By Evan Carmichael on November 18th, 2012
Stan Prokop is the founder of 7 Park Avenue Financial. The firm specializes in business financing for Canadian companies in the areas of working capital, asset based lending, SR & ED tax credit financing, equipment financing, franchise financing and banking.
He’s also a Platinum author on my website – you can check out his articles here.
Stan won one of our monthly contests – we asked him a few questions about Financing Tips for Entrepreneurs, here is what he said:
1.) What are the main financing mistakes entrepreneurs make and how can they be fixed?
Although most entrepreneurs view financing their business difficult, more so in the early stages, we’re firmly convinced that a few basic rules, properly utilized, can save a lot of time… and disappointment , when followed . Many business owners aren’t fully aware of the spectrum of business financing they have access to in Canada. So they march down the route of one or several of these options, without fully understanding whether that form of financing matches their needs in terms of pricing, structure, suitability to short term and long term financial goals, etc.
Many entrepreneurs often focus on equity financing , which in fact is the most expensive form of financing available to the business owner – for the simply reason that it dilutes ownership and the ability to capitalize on long term financial success . So while they view some alternative financing methods as ‘expensive ‘they don’t fully realize the cost of giving up equity and ownership in their business.
2.) What are some important factors entrepreneurs should be aware of when applying for a business loan?
In the SME sector in Canada (small to medium enterprise) lender, whether it is a chartered bank or independent commercial finance firm looks very much at the business background, success, and personal finances of the business owners. Entrepreneurs in Canada should fully expect that in the early to intermediate stages of business financing they will be asked for personal guarantees, and potentially external collateral. While the guarantees are required for pretty well all forms of finance, we also advise clients that less emphasis is placed on these guarantees when it comes to specific types of financing, particularly those that are asset and collateral based.
We also advise clients that at certain points in the success of your business personal guarantees can strongly be negotiated or limited in their favor. The good news is that business financing in Canada has never been more competitive, with many new entrants offering unique financial solutions. Some of these include non bank asset based lending business credit lines, tax credit financing, unsecured cash flow loans, and PO financing .
3.) When entrepreneurs think about financing most of them just try going to the bank. Are there better alternatives for entrepreneurs?
The Canadian banking system offers, of course the lowest cost access to capital in Canada. In general there is not a better deal when it comes to commercial financing. The challenge becomes – getting approved! So when balance sheets and income statements don’t allow the entrepreneur to qualify for capital the good news is that there is an entire industry ready to meet the business owners financing needs. This industry includes working capital firms, leasing companies, labor funds, asset based lenders, etc.
4.) Do you recommend that entrepreneurs consider factoring their Accounts Receivables? What is a reasonable rate to pay?
A/R financing has grown tremendously over the years in Canada. Numerous firms, foreign and Canadian offer solid receivable financing facilities. We have a particular bias towards what we call ‘confidential receivable financing ‘; allowing the business owner to run his or her own business without the whole world knowing how they are financed. When it comes to rates we advise clients that they should never be paying more than 1.5-2%, which is pretty well the industry norm for a 30 day financing. We can’t over emphasize that aligning yourself with the right firm is critical to financial success in A/R finance
5.) Governments often offer various financing programs. Do you recommend investigating these options before going for a bank loan?
We are always getting asked about government grants and loans at my firm. While there are some grant schemes that’s not what we do at 7 Park Avenue Financial . However, when it comes to ‘government ‘and ‘financing ‘those two come together nicely in two great finance solutions. One is the Canadian BIL /CSBF program, which is the government guaranteed loan program – offering simply great rates , terms and structures ( and limited personal guarantees by the way ) to Canadian businesses with less than 5 Million dollars in real or projected sales . That includes start ups by the way!
The other financing mechanism vis a vis ‘ government ‘ is the monetization of SR&ED tax credits in both the manufacturing industry, as well as film and media . Credits can be financed for immediate cash flow – many firms regard their tax credit financing as their largest source of incoming cash in the early stages of their firms development.
6.) Is there a success story that you can share from an entrepreneur you’ve helped get alternative financing when the banks said no?
There are many stories we can share, and we post some details on our ‘Track Record ‘page on the website – (www.7parkavenuefinancial.com ). A great ‘ recent ‘ story was our ability to assist an alternative energy firm with a bridge loan on all assets while they waited for their Initial Public Offering to take place in the Capital markets . Our loan assisted them in completing their production facility in South Western Ontario which required close to $2,000,000.00 in financing completing.
As business financing continues to be challenging for the entrepreneur we maintain that sometimes ‘alternative ‘is the new ‘traditional ‘!
Tags: alternative financing, applying for a business loan, asset based lending, business background, business fin, business financing, equipment financing, equity financing, finance firm, financial goals, financial success, important factors, independent commercial finance, intermediate stages, medium enterprise, monthly contests, park avenue, personal finances, prokop, sme sector