Smarter Money Moves: How Alternatives to Bridge Financing Are Reshaping Business Funding
STAN PROKOP - CANADIAN BUSINESS FINANCING

Smarter Money Moves: How Alternatives to Bridge Financing Are Reshaping Business Funding

Cash Flow Heroes: Alternative Financing Strategies That Keep Your Business Thriving



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YOUR COMPANY IS LOOKING FOR? BUSINESS FINANCE SOLUTIONS! You've arrived at the right address! Welcome to 7 Park Avenue Financial Financing & Cash flow are the biggest issues facing business today. ARE YOU UNAWARE OR?? DISSATISFIED WITH YOUR CURRENT? BUSINESS? FINANCING OPTIONS? CONTACT:

7 Park Avenue Financial South Sheridan Executive Centre 2910 South Sheridan Way Oakville, Ontario L6J 7J8 Direct Line = 416 319 5769 Email = [email protected]

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SPECIALTY LENDING VERSUS BANK LENDING IN CANADA - EXPLORING THE SOLUTIONS!

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Unlock hidden funding sources: Discover smarter ways to fuel your business growth without traditional bridge loans.

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7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer? Bridge Financing and Alternative Finance , and working capital solutions ?– Save time and focus on profits and business opportunities

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7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”

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BRIDGE FINANCING ALTERNATIVES

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According to most business owners and financial mgrs we talk to, business finance in Canada doesn’t seem to happen at the speed of light!

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So when the type of loan and cash flow needs your firm requires aren't happening as quickly as necessary, are there alternatives? These alternatives include bridge loans and other specialty lending solutions for small and medium-sized companies in Canada.

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These middle-market companies are focused on financing alternatives often not available to smaller firms, which have limited access to appropriate business funding solutions .

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WHAT ARE YOUR SPECIALTY LENDING NEEDS?

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Leveraged and management buy -outs are a common business requirement.

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Recapitalizations help companies keep their doors open by injecting cash into challenged businesses, while expansions and growth financings provide the necessary capital for more success.

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Turnarounds give hope to struggling businesses, and the right restructuring takes an operation with excessive debt obligations to business finance freedom.

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Let's examine some of that finance for businesses and business lending via specialty lenders and specific specialty lender finance solutions.

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ADDRESSING BUSINESS GROWTH FUNDING / FINANCING SOLUTIONS

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In most circumstances, specialty lending and bridge financing refer to non-bank borrowing, business loans that banks can't or otherwise won't make with flexible terms business owners are looking for when it comes to more information for business credit.

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A lot of that comes back to the ' credit box, 'which is somewhat of a slang term for the ' risk appetite ' that any commercial lender is willing to take.

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There are, of course, numerous reasons why traditional bank financing can't accommodate your business financing needs - such as lack of substantial profits, poor balance sheets, low owner equity, unsatisfactory collateral... and on it goes!

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ASSESSING YOUR BORROWING STRATEGY

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Traditional lenders, such as Canadian chartered banks, insurance companies, and others, are regulated by the types and amounts of loan risk they can take.

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They are often only self-regulated. They are prepared to take additional risks proportional to the interest rates they will charge. Specialty lending from a finance company takes up where those traditional lenders leave off.

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Not in all cases, but certainly, in most specialty lenders focus on collateral value and how you run your operations.

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Their ability and expertise in valuing and realizing their security, if need be, is the key to specialty lending and the specialty lender profile. In certain cases, their business loan might complement another senior lender you might be working with.

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Why Bridge Loans? What is Bridge Financing?

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Although the specialty lending solution is always more expensive, it allows you to make a deal, save a company, etc., when you might not be able to do it via banks.

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Therefore, the business owner/financial manager must be able to weigh the ' cost of capital ' against ' access to capital '!

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We recommend clients view the commercial lender bridge loan as a path to operational success and growth.

