Alternative sources of finance in Canada. Ever wondered what they are? I guess we can tell you that they are ‘ alternative’, and not ‘ traditional ‘, but that’s not really telling the whole story. And those alternative financing solutions, generally non-bank in nature can be either substitutions for traditional financing, and, here’s a surprise, sometimes complimentary in nature! Let’s explain.
An article in America’s leading business magazine caught our eye recently… it was saying business owners should be cheering for alternative lending sources, because it was they took up the slack when the 2008 global meltdown happened . And that’s when of course business credit froze.
No surprise that Canadian businesses found themselves in the same boat, being in many cases unable to finance inventory, grow sales, etc.
In between traditional and alternative lending there are numerous courses of actions your firm can take to help alleviate ‘ the crunch ‘. They might include alternate pricing strategies, favorably negotiated supplier terms, new owner equity, etc. Great strategies, but sometimes just not enough!
While the majority of Canadian businesses think of ‘ the bank ‘ when it comes to pretty well any sort of financing the reality is that it’s a brave new world out there. Things such as one on one lending relationships have a lot less emphasis these days, and many larger financial institutions are focusing on fees, not credit lines.
So what are some of those alternative sources of finance? They might include:
Factoring/ receivable finance
Non bank working capital facilities – (A/R and inventory and equipment)
Asset based credit lines – ‘ ABL Finance’
Tax Credit Financing
Cash flow based term loans – Secured/unsecured
Let’s provide you with a couple of examples of how alternative sources of finance either co exist or replace more rational financing in Canada. A clear example might be the tax credit. In Canada SRED (SR&ED) tax credits provide billions of dollars of capital to new, emerging, and established corporations.
In general we can very comfortably say that the tax credits, which many companies book as a ‘ receivable’ when they have filed them, are not financeable by our Chartered banks. Some will argue that, but we stand behind our comment. So the ability to finance a tax credit claim outside of your existing credit facilities is valuable. So in that respect its one example of an alternate finance vehicle co existing with traditional finance. (By the way, film, TV and FX tax credits can be financed also in Canada)
In a large number of cases alternative financing solutions completely replace bank financing – mostly when ‘ the bank says no ‘, which they are sometimes wont to do! In that case receivable financing and asset based lines of credit fund companies anywhere from 100k to 100 Million dollars! To show you an extreme even if your firm is in CCAA bankruptcy proceedings it can quite efficiently be financed by alternative financing – example the ABL solution.
When the Canadian business owner and financial manager are looking for capital the process is actually quite clear. Ensure you have a clear use and need of funds , know what sources of financing ( traditional and non traditional ) are out there, and be prepared to accept financing solutions that are commensurate with your current situation if that involves weakness, issues,, need for creativity, etc.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with sources of alternative, or traditional! financing.