If youre like most of us, Mom never gave us a lot of advice about working capital! Therefore, we wrote for such an important business finance as we recently wrote about an older article in Canadian business magazine covering a total of 15 - yes there are 15 ways to fund your business. Perhaps these secrets of the sacred degree were that Mother never taught us, did we think?
The reality was that we had some strong comments and additional information about the 15 articles, and we commented 7 of them in the latest article. Lets cover the last items and hopefully get some real value on what Mom never told about these things!
Under the category public programs, the article talked about different federal and regional programs or corporate finance initiatives. That was the Communitys Futures Program and the Canadian Youth Business Foundation. These are very narrow and segmented programs, for the youth foundation, guess what you must be a youth, which hardly fits most business owners. Community Futures programs have tended to be rural in nature, the ad has minimal funding assigned to them and seems to have focused primarily on start-ups that can create employment.
Secondly, Mezzanine was referred to the debt. This is, of course, essentially an unsecured cash loan provided by private finance companies. In many cases, it focuses only on cash flow as a repayment vehicle. The bad news about the mezzanine debt is that it is usually available for transactions over $ 5 million, which really does not work for most small and medium business owners. For the records mezzanine funding rates, they are low to mid-teens.
Private equity was the third capital base. Typically, these funds are provided by niche Canadian and US private companies focusing on equity and convertible financing instruments that force the business owner to give up participation. This is not necessarily a bad thing if you get working capital and corporate finance as you need, but you should definitely be willing to give up ownership of these transactions, which are often quite large and take several months, if not longer, to complete.
Hello, lets go public and have access to unlimited capital sources. It is the typical pitch of Canadian companies that consider this kind of funding. The reality is that a true IPO listing on the TSX or Venture Exchange in Canada requires significant capitalization and record. Ownership is diluted, and businesses are forced to very strong reporting levels and information. Many of our customers have become public through reverse takeover of shell companies who had a listing; we have never seen this job satisfactory, at least in order to provide them with unlimited working capital.
The Canadian business article focused on the federal SRED program. Finally! A good! A very good program that provides billions of dollars of capital for all Canada companies qualifying for research spending and following program guidelines. Damaged claims can also be financed, similar to a claim as soon as they are submitted, which supercharges the program even more from a working capital perspective.
VC money is often bandied about and sought after by many companies. Venture capital in Canada is struggling in 2010 to the environment, does any funding appear to go to companies that were previously funded and get extra capital to keep alive?. Each venture capital company expects a high return in relation to the risk they take to fund your company on equity. In fact, according to the article, it is traditional that venture capitalists are looking for a 5-fold return. Unfortunately, for many Canadian business owners, these types of funding go to sexier industry segments such as biotechnology, high technology, etc.
Yes it is. Hopefully, we have not been too negative, but the general trend is clear that the options 15 described in the original C B article clearly need to be based in a little more reality for the average Canadian business owner and the financial manager seeking capital. Talk to a trusted, trustworthy and experienced business finance advisor who can provide you with a current realistic business financing option.