Our capital team, helps clients raise the equity they need to take their company to the next level, clean up their capitalization table, or help investors exit their investment through the secondary market.
We pride ourselves on being able to source capital quickly. We will find the right mix to suit your needs. Please visit Welch Capital Partners Corporate Finance, a wholly owned subsidiary of Welch Capital and registered exempt market dealer, for more details on how our capital team can help you raise equity.
We can source competitive rates from a wide range of lenders.
We have strong relationships with both traditional and non-traditional (alternative) lenders. We use these relationships to ensure that you get a strong competitive offer and the right type of debt financing to fit your company’s current and future operating needs.
Alternative lending is any lending for businesses or individuals from non-chartered banks.
This type of lending can work well in various scenarios. For example, alternative lending might be the best solution for a company that is offside of its covenant obligations with its chartered bank, has a very long accounts receivables collection cycle or complicated payment terms, or operates in an industry that chartered banks are not comfortable lending to, such as cannabis.
What alternative lending is not
Alternative lending is not lending from loan sharks. There are many sophisticated alternative lenders in Canada that have pools of capital from successful individual investors, high net worth investors and institutional investors. Some chartered banks even have separate groups specializing in alternative lending.
Benefits of alternative lending
Alternative lenders are quick, flexible and specialized. Unlike a traditional bank that provides a broad financing solution, alternative lenders use their deep expertise in either an industry or financing product, such as factoring, to tailor the financing to the company’s specific situation.
Like a traditional bank, alternative lenders look for returns adjusted to the risk they take. They provide loans to companies they trust and have confidence in to repay the loans.
It is a misconception that alternative lending is always more expensive. For example, the cost of financing for specialized equipment from an alternative lender can often be lower than borrowing from a bank. Some companies may also prefer to pursue alternative lending rather than give up equity to finance growth, which can be very costly.
Types of alternative lending
The following, non-exhaustive, types of alternative lending can help your business survive, grow and prosper.
Asset-based lending (ABL), commonly referred to as ABL loans, is a type of alternative lending that is secured by assets. The most common type of ABL loan is a mortgage on a house. A lender makes a loan to a homeowner that is secured by the value of the homeowner’s house. Should the homeowner default on paying the loan, the lender can take possession of the home and sell it to cover any outstanding debt.
From a commercial perspective, lenders will use all types of assets as security. These assets can include accounts receivable, inventory, equipment, real property and intellectual property. A lender will usually provide a loan in an amount equal to a percentage of the value of the assets that are available for security.
ABL loans can be used to obtain cash for working capital, to purchase equipment, or to fund internal growth or an acquisition. They can come in the form of term loans, capital leases or revolving loans.
Accounts receivable factoring is a subset of ABL lending. It is a type of financing whereby a company sells its receivables to a lender. A lender will usually provide 70 to 85% of the value of the receivable to the company on the date it purchases them. Once the receivable is collected, the lender will provide the remaining balance to the borrower, less the interest charge.
Factoring is essentially a “cash-advance” on a company’s receivables. It can be a useful tool when a business needs cash to fuel working capital but can’t wait for the receivables to be collected.
Reverse factoring is a type of financing whereby a company approaches their suppliers to accelerate payments in exchange for an early payment discount. In return, the lender takes a cut of the discount.
Trade financing encompasses various financial products and instruments that are used to finance and facilitate the trade of goods internationally.
The international trade of goods creates unique challenges and risks. These include jurisdiction for enforcing non-payment terms, currency fluctuations, and working capital constraints due to the length of time between buying and selling inventory. As such, banks, insurers and specialty trade financing groups have developed financial products to help importers and exporters eliminate the risks associated with international trades. These products include purchase order financing and unsecured inventory financing.
Purchase order financing
Purchase order (PO) financing is a subset of asset-based lending. It is not unique to trade financing, but it is often used alongside a letter of credit in trade financing.
A letter of credit is a guarantee of payment on behalf of the purchaser from a financial institution in the purchaser’s jurisdiction to a financial institution in the supplier’s jurisdiction. Letters of credit are issued by banks in Canada but require sufficient capital as collateral once the letter of credit has been drawn.
For example, Royal Bank of Canada might issue a $1 million letter of credit for Company ABC to pay for widgets being purchased from Company XYZ in China. Royal Bank will require $1 million of cash sitting in Company ABC’s account to cover this payment when Company XYZ’s bank draws the letter of credit. The letter of credit exists to cover the risk of non-payment and the challenges of enforcement of non-payment when parties are in different jurisdictions. A letter of credit does not help with working capital.
International PO financing companies can use the PO that Company ABC has received from its customer, Company LMN, as collateral to secure a letter of credit from a financial institution. This enables Company ABC to execute on the sale to Company LMN without having to advance the cash to do so.
On the back end of PO financing is a factoring facility whereby a second alternative lender will purchase the invoice that Company ABC issues to Company LMN. The factoring proceeds are used to pay off the PO financier.
PO financing is a good option because it does not tie up working capital, and the letter of credit reduces payment risk from the supplier’s perspective. It is important to note that if you have a banking facility, your lender might have a security interest in your POs and therefore an intercreditor agreement may be required. We are here to help guide you through that process.
Unsecured inventory financing
Unsecured inventory financing is a relatively simple financial product, but because it is unsecured, it carries a high interest rate. This product is offered by financiers who take out default insurance against the borrower defaulting on repayment.
A typical unsecured facility plays out as follows: the lender will purchase the goods from Company XYZ and then immediately sell the goods to Company ABC. The lender will actually own the inventory as it travels to North America. Once the goods arrive, Company ABC will use the proceeds from selling the goods to Company LMN to pay the lender.
Each international transaction has unique aspects, such as jurisdiction, lead time, structure of sale or existing lenders. With multiple parties already involved, it is important to use a trusted and experienced financier while also ensuring the rates are reasonable and the term is right. We suggest companies use a broker to navigate these transactions and manage the various parties involved.
In addition to working with alternative lenders, we work with all the chartered banks across Canada. We work with these lenders on refinancings and transaction financing.
Refinancings often happen when the borrower is in a position to replace the alternative lender with a chartered bank. In our experience, companies usually work with the alternative lender for 12 to 18 months before they are in a position to make a change. This period is usually required to ensure the borrower can meet the covenants that chartered banks require.
A refinancing can also happen if a company believes they can obtain more or similar financing on better terms than their chartered bank is providing them. In cases like this, we run a competitive process to obtain the best facility for our client. This process entails helping prepare a financial package and business pitch deck for the banks to use during their underwriting process. We then take this package to multiple banks. When we are involved, banks know their competitors are also looking at the financing, so they put their best offers forward to win the opportunity.
Transaction financing often comes up with our buy-side mergers and acquisitions services. Most companies use some leverage (debt) to complete a transaction.
While assessing a buy-side mergers and acquisitions opportunity, we help our clients determine the best mix of debt and equity (capital structure) to make the purchase. Once we have determined this mix, we will help them secure the necessary capital. The equity is obtained via Welch Capital Partners Corporate Finance Inc.
The process for obtaining the debt is similar to the process on a refinancing. In some cases, we will offer the opportunity to both chartered banks and alternative lenders. Although chartered banks have lower interest rates, there could be benefits from using an alternative lender. These include larger loans, longer repayment periods (e.g., interest-only payments until the maturity of the loan) and less restrictive covenants.
Case study: project aftermarket
Welch Capital Partners leveraged our network of alternative lenders to quickly find a financial partner to help our client acquire and operate a U.S.-based business. See case study.
Our client, an aftermarket auto parts distributor headquartered in Ottawa with operations across the U.S., had an opportunity to purchase one of North America’s largest aftermarket auto parts distributors based out of Texas. The U.S. company (the target) was in financial distress, so the deal needed to close quickly, and our client needed financing to buy and run the business.
Welch Capital Partners’ approach
Time was of the essence on this deal more than most. The client required mergers and acquisitions advisory services, as well as help securing the financing. Given the target’s financial state and the tight timelines, we knew the deal would not qualify for traditional bank financing. Instead, we focused on finding an alternative financing solution.
The target’s accounts receivables and inventory made it a strong candidate for asset-based lending (ABL) from an alternative lender. We created a banking package and ran a competitive process among the top ABL companies in Canada and the U.S. A commitment to finance 100% of the transaction and provide a US$16 million operating line was received within two weeks.
The Welch Capital Partners advantage
We leveraged our network of alternative lenders to find a financial partner for our client in short order. Once the financing was secured, we were able to guide our client through the final negotiations of the acquisition to the final closing.
What our clients are saying:
“I would like to extend a special thank you to Welch Capital Partners and their team, and to Connor McGarry for his 24/7 support, and for their expertise, dedication and contribution throughout the entire process every step of the way in the finalization and completion of this transaction.”