Monday, March 20, 2023

How Asset-Based Lending Cash Flow Asset Finance Solutions Can Help Your Business





YOUR COMPANY IS LOOKING FOR CANADIAN ASSET FINANCE ASSET-BASED LENDING CASH FLOW  FINANCING! 

UNLOCK THE POWER OF YOUR BUSINESS ASSETS - LET ASSET BASED LENDING HELP YOUR CASH FLOW NEEDS

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing businesses today

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

 

 

ASSET-BASED LENDING - YOUR ALTERNATIVE FINANCING SOLUTION! 

 

Asset based lending in Canada often brings a straightforward question from our clients - namely: Can you explain asset finance cash flow solutions to us?

Businesses all over Canada in every industry keep hearing about nontraditional lending solutions for their businesses - in many cases, their competitors are already taking advantage of them. They want to know more... so... let's dig in.

 

WHAT IS ASSET BASED LENDING?

 

In today's challenging business environment, it's all about access to business loans and cash flow for a company's ability to thrive .. and survive!  Asset-based lending is  secured lending finance, allowing a business to use its sales and business assets such as :

 

Accounts receivable

Inventories

Fixed assets/property plant and equipment /rolling stock

Commercial real estate owned by the business

 

These assets become collateral and a  ' borrowing base ' for a loan or line of credit availability. That allows the company to maintain the liquidity needed to fund day-to-day operations and cover short-term expenses. Businesses utilize asset-based lending as an alternative to traditional bank financing. Asset-based lenders are experienced in valuing business assets on the balance sheet and use that expertise to provide the maximum amount of funding as a line of credit or business term loan solution.

 

 

WHAT IS THE DIFFERENCE BETWEEN ASSET BASED LENDING VS. TRADITIONAL BANK  LENDING? 


The key differences between asset-based loan solutions and unsecured loan / cash flow based loans and lending by banks revolves around the focus of each type of lending - For asset-backed loans, it is all about assets - for banks, it is all about cash flow. Banks view cash flow performance as the key to repayment - Asset-based lenders view business assets as sources of repayment.

For any business, it's all about the ability to borrow capital, and companies have different options and choices.
 

 

IMPROVING CASH FLOW AND WORKING CAPITAL

 

So is business financing via asset finance a difficult concept to understand?  Hardly.  Asset-based financing, often called 'ABL' by those in the industry, is simply the method of obtaining the maximum working capital you need from your assets, which include typically receivables, inventory, and in many cases some equipment and/or real estate. That's as simple as it gets.

 

So how can monetizing your assets be your business's ultimate working capital tool?

 

Although it's been in existence for many years, in the past asset finance or asset based lending (we also call it a 'working capital facility') is coming into vogue.

 

It doesn't take rocket science to understand then, given traditional financing almost totally collapsed in the 2008-2009 global meltdown, that companies began searching for options and alternatives to their business financing needs. In our post-pandemic/covid interest rate and business lending challenged market, access to business capital is as crucial as ever.

 

Lenders like asset based financing simply because they are using their expertise and knowledge in your assets to help you cash flow your business.

 

USES OF  ASSET BACKED FINANCING

 

Although many companies turn to asset based lending when they can’t access traditional bank financing the reality is that this type of financing has some unique characteristics that allow you to utilize the financing for other reasons - Those include:

 

Major expansions

 

Buying another business

 

Bridge financing your business while you undergo restructuring or turnaround.

 

In many cases, it's 'buffer' financing, allowing you to return to more traditional 'bank type' financing.

 

HOW DOES ASSET BASED LENDING " ABL ' WORK?  IMPROVE CASH FLOW WITH ASSET BASED FINANCE

 

As we stated, it's very simple for us to explain to clients what an ABL facility is, it's a bit more complicated to get them to understand how it works. The best way to explain it though is to simplify it all and say that you should consider asset finance via a working capital facility as simply a 'revolving line of credit around all your business assets'. Can that be any simpler to understand?  We don't think so.

 

 

CRITERIA FOR EVALUATING YOUR BUSINESS CREDIT NEEDS 

 

Typically the process is as follows - After the traditional 'application' process, there is an agreed-upon value put on all your business assets - as we said, 99% of the time the assets under this financing include receivables, inventory, equipment, and in some cases real estate.  The most common assets though are receivables and inventory.

 

Your firm provides regular monthly, and in some cases weekly updates on the values of these assets, and you in turn use your regular bank account to draw down on funds, as you need them, to run your business. Similar to a bank revolving line of credit facility your asset-based financing facility fluctuates every day as a dollar of capital flows through your business - you purchase  product, you generate a receivable, you collect your receivable, and of course, the process repeats itself.

 

 

ASSET BASED CREDIT LINES GROW AUTOMATICALLY - AS YOUR BUSINESS GROWS! 

