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WHAT DOES ASSET BASED LENDING MEAN
Asset based lending, often called ' ABL finance ' is simply short term loans secured by the collateral of a business. In the case of asset based lines of credit assets such as inventories, a/r, and fixed assets are margined in one facility to create a constant source of cash flow as sales are generated.
Asset based lenders allow your business to leverage the sales and assets of your business to operate and grow the company. These facilities come with maximum flexibility and range in size from a small 250k facility to the tens of millions of dollars. ABL financing grows in tandem with your company!
Asset loans are almost always ' business to business ' type lenders for working capital and cash flow financing and lending needs for almost every size of business - from startups to sizeable corporations. The financing that these firms provide allows your company to consider almost all options - that includes:
Growing your business
Expanding into new products/services and geographies
Engineering a turnaround
Refinancing
Companies that typically manage their A/R well are also more inclined to take advantage of supplier pricing/discounts and are viewed more positively by trade creditors. A solid receivable financing solution will allow your company to do that.
Why do thousands of businesses seek and utilized the services of an asset based lender that specializes in receivables loan A/R solutions? One of the most common reasons is their company's inability to access traditional bank financing. Owners are typically reluctant or unable to access additional equity financing that might be used to bolster cash flow.
One key aspect of a non-bank A/R financing solutions is the fact that a full facility will also include combining inventory and fixed assets into that same credit line!
These solutions typically do not compete with banks as they are taking on more and different assets in an entirely different manner when it comes to margin calculations and borrowing limits. The asset based lender typically advances 90% of A/R as well as higher margins on both inventory and equipment which become part of that new borrowing facility.
Non-bank lenders also have the reputation of being timelier on approval. It is critical to note that in almost all cases the typical asset based borrower has a goal to migrate back to traditional banking.
HOW DOES ASSET BASED FINANCING WORK?
Companies who cannot access traditional capital will often turn to asset financing solutions to solve their working capital needs. Having said that we also note that many of Canada's largest and most successful corporations also utilize this method of financing as an alternative to bank and insurance company financing.
But it's those ' SME ' companies, the small and medium-sized companies in Canada that fuel the entire economy, using the ABL facility because it's flexible and customized to their particular needs when it comes to the balance sheet and their sales revenues.
While we are talking mostly about non-bank asset based line of credit solutions, these same facilities are used to complete acquisitions, restructuring, and m&a type activities.
The ABL lender will take time in due diligence to properly evaluate the true value of company assets - that's the flexibility that might not always come with a bank solution, as banks are reluctant to fund hyper-growth companies, as well as occasionally having the inability to understand different types of inventory.
That additional time spent in truly evaluating your asset mix allows for more margining of your assets, thereby increasing borrowing power. And, as we noted, your facility can usually grow with a phone call as long as sales are increasing commensurately. It is very normal for a/r to have a 90% funding margin.
Unlike traditional bank credit lines the value of your real estate, if applicable, as well as your fixed assets are combined into one operating facility. ABL loan credit facilities revolve and fluctuate as you generate sales and collect receivables to reduce the operating line.
You should consider an ABL solution when you're looking for the optimal working capital/cash flow generation financing that might not be accessible via a bank for a variety of reasons. It the funding of those liquid assets on the balance sheet, namely a/r and inventory combined with maximum borrowing power based on the pre-agreed percentage of drawdown.
That comes from what's known as a ' borrowing base certificate ' - allowing your firm to always know what it's borrowing power is as you generate sales and replenish cash. The borrowing base certificate is usually recalculated monthly, allowing you to always know the value of your remaining borrowing power on the sales and assets.
We note that businesses who might not qualify for asset finance credit lines can use based a/r factoring to still generate cash from sales revenues - usually it's a situation of a facility being too small to not make sense for the lender and borrower re costs, set up fees, etc.
Fees associated with asset financing and factoring typically run in the 1.5-2% range on a monthly basis, so a firm should have decent gross margins to absorb the cost of the financing as well as take advantage of the benefits of receivables financing.
APPROVAL CONSIDERATIONS OF THE ASSET BASED LENDER
What do asset based lenders look at when it comes to approving and setting up such facilities. Key issues include:
Cash flows within the business
The ability of the company to report on financial performance - i.e. monthly financial and aged schedules of A/R and a/p
Government sources deductions being paid (Note - in numerous cases asset based lenders will construct financing to handle and payout CRA arrears)
Profitability (or the road to profitability)
Asset lenders put appropriate controls in place to make sure credit facilities are properly controlled.
HOW DO I GET AN ASSET BASED LOAN?
The bottom line, it's official - Asset Based Lending is a hit with companies of all sizes and financial positions in Canada. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you put working capital/cash flow solutions in place that match your firms borrowing needs.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
7 Park Avenue Financial/Copyright/2020
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