Understanding the Value of Using a Commercial Finance Broker

commercial finance broker

Your small or medium-sized business has financing needs – and the first place that comes to mind is likely your bank.

It makes sense to go to your bank first. Traditionally, a bank is the place that will offer you the best financing rates. However, you may not meet their lending criteria and your application could be denied – leaving you wondering where you went wrong and where to go next.

You can often avoid financing hiccups with the aid of a Commercial Finance Broker. Similar to buying a house and engaging a mortgage broker, using a financial intermediary to secure the funding you need will greatly increase your success rate. Financing your business can be best facilitated with the help of a Commercial Finance Broker because he or she will have the expertise of knowing which lenders to approach.

A Commercial Finance Broker is a professional in the know.

Your broker will understand the market and be able to assist if you have a complex or unique financial situation that a traditional lender might not understand or be willing to support. Understanding your specific financing needs is paramount to finding options that fit your business. No professional is in a better position to do this than a Commercial Finance Broker.

A Commercial Finance Broker understands your lending options best.

The skills and relationships developed by your broker will help you get the capital your business needs today. Brokers spend a lot of time cultivating relationships with lenders. As a result they get to know and understand what is needed for a successful application. Requirements for due diligence, approval, how risk adverse a lender is and the timeline for funding are part of what your broker brings to the table.

Benefit from Extensive Knowledge and Expertise.

Would you trust your automobile repair work in the hands of an insurance agent? Would you have your roof replaced by a tax accountant? The answer is absolutely not – the right professional should be hired for the right job. When it comes to your business financing needs, you want a professional who understands your industry. Someone who can navigate the credit-granting system with ease. Financial contracts and application processes can be challenging if you’ve never encountered them before. Your broker will be familiar with the terms, acronyms used, and the general process your business will be subject to when you apply for financing.

Get a Customized Solution

A customized solution is key to your success. Your business is unique and your lending needs are unique as well. A Commercial Finance Broker will develop a custom solution for you. Business needs will dictate the type of financing you require. The benefit of a customized solution and support that is tailored to your needs is that you will get the best rate and terms for your business. Your broker will help you compare rates and terms, making it easy to decide how to proceed. The best deal for your business is not always the lowest priced option. The amount of funding made available by a lender can be more important than the interest rate. Often the financing solution cannot be provided by the lender. Two or more funders may be required. Your broker may help structure a deal that will work for all lenders.

A Commercial Finance Broker can be your biggest asset, and your most valuable business resource.

You can save a lot of time and money by working with the right expert for your needs. While your broker is working out the details and navigating the lending process for you, you can focus on growing your business and generating revenue. One of the biggest reasons for declined financing applications is inexperience in knowing what is required for a successful application. By hiring an expert to help, you can rely on their experience. Your broker will know which lenders to approach, how to make sure you’ve got the right documentation to support your application and even how to get around some of the “red tape” that adds time to the application process. Your broker will also work to get you the best terms possible – because they see your long-term game plan and can help you meet your business objectives.

Let Spergel Corporate Finance Help Your Business

A Commercial Finance Broker will have developed and maintained key relationships with a variety of great lenders. Connecting the right businesses with the right lenders can elevate a broker to a valuable place in the eyes of the lenders they work with. Cultivating respect and appreciation for developing the best solutions for everyone means that many lenders rely on their broker network to provide valuable business leads. Your broker will be an impartial and objective party in lender negotiations and can assist in negotiating a solution that is fair and appropriate for everyone concerned.

If you think that the assistance of a Commercial Finance Broker sounds like the right choice for your business, please contact us today. We would be happy to review your business needs and assist you in securing the financing you need.

Term Loan Financing – You Can Afford to Take Your Time

Our President Glen Dalzell explains how Term Loan financing can help you fund the purchase of key assets over time.

What is a Term Loan?

A Term Loan is a financing solution that allows you to pay for an asset over time rather than in a lump sum. Too often, businesses deplete their most valuable asset (CASH) purchasing a high-cost asset that could easily be financed over time. A general rule in financing, “Use short term financing to purchase short term assets” (i.e. cash to purchase inventory) and “long term financing for long term assets” (i.e. term loans for machinery and equipment that has a long life). This preserves cash flow while providing the company with the production capability to pursue future business opportunities. The client identifies the asset and the lender (i.e. bank) purchases it. Funds are advanced in a single lump sum to the vendor. The client then enters into an agreement to pay back principal and interest over a period of time (typically 2-10 years).

What is a Term Loan Ideal for?

