Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

How to Calculate Nutrition Data Using Excel or Open Office Calc

EU directive 1169/2011 comes into full effect on the 13th of December 2016. The first phase of this directive came into effect in 2014 on December 13th but the second requires nutrition data which begs the question of how to calculate nutrition data.The first phase of this regulation required that all ingredients on labels needed to include allergen information within the ingredient list. Prior to this regulation, it was legally acceptable to include allergen information in a separate area of your label.The new regulations simply require allergens to be highlighted within the single ingredient list for the product but ingredients also need to be stated in quantitative order.Quantitative order simply means the largest constituent ingredient must be indicated first, then the second largest and so on. The percentages of these ingredients should also be included.There are several ways highlighting ingredients can be achieved; Users can use bold text underline text colour text or italic textThere are 14 allergens that must be indicated on labelling if they are present within the ingredients of the product. These include wheat or oats or any other cereal containing gluten and also include milk, eggs, fish, crustaceans, molluscs to name a few.Another aspect of the legislation was to harmonise the legibility of text on food labels.Historically, the text could be incredibly difficult to read as manufacturers crammed as much information into as small a section of the label as possible so as to maximise the marketing potential of the rest of the label.The new regulations require that all text must be legible with a specific height of the letter “x” in the font no smaller than 1.2 millimetres. In layman’s terms, that means that the standard Arial or Times New Roman font needs to be 6.5 points and size.The second phase of the regulations coming into force this December requires that nutrition data is supplied with all pre-packaged food so that consumers can make choices regarding the nutrition within the food they buy.The law stipulates that this information must be conveyed to the customer per 100 grams.It is also possible to convey the information additionally per serving so, for example, a sandwich would constitute a serving so a food producer could provide the information based on the entire sandwich. The food producer can also indicate nutrition values in a portion, for example, a biscuit or a small piece of chocolate. But the food producer must also provide the information in a per 100g format in all instances.How to Calculate Nutrition Data
In order to calculate the nutrition values of prepackaged food for sale to the public food production businesses need to know the nutrition values for the constituent ingredients within their product. Perhaps the best way to demonstrate how to calculate nutrition data is to give an example; a ham and mustard sandwich.A ham and mustard sandwich might consist of four ingredients; we will have the bread, ham, mustard, and margarine or butter to make a sandwich. Each of these ingredients will be incorporated along the lines of a recipe; that is to say, there will be a specific weight of each product to make up a standard product.Food manufacturers need to start with the basic data for the nutrition for each of the ingredients – as mentioned, the legislation requires that nutrition data is provided per 100 grams. As all manufacturers are required to do this most food producing companies should be able to obtain that information directly from the packaging of the products that they buy in or by speaking with their supplier.In our example, the food producer could tabulate the data from the constituent ingredients into a table. The information that must be conveyed includes energy in both kilojoules and kilocalories; they must also convey total fat, saturated fat, carbohydrates, sugar, protein, and salt – all in grams.Food producers can also indicate monounsaturated fat, polyunsaturated fats, polyols and starch (which are carbohydrates) and fibre if they wish to do so.The order of the nutrients is specific and must be adhered to comply with the regulations.Once the table of data is prepared per 100 grams for all of the ingredients, the food producer needs to understand the weight of each product used in the recipe to make the sandwich. In this example, the food producer would need to know the weight of two slices of bread (let’s say 60 grams), the ham they use (e.g. 30 grams), 10 grams of mustard 5 grams of margarine.Once this has been done a simple calculation is applied to each of the constituent ingredients to determine how many calories, how much fat, saturated fat etc. is present in the recipe. The calculation will be to divide the per 100g nutrition data by 100 then multiply that by the weight of that constituent in the ingredient.E.g. If 100g of ham is 350 calories, divided by 100 is 3.5 calories per gram. 3.5 calories per gram x 30 grams used in the recipe is 105 calories.Once this is complete, the food manufacturer will have an accurate indication of the total nutrition data for the ham and mustard sandwich by simply adding the values for each constituent ingredient together as a total for the recipe.And that is how to calculate nutrition data using Microsoft Excel or Open Office Calc.Right now, food manufacturers across the UK are facing a huge challenge in achieving the objectives set out in the regulations and they need to address them very quickly if they have not already.

Business Loans In Canada: Financing Solutions Via Alternative Finance & Traditional Funding

Business loans and finance for a business just may have gotten good again? The pursuit of credit and funding of cash flow solutions for your business often seems like an eternal challenge, even in the best of times, let alone any industry or economic crisis. Let’s dig in.

Since the 2008 financial crisis there’s been a lot of change in finance options from lenders for corporate loans. Canadian business owners and financial managers have excess from everything from peer-to-peer company loans, varied alternative finance solutions, as well of course as the traditional financing offered by Canadian chartered banks.

Those online business loans referenced above are popular and arose out of the merchant cash advance programs in the United States. Loans are based on a percentage of your annual sales, typically in the 15-20% range. The loans are certainly expensive but are viewed as easy to obtain by many small businesses, including retailers who sell on a cash or credit card basis.

Depending on your firm’s circumstances and your ability to truly understand the different choices available to firms searching for SME COMMERCIAL FINANCE options. Those small to medium sized companies ( the definition of ‘ small business ‘ certainly varies as to what is small – often defined as businesses with less than 500 employees! )

How then do we create our road map for external financing techniques and solutions? A simpler way to look at it is to categorize these different financing options under:

Debt / Loans

Asset Based Financing

Alternative Hybrid type solutions

Many top experts maintain that the alternative financing solutions currently available to your firm, in fact are on par with Canadian chartered bank financing when it comes to a full spectrum of funding. The alternative lender is typically a private commercial finance company with a niche in one of the various asset finance areas

If there is one significant trend that’s ‘ sticking ‘it’s Asset Based Finance. The ability of firms to obtain funding via assets such as accounts receivable, inventory and fixed assets with no major emphasis on balance sheet structure and profits and cash flow ( those three elements drive bank financing approval in no small measure ) is the key to success in ABL ( Asset Based Lending ).

Factoring, aka ‘ Receivable Finance ‘ is the other huge driver in trade finance in Canada. In some cases, it’s the only way for firms to be able to sell and finance clients in other geographies/countries.

The rise of ‘ online finance ‘ also can’t be diminished. Whether it’s accessing ‘ crowdfunding’ or sourcing working capital term loans, the technological pace continues at what seems a feverish pace. One only has to read a business daily such as the Globe & Mail or Financial Post to understand the challenge of small business accessing business capital.

Business owners/financial mgrs often find their company at a ‘ turning point ‘ in their history – that time when financing is needed or opportunities and risks can’t be taken. While putting or getting new equity in the business is often impossible, the reality is that the majority of businesses with SME commercial finance needs aren’t, shall we say, ‘ suited’ to this type of funding and capital raising. Business loan interest rates vary with non-traditional financing but offer more flexibility and ease of access to capital.

We’re also the first to remind clients that they should not forget govt solutions in business capital. Two of the best programs are the GovernmentSmall Business Loan Canada (maximum availability = $ 1,000,000.00) as well as the SR&ED program which allows business owners to recapture R&D capital costs. Sred credits can also be financed once they are filed.

Those latter two finance alternatives are often very well suited to business start up loans. We should not forget that asset finance, often called ‘ ABL ‘ by those Bay Street guys, can even be used as a loan to buy a business.

If you’re looking to get the right balance of liquidity and risk coupled with the flexibility to grow your business seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success who can assist you with your funding needs.