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South Sheridan Executive Centre
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Oakville, Ontario
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Business financing in Canada offers some alternate solutions not often considered by owners/mgrs. One of these is ' mezzanine' cash flow loans. We're covering the basics, an a to z approach, so let's dig in.
The one main requisite of unsecured cash flow finance, i.e. ' Mezz ‘, is positive cash flow. That cash flow, when structured properly, allows business owners/mgrs to consider growth options normally not achievable, as well as potential acquisitions of competitors. Often it's the key financing building block in a management buyout also.
The reason this method of business financing in Canada works so well? It's essentially because it reduces the amount of owner equity or outside debt required to make your chosen strategy work. Given that ownership equity (or giving it up) is expensive, the owners/mgrs strive to create a finance structure that gives them the most financing at the lowest cost. That ' blended ' cost of all their financing reduces overall interest rates.
Mezzanine cash flow finance is often considered as an alternative to a traditional banking structure. One way of looking at it is that it's a way to fund future growth that otherwise might not be funded until some future point when all those required bank ratios can be achieved, what business owner does not want to accelerate growth!
The key concept around ' Mezz ' is that it's essentially unsecured lending, providing only a promise to pay by the owner with the normal secured required.
Why does the traditional banking solution not work when owners think they have the right mix of assets for a traditional bank type solution? The answer is that those assets are often ' discounted ' by the lender - receivables are not financed on a 100% basis, appraisals might not back up the book values, and in many cases firms, these days have some significant intangible assets on their books, which are typically not financeable.
As we've stated, business financing through mezzanine cash flow loans gives your firm a solid chance to grow - more quickly. These loans, when structured properly, are matched to your actual cash flow repayment ability. An interesting point in the whole issue of ' mezz' financing is that the senior secured lender, typically ' the bank,' will often view your mezzanine loan as, in effect...equity.
These unsecured cash flow loans typically cost more, with higher rates often approaching the teens, but again as we've stated, it is cheaper than giving up or raising more ownership capital.
If mezzanine cash flow financing might meet your needs for growth, acquisition, or recapitalizing, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you achieve the benefits of such financing.
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Stan Prokop
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