your firm's particular needs. ABL, the acronym for 'Asset Based Lending' in alternative financing might well be the main 'secret weapon' you've been searching for in cash flow independence.

Asset finance is growing in popularity in Canada as a solid alternative to the ' bank loan ' and provides a whole new way of looking at business credit history with a focus on .. assets, versus a company's cash flow.

Asset finance strategies are a solid method of growing your company, growing companies or firms that are financially challenged but still generating sales are typical users of ABL-type strategies. Although asset financing strategies are applicable to almost any company they are particularly suited to manufacturers, distributors, retail firms, and those involved in construction. It's all about assets and sales!

Business owners and their financial managers need to know what their borrowing options are. At 7 Park Avenue Financial when we talk to new clients about business financing needs we're told that access to capital and flexibility in some form is their most desired features when business capital is sought.

Those unfamiliar with the asset based lender landscape are well recommended to talk to a Canadian business financing advisor who can best determine your overall needs suited to your company and industry.

Asset finance used to be often thought of as a lender of last resort - that is no longer the case as thousands of companies in Canada, large and small utilize this financing. However it should be noted that it is more expensive, not always, but most of the time. The most typical users of this type of corporate financing are those firms that are exploring new growth in revenues and who require bulge financing based on seasonality industry-specific issues.

Those firms which do not have Canadian banks as their senior lenders are the most likely candidates for some form of asset based lending. While most companies view Canadian banks as the 'go-to' in commercial loans they are often stymied by conservative lending policies and the need for additional collateral, personal guarantees, and those dreaded loan covenants and ratios required by our highly regulated Canadian banking system.

The additional cash and borrowing ability generated by ABL leaves firms with the ability to operate on a daily basis while at the same time being able to consider growth opportunities. Many smaller firms more and more take the immediate leap into ABL finance solutions based on their perception they don't qualify for traditional bank loans or an unsecured business line of credit.

They are looking for solutions in A/R financing, purchase order financing, inventory finance, and tax credit financing, all of which are subsets of Asset Based Lending. Commercial real estate loans and bridge loans are also available within asset finance.

When it comes to equipment ABL loans can allow you to borrow on any fixed assets in your business; that might be in such categories as tech assets, plant equipment, rolling stock, etc.

When approaching an asset based lender be prepared to provide details about your business and industry; business plans and cash flows are very helpful, as well as details around your current financing arrangements. Backup information required usually revolves around financial statements, bank statements, and details on owned or leased assets.

What if you could have a financing mechanism that was a non-bank type financing that covered every size of business, all industries in Canada, and did not place a major emphasis on your balance sheet, income statement, profits or lack thereof? And was, relatively speaking easy to arrange. That is the offering of asset based lenders in Canada.

We can hear you lining up as we speak! Let's talk a bit about what this financing is, how it works, and cover some key questions that clients have about costs, day-to-day paper flow and reporting, and the key advantages.

No business finance strategy is without some form of 'downside' so we'll explore that also in case there are concerns that need to be addressed when it comes to asset financing.

ABL, or asset based lending allows you to borrow, on a regular, ongoing basis, against; you guessed it, 'assets'! Your assets in any business are always going to be the same and they can be categorized into a few key categories which include receivables, inventory, equipment, and, in some cases real estate.

When you are in a traditional Canadian chartered banking relationship your lender lends against those same assets, but probably not to the extent that a true asset based line of credit would provide you with. And the prerequisites for that banking facility are all too clear for Canadian business owners and financial managers.

To achieve traditional Canadian chartered bank financing you must be profitable, have a solid balance sheet, and have a decent measure of personal guarantees and outside collateral. Note also that ABL lending can be used as a loan to buy a business in Canada. Bank loans for businesses are not always able to satisfy the buyer's full financing need when it comes to a business acquisition.

That's not what ABL is about, it's about only your business assets, and monetizing them in a fashion that makes them as liquid as you need them to be. Business loan rates vary when it comes to interest rates, but rates have become even more competitive in recent years but are typically higher than borrowing rates from Canadian chartered banks who serve the business sector.

A typical asset based lending revolving line of credit would margin all your receivables, a significant extent of your inventory, and include drawdown ability on unencumbered equipment and real estate if they in fact were available and required. You therefore only have to remember one thing in ABL lending, 'assets'. Business assets mean access to funding!

