Asset-Based Revolving Lines of Credit and Term Loans
Is asset based lending the right financing for your business? That's a question that comes up all the time with our clients, and they want solutions now, not down the road! One ' size fits all' solution is, asset based lending. These 'ABL' techniques and solutions could provide all the financing your firm needs in today's competitive environment. Asset based lending industry statistics show explosive growth over the last decade .
What is Asset Based Lending, also known as ' ABL '?
Simply speaking it's a lending facility with the collateral being specific company assets. Utilizing the ABL formula allows your company fo fund A/R, Inventories, unencumbered equipment, and real estate is that latter asset is a part of your asset mix. The combination of those assets will significantly improve overall business liquidity/working capital.
One way to view this newer method of financing is to look at it as a ' blending ' of your company assets. This lending formula, therefore, delivers on access to more capital than any one financing. There are numerous, let us call them ' subsets ' of asset finance -
Purchase Order Financing
All of these deliver solid financing when your business needs it. But combined into an Asset Based Borrowing solution your firm maximizes total working capital needs. View it as an option to run your business on a daily basis, or in the terms of considering a management buyout or acquisition. It's working capital when you need it most.
Companies that are constantly growing and in need of additional operating capital are the best candidates for the cash flow generating power of asset based lenders. Many of the best candidates for this business finance solution are financially leveraged and are not best suited for traditional Canadian bank financing .
Business owners and financial mgr's are looking for finance that grows with their business. As it became difficult to get all the financing they needed after 2008's recession many business owners investigated the ABL loan solution.
Typically, ( but not always ) asset based finance is non-bank in nature - it's offered by specialized commercial finance companies . It helps businesses access more working capital and cash flow - typically "Job 1 " for any business.
If your company has long term debt, and is looking to avoid taking on more debt, payables are rising, and you're waiting longer to collect receivables asset finance is a very logical solution. Ironically many business owners and financial managers in some cases haven't heard of this type of financing.
In the ' old days ' ( we remember them well ) abl was often touted as a financing of last resort. No longer!! Using it can grow your business, expand into new markets, buy a competitor, and oh yes, just survive day to day!
Summary Of The Benefits Of ABL
New clients at 7 Park Avenue Financial always ask us to clarify the benefits of the asset based lending solution.
A combination of business assets delivers a higher level of liquidity than any one type of finance
The ability to unlock assets traditionally not margined by Canadian banks as part of a working capital revolver
The ability to restore your firm to a level of financial stability - we meet with a lot of management who by necessity are always spending mangement time on cash flow needs
Every industry requires different levels of expertise and funding - ABL suits a wide variety of industries
ABL is a legitimate ' catch-all ' for expansion, restructuring or refinancing ( Yes you can finance the purchase of an existing business )
Asset finance solutions are low cost when compared to equity financing
Traditional Canadain bank requirements around covenants, ratios, etc make ABL more accessible and it's ability to ' co-exist ' with other types of debt is viewed as a key positive for firms that have different levels of senior and junior debt.It is a funding structure that works! That what we at 7 Park Avenue Financial call ' covenant light '!
In it's purest sense asset based lending is often just a revolving line of credit that allows you to borrow against all, repeat ' all ' of your assets. Those typical asset categories include receivables, inventory and fixed assets.. even real estate if your company occupies and owns its own premises. Therefore the prime security of the loan is a focus on the overall value of your asset base, with less, or no reliance on external collateral, the focus on personal guarantees, etc.
LEVERAGING BUSINESS ASSETS TO ACCESS WORKING CAPITAL
The entire subject of leverage and margining your assets in ABL is critical to understand for the business owner and financial manager . ABL funded revolving credit facilities are based on a formula based on the liquidation value of your current and fixed assets. Naturally, a/r and inventory rank very high in liquidation value and will provide the maximum borrowing power . Typical advances on receivables are 90%, and percentages will vary based upon the many types of inventory specific to any one industry in Canada.
How Is The Exact Value Of ABL Secured Loans In Canada Calculated?
The asset based lender will focus on your firm's balance sheet with a view towards ensuring a detailed analysis of your overall potential liquidity. Factors that come into play include specific industry issues as well as current economic conditions, pandemics included!
As an example, the ageing for a/r and inventory will determine eligible amounts of borrowing under the facility, i.e. all receivables under 90 days is usually a typical measure of borrowing power. There might be a ' dilution' part to the formula - that might be an allowance for bad debts/uncollectible accounts.
The final borrowing base certificate will demonstrate maximum borrowing power for your firm.It should go without saying your firm should have a good reporting and accounting systems capabilities .
Canadian asset based finance candidates can appreciate that numerous fluctuations in their business sometimes deliver a challenge to those borrowing base calculations. Retails or distributors might require excess borrowing capacity at certain times of the year so seasonality must be factored into any common sense formula.
The best way to address that is to ensure your lender has visibility to historical documents around cash on hand, current asset levels, accounts payable, etc. Heres where overall averages can really help the final formula. Yes, assumptions must be made but those cushions will be an excellent ' shock absorber' in available borrowing.
Traditional bank financing often revolves around strict reporting periods on financial statements, and aged reports on receivables and inventories and often comes with a term loan structure. If your firm requires what the pro's call ' bulge financing ' traditional bank type facilities cannot necessarily solve the cash flow crunch. The more liquid your receivables and inventories are re turnover will mean a higher loan to value in drawing down on your facility.
THE ABL DIFFERENCE? Simple - You can borrow significantly, on an ongoing basis, against those assets. Smaller ABL facilities tend to be in the 250k range, but they can easily run into the millions. Many large corporations use ABL also by the way!
By now you may have picked up on the fact that as your business grows you can borrow more on an ongoing basis, as your assets have grown also - with virtually no upper limit.
While Canadian chartered banks focus on ratios, covenants, personal guarantees and high net worth the asset finance solution focus.. you guessed it.. mostly on your business assets.
ABL comes in different flavours and can be specifically based or full service against all assets. That allows you to not postpone business success! Can you afford not to access this solution?
So what can ABL do for your company - if you're growing let asset based financing finance that growth? Growth financing is a challenge for every business .If you are considering funding an acquisition ABL can play a part in that financing. Many entrepreneurs don't realize the critical part asset finance can play in acquisition financing. It is often the cheapest, quickest, and most efficient way to fund acquisitions versus going the equity financing route. An asset based lending mortgage can also be part of any new facility.
If your requirement is a turnaround or recapitalization this method of business finance is well suited to your needs and can be delivered in a timely manner when timing counts! Working with an experienced advisor with a track record of financing success will also allow you to address any cross border financing that might be required.
The seasonality of any industry can greatly impact cash flow - let this form of financing help you with the cash flow strain. And should your company require the ' turnaround' asset finance is a proven method of restructuring your firm.
Speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of success on achieving benefits of ABL finance. Let our team tailor a specialty facility tied to your business within its industry. We will demonstrate how to unlock working capital to meet all your cash flow needs with the right total financing option. Next step? Growth/success!
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Click Here For 7 PARK AVENUE FINANCIAL website !
7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
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. He is an experienced
business financing consultant.
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 financing 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.
7 Park Avenue Financial/Copyright/2020