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Financial questions from readers answered Add to ...

Question from T Nim: I run a 15-year-old established consulting company that launched a new software division in 2009 in the smart phone space (after a number of years of R&D). We have a long track record of profitability and we are using this and external funding to launch this high-growth opportunity. Given we're a knowledge-based organization, traditional banks have been less than interested in us. We've raised $1.5 million through friends, family and accredited investors but we are seeing increasing opportunity in our marketplace that will require financing in the $3 million to $5 million range. Where would you suggest are the best places for us to look?

Zenon Iwachiw : First of all, make sure you investigate and/or apply for the SR & ED Tax Credit Program (scientific research and experimental development).Given the amount of equity you have raised, combined with a long track record of profitability, you should certainly investigate traditional low-cost lenders like credit unions or banks that will lend on current and fixed assets. A strong cash-flow may allow a lender to offer some flexibility, with respect to normal loan covenants/ratios. Additionally, equity funds can be approached, most of which have distinct areas of expertise in certain fields and set “sweet spots” of dollar-lending.

A combination of these lenders may be ideal for you.

Mary Gagliardi : The company profile you describe sounds like a good candidate for BDC's subordinate financing group. It focuses on the small-cap market, financing primarily private companies with investments of $500,000 to $10 million. Traditional banks determine lending value based on the assets on a company's balance sheet, whereas the subordinated financing group determines investment level based on enterprise value.

Your company's long track record of profitability and projections for the new software division would be assessed to determine whether subordinate financing could provide the $3 million to $5 million that you are looking for, or whether existing shareholders would need to inject additional funds.

Subordinate financing investments have a flexible structure, with a typical term of three to seven years and repayment by way of regular monthly payments or cash flow sweeps according to a particular company's needs. In your case, we could also postpone principal payment for a defined period (12 to 24 months) to allow for the software division to begin contributing positive cash to the overall operation before repayment begins.

Question from PatrickH: I was hoping the panel could give us some advice on the use of commercial cards in managing small business finances. Are there any commercial card programs designed specifically for small businesses? If so, how can small businesses use these cards to help them manage our finances? And what are the real benefits of doing so? If not, can we benefit from card programs typically designed for larger companies?

Robert Bissett: Commercial credit cards play an integral role in the cash management process for small and large businesses. Generally speaking, the cards allow businesses to streamline purchases, consolidate billing and payment methods, improve cash flow, and enhance purchasing information and analysis. In addition, most commercial credit card offerings provide for optional employee cards, allowing business owners to delegate and control purchasing authority.

Companies that purchase products or services in the U.S. can also make use of a U.S. dollar credit card that assists in mitigating the cost and uncertainty associated with fluctuating exchange rates.

BMO Air Miles MasterCard for Business was specifically designed with the small business owner in mind, allowing the company to participate in the Air Miles Reward program in addition to the benefits outlined above.

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