Can Asset Based Lending Save Your Company ? You Decide!
OVERVIEW – Information on asset based lending in Canada . This business loan /cash flow solution solves various financing & growth challenges
Asset Based Lending in Canada seems to be catching the ears of more & more business owners/financial mgrs in Canada. Is it possible this business loan / cash flow financing solution can actually save your company - or at a minimum grow it? We'll let you decide! Let's dig in.
Let's try and make some common sense around this somewhat unknown financing solution - beginning with: What is an asset based line of credit and could it actually ‘save’ your firm and if your firm doesn’t need ‘saving’ could this method of business loan still make sense.
In order to determine if asset based finance can ‘save ‘your firm it might do us well to understand what it is. Don't get confused around the ' jargon ‘which tends to sometimes complicate what you are looking for, which is adequate business financing that meets cash flow and working capital needs.
The basics? Simply that asset based lines of credit are revolving working capital facilities that totally focus on your asset base. When you are comparing this type of financing to a banking facility you will of course quickly realize that the Canadian chartered banking facility that provides a similar (but not exact) type of financing places a lot of focus on issues external to your assets. As we know banks focus on and require very solid balance sheet rations, outside collateral and guarantees, etc.
That’s banking 101. That is not the requirements that are over focused on when it comes to a business credit line. Asset financing lines of credit / loans are business financing working capital facilities that are revolving lines of credit secured specifically by receivables, inventory, and in many cases equipment and real estate if those two latter items are applicable .
You basically borrow, on a daily basis, as you need to, on the sole strength of those assets. Many of our clients are in fact able to also on occasion arrange temporary bulges which can even take them higher than their asset based borrowing capability!
An example of this might be bring a purchase order financing scenario into play which would allow your firm to temporarily borrow against purchase orders and contracts you have received from your customers . This type of additional supplemental financing is best suited for manufacturers, distributors, and firms who export goods or who are wholesalers.
Asset based financing solutions tend to be lumped under the umbrella of ' Alternative Finance ' solutions - fast becoming more popular. While firms with some level of financial distress or challenge use asset financing a lot, the new reality is that this type of financing is being utilized by every type of corporation of all sizes and all industries in Canada, from startups to Canada’s mega corporations. Something must be working!
The reality is though that in many cases firms who have business financing challenges indeed are the perfect candidates for asset based lines of credit if only for the reason that they provided you with capital and cash flow when traditional source can’t.
So if your business needs to be ‘saved ‘ because of issues such as inability to achieve traditional bank financing, or you have traditional financing but it is not enough, than an ABL facility is what you should consider . ABL, by the way, is the acronym for asset based line of credit. Sorry for the jargon!
Other issues you might be facing might include firms that are in a turnaround or workout situation. We have worked with a number of clients who in fact are in ‘special loans ‘scenarios at their bank and they require exit financing from that relationship. Fortunately or unfortunately for traditional business financing in Canada it’s all about the ratios and covenants.
Alternatively your firm might be in a turnaround from either a difficult year or a difficult ‘one of ‘situation that took place. Perhaps your firm is losing money but is on the road to rebuilding sales and profits again? Asset financing loves sales growth by the way!
Asset based lines of credit eliminate those ratios you can’t meet because of being over leveraged (too much debt), or having dramatic seasonal cash flow changes based on your business model and your industry.
The bottom line is simply that your firm now has the ability to be ‘saved’, using our jargon, because you have maximum flexibility in borrowing on your assets, with those assets being the sole focal point of your borrowing base.
As a general rule ABL financing is more expensive than bank borrowing, which is currently at some of its lowest levels in Canadian history. But even paying a premium or significant premium on your ability to borrow in an unlimited fashion against your asset base can still 99% of the time make total sense, that’s simply because your ability to turn capital into profits takes care of a lot of the financing charges.
Speak to a trusted, credible and experienced business financing advisor and discover if the asset based funding makes sense for your firm.
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
Direct Line = 416 319 5769
Office = 905 829 2653
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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