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Canadian business financing access is always viewed as a potential obstacle to success. 'Short term' is always the key in bridge loans, whether it's a restructuring scenario, a cash crunch, or supporting new business/orders/contracts for financing capital .

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WHAT DO BRIDGE LOANS COST? HOW DOES PRICING WORK IN ALTERNATIVE FINANCE COMMERCIAL LOANS?

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Numerous factors come into play around the cost of bridging financing and alternative finance solutions.

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Key factors include the quality and value of assets, the ability of the borrower to utilize the funds properly and for the right reason, potential exit strategies by the lender, and, of course, the facility's overall size relative to the equity of the equity the borrower company.

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Of course, we can blanketly state that alternative lending/bridge loans, etc., always cost more than traditional finance solutions.

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As a borrower in the bridging loan process, you must identify the use of the financing and your ability to repay based on the term requested. Many bridge loans have balloon payment scenarios/options.

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At 7 Park Avenue Financial , we always emphasize the need for a business plan and a cash flow projection that identifies the business's future direction.

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As a commercial borrower, you should identify how and when you will exit alternative financing solutions.

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Equity investments might sometimes be an alternative to shorter-term bridge loans and specialized financing solutions, but that type of solution comes with longer timelines and ownership equity dilution.

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Typical Uses for Bridge Financing & SpecialtyLending Solutions

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A firm can benefit in numerous ways when considering business financing solutions such as bridge loans and alternative finance. Many times, a company is looking to refinance existing credit arrangements.

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In other cases, you or your firm might want to acquire a business or replenish existing working capital and cash flow needs.

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In other cases, key management might be looking for a management buyout or leveraged buyout utilizing the company's assets. In more challenging scenarios, a company might find themselves in ' Special Loans ' at the bank and satisfy the workout team at a bank.

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In the most severe circumstances, a firm with assets and a business plan will be looking for debtor-in-possession financing or exiting from a receivership—traditional commercial lenders are not always capable of working with those sorts of circumstances.

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Alternatives To Bridge Financing - More Information on financing solutions

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A/R Financing facilities ? --? A/R Finance as a credit line alternative

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Inventory Loans

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Sale/leaseback Loans on unsecured assets -? no down payment

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Working Capital Loans ? / Mezzanine Debt

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SR&ED Tax credit Loans

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Asset-based non-bank Credit Lines - borrowers only pay interest on funds drawn

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Short term working capital loans / Merchant Cash Advances - predictable? monthly payments based on sales revenues

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Purchase Order Financing

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Government Guaranteed? business loans -? funding equipment, working capital costs, leasehold improvements on existing property , funding for real estate purchase -? These loans are a term loan structure? with monthly payments at a competitive interest? rate

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Commercial mortgages are prevalent in the bridge loan environment? on owner occupied real estate transactions

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They allow your firm to refinance the commercial mortgage at more favourable rates at a future point in time.

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In commercial loan and mortgage financing in Canada, non-bank lenders are typically called ' B ' or ' C ' lenders, reflecting where they are in the credit risk profile.

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For example, those ' B ' lenders are typical ' one notch ' down from traditional Canadian chartered banks.

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These ' B ' and 'C' business lenders are looking to fill out the story when your financing needs don't match that bank's' credit box ' we've discussed.

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As we've noted, the majority of term loans are usually for one year. That timeframe usually ( but not always !) allows the business to achieve the main purpose of the business finance need that arose, such as buying a company, refinancing, etc.

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Business owners should expect to be asked for a first lien on any unencumbered enterprise asset.

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You may also request a personal guarantee as a sign of the owner’s intention to work with the lender in good faith to repay the loan or provide a larger down payment if one is required? -In most cases, the guarantee may be limited to the amount of the financing -? thereby avoiding borrowers drawing on a home equity line

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Most bridge loans are ' secured,' so they must consider any existing financing your company has with any other lenders, which might often include a Canadian chartered bank. Financing rates for specialized lending solutions will almost always incur higher financing costs.

