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Creative financing solutions - Money Forum 2015
The document presents various creative financing solutions for businesses, focusing on accounts receivable financing, personal loans, and merchant cash advances, among others. It explains how these options can enhance cash flow and business operations by providing quicker access to capital. Specific criteria for qualification, examples, and comparisons of different financing types are also discussed, highlighting their benefits, potential costs, and appropriate use cases.
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Creative financing solutions - Money Forum 2015
- 1. 1 Creative Financing Solutions EnterpriseToronto Money Forum (June 2, 2015) Presentation by: Steven Uster Co-Founder & CEO, FundThrough
- 2. • Recovering WallStreet investment banker • Education has been singularly focused on Finance and Entrepreneurship • Passionate entrepreneur looking to help other entrepreneurs grow their companies Who Am I? 2
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- 4. There IS $$$Out There 4
- 5. Access to $$$ vs. Costof $$$ vs. Speed, flexibility, convenience 5
- 6. • Overview ofOptions • Deep dive into: – Accounts receivable financing – Personal loans – Merchant cash advances – Leasing • Calculating the true cost of borrowing 6 Agenda
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- 9. • Reduces yourinvoice payment terms from ~60 days to 24 hours • What could you do if you got paid 60 days earlier? – Buy more inventory quickly to sell to more customers – Pay employees, rent, outstanding bills – Take advantage of supplier early payment discounts – Buy in bulk to get discounts 9 Using Your Biggest Asset to Drive Growth
- 10. • Primary criteria: Businessneeds to have an account receivable from credit worthy customers. • What’s an Accounts Receivable? • What’s “credit worthy”? 10 Does My Business Qualify?
- 11. 11 Create a profileto get onboard the platform + How Does It Work? Upload invoices (automatically or manually) + Fund Invoices and Repay Once Customer Pays
- 12. • BieberCo sellsJustin Bieber dolls • Gets $100,000 purchase order from Walmart • BieberCo delivers dolls to Walmart and invoices Walmart for $100,000 • Uploads invoice to FundThrough site and FundThrough confirms that Walmart received the dolls (automatically) • FundThrough creates a line of credit equal to 90% of the invoice amount ($90,000) and BieberCo draws on it as needed • Walmart pays FundThrough $100,000 in 60 days • FundThrough uses $90,000 to pay down the line of credit and advances the remainder back to BieberCo 12 An Example
- 13. Offer terms tocustomers Business-to-Business sales Invoices are “true” invoices Manufacturers, distributors, service providers X Construction companies X Retail stores, restaurants X Progress or milestone billing X Gross margins <10% 13 Who Can Benefit from A/R Financing?
- 14. 14 • Invoices fromhigh quality businesses • Accounting software (preferably online) • Bank statements (preferably online) • Supplier portal access (where applicable) • No existing bank debt (BDC typically acceptable) • CRA up to date (source deductions, HST, corporate tax) • Incorporated company based in Canada What Do I Need to Get Approved?
- 15. • Been inbusiness for 10+ years • Maintains the parking lots for many big-box retailers • Needed to pay employees but retailer terms were 45 days 15 • Once on board, started using to buy materials for other jobs, buy in bulk Case Study: Maintenance Provider
- 16. Personal Loans 16 “Any othercollateral besides your heart of gold and million dollar smile?”
- 17. 17 Secured Personal Loans Unsecured • HELOC •Personal Asset Loans • Term Loans • Credit Cards
- 18. 18 • Home EquityLine of Credit • One of the cheapest way to access capital • May be tax efficient • Requirements: • Sufficient equity in your home (rule of thumb is that a HELOC can range from 75-85% of the value of your home) • Stable income (for a bank; private lenders may not require this) What is a HELOC?
- 19. 19 What is aPersonal Asset Loan?
- 20. 20 2. Asset isstored in lender’s facility 3. Loan proceeds deposited directly into bank account 4. Asset is returned once loan is repaid 24 hours How Does It Work? 1. Asset is appraised
- 21. • Primary criteria: Needto have a qualifying asset to use as collateral • Loans are based on value of collateral • Simplest, easiest transaction • Original paperwork, box, warranty, appraisal 21
- 22. 22 Benefits Issues • Nocredit checks required • No detailed diligence process • Fast turnaround time • Doesn’t impact credit score and no security is registered • Short term bridge • You can’t use your asset throughout the loan period • A default could result in losing the asset What happens if I “default”? Benefits and Issues
- 23. 23 • Self employed •Entrepreneurs • Individuals with stable incomes with unusual cash flow spikes • Getting a new business/product/service off the ground • Seasonal business • Bulge facility • HVAC company expansion • Franchise entrepreneur • Retail store owner • Consultant or independent contractor Who? When? Why? Who? When? Why? Where? Where?
