The Facts of Financing

Your mother always warned, “Don’t put all your eggs in one basket” and those words of wisdom can be applied when financing a business. There are a number of methods that can aid buyers in financing a business. Buyers must recognize their available resources such as the seller, lenders, and investors.

As a child, we’re encouraged to “dream big” and told that nothing can stop us, but ourselves. As entrepreneurial adults, this idea of dreaming big is often a part of your everyday routine, but it is inevitable that at some point you’ll come crashing down from those heights into reality. The realization that financing your particular endeavor can instantly dampen even the most impassioned enterprising individual can get you down. To put it bluntly, “Don’t let it”.

Having a reality check on the difficulty of securing financing for a business can be the first step towards making your dream an actuality. There are numerous types of financing available, some more unorthodox or obscure. If you take the time and effort to research all avenues for funding you will be rewarded.

There are two main types of financing: debt financing and equity financing. It is important to you and the success of your business that you familiarize yourself with the types of financing in order to choose, seek, and finally, obtain the right form for your needs.

Debt financing involves borrowing money that will be repaid over a certain allotted time with a set interest rate tacked on. The time of such financing can be short term or long-term. In most cases, short term financing would include repayment within one year, while long-term financing would entail repayment in a time period that exceeds one year.

An advantage of this type of financing is the fact that the lender will not gain ownership in your business. You remain in control and your only obligation to them is to make regular and timely payments. In the case of small startups, a personal guarantee is often needed to facilitate the closing of the financing deal.

Equity financing, unlike debt financing, will involve giving the financing entity a share in the business. Some business owners dislike the idea of losing any amount of control. On a positive note, this type of financing does not incur debt. This kind of freedom from debt can give a greater sense of security in starting a new business. In addition, some entrepreneurs find great value in their equity financing partners, and see their presence as an asset.

The type of financing you will choose is based largely on the needs of your business and the kind of collateral, or available assets you have to offer. A substantial amount of debt financing can lead to poor credit and a shortage of funds in the future due to an inability to apply for more financing. A business that becomes overextended, offers little collateral, and is steeped in debt is not an appealing option for many investors.

As previously mentioned, there are other more unorthodox methods of obtaining funds that can certainly prove to be beneficial to your business. Some options can be found in your own circle of friends and family. One benefit of this type of financing is obtaining the money and a silent partner who will most likely not interfere with your business. It can also eliminate some of the red tape involved with more traditional forms of financing. This does not mean you can simply use a verbal agreement or “shake on it” to signify and bind the transaction. This is still a strategic business move and you must treat it as such which means proper documentation, clear terms, and mutual understanding of those terms.

Relationships can be ruined over inept efforts with this type of financing, so value your business and the other person by treating it with professionalism, attention to detail, and respect. Don’t become the black sheep at the next family reunion over some misunderstanding or your falling behind on payments.

A few other options that are largely unknown to those who haven’t done research include unsecured loans and micro-loans. Resources such as or offer loans based on cash flow, credit score, and debt-to-income ratio. Government grants are also a largely untapped resource that is made available to entrepreneurs. Simply researching the website can be extremely helpful in your search for funds.

Venture capital is another route that many entrepreneurs look to due to the amount of funding that can be procured. A venture capitalist will likely offer larger sums of money that can be of great assistance to your business, but they will also gain a certain portion of control and ownership. This type of funding however is usually scarce due to the assumption that many startups will inevitably fail. You will need to find someone willing to take the risk and who sees potential in your vision.

This type of person could also be found in a more palatable option known as the Angel investor. The Angel investor typically has a high net worth and like the venture capitalist, must believe in the product and the person behind the product. Their loan often converts to stock, preferred stock, or convertible bonds.

Les Brown, an author and entrepreneur, says, “Shoot for the moon and if you miss you will still be among the stars”. This is an extremely appropriate sentiment as it encourages you to keep dreaming big and ultimately those dreams combined with perseverance and research will take you closer to where you want to be.

SR ED Financing

SR ED funds filed by Canadian companies are often a key part of your company’s cash flow planning. Naturally your firm can choose to wait from anywhere up to 6 to 18 months for your funds from the government – however many firms wish to take advantage of that valuable cash flow and working capital for re-investment back into the business.

