Sources of Financing


 

Angel Financing

Risk capital supplied by individual investors acting alone or, increasingly, in groups (although still making individual investment decisions). Targets: pre-startup and early-stage companies with high growth prospects. Amounts: generally $20,000 to $500,000.
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Asset-based Lending

Lease/loan provided by a specific lender secured by a firm’s assets (typically inventory, equipment or accounts receivable). Forms include leasing, term loans and conditional sales contracts (in which the buyer has the use of an asset, such as machinery, conditional on making regular payments on the purchase price).
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Bridge Financing

A short-term loan (often at premium rates) commonly used by firms in distress or growth companies that need cash to seize a fleeting opportunity. Offered by various lenders and a few dedicated bridge funds.
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Buyout Fund

Supplier of private equity that invests in mature and often troubled companies to improve their financial position. Exits usually come through mergers and acquisitions. In 2004, the total global value of this sector, including new capital and earlier investments, was $25.1 billion, up 11% in one year (and surpassing for the first time the VC sector, worth $20.8 billion).
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Factoring

The sale of title to accounts receivable to a factoring company, which normally takes responsibility for collecting the invoices. Fees range from 1% to 4% per month of the receivable amount, with the available credit limited only by the size of the receivables. Long associated with the clothing industry, most factoring companies now target a wide range of B2B firms.
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Government Programs

Less generous than in the past, but Industry Canada has an interactive list of federal and provincial programs for specific sectors at http://canadabusiness.gc.ca. Includes quasi-government programs such as Community Futures and the Canadian Youth Business Foundation. (See also SRED.)
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Mezzanine Debt

Non-conventional hybrid debt supplied by private equity investors that combines features of debt (regular loan repayments) and equity (e.g. warrants or options). “Mezzanine” refers to the instrument’s status, ranking behind senior debt but ahead of common equity in case of default. Targets successful mid-sized operating firms in deals from $5 million to $100 million. Expected rate of return from interest plus capital gains: 15% to 20%. Mezzanine investors accept greater risk (and upside) than secured lenders, but less than straight equity investors. Mezzanine capital available in Canada soared by 42% in 2004, to $5.1 billion.
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Private Equity

Generic name for funding sources that provide capital for expansion or turnarounds through venture capital, buyout funds and mezzanine financing. The latter two, funded primarily by pension plans, are rapidly expanding beyond the corporate sector to growth-oriented smaller firms.
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Public Venture Capital

Term increasingly used in Canada to describe funding raised by emerging growth companies from TSX Venture Exchange listings. The TSXV provides innovative ways to attract financing from public investors at lower cost and with less dilution than from VCs. Typical financing ranges from $500,000 to $20 million. The Capital Pool Companies program, which allows shell companies to raise up to $1.9 million (used typically to acquire businesses looking for growth capital), now yields more than half the TSXV’s initial public offerings.
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SRED Program

The Scientific Research and Experimental Development program provides big federal tax credits for R&D by firms with less than $500,000 in taxable income. It’s often overlooked by non-tech companies that develop new products and services. Some lenders will let you borrow against anticipated SRED credits.
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Venture Capital

High-risk, high-cost capital supplied by private and public investors to firms with explosive growth potential that are usually expected to go public or be acquired within five years. Placements generally range from $500,000 to $5 million, with half of all VC dollars going to “follow-on” investments in companies already in the VC’s portfolio. To make up for the 60% (or more) of deals that go sour, many VCs expect at least a five-times return over five to seven years. About 80% of funds today go to knowledge-based firms, mainly IT and life sciences.
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Venture Debt

Relatively new in the small-biz market, this loan product is geared toward fast-growth tech businesses. Includes subordinated debt and an equity kicker (typically, warrants to buy shares at an agreed price). Interest rates are generally about 8% above prime, but these funds could reduce your need to sell even higher-cost equity.
Inquire Now: sales@easylease.ca