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Typical bridge loans are more often than not provided by commercial finance companies/niche lenders. That is usually the case, but not always; larger firms who are more stable can often obtain bridge loans at more normal interest rates from commercial lenders.

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These firms serve the SME COMMERCIAL FINANCE / MIDDLE MARKET needs of the Canadian business borrower.

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Startup companies rarely fit the profile of companies that qualify for bridge financing, which is typically based on assets such as receivables, inventory, equipment, real estate, etc.

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WHAT TO LOOK FOR IN AN EXPERIENCED BUSINESS FINANCE ADVISOR

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Your firm should seek solutions tailored and flexible to its particular situation, taking into account its overall capital structure and the time it requires to implement appropriate financing.

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In most cases, financing needs around the bridge loan process might be complex, and speed and expertise are the essential requirements for these lending solutions.

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KEY TAKEAWAYS

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  • Revenue-based financing: Repayments fluctuate with business income, aligning costs with cash flow patterns.
  • Invoice factoring: Convert unpaid invoices into immediate cash, accelerating accounts receivable cycles.
  • Asset-based lending: Leverage existing business assets to secure funding without diluting ownership.
  • Mezzanine financing: Blend debt and equity characteristics, offering flexible terms for growth-stage companies.
  • Supply chain financing: Optimize working capital by extending payment terms or accessing early payments from buyers.

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CONCLUSION

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Alternatives to bridge financing revolutionize how Canadian businesses navigate financial gaps and seize growth opportunities.

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Numerous industries have unique requirements around how they run and finance their business.

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Focused on an interim ' bridge ' solution to capital and cash flow business needs?

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Call? 7 Park Avenue Financial for more information - we're a trusted, credible and experienced Canadian business financing advisor who can assist you with specialized lending needs.

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FAQ: FREQUENTLY ASKED QUESTIONS

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What are specialty finance companies?

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Specialty finance firms are?non-bank financing companies that provide alternative financing to small and midsize businesses that might not have access to traditional bank finance. They provide an important funding niche for commercial borrowers. After the 2008 financial crisis, specialty finance firms emerged with a new approach to business capital.

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These companies fill in gaps for companies who may not get loans elsewhere thanks to their specialized lending products explicitly tailored for borrowers' needs.

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The ability of specialty lenders to work closely with borrowers to craft innovative products tailored specifically to each borrower's needs has caused tremendous growth in non-bank finance solutions.

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What are the fastest alternatives to bridge financing ?

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The fastest alternatives to bridge financing typically include:

  1. Invoice factoring: Funds can often be accessed within 24-48 hours.
  2. Merchant cash advances: Approval and funding can occur within a few business days.
  3. Revenue-based financing: Quick approval process, with funds available in 3-5 business days.
  4. Peer-to-peer lending: Some platforms offer funding within a week.
  5. Line of credit: Once approved, funds can be drawn instantly as needed.

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How do alternative financing options compare in terms of cost?

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Costs vary widely among alternative financing options:

  1. Invoice factoring: Typically 1-5% of invoice value per month.
  2. Merchant cash advances: Factor rates range from in the high teens to higher
  3. Lines of credit: Interest rates typically range from Prime to Prime++ APR.
  4. Asset-based lending: Generally Prime to? Prime plus 5? APR, depending on the assets.

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Costs are often higher than traditional bank loans but may offer more flexibility and faster access to funds.

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Can I use multiple alternatives simultaneously?

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Yes, it's possible to use multiple alternative financing options simultaneously. This approach, known as "stacking," can provide more comprehensive funding but requires careful management:

  1. Diversify funding sources to meet different needs (e.g., invoice factoring for immediate cash flow, equipment financing for long-term assets).
  2. Ensure each financing option doesn't conflict with others regarding collateral or repayment priorities.
  3. Carefully manage cash flow to meet all repayment obligations.
  4. Consider the total cost of capital when using multiple sources.
  5. Be transparent with lenders about other financing arrangements to maintain trust and avoid potential conflicts.

