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www.oakvillebeaver.com The Oakville Beaver Weekend, Saturday October 11, 2008 - 19 Be "very prepared" when borrowing money for intangible assets Banks are great when it comes to lending money for hard assets like plants and equipment. But if your company needs funds for trademarks, intellectual property, employee training or other intangibles, be prepared to make a very solid case. It may sound discouraging, but don't despair. More financial institutions are warming up to the potential value of intangible assets, particularly if you can solidly demonstrate how they will add value to your company. In short: doing your homework could pay off in muchneeded cash. "You have to be very prepared and be able to answer a banker's questions. How long will it take to derive value from the investment (no more than 12 months), do you have the capacity to implement it, are the costs realistic, are the benefits measurable?" advises Edmée Métivier, Executive VicePresident, Financing and Consulting, Business Development Bank of Canada (BDC). It's also important to understand the role of a banker. As Emilio B. Imbriglio, partner, Corporate Finance, Raymond Chabot Grant Thornton, stresses, banks are not investors and they are not shareholders. "Their traditional role is to lend secured money to companies and the problem with financing intangibles is that often they do not carry value as a security. The intangible may add value to your company, but a bank isn't as likely to share that view," he explains. That's not to say that a bank can't be persuaded. Often, it depends on the nature of the intangible and the reputation, size and track record of the company. For example, if Sony wants to borrow money to market its extensive Beatles song library, no doubt a bank would be writing a cheque before the ink is dry on the lending application. That's because the intangible is legally protected internationally, has a proven revenue stream that appears likely to continue, and Sony has a history of profitability. While most companies don't have the same global clout as Sony, Apple, or Microsoft, the principle is the same: banks are more likely to open the purse strings for investments that generate future cash flows and add value to a company. NOT ALL INTANGIBLES ARE CREATED EQUAL It always helps when intangibles are included on a company's balance sheet since banks will base their decision partly on your firm's financial statements. As Canada moves increasingly towards a knowledge-based economy, more businesses are selling their know-how and services. For them, intangibles are their bread and butter. So, which intangibles can add value to your company? BDC, for example, targets investments related to innovation and capacity building. "On the innovation side, we look for things such as the development of a new product, new markets or innovative process improvements and productivity enhancements. Capacity building includes new supply agreements, a training program for new competencies or a trademark acquisition. These are strategic intangibles you can take to a bank," says Métivier. But a good idea isn't all a bank will consider. Métivier says it's important for a company to be profitable and have a well-balanced financial structure. Banks won't lend unsecured money to solve underlying performance problems. HAVING THE RIGHT MANAGEMENT TEAM In the end, having the right corporate team could be what makes or breaks your loan application. Any investor will tell you there's no shortage of great ideas out there. What's often lacking is a motivated and experienced team that can deliver on what it's promising. When preparing for that critical bank meeting, Imbriglio says include the CVs of key individuals. For example, if you have a key person who has 30 years of experience working in strategic positions in an organization that successfully faced funding challenges involving the development of intangibles, play that to your advantage. Leadership skills are another important factor. In his experience, Imbriglio says it tends to be people with perseverance, a positive attitude, a strong understanding of the concepts and excellent communications skills who succeed in getting loans for intangibles. Of course, a solid business case tied to a revenue stream backed by market commitments will support strong leadership. "It often comes down to having the right team of people," he explains. "Bankers use sophisticated predictive models to determine whether a loan is a go or no-go. But you won't pass the test of a banker's lending criteria if you don't pass the people test ­ ever." And, adds Imbriglio, don't send your lawyer or accountant to pitch hit for you. "It's your passion, you have to do it." Finally, Métivier says small companies may have to knock on a few doors before making that perfect pitch, but don't give up. "If you feel you are very well prepared and a bank still turns you down, try another bank," she advises. "If you shop around enough you should find success." OAKVILLE CHAMBER OF COMMERCE 2008-2009 BOARD OF DIRECTORS ABY ALAMEDDINE Chair of the Board Core Marketing Strategies GERALD POPP Immediate Past Chair Grant Thornton LLP BRIAN HALL Vice Chair-Chair Elect BriChem Sales Ltd. SONNY JELINEK Vice Chair Jelinek Cork BARRIE WYLIE Treasurer Canadian Club of Halton Peel ELAINE HOLDING Secretary SB Partners LLP MARK BROWN Director DARLA CAMPBELL Director Amonavi Consulting Group Inc. KERRY COLBORNE Director Business Development Bank of Canada ROBERT EAGLE Director Sheridan Institute of Technology & Advanced Learning ROBERT FICZERE Director Carmen's, Oakville Conference Centre JULIA HANNA Director Ristorante Julia & Ritorno HARMONY TM · Quiet, comfortable ride · Excellent wet and snow traction · Ultra-long mileage · 13 0,000 km treadwear limited warranty* · Sizes to fit a wide variety of passenger cars and minivans In severe winter conditions, the use of four (4) winter tires is recommended. * For terms and conditions see your MICHELIN® tires owner's manual. ORLA JOHNSTON Director Socs Retail Solutions Inc. CAMERON NEIL Director Feltmate, Delibato, Heagle, LLP GREG PETERSON Director Growth Advisors Inc. WENDY RINELLA Director First Canadian Title MAUREEN TILSON DYMENT Director Cogeco Cable Canada Inc. JANET WHITEHOUSE Director Bell Canada The Oakville Chamber of Commerce is a politically non-partisan, not-for-profit organization. Established in 1949 the Oakville Chamber has grown to over 1000 member businesses. Our Mission Is: "To foster a healthy economic environment for Oakville". The Oakville Chamber of Commerce is the voice of the Oakville business community. We provide member benefits which include advocacy, corporate benefits, networking opportunities, business development and educational forums to foster a healthy economic environment for Oakville. Our efforts to support business helps develop and sustain a healthy community for the betterment of all the residents of Oakville. JENSEN TIRE Check us out! WINSTON CHURCHILL 905-338-9919 928 WINSTON CHURCHILL BLVD. QEW ROY AL WINDSOR For further information please contact: ; John Sawyer, President Oakville Chamber of Commerce Phone 905-845-6613 (ext. 31) johnsawyer@oakvillechamber.com www.oakvillechamber.com LAKESHORE RD