Asset Based Lending Canada - Reboot Your Business Credit Needs
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LENDING IN CANADA!

THE ASSET BASED FINANCING SOLUTIONS

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Unlocking Capital: Asset-Based Lending Financing Companies in Canada | 7 Park Avenue Financial

ASSET BASED LENDING / LINES OF CREDIT - CANADA

Table of Contents

    Introduction

    Understanding Asset-Based Lending (ABL)

    Comparing ABL with Traditional Bank Loans

    Asset-Based Lending in Canada: Meeting Diverse Funding Needs

    Assets Used in Asset-Based Financing

    Who Benefits from ABL Solutions?

    Understanding the Costs of Asset-Based Lending

    Lending Criteria and Transitioning Back to Traditional Financing

    Summary of the Benefits of Asset-Based Lending

    Conclusion

    FAQ

INTRODUCTION

Asset-based lending in Canada offers a wide range of options because when it comes to exploring alternative finance strategies for your business, it's time to 'REBOOT' your thinking.

What is asset-based lending (ABL), and how does it work in Canada?

Asset-based lending is a financial strategy where a business secures a loan using the company's assets, such as accounts receivable, inventory, or equipment and commercial real estate as collateral. In Canada, ABL companies provide loans to businesses based on the value of these assets.

Unlike traditional bank loans offering an unsecured loan that heavily relies on credit history, an asset-based loan solution primarily focuses on the quality and value of the assets used as collateral. While credit history may still be considered, it is generally not the sole determining factor for asset based lines of credit, making more flexible funding solutions from asset-based lenders more accessible to businesses with limited credit histories.

Consider asset-based lending for the business finance solution you're seeking. Let's dig deeper!

DO CANADIAN BANKS MEET YOUR FINANCING NEEDS?

Many business owners and financial managers, particularly in the SME sector in Canada,, find that all their financial needs can not always be met by traditional Chartered bank / Credit Union sources. While Canadian banks continue to have virtually unlimited capital to serve business needs in many cases, the borrower can't meet the requirements needed to attain those solutions.

So, while public companies and large, well-heeled corporations are borrowing at will, the challenge is much more difficult if you're not in one of those two categories.

COMPARING ASSET BASED FINANCING WITH UNSECURED BANK LOANS

Asset-based lending (ABL) and unsecured bank loans are two distinct financing options with different characteristics. Here's a comparison between the two when evaluating business growth opportunities:

1. Collateral vs. No Collateral:

    Asset-Based Lending (ABL): An ABL revolving line of credit requires businesses to pledge specific assets, such as accounts receivable, inventory, equipment, or real estate, as collateral to secure the loan. The loan amount is typically based on these assets' value and requires fewer covenants.     Unsecured Bank Loans: Unsecured bank loans do not require collateral. These loans are granted based on the borrower's creditworthiness and financial stability and are not tied to specific assets.

2. Access to Capital:

    ABL: ABL provides quicker access to capital since the focus is on the value of assets, making it a suitable option for businesses that need funds promptly.
    Unsecured Bank Loans: Unsecured bank loans may take longer to obtain due to the rigorous credit evaluation process, making them less suitable for businesses in urgent need of funds.

3. Credit Requirements:

    ABL: ABL is often accessible to businesses with limited credit histories or lower credit scores because the primary consideration is the value of assets used as collateral in the due diligence process
    Unsecured Bank Loans: Unsecured bank loans typically require a strong credit history and a good credit score since they rely heavily on the borrower's creditworthiness.

4. Loan Amounts:

    ABL: The loan amount in ABL is determined by the appraised value of the collateral assets. It can be a percentage of the asset's value.
    Unsecured Bank Loans: Unsecured bank loans may offer higher loan amounts than ABL, but the actual amount depends on the borrower's creditworthiness and financial stability.

5. Interest Rates:

    ABL: Interest rates for ABL can be higher than those for unsecured bank loans due to the perceived risk associated with the collateralized assets.
    Unsecured Bank Loans: Typically, unsecured bank loans offer lower interest rates to borrowers with strong credit profiles.

6. Risk to Assets:

    ABL: Businesses risk losing their collateral assets if they fail to repay an ABL loan, which can impact their operations.
    Unsecured Bank Loans: Unsecured bank loans do not put specific assets at risk; however, defaulting can negatively impact the borrower's credit rating.

7. Use of Funds:

    ABL: ABL funds are often used for specific purposes such as working capital, expansion, or acquisitions, which are related to the assets used as collateral.
    Unsecured Bank Loans: Unsecured bank loans offer more flexibility in using funds, allowing businesses to allocate the capital as needed.

ASSET BASED LOANS MEET MANY FUNDING NEEDS

Enter... stage right... Asset-based lending in Canada. Through a variety of, shall we call them ' subsets' of Asset financing your company can achieve the financing structure it needs to either grow your business or in certain cases even acquire a business?

WHAT ASSETS ARE PART OF AN ASSET BASED FINANCING

Financing companies providing these solutions don't make it complicated either. They take all or certain of your assets (depending on the amount and type of capital you are looking for) and put them into a collateral pool you can borrow against. They can combine working capital/line of credit solutions or even term loans if that makes sense.

The assets in question? They include:

Accounts Receivable

Inventory

Equipment

Tax credits

Real estate

Large contracts/orders

And here's the good news. You can mix and match - Classic flexible financing!

WHO USES ABL ASSET BASED LENDING SOLUTIONS

So who is this type of financing well suited for? Typical clients we meet tend to be:

High growth

Start-Ups

Restructuring

Acquisition oriented

Management buyouts

A key attraction in Asset-based lending in Canada is that it requires less equity as the focus is all about those assets.

WHAT DOES ASSET BASED LENDING COST

In business financing, it's not always a perfect world, so funding typical/interest rate costs offered by financing companies that are in effect, non-bank lenders are going to be higher, one reason being those finance firms borrow the funds they need for you from the banks!

LENDING CRITERIA AND THE BRIDGE BACK TO TRADITIONAL FINANCING

We point out to our clients that if they can meet typical bank borrowing criteria, an asset-based line of credit will often be both competitive with the banks and, most importantly, give you a lot more borrowing power. The simple reason is that assets are more aggressively 'margined' or ' loaned against'. In many cases, companies that temporarily use Asset financing often migrate back to a traditional bank solution.

SUMMARY OF THE BENEFITS OF ASSET BASED LENDING

Improved Liquidity: Asset-based lending provides immediate access to cash, helping businesses address short-term financial needs and improve their cash flow.
Flexibility: It offers flexible financing solutions tailored to a company's specific requirements, allowing it to use the funds for various purposes, such as expansion, working capital, or debt consolidation.
Accessibility: Asset-based lending is often more accessible to businesses with limited credit histories or lower credit scores since the focus is on the value of assets used as collateral.
Quick Approval: The approval process for asset-based lending is typically faster than traditional bank loans, enabling businesses to secure funding promptly.
Enhanced Borrowing Capacity: It allows businesses to borrow against a wide range of assets, potentially increasing their borrowing capacity compared to conventional financing.
Asset Preservation: Businesses can retain ownership and use of their assets while using them as collateral, ensuring that operations continue uninterrupted.
Tailored Financing: Asset-based lending can be customized to match a company's financial needs, providing a financing structure that aligns with its growth and operational goals.
Potential Cost Savings: In some cases, asset-based lending may offer cost savings compared to other high-interest financing options, such as credit cards or unsecured loans.
Debt Management: It can help businesses consolidate existing debts, simplifying their debt management and reducing the overall cost of borrowing.
Seasonal Support: Asset-based lending is well-suited for businesses with seasonal fluctuations, allowing them to access capital during peak demand.
Collateral Diversification: Businesses can use a mix of different assets as collateral, spreading risk across various asset types.
Credit Improvement: Successful repayment of asset-based loans can positively impact a company's credit profile and potentially lead to better credit terms in the future.

CONCLUSION

Asset-based lending is suitable for businesses with valuable assets but limited credit histories needing quick capital access. On the other hand, unsecured bank loans are better for companies with strong credit profiles that can afford a longer application process and seek more flexible use of funds without collateral requirements. The choice between the two depends on a business's financial situation and its specific financing needs.

If your business is looking for innovative solutions for your firm's business assets and sales growth, then call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your needs. It's time to ' reboot ' your thinking on the financing solution you require and work with a financial services provider with your interests in mind!

FAQ

What types of assets can be used as collateral for asset-based loans in Canada?

In Canada, businesses can use various assets as collateral for ABL, including accounts receivable, inventory, machinery, equipment, real estate, and even intellectual property. The eligibility of assets may vary depending on the lending company's policies.

How do Canadian businesses benefit from asset-based lending compared to traditional bank loans?

Asset-based lending in Canada offers more flexibility and quicker capital access than traditional bank loans. It allows businesses with strong asset bases but limited credit histories to secure financing, making it an attractive option for growth and working capital needs.

What is the typical eligibility criteria for businesses seeking asset-based lending in Canada?

Eligibility criteria can vary among ABL financing companies, but businesses generally need valuable assets for collateral. Lenders may also consider the business's financial stability, industry, and repayment ability.

What risks should Canadian businesses be aware of when using asset-based lending?

While asset-based lending can provide financing solutions, businesses should be cautious about losing their assets if they cannot repay the loan. Having a clear repayment plan and understanding the ABL agreement's terms and conditions is essential.

What are the common industries or sectors that benefit the most from asset-based lending in Canada?

Asset-based lending can benefit manufacturing, wholesale distribution, retail, and service-based businesses. It's not limited to specific sectors and can adapt to the unique needs of different companies.

Are there any restrictions on how businesses can use the funds obtained through asset-based lending in Canada?

Generally, asset-based lending allows businesses flexibility in how they use the funds. Whether it's for working capital, growth initiatives, debt consolidation, or acquisitions, the utilization of the funds is often determined by the business's specific needs.

How does evaluating the value of assets for collateral work in asset-based lending in Canada?

The process involves a thorough assessment of the assets being offered as collateral. A qualified appraiser or valuation expert may be used to determine the value of assets like equipment, real estate, or accounts receivable. This valuation is crucial in determining the loan amount a business can secure.

What is the typical duration of an asset-based lending agreement in Canada, and can it be renewed or extended?

The duration of asset-based lending agreements can vary but often ranges from one to three years. These agreements can be renewed or extended based on the lender's policies and the borrower's financial performance. Renewal terms are typically negotiated before the agreement's expiration.

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Wednesday, September 20, 2023

Asset Based Lending Canada - Reboot Your Business Credit Needs