Why Asset Based Lines Of Credit Are All You Need ! Asset Based Business Credit Is Your Go To Solution For Business Credit & Cash Flow

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YOUR COMPANY IS LOOKING FOR CANADIAN BUSINESS FINANCING! 

Asset-Based Line of Credit: A Flexible Alternative to Traditional Bank Financing

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        Financing & Cash flow are the biggest issues facing businesses today 

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Discover the Power of Asset-Based Lines of Credit: A Game-Changer for Business Financing 

 

Canadian business owners and financial managers place great importance on their ability to achieve and maintain operating lines of credit.

 

 

Asset-Based Lines of Credit: The Flexible Financing Solution Your Business Needs Now

 

Asset-based credit lines are part of the asset-based lending solution in Canada - they are a viable alternative to traditional bank lines of credit and allow companies to borrow under a revolving line of credit facility based on sales and assets. This business credit line financing method is flexible and accessible by most companies utilizing credit lines to fund day-to-day operations. If your business has sales and physical assets and you need cash flow, ABL financing is the solution.

 

UNDERSTANDING BANK FINANCING / BANK CREDIT LINES / UNSECURED LOANS

 

Traditionally in Canada, the bank line of credit is also called an 'operating loan' and structured as an unsecured loan. It is short-term in nature, it revolves day-to-day, and so many finance people also call the operating facility a ‘revolver’.

 

 

 

It is simply a financing facility under which the bank agrees, in advance, to lend a maximum amount of money - typically against receivables and inventory as the pledged asset/assets. 

 

 

In bank lines of credit, certain conditions have to be met by your firm, and you are generally paying interest only o the amount outstanding daily. Revolving lines of credit or operating lines work best when they go up and down. Typically customers that are always at the top of their credit line are candidates for other financings such as equity or cash flow term loans.

 

 

 

WHAT ARE THE OPTIMAL USES FOR ASSET-BASED CREDIT LINES? 

 

Many businesses are looking to refinance existing credit facilities, and asset-based loan solutions are often a more favourable and accessible option.

 

Businesses experiencing rapid growth can access the capital they need without violating existing financial covenants with existing lenders - allowing the company to expand on its business goals via liquid assets such as accounts receivables.

 

Some businesses that are focused on a turnaround or restructuring use the leverage of sales and assets  to stabilize the business, access cash flow, and manage the turnaround process on the route back to more traditional financing

 

Companies looking to acquire or buyout another competitor or business can access the capital in the target business to facilitate a business purchase/ business transfer of ownership.

 

 

Most Canadian business owners know that the bank focuses more on receivables than inventory. Because inventory cannot easily be converted into cash by a bank, (if it had to) you will typically get a much lower advance rate or margin rate on inventory.

 

 

ASSESSING THE NEED FOR A SOLID LINE OF CREDIT SOLUTION

 

 

So, what happens when this traditional type of financing doesn’t work for your firm? You will know it is not working when some or all of the following seem to occur:

 

 

- You are consistently maxed out on the operating line

 

- Collections are slow, which further exacerbates the line revolving to your and the bank's satisfaction

 

- You are worried that you do not consistently have enough cash flow and working capital to take on new orders or contracts.

 

 

Is there a solution? Absolutely - a new breed of a business line of credit financing is gradually taking hold in Canada - ABL, or asset-based lines of credit. The total focus of these facilities is to maximize the liquidity of your assets to a much greater extent - and when we say all assets, we mean inventory, receivables, equipment, potentially real estate, and new contracts and purchase orders. The facility is short-term in nature, not a term loan, so it does not include equipment or commercial real estate, which is financed under other conditions by asset based lenders via an asset based facility.

 

That’s true asset-based financing!

 

  

HOW DO ASSET-BASED LENDING SOLUTIONS INCREASE BORROWING POWER  

 

Typical advances on accounts receivable are in the 90% range, and common advance rates on inventories and fixed assets tend to be in the 50-75% range, respectfully. That is more available cash for your business, allowing proper funding of current debt obligations under a flexible credit facility structure with simple loan compliance requirements.

 

 

One of our customers had a $100,000.00 line of credit with a Canadian chartered bank that grew into a 2 Million dollar asset based financing arrangement.

 

 

WHAT ARE THE BENEFITS OF ASSET BASED FINANCING FOR YOUR BUSINESS?

 

Financing that is flexible and tailored and structured to your unique needs

Access to business capital based on sales and eligible assets as collateral for an ongoing borrowing based

No focus on historical cash flow / financial covenants

Encourages financing for high-growth firms

Allows the company to leverage business opportunities

 

 

The asset-based lending industry is robust in Europe and the U.S.  It is slowly gaining traction in Canada. Although one or two of the banks offer these facilities, most of this type of financing is independent of the banks.

 

  

CONCLUSION  

 

Business owners should recognize they have financing options for growth capital and the ability to overcome constant cash flow challenges. Alternatives to bank finance offer access to working capital for any growing or leveraged business and unable to meet traditional financial institution requirements.

 

 

Due to the somewhat early and fragmented nature of this financing in Canada, your firm is strongly encouraged to call  7 Park Avenue Financial,  the experience, advice, and credibility that comes with talking to a business advisor in this area of Canadian financing for comprehensive financial solutions for your business needs,

 

Asset based lines of credit - they are newer to Canada, they work, and you should investigate the possibilities to maximize your cash flow and working capital needs.

 

 

 FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION 

 

 WHY CHOOSE ASSET BASED LENDING OVER SECURED LOANS? 

 

Asset-based lending solutions will almost always provide access to more capital versus unsecured bank loans with lower margins on borrowing, the need for financial covenants and outside collateral, and a focus on personal guarantees.

Asset-based financing is flexible and tailored to business assets and sales

Secured loan financing is quicker to process for credit approval - Requirements are based on collateral versus overall creditworthiness.

Interest rates are competitive and sometimes, but not always, are lower than bank rates under certain conditions.

 

 

  

WHAT IS THE ASSET BASED LENDING DUE DILIGENCE PROCESS  

 

Asset-based lenders focus on evaluating financial assets, including reviews of financial statements and relevant business documents.

Assets financed must not be subject to any existing liens by other lenders or the government.

An industry review will typically be done around the company's business model.

 

 WHAT IS THE DIFFERENCE BETWEEN ASSET BASED LENDING AND FACTORING?  

 

Asset-based loans focus on collateral around receivables from sales and other specific business assets - factoring is the sale of the accounts receivable to a third-party finance firm.

Companies maintain ownership and control of assets in asset-based loan solutions - when receivables are sold in a factoring facility, the factoring company owns the receivable.

Asset-based lending solutions offer higher financing given that all business collateral is secured under a loan facility, while factoring is limited to accounts receivable sold b the company.

In factoring, no regular payments are required; as receivables are collected, a fee is taken by the factoring company to advance the funds at the time of sale of the receivable.

Both ABL and factoring offer short-term financing solutions for businesses - Differences arise around the cost of financing, the amount of achievable funding, and the ownership of assets financed. 

 

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