A term loan is ideal for purchasing new machinery and equipment, to finance a new location, acquisition or leasehold improvements. Assets such as machinery and equipment or a new location can be integral to your business’ growth and competitive edge. The cost of these types of investments can be substantial. Generally, a business will not have sufficient surplus cash or credit available to fund the outright purchase. Term loan financing will help your business retain cash while providing the assets needed to expand. If financing a large purchase from your own resources is not a viable option for your business at this time, we can help you arrange financing to pay for your purchase over time.

Term Loan Financing – The Benefits

Term loan financing improves cash flow-beginning with the benefit of improved cash flow. Operational cash can be diverted to other areas of the business while a term loan finances the investment and reduces the impact on cash flow. Term Loans are flexible. Depending on your company’s “credit-worthiness”, you will have varying degrees of flexibility on the terms of your financing deal (i.e. interest rates and amortization period) Term Loans can lead to other credit. Regularly repay your term loan on time. Your loan history will become a positive example of your creditworthiness and improve your credit score. As your score improves, you become more attractive to new lenders. Other financing opportunities may become available – possibly even with better interest rates. Term financing is a great alternative to using working capital to solve a business cash flow challenge. If you think that a term loan would be beneficial to your business, Spergel Corporate Finance will be happy to connect you with the appropriate lender. Let us help you meet your business objectives.

Funding Solutions: Purchase Order & Supply Chain Financing

Purchase Order Financing – The Basics

Your business is booming, you’ve got orders – lots of orders. The problem is cash flow – there will be times when there is simply not enough cash to cover the cost of doing business. As a result, there may be an order from a client that you cannot fulfil due to lack of available funds. Turning the order down is not an option. To avoid such scenarios, Purchase Order (PO) financing may be a good solution that can pay up to 100% of the required funding.

How can PO financing help and how does it work?

  • ● A PO is received from your customer (debtor)
  • ● You issue a PO to your supplier
  • ● Typically, the PO funder will provide your supplier with a Letter of Credit (LC)
  • ● The supplier manufactures the goods
  • ● The goods are inspected to confirm that the quality and quantity are acceptable
  • ● The goods are shipped to your customer and an invoice is issued
  • ● The invoice is typically factored and the proceeds are used to pay out the PO facility with the remaining funds going to you

Generally:

  • ● PO financing applies to finished goods only
  • ● Goods must be shipped directly to the end customer (debtor)
  • ● Financing does not cover deposits, the client must cover all deposits
  • ● There are always exceptions and each transaction must be reviewed individually

Purchase order financing is quite easy to qualify for. Unlike bank financing, you are not required to have an excellent credit rating. What is important is the credit rating of the end customer (debtor), not your business itself. This makes PO financing a good option for newer businesses and those with an average credit rating.

Supply Chain Financing 101

How can you buy more time to pay suppliers? Or maybe you want to secure funding now with a promise to pay early? With no cost to your supplier to extend terms and working capital at your disposal to ensure seamless order delivery to your customers – Supply Chain financing seems like a win for everyone.

If your company’s credit is good but other factors are impacting your access to funding, then Supply Chain financing is worth exploring as an option.

How can Supply Chain financing help and how does it work?

  • ● A customer PO is not required
  • ● You provide a PO to the funder
  • ● The funder issues a PO to the supplier
  • ● The supplier sends an invoice to the funder
  • ● The funder pays for the goods, owns them for a “moment” and immediately sells them to you under previously agreed upon terms (typically 30-90 days) thereby creating an account receivable
  • ● The transaction is “back-stopped” with accounts receivable (A/R) insurance in the event of non-payment which explains the need for a credit worthy client.

Generally:

  • ● Funding can be obtained for finished goods, raw materials, general inventory – or whatever it is that you need.
  • ● Financing will cover all deposits and final payment
  • ● Goods are generally shipped to the client

Are you facing a large order and in need of capital? Let’s explore options for your business with working capital solutions that can solve your immediate cash flow problems.

Invoice Discounting and Factoring

Leverage Your Accounts Receivable for Better Cash Flow

Spergel Corporate Finance (SCF) President Glen Dalzell explains that invoice discounting (also known as factoring) can help a business fix their cash flow problems when other financing options have failed.

Invoice Discounting

Many Canadian small business owners and financial managers are unfamiliar with factoring (selling your company’s receivables) as a cash flow strategy. A general lack of understanding of how the process works and its related costs prevent many businesses from pursuing this type of financing.

When businesses begin to experience financial pressure and cash flow becomes an issue, a new working capital strategy may be necessary. Leveraging your accounts receivables will generate the cash you need to meet payroll, purchase inventory and cover operating expenses. We will explain how it all works and help you manage the cost of selling receivables.
The Benefits of Invoice Factoring
Spergel Corporate Finance will act on your behalf to source the appropriate funder to maximize proceeds and minimize the costs associated with financing your receivables. By converting outstanding accounts receivables into cash, you will enjoy the flexibility of running your business to maximize success. No more running to the mailbox looking for cheques or chasing clients for payment. With factoring you will also benefit from:

  • • Fast service: Receivables can generally be converted into cash within 24 hours allowing you to take advantage of opportunities and meet obligations.
  • • Easy to understand fee structure
  • • Typically no long term contracts
  • • Financing is based on the credit quality of your customers

How Does Factoring Work?
The terms invoice discounting and factoring are often used interchangeably but there are different products in the marketplace.

