Asset Based Lending – Non-Bank Revolving Credit Facilities

 

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YOUR COMPANY IS LOOKING FOR CANADIAN ASSET BASED LENDING AND NON-BANK REVOLVING LINES OF CREDIT  FINANCING! 

Transforming Business Finance with Asset-Based Lending Non-Bank Revolving Facilities

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

 

Capitalizing on Your Assets: The Power of Asset-Based Lending and Non-Bank Revolving Facilities

 

Asset based lines of credit are a unique way for Canadian business owners to achieve operating liquidity outside the chartered bank environment. How does the asset-based loan work compared to other types of funding,  and is it right for your business to address issues in cash flows? Let's dig in!

 

 

INTRODUCTION 

 

Are you a business owner aiming to optimize your cash flow and expand your business? If that's the case, asset-based lending might be the solution you've been seeking. In today's highly competitive business environment, conventional loan options might not always align with your financial requirements.

 

This is where asset-based lending " ABL' comes into play. By utilizing your company's assets, such as accounts receivable, inventory, or equipment, you can obtain the working capital necessary to drive your growth.

 

Unlike traditional lending, ABL  emphasizes the value of your assets rather than solely relying on your creditworthiness. As a result, it presents a viable alternative for businesses with less-than-perfect credit. In this article, we will explore the advantages of asset-based lending and how it can assist you in strategically managing your cash flow while bolstering your liquidity.

 

Understanding Cash Flow Challenges for Businesses

 

Maintaining a healthy cash flow is vital for business success, yet many businesses struggle with effective cash flow management. One common challenge is the timing gap between accounts receivable and accounts payable. While you've completed the work or delivered the product, it takes considerable time for customers to settle their invoices, straining your working capital as you need to cover expenses and payroll.

 

Another hurdle is the uncertainty of sales and revenue, influenced by seasonal variations, market trends, and unforeseen costs. These factors make it challenging to plan for the future. Traditional lending options may not offer the flexibility and expedited access to funds businesses need to navigate these obstacles.

 

Asset-Based Lending vs. Traditional Lending

 

While the traditional bank loan and business line of credit established options for borrowing, they may not always be the ideal choice for businesses seeking to optimize their cash flow. Traditional lenders heavily rely on owners' business and personal credit scores and healthy financial statements to evaluate creditworthiness. This can pose challenges for companies with limited operational history or previous financial difficulties and cannot meet traditional bank lending standards for approval.

 

In contrast, asset-based lenders offer an alternative approach by prioritizing the value of your assets over your credit history in the asset-based lending facility. This makes it a more accessible option for businesses that may not meet the criteria for traditional loans. Furthermore, asset-based lending provides greater flexibility in loan amounts and repayment options, enabling companies to customize the loan to their specific requirements.

 

 Demystifying Asset-Based Lending and Non-Bank Revolving Facilities 

 

 

Asset based lending, aka  'ABL' financing in Canada, is not debt financing, and is also not cash flow based, and should not be confused as such. It is operating and working capital financing via revolving facilities.

 

Asset based lines of credit are used by medium-sized firms and larger firms throughout Canada and are growing in popularity when compared with traditional commercial banking. They are inappropriate and difficult to structure for small firms and start-ups. In those two cases, it might be more advisable for firms with those overall credit ratings to focus on straight accounts receivable financing solutions or consider a working capital term loan.

 

One example is factoring for firms without significant sales or physical assets / fixed assets on the balance sheet. To learn more about factoring, click here.

 

A traditional lender may take measures to protect themselves against loan losses if they lend money, such as using the ability to increase interest rates - In 'ABL, ' your assets minimize lender risk.

 

As a credit facility, Canadian asset-based lines of credit are structured around some of the following parameters- including a focus on a ' covenant light structure.'

