Canadian business owners and financial managers fully realize that based upon their working capital and cash flow needs a business line of credit is a necessity for the overall financing needs of the business.
An asset finance strategy can sometimes be the best solution for your overall business financing needs. Clients we speak to have trouble differentiating this type of solution from a regular Canadian chartered bank line of credit.
The difference is simply the overall focus of the financing – an asset based line of credit focuses solely on the variety of different business assets youhave – they include predominantly inventory, receivables, equipment, and in some cases real estate .
When you successfully set up an asset based loan facility you are in effect monetizing these assets to their maximum, and borrowing against them as you need funds, on a daily basis.Naturally the main and most liquid assets in this type of financing tend to be receivables and inventory, but those other hard assets can nicely shore up an even higher credit facility for your firm.
So let’s get back to the difference between this type of facility, which some companies have never heard of, and a bank revolving line of credit. Your asset based business line of credit, unlike the bank facility, focuses 99% on the value of the assets in your business – so the bottom line is that as those assets grow you have unlimited working capital to grow ! – And that’s a good thing.
Another way of looking at this or explaining it more clearly is the manner in which these loans are set up and approved. Asset based loans for a business line of credit in this asset finance strategy focuses on collateral and its value. If you have now, or in the past secured a bank facility on the other hand you of course recognize the banks puts a lot of emphasis on non asset issues such as overall financial statement quality, external collateral, personal guarantees, etc. That is the main difference between these two types of financing. If you can demonstrate positive cash flow and cash flow from operations to a Canadian chartered bank it is unlikely you can obtain a business line of credit that suits your overall needs. Asset finance on the other hand is collateral based – if you have A/R, inventory, and perhaps equipment and real estate you can draw down on a daily basis against the value of those assets!
One other critical difference is that less covenants and ratio requirements are in place in an asset based line of credit.So if your firm has ongoing liquid and fixed assets you are in an excellent position to negotiate a business line of credit for an asset based financing facility.
How does this facility work on a daily basis? Is a question we always get from clients? You still of course do your banking at a bank or perhaps a credit union – but you supply on a regular (perhaps a weekly or monthly basis) what is known as a borrowing base certificate for your assets. The asset based lender then advances funds into your account which you can use to finance your business.
Asset based loans, or working capital facilities as we also like to call them have different levels of pricing based on overall facility size and with whom you are financing the line with. We recommend you review the benefits of an asset based business line of credit and speak to a credible, trusted, and experienced business financing advisor to determine if this type of working capital arrangement suits your firm. Many Canadian businesses are moving to this type of facility to fund future growth and profits.
Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details: