Asset Based Lending Canada - Reboot Your Business Credit Needs

Asset Based Lending Canada -  Reboot Your Business Credit Needs

Do Not Pass Go... Do Not Collect $ 200.00 Until You Have Looked At Asset Based Lending

 

YOUR COMPANY IS LOOKING FOR  FINANCING COMPANIES FOR ASSET BASED

LENDING IN CANADA!

THE ASSET BASED FINANCING SOLUTIONS

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

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

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.

 

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

The Funding Solution You've Been Waiting For: ABL Financing

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You Are Looking for ABL Finance and Asset Backed Lending! 

From Collateral to Cash: How Asset-Based Loans are Revolutionizing Business Financing in Canada

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

        Financing & Cash flow are the biggest issues facing business today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Email - sprokop@7parkavenuefinancial.com

Unlocking Your Business Potential: The Power of  ABL Finance Loans | 7 Park Avenue Financial

 

Beyond Banks: Discover the Flexibility and Power of Asset-Based Lending Canada

 

  

Introduction :  

 

ABL financing is distinct from traditional bank lines of credit and offers unique advantages to businesses, particularly regarding creative financing via  collateral and liquidity 

 

The arrival of asset-based financing is a significant change in Canadian Business financing - with this method of funding a business's working capital needs becoming more popular every day.

 

Conventional business financing relies heavily on a company's cash flow, which suits many firms. However, businesses possessing valuable assets can explore an alternative asset-based lending (ABL) approach for expanded financing opportunities with fewer restrictions for companies unable to meet traditional financing requirements demanded by banks.

 

  

Comparing Cash Flow-Based and Asset-Based Loans:  

 

1. Secured Nature: Both cash flow-based and asset-based loans are secured, offering collateral for lenders. That collateral is documented and secured in a different manner when assessing ABL facility financing versus traditional bank loans.

2. Loan Underwriting Factors:

   • Cash flow-based loans: Banks evaluate a company's cash flows for loan terms.
   • Asset-based loans: The ABL lender considers balance sheet assets for determining loan terms.

3. Suitability of Cash Flow-Based Loans:

   • Ideal for companies lacking significant assets, such as service-based firms.
   • Suitable for entities with higher margins. Canada does not have an ' ABL  bank ' per se- the role is filled by a commercial finance firm - some banks have ABL divisions

4. Advantages of Asset-Based Loans:

   • The asset based loan is beneficial for companies with strong balance sheets but narrower margins and cash flow from operations
   • Suited for businesses with unpredictable cash flow patterns.

5. Credit Management Efficiency:

   • Both loan types are secured and offer competitive  credit terms based on overall credit quality
   • Suitable options for businesses aiming to effectively manage credit costs.

 

ABL allows businesses to leverage various assets, such as accounts receivable, real estate, intellectual property, and even brand names, as collateral. This facilitates access to essential capital. If a business has substantial assets, ABL offers significant financing possibilities with a flexible structure that permits better decision-making than other loan types.

 

Innovative setups like "first in, last out" (FILO) tranches can enhance borrowing potential via asset based lenders and the abl loan agreement

 

Choosing ABL depends on factors like a company's requirements, business nature, current status, and future plans.

 

  

Key Elements of ABL Financing:  

 

ABL financing has two crucial elements: collateral and liquidity. Collateral refers to the assets a business uses to secure the loan, while liquidity refers to the availability of cash or readily convertible assets. These elements make ABL financing stand out from traditional bank credit lines.

 

Asset Base: ABL financing revolves around the value of a business's assets. The quality and quantity of these assets determine the credit facility that can be obtained through asset-backed funding - the assets determine a borrowing base that adjusts with sales and assets as the business grows.

 

The process of obtaining ABL financing is different from the more familiar cash-flow financing.  ABL lenders focus on asset value, which acts as collateral for the loan.

 

Accounts receivable are the first assets considered, typically prioritizing recent ones (within 90 days of invoicing or no more than 90 days overdue). Other assets, including inventory, machinery, real estate, and intellectual property can be bundled into the facility.

 

ABL  borrowers undergo due diligence to assess their assets to determine their quality and quantity. The due diligence and potentially required appraisals establish eligible collateral and the corresponding advance rates.

 

ABL offers an advantage by reducing the constraints typically seen in cash-flow lending, such as mandatory debt service coverage and leverage levels. Unlike cash-flow lending, where a drop in sales could trigger financial covenant breaches, ABL's asset-backed approach minimizes lender concerns about defaults based on the borrowing base of assets.

 

Businesses need only maintain a basic liquidity level to avoid specific financial covenants when they choose asset-based lending.

 

  

Traditional Bank Perspective:  

 

Traditional banks often focus not just on assets but also on a business's financial health, income statement, ratios, and covenants when they fund unsecured loans and bank lines of credit.

On the other hand, secured loans via  ABL financing prioritize the value and liquidation potential of the company's assets.

 

  

Suitability for Different Business Stages Of A Business:   

 

ABL loans via asset-based financing are suitable for various stages of a business, such as startups, periods of hyper-growth, financial recovery in a turnaround, or times of crisis management. This versatility makes ABL financing an appealing alternative for a total working capital solution.

 

Determining  The Credit Facility Size: The amount a business can borrow through ABL financing is based on the true value of its assets. These assets may include more liquid assets such as accounts receivable, inventory (raw materials, work in progress, finished goods), and fixed assets/real estate if applicable.

 

Asset Valuation and Liquidation Expertise: ABL financing providers are experts in valuing and liquidating assets, distinguishing them from traditional banks. This expertise can significantly increase borrowing capacity.

 

Example of Increased Borrowing Capacity: An example is provided where a wholesale client leveraged a modest bank line of credit into a much larger borrowing facility using the expertise of the ABL lender to assess the actual liquidation value of inventory. Inventory Financing has traditionally been difficult to finance.

 

 

Cost and Long-Term Viability: 

 

ABL loans can vary in cost compared to traditional bank facilities. Long-term viability is a common question. ABL financing is often presented as a bridge solution that could be used for a year or two before transitioning back to a traditional financing structure.

 

  

The Flexibility of ABL Financing:   

 

ABL financing is lauded for its flexibility in handling special situations, seasonality, over-advances on a revolving line, and different credit qualities. It is also used to finance acquisitions. Talk to the 7 Park Avenue Financial team to determine why ABL finance might suit your firm's working capital business needs.

 

 Key Takeaways: 

 

1. Asset-Rich Companies: Businesses with substantial assets, even if experiencing cash flow variations, that require significant capital for growth and operations are solid candidates for asset finance

2. Diverse Range of Businesses: A broad spectrum of companies can benefit from ABL due to their asset-rich nature.

3. Manufacturing Businesses: Companies like commercial truck trailer manufacturers facing economic slowdowns that impact demand. Capital is essential to navigate volume dips and modernize production.

4. Distribution Businesses: Wine and liquor wholesalers experience seasonal sales fluctuations. Having a line of credit helps manage inventory gaps and provides flexibility for stocking up before peak seasons.

5. Retailers with Inventory: Retailers possessing valuable inventory but facing earnings volatility. ABL becomes valuable during unforeseen disruptions, such as the COVID-19 pandemic, offering liquidity beyond standard cash flow financing based on asset values

6. Enhancing Online Presence: ABL assists retailers in funding operations and online improvements during challenging times, bolstering their ability to adapt.

7. Liquidity and Flexibility: ABL provides a welcome bonus by enabling businesses to access their line of credit without prior lender approval. This flexibility proves valuable for strategic moves like acquisitions, joint ventures, and dividends, as long as payment conditions are met.

 

 

CONCLUSION -

 

Asset-based lending offers numerous advantages for businesses, including the flexibility to support various growth initiatives. Whether you're looking to diversify services, launch new products, enter new markets, or maintain your team, this financing method provides quick and adaptable funding based on your company's sales revenues and tangible assets.

 

Unlike traditional bank loans that focus on cash flow stability, asset-based lending allows you to leverage assets like accounts receivable, inventory, and equipment to secure a loan, giving you greater freedom to use your credit for business growth. Talk to the 7 Park Avenue Financial team, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business loan and cash flow needs.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION  

 

What is asset-based lending, and how does it differ from traditional bank financing?

 

Asset-based lending (ABL) is a financing option that uses your business's assets as collateral. Unlike traditional banks, which focus on your financial picture, ABL lenders assess the value of your assets and their potential for liquidation, resulting in increased borrowing capacity.

 

1. Stable Small and Mid-Sized Companies: Typically, small and mid-sized companies possessing valuable physical assets are frequent users of asset-based borrowing.

2. Large Corporations as Occasional Borrowers: Even large corporations might turn to asset-based loans for short-term requirements due to specific circumstances and the need to maximize borrowing capacity

Reasons for Large Corporations' Asset-Based Borrowing:

1. Cost and Time Constraints: The expenses and extended duration associated with issuing new shares or bonds in capital markets may deter large corporations from those options.

2. Urgent Cash Needs: Immediate cash demands, like funding significant acquisitions or unexpected equipment purchases, drive large corporations towards asset-based borrowing. Time sensitivity plays a crucial role in these cases.

 

 

Can ABL financing benefit my business during different growth stages?

 

Absolutely! ABL loans cater to diverse business phases, whether you're a startup experiencing rapid growth or dealing with financial challenges. The flexibility of ABL financing ensures it's suited for your unique situation.

 

How is the borrowing amount determined in ABL financing?

 

The borrowing amount in ABL financing is based on the actual value of your assets, including accounts receivables, inventory, and fixed assets. This approach maximizes your borrowing potential and allows you to tap into the true worth of your business assets.

 

 

Is ABL financing a short-term solution, or can it support long-term growth?

 

ABL financing can be both. While it can serve as a bridge solution for a year or two, it's important to note that ABL is increasingly becoming a "new traditional" financing option. Many successful corporations use ABL as a long-term solution to unlock growth potential.

 

How does ABL financing's expertise in asset valuation benefit my business?

 

ABL lenders are experts in valuing and liquidating assets. This expertise enhances your borrowing capacity, as it considers the actual liquidation value of your assets, often resulting in significantly higher credit limits than traditional bank financing.

 

Can my business qualify for asset-based lending if it doesn't have tangible assets like real estate or inventory?

 

Yes, asset-based lending considers various types of assets, including accounts receivable and machinery.  Unlike cash flow loans, If your business has valuable receivables or equipment, inventory and other assets you are eligible for ABL financing.

 

What industries typically benefit the most from asset-based lending?

 

 Asset-based lending can benefit many industries, including manufacturing, distribution, retail, and services. It's not limited to any specific sector and is more about the value of your assets than your industry.

 

 Are there any risks associated with asset-based lending that I should be aware of?

 

Like any financial arrangement, asset-based lending has considerations. One potential risk is maintaining asset value, which directly impacts borrowing capacity. It's essential to work with experienced lenders to ensure proper management. Many challenged and troubled companies utilize ABL as part of their turnaround plans.

 

 

How does the application process for asset-based lending differ from traditional bank loans?

The application process for asset-based lending typically focuses heavily on the value and quality of your assets. Traditional bank loans often place more emphasis on credit history and financial statements. ABL lenders evaluate your asset base to determine creditworthiness.

 

 

Are there specific reporting requirements when using asset-based lending?

 

Asset-based lending often requires more frequent reporting on your assets and financials. Lenders want to monitor the health of the collateral that secures the loan. Clear communication and transparency are crucial to maintaining a successful ABL arrangement.

 

 

 

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

Asset Based Line Of Credit Solution : The Future Of Business Credit Lines? Unlocking The Power Of Your Business Assets

 

 

YOUR COMPANY IS LOOKING FOR A CANADIAN ASSET-BASED LINE OF CREDIT FINANCING!

UNDERSTANDING ASSET-BASED LOANS / UNSECURED LOANS  IN CANADA

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 LOAN SOLUTIONS IN CANADA

 

Money is like gasoline during a road trip . You don't want to run out of gas on your trip, but you're not doing a tour of gas stations - Tim O'Reily

 

Asset based loans and the asset based lines of credit are solid solutions for Canadian business financing needs when it comes to a line of credit.