Clients always want to know if and how they qualify for such a facility. You must be in a position to provide some decent reporting around the ageing of your receivables, the turnover of your inventory, and the market value of your equipment.

We would respectfully suggest if you can't do that you might not even be a candidate for staying in business, so those certainly aren't onerous requirements!

So who is eligible for asset based financing? Businesses that are the best candidate for this type of financing are those with high growth patterns or firms which are coming out of a challenging period in their history. A frequent misunderstanding around this type of financing is that it is 'debt'. That is not the case. ABL strategies simply monetize assets - They accelerate borrowing capability based on turnover and value of assets.

There's no Holy Grail 'perfect' financing for small business strategy - but asset based finance should always be considered when you're looking at day-to-day funding for growth & operations.

Oh, those 'disadvantages' and risks we spoke about? The two disadvantages or potential concerns are the higher cost of this financing, as well as the additional reporting we spoke about.

Other frequently used asset financing strategies that should be considered include:

Factoring/ AR Financing / Invoice Factoring - funding outstanding invoices via trade credit extension to business customers - Invoice financing is a great way for businesses to get the funds they need in order to fulfill their short-term obligations. This type of cash flow facility is backed by the business's accounts receivable and sales.

Talk to the 7 Park Avenue Financial team about Confidential Invoice Financing solutions

Equipment Financing / Leasing - for companies requiring significant investments in new or used assets

SR&ED Tax Credit Bridge Loans - Financing small business innovation research for private corporations - Some companies explore business grants available from the government to help achieve certain business goals - Requirements vary and can be time-consuming and confusing at times - In Canada, IRAP grants can be financed similarly to SR&ED loans.

Companies unable to secure asset based financing that requires collateral often consider cash flow loans - Interest rates and costs vary, and this option is not available for a start-up business. Loans are secured based on the operating cash flows of the business and are typically structured as term loans.

Merchant Cash Advance / Short Term Working Capital Loan/ Online Lenders / Business Credit Cards -

Short term working capital loans, sometimes called merchant cash advances are readily accessible to many businesses. There are typically structured as monthly installments based on a formula of sales and emphasis on owner credit history. Many businesses also utilize business credit cards as a basic financial tool for their business - particularly for new business financing / smb financing.

BEST START UP FINANCING FOR A NEW BUSINESS? SOURCES OF FINANCE FOR ENTREPRENEURS AND LOANS FOR SMALL BUSINESS

Recent changes in 2022 make the Government Canada Small business financing program one of the best sources of new business/startup financing/ franchise financing in Canada. Additional financing solutions have been added to the program with new classes of loans and different terms and flexibility. This funding solution is comparable to the Small business administration sba loan in the U.S.

Term loan structures in the program allow a business to buy land and buildings used for commercial purposes of the business- As well new of used equipment needed by the business can also be financed, as can leasehold improvements to leased properties.

The most dramatic change to the program is the addition of business lines of credit for working capital purposes.

At 7 Park Avenue Financial, we encourage all borrowers ot ensure they have a solid business plan in place when exploring financing options for a new business. Business plans should explore the source and use of funds for funding requirements and have conservative financial projections.

The maximum loan amount for any one borrower is $1.15 million for borrowing money under the program. Term loans under the program are structured via a monthly payment with a typical 3-5 year term. Repayment terms are flexible and tailored to the needs of the business.

The government itself does not lend money under the program, it guarantees the majority of the loan to a participating bank or credit union, These small business loans help build business credit for the business.

Credit scores for borrowers are important as banks and others place emphasis on the personal credit of the owner/owners. The minimum credit score is in the 650 range typically given that an early-stage business represents often more risk to the lender.

Startup companies and franchise purchases are the main borrowers under the program and the government funding/guarantee is a key aspect of the program. Businesses should also explore a bdc small business loan from Canada's non-bricks and mortar business bank for entrepreneurs.

Accessing the capital needed for a small business can be challenging, but it’s not impossible for many viable small businesses. While business loans from banks and credit unions have the best interest rates traditional bank loan financing requires that borrowers are well qualified. Newer businesses without established business credit, cash flow and collateral encounter many obstacles in obtaining the business financing they need to run and grow the business.

Speak to 7 Park Avenue Financial about the best financing options for a business and how to get a business loan. we're a trusted, credible and experienced Canadian business financing advisor for the small business owner, assisting you with your business funding needs.

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' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil