Factoring Canada - How To Finance Your Canadian Business

Business start up costs can get expensive fast. The average business in Canada needs $1,033,000 to launch their business. If you're a Canadian citizen looking to start your own business in Canada, how do you go about financing the startup? Well, read on for some insights into what options are available and how to calculate the best way for your company's needs.

Financing Options – Starter and Expansion!

There are a variety of financing options that you can look at for your business in Canada. You have the option to fund your business through your personal savings, family, friends and/or a business angel. Many Canadian companies have created innovative ways to finance their businesses. They have used crowd-funding methods and work with alternative financing options to launch their new ventures!

Factoring – The Alternative Financing Mode

Factoring is the fastest growing financial model in Canada. With factoring you can access the money on short-term basis by paying up front. The business owner then pays a small monthly fee to have the money released by the factoring company without taking any out of their own pockets. Factoring is ideal for many business models because its not a traditional loan and it can be financed with little to no collateral (your personal assets).

How Does Factoring Work?

A company that provides factoring services is called a "factor". There are many factors in Canada and there are over 1200 registered businesses in Ontario alone. The factor will give you a line of credit with an interest rate for a fixed term & at the end of the term, your loan is paid off by the factor. For example, a factor may give you a line of credit for $100,000 with an interest of 4% for a term of 6 months. The company will then pay you $72,500 back after 6 months based on the terms that were agreed upon.

Factoring is a great way to finance your business. You can get quick access to much needed money without any collateral! However, it isn't free. You first need to prove that your business has merit! With factoring there are factors that charge between 2%-10% monthly interest and some factors have an additional cost of capital as high as 25%. You need to determine if your business has potential before applying for factoring services.

Calculating Capital Gains

If you've purchased a business you need to be sure that your purchase is a capital gain. If you're purchasing a business for personal use you will likely want to pay less in tax than if you are purchasing the same business for investment purposes. This is based on how long you have owned the asset before selling. For example, say that you purchased a small bakery in May at $300,000 and sold it May 9th at $400,000. In this case you have an extra $100,000 worth of income in the same tax year. We call this capital gain or income from an asset that has been held for more than one year.

If you're purchasing a business for investment, the capital gains are calculated by how long you've owned the asset before selling. The tax brackets need to be considered for each province as well. For example, in Ontario the 50% and 33% tax bracket is $90,000 and $42,904 respectively and the 75% tax bracket is $160,000 and $80,333 respectively.

Factoring is a good way to get money quickly into your company. However, most factors will not finance businesses with little to no collateral. You need to be able to prove that the business has a potential before applying for factoring services. You also need to calculate your capital gains, tax consequences and how long you've owned the asset before selling, among other things. But don't let this deter you from applying for factoring services; it is a growing industry and there are many benefits.

If you're looking for more information on Factoring in Canada contact us here at Factoring Canada. We have a team of professionals ready to help!

Factoring is not a loan so if you're considering using this economic model please do your own calculations first.

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Article by Tim Sturino - Factoring Canada

For more information on Factoring in Canada please contact us at Factoring Canada. We have a team of professionals ready to help!

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Conclusion

Don't let the factoring industry fall into the hands of criminals! Know what to look for before you consider applying for factoring services. Also, be sure that your business has potential before applying for factoring services.

If you're looking for more information on Factoring in Canada contact us here at Factoring Canada. We have a team of professionals ready to help!

Factoring is not a loan so if you're considering using this economic model please do your own calculations first.

The post Factoring Canada: What You Need To Know appeared first on Factoring Facts.

The definitive list of Factoring companies in Canada, with details and contact info.