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Creative Financing SolutionsEnterprise Toronto Money Forum

(June 2, 2015)

Presentation by: Steven Uster

Co-Founder & CEO, FundThrough

• Recovering Wall Street investment banker

• Education has been singularly focused on Finance and Entrepreneurship

• Passionate entrepreneur looking to help other entrepreneurs grow their companies

Who Am I?

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5.0%

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There IS $$$ Out There

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Access to $$$

vs.

Cost of $$$

vs.

Speed, flexibility, convenience5

• Overview of Options

• Deep dive into:– Accounts receivable financing– Personal loans– Merchant cash advances– Leasing

• Calculating the true cost of borrowing

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Agenda

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A/R Financing

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• Reduces your invoice 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

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Using Your Biggest Asset to Drive Growth

• Primary criteria:

Business needs to have an account receivable from credit worthy customers.

• What’s an Accounts Receivable?

• What’s “credit worthy”?

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Does My Business Qualify?

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Create a profile to get onboard the platform

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How Does It Work?

Upload invoices (automatically or manually)

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Fund Invoices and Repay Once Customer Pays

• BieberCo sells Justin 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 BieberCo12

An Example

Offer terms to customersBusiness-to-Business sales Invoices are “true” invoicesManufacturers, distributors, service providers

X Construction companiesX Retail stores, restaurantsX Progress or milestone billingX Gross margins <10%

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Who Can Benefit from A/R Financing?

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• Invoices from high 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?

• Been in business for 10+ years

• Maintains the parking lots for many big-box retailers

• Needed to pay employees but retailer terms were 45 days

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• Once on board, started using to buy materials for other jobs, buy in bulk

Case Study: Maintenance Provider

Personal Loans

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“Any other collateral besides your heart of gold and million dollar smile?”

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Secured

Personal Loans

Unsecured

• HELOC• Personal Asset Loans

• Term Loans• Credit Cards

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• Home Equity Line 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?

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What is a Personal Asset Loan?

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2. Asset is stored 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

• Primary criteria:

Need to have a qualifying asset to use as collateral

• Loans are based on value of collateral

• Simplest, easiest transaction

• Original paperwork, box, warranty, appraisal

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Benefits Issues

• No credit 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

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• 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?

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Unsecured Personal Loans

Key Info:• 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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Merchant Cash Advance

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Step 1: Lender provides 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?

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• Primary criteria:

Business needs 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

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Benefits Issues

• Quick turnaround

• 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

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Liquor Store• Liquor store 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

Case Studies

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Equipment Leasing

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Who?• Asset intensive businesses• 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

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LEASING BANK FINANCING CASH 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?

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Benefits Issues

• Structure shaped 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

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A/R Financing Personal Loan

Merchant Cash 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 orasset held by

lender

Assignment of credit card sales

Lien on equipment

Summary Comparison of Options

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A/R Financing www.fundthrough.com

Personal Loans

www.borrowell.com

Merchant Cash Advance

Alternative Finance Companies

www.zillidy.com

www.leaselink.caEquipment Leasing

www.thinkingcapital.ca

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1. Due diligence costs2. Legal costs3. Administrative fees4. Loan term5. Minimum increments6. Monthly (or annual) minimums7. Termination fees8. Transaction fees9. Insurance costs10. Intangible costs

Calculating Total Cost of Borrowing

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Thank You!Steven Uster

(416) 971-5724steven@fundthrough.com

www.fundthrough.com