Traditional full notification factoring works as follows:

  • • The business issues an invoice and provides a copy of the invoice to the factor
  • • The factor contacts the customer (debtor) to confirm the invoice details (known as verification)
  • • The debtor is put on notice that invoices have been assigned to the factor (known as notification)
  • • The factor handles the collection activities
  • • Payments are payable to the factor
  • • Cheques and electronic payments are sent directly to the factor

 
Non-notification factoring, often known as invoice discounting, differs from the above as follows:
    • The business issues the invoice and provides a copy to the factor
  • • The factor does not contact the customer (debtor). No verification.
  • • The debtor is not advised that invoices have been assigned to the factor. No notification.
  • • The business handles all collection activities
  • • Payments are payable to the client not the factor
  • • Payments are forwarded directly to the business which, in turn, forwards them to the factor

This process is much less intrusive to the client. While most clients would prefer non-notification factoring, some simply do not qualify. Full notification factoring focuses on the credit quality of the debtor and non-notification factoring is much more dependent on the credit quality of the business. Companies with weak balance sheets or poor credit will likely be required to use the full notification option.
Mechanics of factoring:

So how does it really work? You generate your invoices the way you always have. Once the goods have been shipped or the services performed, the invoice is deemed to have been earned. Now you can factor the invoice and receive immediate payment from the factor. The amount forwarded will typically be 80-90% of the face value of the invoice and will generally include the sales tax amount as well. The balance of the invoice (known as the reserve or holdback) will be held back until the invoice is collected. This amount will then be returned to you less the factor’s financing fees. Invoices paid in a timely manner means you will have access to the reserve portion sooner and will also reduce your financing costs.
Cost of factoring:
Factoring fees will generally range between 1 – 3% monthly depending on the size of the facility and quality of the receivables. The sweet spot is in the 1.5 – 2.5% range for most transactions. Typically, you are not required to factor all of your invoices and you can factor them as you need the cash. This means you can hold off factoring an invoice rather than receiving cash you do not need and do not want to pay for.

Typically, there will be set up fees to get your facility in place but these are generally modest. There will also be legal fees to register security against the business and these will vary depending on the complexity of the transaction but are generally modest as well.

Factoring does not show as debt on your balance sheet. You are simply converting one asset (A/R) to another (cash). As a result, you don’t have to worry about debt to equity ratios that could trigger covenant breaches with other funders you may be working with.

Improved cash flow will allow you to expand your business more quickly. We would be happy to review your financing needs and determine how you can use your accounts receivables to improve your cash flow. Please contact SCF to discuss how factoring can work for you.

Why Equipment Leasing May Get You What You Need

Our President Glen Dalzell explains how equipment leasing can help your business acquire much needed tools of the trade
spergel corporate finance Depending on what your business does, new machinery and equipment (M&E) may be essential to allow your business to grow and remain competitive. Manufacturers know all too well how expensive specialized M&E can be. Many businesses don’t have enough available cash or credit to purchase the equipment they need. Equipment leasing can help your business “rent to own” that new piece of equipment that will take your productivity to the next level. Purchasing equipment outright may not be a viable option for your growing business. Start-ups can have a difficult time securing bank financing which makes leasing a great alternative. Your business can lease everything from computers to phone systems, trucks and trailers to manufacturing equipment – for a flat monthly payment that you can afford.
Equipment Leasing Benefits:
The benefits of equipment leasing are easy to see. Spergel Corporate Finance (SCF) works with several leasing companies and can source the financing you need to help your business succeed.
  • Quick access to the funds your business needs to purchase equipment and machinery.
  • Affordable payment terms that will help your business continue to grow without cash-flow problems.
  • An opportunity to secure funding if traditional lenders (banks) have turned you down.
How Does it Work? Our leasing partners will advance funds to purchase the M&E you require. A modest deposit of approximately 10-20% will be required to get started. Your business will make a flat monthly payment for the term of the lease (typically 3-5 years). M&E leasing is similar to leasing a vehicle. If your company continues to make your lease payments and honour the terms of the agreement, your business will own the equipment at the end of the term. The buyout amount will vary depending on the structure of the lease. Your new equipment will be delivered after the leasing company has paid the vendor. Your business can commence installation and production right away. Leasing is a practical alternative to depleting valuable working capital and/or credit facilities. Leasing has the added benefit of knowing what your monthly payment is. If you think that M&E leasing may be the right solution for your business, please contact SCF and we can start the process and determine what your business may qualify for.