 It might just be the future of business credit lines. Common asset-based borrowers come from every industry in Canadian business when it comes to the decision or needs to borrow money -

 

Let's dig in on how asset-based business credit lines via asset based lending can help businesses grow while maximizing working capital potential.

 

WHAT IS AN ASSET-BASED BUSINESS LINE OF CREDIT - HOW DOES IT WORK?

 

 An asset-based business line of credit is a method of financing employed by many businesses which allows the business to borrow against the value of business assets in the company - Typical assets financed are accounts receivable, inventories, and fixed assets/equipment. Asset-based business lenders evaluate the value of each asset category and create an ongoing borrowing base which allows the company to draw down on the facility as cash is needed. The business borrower only pays interest on the amount utilized under the facility.

 

  

ASSET-BASED LENDING IS THE BANK ALTERNATIVE!  ASSET BASED LENDING SOLUTIONS VERSUS TRADITIONAL BANK LOANS  

 

It's an alternative to a Chartered bank line of Credit that offers minimal financial covenants with a focus on the company's assets  - (in some cases the banks themselves even offer this unique financing as a subset of their services!) Typically banks prefer more highly liquid collateral /  liquid assets. At 7 Park Avenue Financial we're unabashed supporters of ' ABL ' ... so... let's dig in.

 

 

 

 

HOW ASSET BASED LENDING WORKS

 

Asset based lending should not be confused with 'loans' or 'term debt'. It’s a working capital or line of credit facility that is tied to your firm's inventory, receivables, and in some cases, physical assets such as equipment and commercial real estate can be added - allowing a company to fund payroll expenses and to cover day to day and short term needs around funding operations.

 

Fun fact?  Some of Canada’s largest corporations in Canada are now utilizing this type of financing. So if some of Canada's largest corporations have abandoned traditional bank financing to obtain lines of credit should your firm at least consider and learn more about this type of facility. The benefits are worth investigating.

 

 

  

 

 

 

UNDERSTANDING THE COST OF ASSET-BASED FINANCING / INTEREST  RATES

  

 

 

Rates on ABL facilities in Canada vary, and you can pretty well guess the parameters of why they vary - which is simply:

 

1. Deal size of the facility ( there is no maximum loan amount )

 

2  Your firm's overall credit quality, and some component of assessing what industry you are in with respect to borrower defaults

 

3. How your industry functions vis-a-vis profitability, seasonality, and other industry dynamics.

 

4 . We can say in general that rates on ABL facilities in Canada go from 7-9% per annum to 1 ½% per month depending on most of the factors we listed above.

 

Overall credit quality challenges should not deter you from looking into a Canadian asset based lending solution - for the simple reason that this type of financing focuses on assets, not overall balance sheet and income statement quality. Simply put, your company might be currently losing money or experiencing a unique challenge, but you might find you still qualify for a very significant facility.

 

HOW CAN I BENEFIT FROM ABL?

 

On a day-to-day basis  the most significant feature of an asset based line of credit is the ability for you to bridge cash flow that you have tied up in inventory and receivables via a higher loan-to-value ratio for your assets compared to traditional commercial banking and financing.

 

 Your asset-based line of credit will fluctuate based on the key elements of the ABL security, namely the accounts receivable and inventory.  A/R and inventory are typically a company's most liquid collateral based on sound management and asset turnover. The good news is that as your receivables and inventory grow you can draw down on more funds - unlike a bank facility which might have certain caps on how much exposure the bank will take with your firm on an operating line basis.

 

The one aspect that you should consider in such a financing solution is additional reporting, but if you can properly account and report on receivables, inventory, etc. you should not be concerned.

 

Many clients tell us that some of the additional 'reporting' that comes with an asset based credit line actually has helped them understand their business better!

 

KEY TAKEAWAYS - ASSET-BASED CREDIT LINES

 

Asset-based lending solutions are the loaning of funds utilizing the assets of  a business as collateral versus a bank unsecured loan credit approval

The more liquid collateral such as accounts receivables and inventories provide a higher borrowing margin versus physical assets such as equipment

Businesses utilize  Asset-backed loans / eligible  collateral to cover shortfalls in day-to-day cash flow demands and their business needs which in some cases might revolve around the seasonality or cyclicality of the business

 

CONCLUSION - GETTING CASH FLOWING SMOOTHLY WITHOUT TRADITIONAL LENDING BARRIERS

 

Looking for liquidity, working capital and cash flow and a solution that is non-bank in nature?

 

Talk to 7 Park Avenue Financial, an expert in the area, determine if this financing meets your needs for credit availability, and ensure, with the help of a trusted credible and experienced Canadian business financing advisor, that you can access the type of facility that provides you with working capital and growth opportunities into domestic and global markets in a manner that suits your company's cash cycle. Obtaining comprehensive financial solutions  for your business needs is our focus.

 

  

FAQ: FREQUENTLY ASKED QUESTIONS  / MORE INFORMATION

  

 

What is asset based lending?

 

Asset-based lending is a type of financing that uses the borrower's value of the assets as collateral - and they are an alternative to term loans. Non-bank commercial lenders can approve flexible financing loans by providing higher advance rates using the physical assets of a company as collateral if they don't have enough cash assets - This type of financing is for businesses, not consumers - and provides operational flexibility to funding needs.

Small, midsized businesses and large corporations utilize asset-based lending. A lender may loan up to 90% of the face value of a security if it is highly marketable, such as eligible accounts receivable,  and only 60% for other less liquid assets such as real estate.  Advances vary based on the type of asset - ABL has a ' covenant light structure ' as opposed to a focus on only historical and present cash flows. The maximum loan for a physical asset is less than the book value of the assets.

 

 

What are the benefits of using an asset-based business line of credit over traditional bank loans? 

 

The main benefit of the asset-based business line of credit is that qualification for approval is easier than l lending via financial institutions such as traditional bank loans - Also if a business does not have the credit history required by bank underwriting policies the asset-backed credit line is more flexible financing with fewer restrictions than those of banks which will often insist on personal guarantees,  external collateral, high business and personal credit scores, etc. There is also typically no restriction on how funds are used with an asset-based credit line. The ability of a business to access more working capital for business operations and growth opportunities provides alternative financing options that historically were not available to the business borrower.

 

How do I qualify for an asset-based business line of credit?

To qualify for an asset-based business line of credit a company should be prepared to provide proper financial statements that reflect the assets of the business on the balance sheet, such as receivables, inventory and property plant and equipment. Business lenders will evaluate the  pledged asset/assets and lend on the ability of the company to generate sales with proper asset turnover so as to meet repayment terms/fluctuations under the revolving line of credit

  What are the risks of using an asset-based business line of credit?

 

One of the main risks of using an asset-based business line of credit is that if a business defaults on the credit facility and is unable to repay the facility on a lender's demand that assets are sold by the lender to recover the loan or line of credit.  Asset-based lending solutions are always higher, ( but not always ) when it comes to interest rates and financing costs.

  

  
How can I decide if an asset-based business line of credit is right for my business?  

  

To decide if asset-based business lines of credit are the right financing solution for a business the business owner should evaluate the business's cash flow and financing requirements - When the amount f  business capital needed is not available from traditional lenders such as banks the benefits of ABL solutions will typically outweigh the alternative to self-financing despite higher costs of borrowing. Business owners should speak to a reputable business financing advisor to help with due diligence and ensure proper business finance decisions and optimal finance structure is attained.

 

 

 

 

 

 

Early Warning Signs You Need A Canadian ABL Asset Based Finance Facility Line Of Credit

A Canadian Business Line Of Credit To Meet Your Needs


Information on the ABL asset based financed facility . Why this business line of credit outperforms for Canadian business .





As a business owner or financial manager you want to be able to ensure that a business line of credit has the ability to assist your firm before, during and after serious financial challenges occur. That's where the ABL asset based finance facility comes in.

In a perfect world (we know it's not) you want to be able to detect financial challenges, understand why they happen, and then implement a solution to avoid them. Understanding the problem (or problems) allows you to make the difficult decisions to continue your business successfully.

So what kind of problems can in fact your business run into. From our experience some are obvious and others not so obvious. And more importantly is there one specific business strategy; in our case today the ABL asset based line of credit that can in fact help you execute the turnaround.

There are probably 5 major early warning signs that your firm might need an alternative financing solution.

So what are some of those early warning signals? They are as follows:

1. Too much short term debt

2. You're trapped in a vicious cash flow cycle

3. You've accumulated current assets that have little or no value (example: obsolete inventories, poor receivables)

4. Your investment in fixed assets has put a major strain on your liquidity

5. Your firm is trying to find itself as it struggles to makes sales projections without the proper assets and financing to back up that growth

So whether your company has purposely created some of these challenges or whether external market forces have the good news in fact is there is a solution, and the one we are recommending today is the ABL facility. It's a busines line of credit like no other.

The ABL business line of credit differs from a bank facility in that you have the ability to margin, at very solid levels your current and fixed assets, all in the form of a revolving business line of credit.

Typically the liquidity provided by this facility gives you access to much more cash flow and working capital, and at the same time isn't punishing your firm by forcing you to totally focus on meeting ratios, covenants, and even provide outside collateral.

That is to say the ABL revolver facility allows you to continue to operate, probably with much more liquidity in spit of your capital structure, your historical challenges or financial losses, etc.

In Canada ABL facilities are typically provided by non regulated commercial finance firms. The ultimate irony we've observed over the years is that the Canada's chartered banks themselves, recognizing limitations of traditional facilities, have themselves even ventured into this ' non- bank ' financing idea. Now that's business irony.

If you want a solid insight into some of the early warning signs that your current financing strategies arent working speak to a trusted, credible and experienced Canadian business financing advisor about the possible solution to those upcoming or existing challenges.







Stan Prokop - founder of 7 Park Avenue Financial –


http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/abl_assest_based_finance_facility_line_of_credit.html

Factoring – Financing Canadian Receivables

Factoringfinancing in Canada is a proven, and growing in popularity method of generating cash flow and working capital for your Canadian firm. It often works best in conditions when your firm is experiencing higher than historical growth, or in many cases you are a start up or early revenue company who requires additional cash flow that you might not be able to attain from Canadian chartered banks.

In speaking to many clients factoring is clearly mis – understood. Last week we got a call from a customer who inquired whether we purchase bad, uncollectible accounts receivable. We indicated to that customer that what she in fact wanted was a commercial collection agency! Factoring in fact is the opposite of that, it’s the purchase of your accounts receivable ( and we mean the collectible accounts ! ) for immediate cash flow .

Factoring in Canada is somewhat of a fragmented industry, so we encourage you to seek and speak to respected and credible business financing and factoring advisor. The type of firm you end up dealing with in factoring will often affect how successful you viewed this type of financing strategy. There are a number of different types of factoring in Canada. Technically speaking we can refer to the types of factoring in the following manner –

Full notification invoice factoring (This is the U.S. and British model)

Non notification factoring

Spot factoring

Factoring in the context of a true working capital or asset based line of credit facility

We are always concerned that customers, armed only with a little bit of information or their first contact with a firm who only offers one type of factoring, will get themselves into the wrong type of facility, thereby tainting any future positive thoughts they might have on this type of financing. The bottom line again – you can speak to an unbiased expert on how this financing can help your firm, or you can choose a hit and miss approach and enter into the wrong type of financing facility. We will take option # 1 any day!

Let’s talk a bit about factoring in general as opposed to focusing on which type of factoring best suits your firm.This type of financing is essentially the purchase of one or all of your receivables, on a one of, of on going basis, to facilitate immediate cash flow.

Remember also that you are not incurring any debt when you are factoring – in fact your balance sheet improves because you are turning over receivables / working capital in a more efficient manner.

Because there is a cost associated with factoring you should generally be comfortable that you have the proper gross margins for the factoring of your accounts receivable.Very low margin businesses, even though they have good turnover are not always best suited for this type of financing.

In summary, factoring is growing in popularity. At the same time the myriad of types of firms that offer this financing, as well as the way in which they offer factoring can ultimately affect whether your firm is a successful user of this financing strategy. Investigate the benefits of this type of financing, ensure you understand who is offering it to you and which ‘factoring model ‘they use, allowing you to better determine if financing in this manner suits your cash flow and working capital needs . That ‘s proper business decision making!