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Information on the asset based loan strategy to facilitate a business line of credit solution for all your company's working capital and cash flow needs for growth
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 you have – 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.
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
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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