 

-  Industry fundamentals such as asset quality and perceived industry risk

- Your general credit profile

- Size of the financing facility and who is offering the facility (the industry is somewhat fragmented in Canada)

 

We noted your firm's 'general credit profile' as a key consideration. Probably the most surprising of our clients are those who now understand that while overall financial statement strength is one factor in a financing facility such as this, it is not the most important factor. Why? That is because an ABL facility focuses more on assets than operational performance.

 

We are not telling clients they can get an asset-based line of credit if their firm is in a serious death spiral. However, if your firm has challenges such as temporary operating losses or an extenuating circumstance setback, you still are a strong candidate for asset-based financing business credit.

 

HOW DOES THE ABL FACILITY WORK

 

How do these facilities work? Very simply, it's a similar version of a bank operating line of credit via traditional financial institutions, but without many of those restrictions, covenants, additional collateral requirements, etc.

 

Receivables, inventory, and sometimes equipment and real estate are margined to their proper values. Typically that is receivables at 80-100% of invoice face value, inventory at 40-80%, and equipment and real estate per acceptable appraised values.

 

Are there any drawbacks to such a facility - we can think of two discussion points, and they aren’t necessarily hard and fast disadvantages for many companies- those two points are:

 

- Pricing

- Reporting

 

Asset-based lines of credit traditionally have higher pricing than bank lines, and you are more often than not required to do detailed reporting of A/R, inventory values, etc., every month. We point out to customers that additional reporting can sometimes benefit you as it helps you better understand your business!

 

In summary, asset-based lines of credit are financing facilities that provide alternative funding to typical banking-type arrangements. They almost always give you more capital, you do not incur debt, and in many cases, can help your firm regain its financial footing or grow more quickly.

 

CASE STUDIES

 

Case Study 1: Manufacturer

ABC Manufacturing is a medium-sized company specializing in the production of industrial equipment. Despite having a solid reputation in the industry and a steady stream of orders, ABC Manufacturing faced a common challenge: limited cash flow due to extended payment terms from their clients and the need to maintain sufficient inventory levels.

 

Due to stringent credit requirements, traditional bank loans were not readily available to ABC Manufacturing. Recognizing the potential of their valuable equipment and accounts receivable, ABC Manufacturing approached an asset-based lender for financing. The lender assessed the company's assets, including their production machinery, inventory, and outstanding invoices, and offered them an asset-based loan.

 

With the asset-based loan, ABC Manufacturing could leverage its machinery and inventory to secure the necessary working capital. The loan allowed them to purchase raw materials, cover operating expenses, and invest in new equipment. As a result, ABC Manufacturing was able to fulfill large orders, expand its production capacity, and improve its cash flow management. The flexibility of asset-based lending helped the company navigate their financing challenges and support its growth trajectory.

 

Case Study 2: Distributor

 

XYZ Distributors is a wholesale distribution company specializing in electronics products. As the business grew, XYZ Distributors faced a significant challenge in managing their cash flow effectively. The company often had to make large upfront payments to suppliers but had to wait for extended periods for their customers to pay their invoices.

 

XYZ Distributors sought a solution to their cash flow gap and turned to asset-based lending. The company had a substantial amount of valuable inventory and accounts receivable that could be leveraged to secure financing. An asset-based lender assessed their inventory and outstanding invoices, offering them an asset-based line of credit.

 

With the asset-based line of credit, XYZ Distributors had access to a revolving source of working capital directly tied to the value of their inventory and accounts receivable. They could borrow against their eligible assets to finance operations, pay suppliers promptly, and bridge the gap between their payments and collections.

 

Asset-based lending gave XYZ Distributors the flexibility and liquidity necessary to support their operations and growth plans. By using its assets as collateral, the company overcame their financing challenges. It reduced the strain on its cash flow, enabling them to seize new business opportunities, expand product lines, and strengthen its market position as a distributor.

 

WHAT ARE COMMON MISCONCEPTIONS ABOUT ASSET BASED LENDING  

 

Misconceptions about Asset-Based Lending include :

1. Only for businesses in financial distress: Asset-based lending is not limited to businesses facing financial difficulties. It is a strategic tool for growth and expansion, offering working capital to seize opportunities and invest in new initiatives.

