An ABL Cover Up? Is The Asset Based Loan That Good When It Comes To Canadian Business Financing?

OVERVIEW – Information on the abl loan facility in Canada . Why is this Canadian business line of credit financing still a best kept secret ? Who’s behind the cover up?!




ABLcover up? It's probably just us, but it sure seems that the Asset based loan business credit line facility is still somewhat of a best kept secret in town - and we do not understand why.

Cover up notwithstanding , let's take a look at how asset based lenders are filling one of the biggest voids in Canada - the ability of small, mid market and even larger corporations, public and private , to secure business lines of credit that meet their needs .

Although clients and everyone else, including us use the term ' loan ' the ABL facility is simply a revolving credit line secured by assets of your company. Those assets can vary in size and mix, but they typically include receivables, inventory, fixed assets, and on occasion, real estate.

The primary focus and driver of the ABL are your current assets, and they would typically be A/R, inventories. Those two seem to drive the majority of asset based financings in Canada.

The good thing about asset based credit facilities is that the business owner or financial manager knows the % margin levels on receivable and inventory up front and therefore also on an ongoing basis . In ABL lending A/R is margined at 90% typically, which is 15% more that commercial bank financing in Canada.

Inventory is always another question, and is analyzed separately on its own merits relative to your product and the different components of any inventory cycle, ie raw materials; work in process (‘WIP’) and finished goods. As an ABL lender better understands your business and operating cycle and quality of assets/clients you'll find your borrowing power ' increases ‘, or solutions are put in place to handle ' bulges'.

The beauty of asset based lines of credit is that they serve a broad number of situations. And those situations? They include start ups, fast growing firms, turnaround situations, high growth scenarios, and dare we say it, even firms that are in distress or in the midst of bankruptcy or debtor in possession scenarios. Talk about a catch all !We feel its important to point out though that ABL financing is not to be viewed as a ' lender of last resort ' / 'when the bank says no' scenario . It’s simply a viable alternative to Canada's mainstay in commercial business credit lines, our Canadian chartered banks. Oh, btw! Some of Canada’s largest and most successful corporations and retailers use this type of facility to finance the entire business.

And would the banks agree with us ?It's a resounding yes because most of them have small boutique divisions within their banks with small ABL teams that in a way almost compete internally for transactions . Hard to believe. Trust us; we've been in those hallowed halls!


We're not saying every aspect of ABL business lines of credit is a cake walk. Most of the time ( not always !) its more expensive, and you’ll be reporting more on asset quality and turnover re aged receivables, inventory lists, a/p summaries, etc . But when you balance all that out against more liquidity that comes sooner, quicker, faster that’s becomes a very positive trade off.

So, you decide, but we’re forgiving ourselves for thinking that ABL financing is a cover up on a good thing. We’re just trying to find the culprits. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your Asset Finance business line credit needs.




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 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.






7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653

Email = sprokop@7parkavenuefinancial.com














Stan Prokop