Financing Solutions in a Challenging Environment: Taking the next step with confidence, by Gary A. Fitchett, CA

THE CANADIAN BUSINESS FINANCING HANDBOOK Professional reference service Published by CICA Updated half-yearly Published in ,500 pages

FINANCING OVERVIEW How to arrange financing Where to go How to go

IMPACT OF GLOBAL ENVIRONMENT Shortage of credit H igh uncertainty Interest rates High prices Recession Stock market crash Unstable currency Unemployment

AUTO SECTOR Shrinkage of sales Inefficient operations Labour and legacy costs Impact on supply base Consequences to infrastructure

IMPACT THROUGHOUT SECTOR Financing for auto purchases Incentives diluted market Guarantee warranties Support parts sector All stakeholders support

LOOK INSIDE FIRST… Accounts Receivable Inventories Redundant Assets Accounts Payable Operating Costs Restructuring (Proposals) Cash Flow Planning

EXTERNAL FINANCING OPTIONS Bank Term Loans Mezzanine Debt Equity Government Funding Leasing Factoring Trade Finance

OTHER BANKING ALTERNATIVES Schedule 2 banks Credit Unions

BUSINESS IMPROVEMENT LOAN Canada Small Business Financing Act For every business, up to $5 million in sales Maximum loan $250,000 Government guarantee – 85% High ratio capital – 90% of cost of fixed assets Limited personal guarantees

MEZZANINE DEBT Quasi-equity Sometimes called: Subordinate debt Participating debt Junior debt Suited to predictable cash flow Compensate by: Royalty Fee Share of profit Options/ warrants

BUSINESS DEVELOPMENT BANK One-stop shop Working capital Conventional term loan Mezzanine debt Guarantees Venture capital Consulting

GOVERNMENT SUPPORT Assistance vs. Incentive Every tough deal Focus on jobs National Research Council

FACTORING Invoice Discounting Sell Accounts Receivable Costly, but allows to achieve objectives Average cost – 6% of invoice Complementary to bank

EQUITY Key foundation for business Reflects personal commitment People Power:

EARLY STAGE FINANCING MODEL

TAPPING PEOPLE POWER Royalty Units for leasehold alterations Preferred shares for ladies wear shop Angels invest profit sharing bonuses Royalty units for art production

OTHER KEY SOURCES Employees (ESOPs) Customers Suppliers Angels

FIVE CS OF CREDIT C haracter C apacity C ollateral C apital C onditions

FIVE IMPORTANT QUESTIONS TO ANSWER How much do you want? How long do you want the money for ? What are you going to do with the money ? How are you going to repay the money ? What are the alternative sources of repayment in the event of something going wrong ?

THE BUSINESS PLAN Executive summary Business description Products or services Market analysis Marketing strategy Operations Management and organization Timing schedule Financial information Funds required

HOW TO DEAL WITH DIFFICULT CIRCUMSTANCES ? Litigation Bankruptcy Bad credit history Divorce Medical problems History of poor decisions Flashy taste

RESPONDING TO THE LENDERS OBJECTIONS The business is under-capitalized… The business has not earned a profit yet… The proposed loan is too much money… The business is too risky… Your business strategy is not sound… Not enough collateral… The financial forecasts are unreliable…

REJECTION ! No, but... No, unless... I cannot say yes, because... Not yet... No, because the bank... Hell no…

QUESTIONS?