2. Suitable only for large businesses: Asset-based lending benefits companies of all sizes, including small and mid-sized businesses. It can be particularly advantageous for smaller businesses that may not qualify for traditional loans due to limited operating history or credit challenges.

 

KEY BENEFITS OF ASSET BASED LENDING

 

1. Unlock the value of your assets: Asset-based lending enables businesses to convert assets like accounts receivable, inventory, or equipment into working capital, providing access to funds as needed.

2. Asset-based evaluation: Unlike traditional lending, asset-based lending considers the quality and value of your assets rather than solely relying on creditworthiness. This makes it a viable option for businesses with less-than-perfect credit or those in higher-risk industries in the borrowing company's operations for firms with collateral value assets.

3. Flexibility in loan structure: Asset-based loans offer flexibility, allowing businesses to tailor the terms and repayment schedules to their specific needs. This flexibility provides better control over cash flow and the ability to adapt to market changes. Financial covenants are typically not part of an asset-based credit line compared to the types of covenants and balance sheet ratios banks require.

 

  

 CONCLUSION - ASSET BASED FINANCE   

 

Optimizing cash flow is crucial for success and growth in today's competitive business environment. Asset-based lending offers a strategic solution to enhance cash flow, boost liquidity, and drive business growth.

 

Regardless of creditworthiness, leveraging company assets allows access to necessary working capital.

 

Asset-based lending provides the flexibility, speed, and accessibility that traditional lending options may lack, making it an invaluable tool for maximizing cash flow. Business owners seeking financing solutions aligned with their growth goals should consider asset-based lending as a strategic approach to fuel success and efficiently manage funding needs.
 

 

Asset Based Lending is already in use for many decades. Asset-based loans are generally designed to protect booming businesses from financial distress. Still, some Canadian banks have been slow on the uptake, and ABL funding largely remains not marketed by them either.

 

However, there has recently been an increase among companies wanting more capital than traditional bank lending offers.

 

Talk to 7 Park Avenue Financial,  a trusted,  credible, experienced financing expert for information on this unique type of financing for the needed capital to run and grow your business.

 

 

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION  

What is asset-based lending?

 

Asset-based lending allows companies to borrow money using their assets as collateral. Asset-based loans are secured by collateral.  A company's assets such as the business's accounts receivable,  inventory, machinery and equipment, real estate and potentially even intellectual property can be financed. Interest rates tend to be higher in asset-based lending but provide more access to business credit.

 

The ABL lender establishes A monthly borrowing base, allowing a firm to draw down funds as needed. Firms experiencing rapid growth or those can cant meet the demand of the financial covenant requirements of banks can benefit from this type of Canadian business financing.

Firms expanding into global markets or taking advantage of an economic downturn can also use this credit line.ABL facilities are typically not term loans but are structured as revolving facilities- providing greater liquidity to borrowers.

 

What is cash flow lending?

 

Cash Flow Lending is a popular and effective way to receive business funding versus traditional bank lenders. Not all borrowers have sufficient collateral, but that is not necessary with unsecured loans via cash flow-based lending! Lenders look at projected revenues, the company's cash flow,as well as the overall credit rating of the business.

This type of financing has many advantages: companies get more money faster since there isn't any need for security, and low rates are often associated with cash flow loans for firms that qualify under a bank's lending process.

 

  

 How Does A Business Maximize Cash Flow with Asset-Based Lending  

 

1. Quick access to working capital: Asset-based lending provides swift access to funds, allowing businesses to seize opportunities and meet financial obligations promptly, unlike traditional lending with lengthy approval processes.

2. Flexibility to borrow against various assets: Asset-based lending enables businesses to leverage different types of assets, such as accounts receivable, inventory, or equipment, to access necessary funds. This flexibility optimizes cash flow according to unique business requirements.