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What collateral is required for these financing alternatives?

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Collateral requirements vary among alternative financing options:

  1. Invoice factoring: The invoices themselves serve as collateral.
  2. Merchant cash advances: Typically unsecured, but future credit card sales are used for repayment.
  3. Revenue-based financing: Usually unsecured, with repayment tied to future revenue.
  4. Peer-to-peer lending Can be secured or unsecured, depending on the platform and loan amount.
  5. Line of credit: This may require business assets or a personal guarantee.
  6. Asset-based lending: Specific business assets (inventory, equipment, accounts receivable) serve as collateral.
  7. Equipment financing: The financed equipment itself is the collateral.

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How quickly can I access funds through these alternative methods?

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Access to funds varies by method, but many alternatives offer faster funding than traditional loans:

  1. Invoice factoring: Often within 24-48 hours
  2. Merchant cash advances: Typically 2-5 business days
  3. Revenue-based financing: Usually 3-5 business days
  4. Peer-to-peer lending: Can range from 2-14 days, depending on the platform
  5. Line of credit: Once approved, funds can be drawn instantly
  6. Asset-based lending: Initial funding in 5-10 business days, then ongoing access
  7. Equipment financing: Can take 2-10 business days, depending on the equipment and lender

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What are the main advantages of using alternatives to bridge financing?

Alternatives often offer more flexibility, potentially lower costs, and customized repayment structures tailored to your business's unique cash flow patterns.

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How can alternative financing options improve my company's financial health?

These options can help preserve equity, improve cash flow management, and provide access to capital without the strict requirements often associated with traditional bridge loans.

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Are alternative financing methods faster than traditional bridge loans?

Many alternative financing options, such as invoice factoring or revenue-based financing, can provide quicker access to funds than traditional bridge loans.

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Can alternative financing help my business build a more robust credit profile?

Some alternative financing methods, like revenue-based financing or asset-based lending, may help establish a positive payment history and improve your business's creditworthiness over time.

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How do alternatives to bridge financing support long-term business growth?

These alternatives can help businesses invest in growth opportunities, manage cash flow fluctuations, and build a stronger financial foundation for future expansion by providing more flexible and tailored funding solutions.

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What industries are best suited for alternatives to bridge financing?

Alternative financing options can benefit various industries, particularly those with seasonal cash flows, long sales cycles, or high-growth potential in sectors like technology, manufacturing, and professional services.

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How do I choose the right alternative financing option for my business?

Consider your business's cash flow patterns, growth projections, available assets, and specific funding needs to determine which alternative best aligns with your goals and financial situation.

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What documentation is typically required for alternative financing applications?

Typical requirements include financial statements, tax returns, bank statements, and business plans, though specific documentation may vary depending on the financing option and provider.

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Are there any potential drawbacks to using alternatives to bridge financing?

Some alternatives may have higher costs or shorter repayment terms than traditional loans, and certain options, like revenue-based financing, may impact cash flow during repayment periods.

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How can I prepare my business to qualify for alternative financing options?

To increase your chances of qualifying for alternative financing, maintain accurate financial records, improve your business credit score, develop a solid business plan, and clearly articulate your funding needs and growth strategy.

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How do alternatives to bridge financing differ from traditional bank loans?

Alternative financing options often offer more flexible terms and faster approval processes. They may also consider factors beyond credit scores, such as revenue or assets, making them accessible to a wider range of businesses.

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What role does technology play in alternative financing solutions?

Technology enables faster underwriting processes, more accurate risk assessment, and innovative funding models like peer-to-peer lending platforms or AI-driven credit decisions, making alternative financing more efficient and accessible.

' Canadian Business Financing With The Intelligent Use Of Experience '

?STAN PROKOP 7 Park Avenue Financial/Copyright/2024

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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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