TSX Venture companies with capital challenges meet real financing solutions
Last fall, when the market for the rare earth sector started to waver and now with the equally dismal resource market, I was inclined to research creative financing opportunities that could assist public companies maintain strong capital positions. Previously, my understanding of financing options has always been weighted towards debt and equity financing but when Arafura announced their $22 million tax refund for research and development last year, it occurred to me that there may be more to this than just refunds on invested monies to date.
In a story last month titled New TSX Venture Exchange Association Sets the Stage for Vulture Feeding Frenzy; I covered the ongoing story and rumor on how 55% of the companies on the TSX Venture Exchange (TSXV) may collapse due to capital needs by the end of the year. Always seeking positive remedies for those that are fighting to hold their own, we have been fortunate that one of our senior guest editors, Dr. Luc Duchesne owns a grant and subsidy writing company – and he confirmed last night that he will do a monthly column on tips, ideas and information on how to access these tools in Canada.
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In a meeting with a CEO in Ottawa a few months back, he reviewed an exploration company that I liked with properties in British Colombia and Quebec and then listed a half a dozen grants and subsidies that he said should help them qualify for up to $1 million dollars. Barely 2 weeks ago the Canadian federal government announced a $1 million investment in Ontario-based Pond Biofuels, which uses cement manufacturing off-gases to provide CO2 and process heat for algae production in cold, northern regions. The point is that there is money for those that qualify and know where to look.
These options — while onerous for those of us that may feel overwhelmed by the paperwork — may be particularly useful, as equity raises for companies with stocks at all-time lows is highly unattractive. For example, many of the TSX Venture companies qualify for the Scientific Research and Experimental Development (SR&ED) tax incentive program claims; however in the course of uncovering what grant and subsidies that many of these qualify for I uncovered another attractive option that most companies are not aware of: tax credit financing.
I called Alkarim Jivraj, a Partner at Espresso Capital (Espresso) and he explained that this is a financing solution that provides fast turnaround financing for companies who have filed their SR&ED, digital media, mining and exploration claims. Clearly this is an option for TSXV companies that need capital immediately as they counter the existing resource market, which will undoubtedly recover for the leaders with time. Figured Espresso knew what they were talking about as they have provided over $50 million in capital to more than 130 companies in Canada.
In lieu of the existing marketplace, financing solutions with turnaround times that are usually less than two weeks was the catalyst for this piece. For instance, Alkarim told me Espresso can typically fund within 10 business days of receiving a signed term sheet. And in many cases, deals can be funded in as little as five days, and with standardized paperwork, legal fees can be kept to a minimum. Just so you know the typical loan duration is 12 months (the loan can range from as little as 3 months to as much as 2 years) and the typical transaction sizes range from $100k to $5 million making it easy for companies that are looking to quickly fund projects – with little to no dilution, or trying to raise money in this market.
An accomplished entrepreneur Tracy Weslosky is the CEO for InvestorIntel Corp., a company that publishes InvestorIntel.com, a trusted source of online market information for investors ... <Read more about Tracy Weslosky>