A Tale Of Two Business Credit Lines
OVERVIEW – Information on asset backed lending in Canada. How does this business credit method differ from other forms of financing, how does it work and what dos ‘ ABL ‘ cost
Asset backed lending in Canada just might be the way you ensure your business has the financing it needs. Simple as that. Let's dig in.
Often called ' ABL ' for short it’s a ‘niche’ financing that has come into it's own in the last 4-5 years in Canada. It's certainly been around longer than that and came our way from our good friends in the U.S. . . .
What exactly is this financing, how does it work, who is the right ABL lender for you, what does it cost?
Most business owners and managers know that their financing alternatives are much more limited than in the U.S. landscape. Our financial system is different, we have less ( but stronger?!) banks, and we're conservative in nature when it comes to lending, which has its pros and cons depending on whether you're the borrower or lender!
Part of the mystery around asset back lending/ABL in Canada is that the term in used in a variety of manners. In our case we're talking about a comprehensive business line of credit that allows you to borrow under one facility against receivables, fixed assets and inventory. Some people though use the term to denote the financing of equipment in a bridge loan manner, or even for describing equipment financing in Canada.
We've described then what the facility is, what does it cost and how does it work? Because ABL business credit is more generous when it comes to borrowing margins and because the qualifications are less stringent than bank criteria there are some cost and mechanics around the facility that the Canadian business owner / financial manager must consider.
In almost all cases there might be some sort of due diligence fee attached to the set up of the borrowing. We're already explained the ABL finances assets, so the asset backed lender wants to see the assets, Simple as that, so that often includes a due diligence visit or appraisal of some sort.
Almost any borrowing facility will come with some sort of legal fees to set up and collateralize the facility in the name of your lender - that pretty well goes for our banks also. Other miscellaneous fees might be monthly or yearly monitoring, and in some cases some sort of penalty for not using the facility that has been set up .
While the actual borrowing cost of this type of financing can be in some cases competitive or even lower than bank financing more realistically the costs are higher. They are often compared to mezzanine financing rates which typically are in their teens.
If the cost is higher what then are the benefits. They quite frankly are pretty dynamic. Your firm has access to more credit than you were ever able to achieve with the bank. This is basically because advances on a/r and inventory are more generous, and being able to then borrow daily, as you need it , against the value of fixed assets just makes things all that much better.
The reality is that many Asset backed borrowers in Canada either couldn’t achieve any or all the financing they need from our Chartered banks. Our banks place reliance on cash flow, owner’s credit, personal collateral, profits, and covenants. The ABL lenders only focus - assets!
Is this type of business credit for everyone? Probably not, but if you have a mix of assets, growth potential and the ability to present a strong case for a non bank line of credit it just might be your total solution to all your Canadian financing needs. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success in asset based lending.
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 10 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/asset-backed-lending-canada-abl.html
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CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Stan Prokop
