Sunday, April 9, 2023

Unlock Your Company's True Potential: Asset-Based Lending for Business Financing






YOUR COMPANY IS LOOKING FOR CANADIAN ASSET-BASED LENDING SOLUTIONS!

 

Revolutionize Your Business Growth: Financing a Business with Asset-Based Lending

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   

 


 

Elevate Your Business Strategy: Unleash the Potential of Asset-Based Lending for Financing

 

 

Business finance solutions in Canada are regularly delivered via asset-based lending and financing.

 

The small business owner and financial manager who hasn't heard of (or checked into) this type of funding solution/business loan solution, might mistake this for a new 'secret' financing strategy, and it is not equity financing. Frankly, though, the secret is out! These days small businesses are relying on everything, including credit cards!  So let's dig in.

 

Asset based lending, aka ' ABL ' is an increasingly popular business financing solution that allows a business to capitalize on the assets and sales of the business - In that way companies can fund expenses and ongoing operations, fulfilling client orders, and purchase inventory and other investments the business must make.

Companies looking for flexible financing to meet their business planning needs used asset-based finance, versus traditional loans,  for lines of revolving credit, term loans, or in many cases a combination of both.

 

 

 

 

ALTERNATIVE LENDING VIA ASSET BASED LOANS

  

 

Asset-based loans (‘ABL') are often considered an 'alternative' strategy in the brave new world of nontraditional and 'fintech'  business solutions. But guess what? Main Street uses this form of financing everywhere in Canada, in all industries, and all sizes of companies. Bank loans come at a great interest rate but are difficult to access for thousands of companies for the funding and growth potential solutions they need.

 

 

 

WHAT ARE THE DIFFERENT TYPES OF ASSET BASED LENDING?  

 

Asset-based lending offers asset loan arrangements secured by accounts receivable, inventory and fixed assets. Business financing via Asset-based lending in Canada differs based on the financial transaction size and the methodology around which day-to-day transactions are handled and which assets are being financed by the lender.

 

 

We can broadly put ‘ABL' solutions into several key categories.

 

CATEGORIES AND TYPES OF OF ASSET BASED FINANCING

 

Non-bank business lines of credit

 

A/R Financing

 

Inventory Financing

 

Tax credit financing

 

Sale Leasebacks

 

Working capital term loans/merchant loans

 

Commercial real estate loans

 

 

There are different levels of due diligence in setting up any of these facilities - most asset-based loans are dependent on facility size, the industry your firm is in, and the quality of your assets being financed.

 

 

WHAT ARE SOME USES OF ASSET BASED LOANS?

 

At 7 Park Avenue Financial, we demonstrate the flexibility of  the asset-based loan solution by explaining the multitude of uses of this method of business financing

 

ABL loans:

 

Improve access to working capital and the company's cash flow for the funding day-to-day business needs

 

They allow  companies to satisfy large contracts and orders from clients which require the purchasing of inventories and materials to fulfill those orders

 

Asset-based financing allows businesses to fund growth and increase capacity for products and services

 

Asset-based term loans allow a business to acquire assets and technology

 

Many companies use the ABL solution to fund a turnaround or restructuring for firms  that might have some level of financial distress

 

Acquisition financing needs to acquire a competitor or another business is often fulfilled via an ABL solution when strategic acquisitions are contemplated - including leveraged buyouts relying on asset values of the target acquisition

 

 

 

ASSET BASED LENDING VERSUS BANK FINANCING   

 

When Canadian business owners and financial managers sit down with us and ask us to explain 'asset-based lending'  as a new type of financing, we cover a fair amount of ground, as there are various types of 'ABL' facilities compared to bank loans which are typically term loan in nature or unsecured lines of credit.

 

 

 

WHAT ARE THE BENEFITS OF ASSET-BASED LENDING?  

 

 

 

Improved liquidity   &Increased Flexibility  

 

The benefits of asset-based financing? They are pretty basic - you will often differentiate yourself from your competitors given you have increased amounts of capital and cash flow - allowing you to secure more sales/contracts, as well as enhancing relationships with suppliers and other lenders you might have in place. In many cases, ABL finance addresses the seasonality challenge you might have in your company/industry.

 

 

SUMMARY OF KEY BENEFITS OF ASSET BASED FINANCE 

 

Improved cash flow and  additional working capital liquidity

 

Flexible/versatile financing custom-tailored to a company's business model and asset base

 

Ease of credit facility management - no focus on covenants, outside collateral or personal credit history/credit ratings of owners

 

Faster access to financing compared to traditional bank loans  and other traditional financial institutions

 

In certain circumstances, a lower financing cost/interest rate  can be achieved for higher quality or large  transactions

 

WHAT BUSINESS ASSETS DOES  ABL FINANCING FUND?