In almost all cases in Canada the Canadian chartered banks do not directly finance these claims, aka SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT grants for several reasons, one of which is of course the ultimate uncertainty that your claim will not be full accepted when it is processed and adjudicated.

If you have filed a first time claim for your grant we can safely assume close to 12 months for your first time claim to be funded. Yes of course it’s a long wait, but Canadian business owners also appreciate that it’s a 100% non re-payable cash grant.

When we sit down with customers and discuss their general working capital needs and specifically the tax credit claim they often ask us if they can get their funds during the year, as opposed to waiting all year, expending funds on their research, filing the claim and then waiting for the cash. In certain cases, particularly if you have filed claims in previous years and have a good track record of SR ED success interim advances can also be made.

Your SR ED Financing is a very defined process, with the participants being your privately owned Canadian firm as the applicant, your claim preparer or consultant, CRA itself, and of course the finance firm as the final piece of the puzzle.

We meet with many firms that actually have qualified for SR ED cash grants for years and have not taken advantage of these funds. Unbelievably some business owners tell us they viewed the process as too time consuming, therefore they simply did not apply for the funds. In today’s business environment with a total focus on cash flow, working capital, and global competitiveness we feel you can’t afford to not take advantage of both the SR ED funds, as well as financing of your claim.

The basics are very simple – establish that you qualify for SR ED cash refunds, work with your accountant or an independent consult to set up a process and prepare claims on an annual basis, and, finally, unlock the cash flow in those SR ED claims if you wish to finance the claim.

Canadian business owners or their financial managers often ask as a first question in our meetings – ‘How much cash and working capital can I get for my SR ED financing. The answers is that as a general rule 70% of the claim funds are financed. So the simple arithmetic is of course that if you have filed a 350,000.00 SR ED claims the financing available on that claim is 245,000.00. We cant over emphasize that by receiving those funds immediately on filing your claim that that cash flow can be poured back into your business for general working capital purposes, more research, quite frankly anything you choose, up to even the Staff annual Xmas party!

Key steps to success in SR ED financing are simply:

Ensuring you qualify

Preparing a clean claim with documentation ( with your accountant or consultant) We further note that many consultants with prepare your claim on a contingency basis, therefore ensuring you have zero out of pocket expenses in claim preparation.

Filing the Claim

Working with an experienced, credible and trusted SR ED financing advisor to ensure you maximize the cash flow related to the claim financing.

In our experience the financing portion of the process typically takes up to 2-3 weeks. Is that a long time? Well of course the alternative is to get your aforementioned 245,000$ now or wait one year for the government to send you the cheque. Hopefully we have made our point!

The Role Of A Debt Management Consultant

With the ever rising cost of living, many people are finding themselves sliding deeper into debt as their finances take a turn for the worse. There are those who are in these situations due to no fault of their own while others have not been able to handle finances and find themselves looking at growing debt. Whatever the reason for your debt you will need to engage the services of a debt management consultant.

Finances are a personal issue which most people prefer not to talk about with others. However if your credit score is going down and your debts are on an upward trend you should consider engaging a professional who will help you reorganize things for the better. A debt management consultant is an expert who has the knowledge and resources to help you deal with money issues. Staying in denial about your financial situation will actually make things worse and make your journey to recovery more difficult and longer.

Most people do not want their financial woes to be known and like all other professional consultants your debt management consultant will not be discussing your issue with others without explicit permission from you. You should therefore provide complete and correct information that will help your consultant understand your case and design a recovery financial planning tips for you. Hiding information will work against you since the plan designed will not factor those bits of information that you have kept to yourself. There is no reason to be embarrassed about financial mistakes, many have made poor financial decisions before and those who decided to work towards recovery are much better for it.

Your debt management consultant will also be instrumental in connecting you to other professionals and resources that will assist you as you work on improving your financial situation. They will help you design a reasonable budget as well as talk to your creditors about renegotiated interest and payment breaks. They will also be able to direct you to institutions that can provide you with refinancing at a reasonable rate. The consultant will also provide you with support and advice as you work on your finances. Most people will be emotionally distraught due to poor finances and having an independent and impartial person walking with them through this tough time is a big plus. It gives you confidence and a determination when you have someone who believes in you.