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THE CANADIAN BUSINESS FINANCING HANDBOOK

Financing Solutions in a Challenging Environment: Taking the next step with confidence, by Gary A. Fitchett, CA. THE CANADIAN BUSINESS FINANCING HANDBOOK. Professional reference service Published by CICA Updated half-yearly Published in 1992 2,500 pages. How to arrange financing

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THE CANADIAN BUSINESS FINANCING HANDBOOK

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  1. Financing Solutions in a Challenging Environment: Taking the next step with confidence,by Gary A. Fitchett, CA

  2. THE CANADIAN BUSINESS FINANCING HANDBOOK • Professional reference service • Published by CICA • Updated half-yearly • Published in 1992 • 2,500 pages

  3. How to arrange financing Where to go How to go FINANCING OVERVIEW

  4. Shortage of credit High uncertainty Interest rates High prices Recession Stock market crash Unstable currency Unemployment IMPACT OF GLOBAL ENVIRONMENT

  5. Shrinkage of sales Inefficient operations Labour and legacy costs Impact on supply base Consequences to infrastructure AUTO SECTOR

  6. Financing for auto purchases Incentives diluted market Guarantee warranties Support parts sector All “stakeholders” support IMPACT THROUGHOUT SECTOR

  7. Accounts Receivable Inventories Redundant Assets Accounts Payable Operating Costs Restructuring (Proposals) Cash Flow Planning LOOK INSIDE FIRST…

  8. Bank Term Loans Mezzanine Debt Equity Government Funding Leasing Factoring Trade Finance EXTERNAL FINANCING OPTIONS

  9. Schedule 2 banks Credit Unions OTHER BANKING ALTERNATIVES

  10. Canada Small Business Financing Act For every business, up to $5 million in sales Maximum loan $250,000 Government guarantee – 85% High ratio capital – 90% of cost of fixed assets Limited personal guarantees BUSINESS IMPROVEMENT LOAN

  11. Quasi-equity Sometimes called: Subordinate debt Participating debt Junior debt Suited to predictable cash flow Compensate by: Royalty Fee Share of profit Options/ warrants MEZZANINE DEBT

  12. One-stop shop Working capital Conventional term loan Mezzanine debt Guarantees Venture capital Consulting BUSINESS DEVELOPMENT BANK

  13. Assistance vs. Incentive Every tough deal Focus on jobs National Research Council GOVERNMENT SUPPORT

  14. FACTORING • “ Invoice Discounting ” • Sell Accounts Receivable • Costly, but allows to achieve objectives • Average cost – 6% of invoice • Complementary to bank

  15. EQUITY • Key foundation for business • Reflects personal commitment • People Power:

  16. EARLY STAGE FINANCING MODEL

  17. TAPPING PEOPLE POWER • Royalty Units for leasehold alterations • Preferred shares for ladies wear shop • Angels invest profit sharing bonuses • Royalty units for art production

  18. OTHER KEY SOURCES • Employees (ESOPs) • Customers • Suppliers • “Angels”

  19. FIVE C’S OF CREDIT Character Capacity Collateral Capital Conditions

  20. FIVE IMPORTANT QUESTIONS TO ANSWER • How much do you want? • How long do you want the money for ? • What are you going to do with the money ? • How are you going to repay the money ? • What are the alternative sources of repayment in the event of something going wrong ?

  21. THE BUSINESS PLAN • Executive summary • Business description • Products or services • Market analysis • Marketing strategy • Operations • Management and organization • Timing schedule • Financial information • Funds required

  22. HOW TO DEAL WITH DIFFICULT CIRCUMSTANCES ? • Litigation • Bankruptcy • Bad credit history • Divorce • Medical problems • History of poor decisions • Flashy taste

  23. RESPONDING TO THE LENDER’S OBJECTIONS • The business is under-capitalized… • The business has not earned a profit yet… • The proposed loan is too much money… • The business is too risky… • Your business strategy is not sound… • Not enough collateral… • The financial forecasts are unreliable…

  24. REJECTION ! • No, but ...” • “No, unless ...” • “I cannot say yes, because ...” • “Not yet ...” • “No, because the bank ...” • “Hell no…”

  25. QUESTIONS?

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