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Is A Business Credit Line Mission Critical To Your Business ? 
3 Critical Things You Need to Know
OVERVIEW – Information on working capital operating facilities in Canada . Does an asset based credit line work for your business ?
Can an asset based credit line turn a business problem into a solution? We think it can , so when working capital lines are a need in your firm it's important to understand that revolving asset facilities can be a ' mission critical 'part of your firms success in growth , profits, and cash flow . Let's dig in.
When working capital starts to become a critical day to day challenge Canadian business owners and financial managers must consider all business financing options.
Asset based credit lines are increasingly popular, and... guess what ... often misunderstood! This type of financing comes under the broad category of asset based lending and the simple definition of such a facility is the ability of your firm to maintain an operating line of credit, outside of a bank relationship.
Here are 3 critical factors that you need to know and understand the true benefits of 'asset finance credit lines ‘:
1. What assets are financed under this facility and how does this differ from a bank facility
2. How does the facility Work on a day to day basis
3. What are the fees involved and how much can we get from a total working capital perspective?
Let's start with our first critical factor - exactly what is this type of facility? An asset based line of credit in its true sense, and in the context we are discussing is a working capital revolving credit. The assets that are secured under this facility are accounts receivable, inventory, and in many cases equipment and actually sometimes real estate.
We poised the question - how does this facility work when we compare it to a charted bank line of credit. In actuality it is quite similar, with the main difference being that 99% of the time you can extract additional borrowing power out of the assets we mentioned.
Banks are the low cost and most flexible and common business credit line - but they focus on:
Balance sheets
Personal owner’s credit
Ratios
Covenants
Guarantees/Outside collateral availability
Asset based lines of credit in fact tend to eliminate many of those considerations, and focus only on one key point - the assets! Because that is the case receivables and inventory are margined up, via traditional borrowing based certificates, to a much higher level than might otherwise be maintained with traditional financing. When you factor in working capital that is secured by equipment, you can quickly see that your borrowing capacity has increased significantly.
Point # 2 - How does it work?!
Similar to a bank revolving line of credit your borrowing capacity in an asset based line of credit is simply the drawing down, on a weekly, monthly, or in fact anytime basis, of your total borrowing capacity based on your reporting of current A/R, inventory and equipment levels.
Asset based lines of credit typically cost more than the bank- In Canada these facilities are priced from 7-9% per annum to 1-2% a month .
What determines this huge spread in pricing? It is the overall asset quality and size of the transaction , as well as the ability of many asset based lenders to do transaction that would normally not be anywhere near to be considered by a bank, and as such, the risk is higher, so pricing is higher . It is as simple as that. In terms of what amounts you can borrow, you can assume 90% of A/R, a 40-60%+ range on inventory, and a similar amount for equipment. (Equipment would often be subject to a market value appraisal).
Does your firm need more working capital? Are you self financing now. Are you unable to access traditional financing, or, more commonly, does traditional financing seem unable to meet your growth or unique situation needs? If so, speak to a trusted, credible, and experienced Canadian business financing advisor with asset based lending expertise.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
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Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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