Non-Traditional Financing for Growth & SuccessionNovember 3, 2016

Agenda• Bridging the Gap• The Financing Landscape• Non-Traditional Financing

Options• About First West Capital• Contact Us

Expertisebeyondthedeal®

• Small and medium businesses need financing for:• Day to day working capital• Expansion and growth• Acquisitions, shareholder buyouts and succession

• According to the CFIB, SMEs are under-served by the banks• Between 2000 and 2015, average loan rejection rates by Canadian

financial institutions ranged from 10-20%• Clients of TD and Scotiabank are rejected at even higher rates (25.7%

and 18.8%, respectively)

• Where should my clients go when the bank isn’t an option?

Bridging the GapExpertisebeyondthedeal®

The Financing Landscape v1

Secured, proven cash flowLow cost

Personal guarantees

Demonstrates cash flow historically or in near term

Involved capital

Ret

urn Alternative

Financing

Senior, secured debt4%

25%

13%

High

Med.

Low

Ris

k

Equity

Expertisebeyondthedeal®

The Financing Landscape v2Expertisebeyondthedeal®

Non-Traditional Financing1. Merchant Cash Advances2. Factoring3. SRED Financing4. Asset-Based Lending (ABL)5. Subordinated Debt6. Mezzanine Financing

Expertisebeyondthedeal®

1. Merchant Cash AdvancesFor retail businesses, selling future credit and debit card sales is one method of accessing working capital.

Expertisebeyondthedeal®

Pros Cons

Quickandeasyapprovalprocess

Veryhighcost; effectiveinterestratesof80%ormore

Nopersonalguarantee Willlikelycauseabreachofbankingagreementscurrentlyinplace

Mixedreputationinmarketplace.

thinkingcapital.ca

merchantadvance.com

2. FactoringBusinesses borrow against their A/R assets.

Expertisebeyondthedeal®

Pros ConsReplacesA/Rcollectionfunctionandsometimescredit

Highcost

Cash availableimmediatelyuponinvoicing

Effectiveinterestratesof18-30%

Goodsourceofcapitalforyoungcompanies,growingquicklyandwithgoodcustomerrelationshipsbutnotyetprofitableorpre-bank

Ifinvoicesarepurchased,acompany’scustomerswillknowthatthecompanyhascashflowchallenges

Mayberecourseornon-recourse

Generallyshort-terminnature

fvf.ca

liquidcapitalcorp.com

Approval Requirements: good quality A/R, strong customer relationships, work must be complete, no trade disputes

3. SREDThe Scientific Research and Experimental Development Tax Incentive Program providesclaimants with cash refunds or credits against their future tax obligations for theirexpenditures on eligible R&D work done in Canada.

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Pros ConsUpto85%ofthefacevalueoftheSREDcanbeaccessedquickly

HighercostthantraditionaloperatingcreditifofferedbyalenderotherthanamajorFI

SomeFI’sprovide BorrowingbaselimitedtoSREDclaim.

AllowsearlierstageandrapidlygrowingbusinessestofreeupWCforreinvestment

Securitycancrowdoutothertypesoffinancing

espressocapital.com

Approval Requirements: companies with a prior record of successful SR&ED claims can borrow against the value of accrued and outstanding SR&ED claims.

4. ABLAn asset-based loan is a revolving credit facility secured by the assets of a company (such as accounts receivable, inventory and, in some cases, equipment).

Expertisebeyondthedeal®

Pros Cons

Flexible MorecostlythantraditionalLOC

Workswellforinventory-intensiveandlowmargin/capitalintensivecompanies

Intrusive/intensivemonitoringprotocols(fieldexams,regularaudits,weeklyuploads)

Generallycovenantlite(noleveragecovenant)

Availabilityoftermcreditmaybelimited

Approval Requirements: Ability to meet 1:1 Fixed Charge Coverage Test, high quality & saleable WC assets, good internal systems (inventory tracking and controls)

5. Subordinated DebtSub-debt is junior capital that is subordinate to traditional loans or bank debt.

Expertisebeyondthedeal®

Pros ConsCheaperthanequityormezzaninefinancing

Highercostthantraditionalbankdebt

Flexiblerepayment MorerigorousDDprocessthanseniordebt

Non-dilutive,long-termfocus Debt requiresdiscipline– bothforrepaymentandtoremaincovenantcompliant

Complementsseniorlendingfacilities, security,&covenants

Limitedpersonalguarantees

firstwestcapital.ca

Approval Requirements: generally for businesses that lack tangible assets (or whose assets are fully encumbered) but can demonstrate historical cash flow (EBITDA) sufficient to service the debt.

6. Mezzanine FinancingMezz is a step closer to equity; it is a subordinated loan coupled with performance-based sweeteners such as warrants.

Expertisebeyondthedeal®

Pros ConsCheaperthanequity Highercostthansubdebt

Flexiblerepayment MorerigorousDDprocessthanseniordebt

Minimally-dilutive,long-termfocus Debt requiresdiscipline– bothforrepaymentandtoremaincovenantcompliant

Complementsseniorlendingfacilities,security,&covenants

Limitedpersonalguarantees

Sweetenersareaformofsharedsuccessandnotafixedcost

firstwestcapital.ca

Approval Requirements: similar to sub-debt, but for emerging businesses where cash flow is anticipated in the near future, or where a non-amortizing structure is preferred.

Case Study

• Client: FXR Factory Racing Inc., Oak Bluff, MB

• Deal type: Growth

Expertisebeyondthedeal®

Our financing solutions are suited to established, emerging and expanding companies that:

• Have strong management• Operate in a sustainable market• Can demonstrate a history of positive cash flow or strong near-term

potential

Expertise beyond the deal®• We believe collaboration, flexibility and responsive, local decision-

making result in deal certainty and innovative financial solutions.

About First West CapitalExpertisebeyondthedeal®

We’ve funded over $150 million to 70 businesses.

Our deals range from $500K to $10M across all industries in Canada.

What We FinanceExpertisebeyondthedeal®

Contact Us

Kristi Miller, Vice Presidentt: 604-501-4265 | e: kmiller@firstwestcapital.caLinkedIn/KristiLMiller | @MillerKristiL

Thankyou!

firstwestcapital.ca

FirstWestCapital | @firstwestcap