Asset Based Lending (ABL) Has Its Advantages

Learn Why ABL May Work For Your Business From Our President, Glen Dalzell
In a business financing climate where access to working capital can be challenging, customized, non-traditional financing solutions are a practical alternative for business owners. Financing options don’t end with the typical lenders you might expect (i.e. banks). Asset Based Lending (ABL), for example, is one financing solution that a business can use to increase its access to working capital. Continue reading →

Lending to Your Company – With LIT Frank S. Kisluk

Protecting Your Shareholder Loan

Frank S. Kisluk, BA, CPA, CA, LIT Licensed Insolvency Trustee Great news, Evan! We’ve reviewed your company’s Bank application for the $100,000 operating loan and we’ve agreed to advance the funds today. The terms of the loan are: there will be no security, no interest charged and the loan will be repayable when you have the extra cash to pay us. We hope you will agree to accept the loan under these terms. Stop laughing! Did you just say that no bank would be crazy enough to make a loan under these terms? And what was that about the bank having to protect its depositors’ money when lending? And what was that about earning interest on depositors’ funds? A banker who made that loan would be guilty of the most extreme career-limiting move possible. A Bank that intended to stay in business would almost never make that loan without security over the business assets – accounts receivable, inventory, equipment, furniture and anything else of value. Now let’s take a look at your company’s balance sheet. If your company owes you, (its shareholder), money, is that loan unsecured, interest-free and open for repayment only when convenient? Why are you not entitled to the same protection that your banker would require from your company before lending it one dollar? In fact, not only are you entitled to the same protection, you should demand it! Perhaps your company has already borrowed from a Bank and has pledged all its assets as security. Remember that, in the event a financial crisis forced the liquidation of those assets to repay the Bank as secured creditor, any surplus funds remaining after full repayment to the Bank would be available for sharing by all unsecured creditors. If your shareholder’s loan were properly secured and registered, you could be next in line to receive the surplus funds. Remember also that the bank’s position may change dramatically from the date you advanced your loan until the time when assets are being liquidated. There may even be no money owing to the bank when a liquidation takes place, in which case your loan would enjoy a first position over the proceeds. There are a number of ways to secure your shareholder’s loan. The most common is to obtain a General Security Agreement. This is a document given by the company, pledging all assets of the company as security for repayment of your loan. This Agreement must be properly registered. In Ontario, for example, it would be registered under the Personal Property Securities Act. You should have it completed by your lawyer at the time of advancing funds, because even the slightest error could negate the registration. This type of security is usually provided to support a documented loan agreement which would reflect the conditions under which the loan is being advanced, the rate of interest being charged, the terms of repayment, and the conditions under which you, as the secured lender, have the right to seize and dispose of the collateral to repay the loan. In the normal course of business, this documentation will have no immediate bearing on the company’s operations. However, circumstances change. An unanticipated lawsuit could render the company insolvent. A dramatic reversal in the marketplace, or some other catastrophe, could suddenly change your focus to one of preserving your own personal position ahead of the company and its unsecured creditors. Your company’s obligations to its unsecured creditors are as real as its obligations to its bank and yourself. There is nothing improper or immoral in establishing your priority position in this manner. The very fact that you are operating a “limited liability corporation” serves notice to your creditors that they are unsecured if the business fails. They always have the right to search under the Personal Property Securities Act and determine who is registered ahead of them. They also have the right to demand security from the company before they sell to it on an unsecured basis. That is always a matter of negotiation. Creditors can obtain, for example, either a Purchase Money Security Interest in the specific goods being sold to you, or a General Security Agreement over all company assets. When Trustees in Bankruptcy distribute liquidation proceeds to unsecured creditors, loans from shareholders are often included in the category of unsecured debts. As a result, it is common for shareholders to realize only a small pro-rata portion, if anything at all, out of the available funds. In situations where the loans have been properly advanced and appropriate security has been pledged and registered, shareholders receive their money ahead of the unsecured creditors. And, in these instances, a shareholder loan is often fully repaid. An additional benefit of properly securing shareholder loans arises when the company is facing financial pressures. Having a shareholder’s secured loan in place will sometimes allow certain reorganization options to be implemented, which would not be possible without the secured loan being there. The point is that, for minimal cost, no matter how healthy the business is at the time of the loan, shareholders should always secure their loans to their corporations. Shareholders never invest money in their businesses with the expectation that the businesses will fail. Yet things change and some do not survive. An investment in your business deserves the same care that you would apply to any other investment, and at least the same protection that a bank would require when lending to your business.