 

Asset-based lending is simply the monetizing of your assets to their maximum cash availability.  The most common assets financed include:

 

A/R ( Accounts receivables )

 

Inventory

 

Fixed assets

 

Real estate

 

Technology

 

 

 

PURCHASE ORDER FINANCING IS A PART OF THE ASSET-BASED LOAN SOLUTION  

 

While 'purchase orders' of new 'contracts aren’t technically an asset on your balance sheet, asset-based lending includes PO / CONTRACT financing solutions! The emphasis is clearly on your 'assets‘!

 

WHEN DOES ASSET BASED LENDING REPLACE BANK FINANCING

 

ABL business finance frequently replaces traditional bank financing, or in many situations, provides more cash flow and working capital that banks can't deliver on due to their lending constraints. This is no more evident than in the SME COMMERCIAL FINANCE sector. Flexibility is often the differentiator given that ABL solutions don’t rely as heavily on ratios, covenants, outside collateral, personal guarantees, etc. Note though that costs of this type of financing are almost always higher - so the decision becomes access to capital versus the cost of capital!

 

Asset-based lenders do not place the same emphasis on credit scores as unsecured loans from traditional banks.

 

WHAT DOES ASSET BASED LENDING COST

 

We spend a lot of time with customers showing us how some of the 'perceived' higher costs are, in fact, not really that due to the ability of the company to convert assets into cash and repeat their business cycle over and over, generating additional profits based on faster inventory turns and receivable collections. 

 

One of the tools we use is the 'DUPONT MODEL,' which will clearly demonstrate to our customers how asset turnover affects profits. It's a great financial tool!

 

 

HOW DOES ASSET BASED LENDING WORK? 

 

ABL financing focuses on the valuations of business assets as collateral for loans - Asset based lenders establish what is known as borrowing based on which defined advance rate margins are put in place as a lending percentage of the  asset based credit facility  - Borrowing capacity is almost always greater with asset finance solutions using the company's assets for future growth potential

 

Receivables typically are financed in the 80-90% range and advance rates are then established on inventories and fixed assets, as well as real estate if that is applicable.

 

Companies draw down funds based on that established borrowing base certificate other types of collateral, transactions are settled by making predetermined term payments.

 

EXPLORING OTHER OPTIONS THAT ARE EQUITY-FOCUSED?

 

Naturally, you have the ability to explore options such as angel investors, and venture capitalists when considering the debt and equity financing question. That angel investor brings no debt to the balance sheet, but he or she wants to be paid back in owner equity on their investment! So while you pay no interest on that type of investment, ownership is diluted in your business.

 

 

CONCLUSION 

 

Business owners can benefit from understanding the benefits of flexible and cost-effective asset-based ABL financing solutions.

 

If your firm has been affected by liquidity concerns and you're one of many business owners searching for business loans, and you need additional funding to survive and grow, check out asset-based lending as a way to unlock cash flow and capital. Small businesses and small business owners in the SME/SMB market are always feeling underserved.

 

Speak to  7 Park Avenue Financial - A trusted, credible and experienced Canadian business financing advisor/partner who can assist you with your financing needs.

 

Whether you have good credit, less than good credit, or even require a business plan, talk to the 7 Park Avenue Financial team today. Making the right financial decisions with solid business funding makes long-term investments easier.

 

 
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION 

 

What are the qualifications criteria for asset-based financing?

 

Companies should be able t meet minimum financing usage requirements by asset-based lenders which vary by type of lender

 

Accounts receivable should be business to business based receivables from a generally creditworthy client based

 

Companies should be able to prepare proper financial statements and aged listings of  accounts receivable, inventory and other assets of the business that demonstrate proper financial controls

The business must not have government arrears in taxes

 

 

What  are some types of asset based loans 

 

Types of   asset loans include:

Accounts receivable financing / factoring companies / confidential receivable financing

Inventory loans

Equipment loans/ lease financing/sale-leasebacks for physical assets

 

Commercial real estate financing/bridge loans for asset-based real estate financing /pledged asset finance

 

 

What are asset-based lending disadvantages? 

 

Asset-based loan financing  will often, but not always have higher interest rates versus conventional  traditional loans and unsecured loan bank financing and the  business assets are pledged as  collateral for loans in the event of default via a security interest agreement  - Asset-based lending rates will vary via the type of asset-based lender and size of the facility - Most asset based loans can be funded by fixed or variable rates

 

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

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