 

If there is one simple advantage of asset-based lending it's that the financing grows as you grow sales and assets! You can truly say you have access to unlimited funding, albeit often at a higher cost.

 

Other forms of asset based lending such as SR&ED Tax Credit Financing, Leasing, factoring receivables, and PO Finance, are being routinely used by many of your competitors. Why not your firm?

 

Asset Finance strategies help you do that. 50% of Canadian businesses report that the inability of their sales growth to generate funds hinders their progress. Top experts such as Canada's BDC cite growing a business as the most common goal of the vast majority of firms.

 

 

KEY TAKEAWAYS - ALTERNATIVE ABL FINANCING 

 

Asset-based loans are a method of secured financing via business assets on the balance sheet - allowing a company  to access business capital

A Cash flow loan relies on a company's ability to generate cash flow as repayment

Cash flow loans are suitable for businesses that are not asset-intensive such as service-based companies that rely on higher profit margins

Asset-based loans are best suited to businesses that are more capital intensive and who have balance sheet assets -

 

 
CONCLUSION - UNLOCKING THE POWER OF BUSINESS ASSETS FOR CASH FLOW

 

Asset-based lending will allow your company to borrow for lines of credit or short-term bridge loans based on balance sheet asset values. The traditional focus on cash flow is secondary, as the asset-based business lender funds are based on inventory, a/r, and fixed asset values. Even real estate owned by the business can be bundled into the facility or used as collateral for a separate bridge loan solution - Asset based lenders offer higher borrowing margins against the face value of business assets - As an example, 90% of receivables can be financed.  Receivables finance/factoring is a stand-alone business financing solution within the asset-based lending business model.

 

Call 7 Park Avenue Financial, a trusted, credible business financing advisor in this area to ensure you understand the options and of course, the benefits of this unique and creative method of business financing.

 

FAQ- FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What is asset-based lending, and how does it differ from other forms of financing?

Asset-based lending is a form of secured business lending that allows a business to use key business assets such as receivables, inventory, and equipment as collateral for a line of credit o term loan. This method of financing physical assets via specialized asset-based lenders is the primary difference and determining factor versus bank financing cash flow lending techniques, which focus on various measures of business score around financial history, cash flow generation,  outside collateral, and loan covenants tied to an unsecured credit facility.  The majority of companies using asset-back financing are not able to receive some or all of the financing they required from traditional financial institutions such as banks.

Asset based loans typically are shorter in duration and are often seen as a bridge back to traditional financing.

 

What are the benefits of using asset-based lending for cash flow management?

Asset-based lending solutions can provide a company with a business revolving line of credit or short-term bridge loan based solely on the value of business assets - that allows a company to cover day-to-day operating expenses and maintain liquidity based solely on sales revenues and business assets.  Companies with good balance sheet assets but who might have lower profit margins and cash flow generation abilities are excellent candidates for asset-based lending solutions.

 

What types of companies are most likely to benefit from asset-based lending?

Companies that are asset rich and who have growing sales and accounts receivable and inventory are strong candidates for asset finance loans and lines of credit - Many services-based companies, including technology companies, are well suited to this method of financing. Companies that have seasonality or cyclicality in their business model and who have good balance sheet assets as collateral are candidates for ' ABL' financing as a working capital or bridge loan solution. While banks focus on key business ratios such as the debt-to-equity ratio asset backed lenders are ' covenant light ' and do not insist on loan covenants that banks might require. Some banks are in fact asset based lending banks but these are smaller divisions within the bank.

 

How do lenders evaluate a company's creditworthiness when offering asset-based lending?

Asset-based lenders evaluate overall creditworthiness with a focus on valuing company's assets as well as other general risk assessment techniques. In some cases,  asset appraisals of certain  key assets may be required for firms with asset rich businesses.

 

 

 

What are some potential drawbacks of using asset-based lending for cash flow management? 

 

One drawback of asset-based financing as a cash flow management technique is the fact that credit facilities are limited to the value of company collateral assets and the sales growth of the business. Interest rates and financing costs tend to be higher than traditional bank financing, and borrowers should understand that the collateral for pledged asset-backed facilities is subject to default/repossession when they borrow money under asset backed finance.


 

 

What is cash flow lending?

Cash flow-based lending solutions are an alternative to secured financing and asset-based loan solutions - Cash flow lending focuses on cash generation and significant cash flow potential and profits for loan or line of credit repayment. Traditional bank loans backed by a company's cash flow do normally not require collateral securitization and the loan approval and underwriting process is generally more time-consuming and detailed as the focus is on issues such as how the company will perform in any economic cycle when it comes to cash flows. Companies with profits, cash flow and good margins can benefit from lower rates in unsecured business cash flow based financing.

 

 


 

 


 

Click here for the business finance track record of 7 Park Avenue Financial

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