- 24. 24 Unsecured Personal Loans KeyInfo: • Minimum Beacon score (660) • Loans from $1,000 - $35,000 • 3 year and 5 year term loans (fully amortizing, paid monthly)
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- 26. 26 Step 1: Lenderprovides a lump sum payment today Step 2: Lender recoups the payment by taking a percent of future credit card payments until advance is repaid (typically 8-10%) For example: Initial advance of $80,000 may mean a total repayment of $100,000 paid by taking 10% of daily credit card sales until $100,000 repayment is reached. How Does it Work?
- 27. • Primary criteria: Businessneeds to have a track record of sales, stable sales outlook & accept credit cards • Lender provides cash today and gets repaid based on % of future sales • Ideal for retail stores, restaurants, service providers 27
- 28. 28 Benefits Issues • Quickturnaround • No collateral required • Bad credit scores are acceptable • No fixed payments (flexible based on sales) • Expensive (> 80%) • Drop off in sales can destroy the business • Need to be 100% sure about your future sales numbers • Need to accept credit cards How Do I Know if This Option is Right for Me? Benefits and Issues
- 29. Liquor Store • Liquorstore owner wanted to do renovations on his store • Bank wouldn’t accept his inventory as collateral for a loan • Was able to demonstrate consistent credit card sales Taco Restaurant • New taco restaurant went over budget on opening costs and leasehold improvements • Owner needed cash for working capital • Didn’t want to go back to investors to raise more equity • First 4 weeks in business did $10k/week in sales 29 Case Studies
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- 31. 31 Who? • Asset intensivebusinesses • But also small capital expenditures (photocopiers, computers) When? • Whenever you’re looking to make a capital expenditure decision Why? • Cash flow management (monthly payments vs lump sum) • Tax efficient (potentially) • Off balance sheet Overview of Leasing
- 32. 32 LEASING BANK FINANCINGCASH PURCHASE Rate Factor: 33.05/thousand Finance Cost @ 10% $13,939.43 Cash Purchase: $12,000.00 Monthly Payment: $12,000. X .3305 Total Cost of Bank Financing Tax Expenses: $396.60 Tax Expenses: Depreciation Yr 1: $1,800.00 Cost: 36 X $396.60 + $14,277.60 Depreciation Yr 1: $1,800.00 Depreciation Yr 2: $3,060.00 Buyout: 5% of $12,000 $600.00 Depreciation Yr 2: $3,060.00 Depreciation Yr 3: $2,142.00 Total cost of Leasing: $14,877.60 Depreciation Yr 3: $2,142.00 Total Tax Expenses: $7,002.00 Tax Savings: Interest Expense: $1,939.43 Tax Savings: 24% X $14,877.60 $3,426.62 Total Tax Expenses: $8,941.43 24% X $7,002.00 $1,680.48 Net Cost of Leasing: $11,450.98 Tax Savings: Loss of Interest: 24% X $8,941.43 $2,145.94 @7% / Yr: $2,700.52 Net Cost of Bank After Tax Loss of Financing: $11,793.48 Interest: $2,052.80 Net Cost of Cash Purchase: $12,373.32 Courtesy of Alliance Financing How Does Leasing Compare?
- 33. 33 Benefits Issues • Structureshaped by monthly payments (affordability) • Self financing • Asset flexibility (can get new equipment whenever you want) • Avoids large initial outlay of cash • Less assets on balance sheet (borrowing base) • Someone else owns your key assets Profit is made by USING the equipment, not by OWNING it Benefits and Issues
- 34. 34 A/R Financing Personal Loan MerchantCash Advance Equipment Leasing Type of business B2B B2B, B2C, C B2C B2B, B2C Requirements A/R from creditworthy customers Good credit, Own valuable assets for collateral Stable credit card sales Business needs equipment All-in Cost (%) 12-20% 6-35% 60-80+% 15-20% Ideal for what type of business: Manufacturers, distributors, service providers Short term bridge (any business) Restaurants, retail stores, small service providers Asset intensive companies Security Required: PPSA None or asset held by lender Assignment of credit card sales Lien on equipment Summary Comparison of Options
- 35. 35 A/R Financing www.fundthrough.com Personal Loans www.borrowell.com Merchant CashAdvance Alternative Finance Companies www.zillidy.com www.leaselink.caEquipment Leasing www.thinkingcapital.ca
- 36. 1. Due diligencecosts 2. Legal costs 3. Administrative fees 4. Loan term 5. Minimum increments 6. Monthly (or annual) minimums 7. Termination fees 8. Transaction fees 9. Insurance costs 10.Intangible costs 36 Calculating Total Cost of Borrowing
- 37. Thank You! Steven Uster (416)971-5724 [email protected] www.fundthrough.com 37
Editor's Notes
- #2 Introduce the topic. Ask everyone to introduce themselves and their business and say how they have financed their business so far.
- #3 Why am I qualified to speak on this topic?
- #5 If you have a good idea and are willing to invest all your time and energy into your business, are willing to risk everything, there is financing available.
- #12 Technology is changing the way you can do this.