3. Bridging the gap between accounts receivable and accounts payable: Asset-based lending helps businesses manage the timing mismatch between accounts receivable and accounts payable. By utilizing the value of accounts receivable, companies ensure a steady cash flow to cover operational expenses, payroll, and other financial obligations. This is particularly advantageous for those with extended payment cycles or industries affected by seasonal fluctuations.

4.  

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

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

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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

Make Invoice Factoring Loans And Asset Based Lending Work ! Looking For A Business Credit Line Solution?

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You Are Looking For Canadian Business Financing!

Unpacking the Differences:  Factoring vs. 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 

               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

 

Asset-Based Lending and Invoice Factoring: Alternative Financing Options Explained

 

Invoice factoring loans are one area of business finance that has slowed the growth of traditional financing via banks in Canada.

 

It's no secret that asset-based lending is on the rise, while not that long ago, we can vouch, that alternative financing was pretty well unheard of. Industry stats both in the U.S.  as well as Canada indicate more and more companies are turning to asset-based lending solutions.

 

A big challenge of any business is the cash flow challenges in times of economic uncertainty and when a business is focused on growing and expanding market share - traditional bank financing may not be available during times like this - that is when alternative financing options such as receivable financing/ factoring, and asset-based lending tend to be a popular solution - The real challenge is knowing which finance option is best for your business.

So why have asset-based financing solutions become one of the most popular financing methods for your company's working capital and cash flow needs?

Asset-based finance solutions and factoring work for a straightforward reason - they monetize one of the essential assets in your business, letting accounts receivable act as security.

 

 

WHAT IS INVOICE FACTORING? 

 

Invoice factoring is a  business financing option which allows businesses to finance outstanding invoices to a third-party commercial finance company in exchange for immediate cash. In traditional invoice finance factoring services, the financing company assumes management and collection of the receivable - The factoring agreement specifies the invoices are  ' sold ' to the fiance company - in bank financing, invoices are assigned to the bank, typically under a general security agreement.

 

Key benefits of factoring invoices include the ability to access cash immediately without any debt coming onto the balance sheet - the company is simply monetizing a balance sheet asset - accounts receivables.

 

Small and medium-sized businesses that need working capital to fund day-to-day expenses and finance growth use factoring, which is not debt financing on the balance sheet.

 

 

THE INVOICE FACTORING PROCESS 

New clients here at 7 Park Avenue Financial always want to know how these 'loans work.  First of all, it's not a loan per se. It's simply a method of selling and cash-flowing your receivables as your generate revenues. Cash advanced on this type of financing is typically in the  80-90 % range and it's at the business owner's option to cash flow some or all of your a/r.

 

 

 

WHAT DOES FACTORING COST? 
 

Confusion exists if only for the terminology commercial lenders and customers use around describing the cost of this financing.

 

That's because this finance method is costed as a ' fee ', not an interest rate. Factoring fees are typically between .75 - 1.25 %, so if your firm has good margins and a reasonable turnover in receivables you are an excellent candidate for factoring loans.

 

FACTORS INFLUENCING PRICING

Other factors that influence your overall cost include :

Size of your facility,

General creditworthiness of your customer base

The amount of time you use the funds for is probably ultimately the largest cost aspect of the financing.  Good asset turnover and lower days sales outstanding lower financing costs!

 

While bank business credit lines are the lowest cost in Canada it's no secret that thousands of businesses simply can't access all or part of the business financing they require.

 

 

IS CONFIDENTIAL RECEIVABLE FINANCING THE BEST FACTORING SOLUTION? 

At 7 Park Avenue Financial, we strongly recommend Confidential Receivable Financing facilities. They allow you to bill and collect your own accounts, generating the cash flow you need to run and grow your business.

A/R financing collateralizes company assets such as receivables, allowing you to finance the other parts of your business, such as inventory, equipment, real estate, etc.

For smaller to medium-sized firms that have exhausted forms of financing such as business credit cards, friends and family loans, collapsing personal investments asset-based lending via a business factoring loan is a logical step to financing operations and growth.

 

  

 

WHAT IS ASSET BASED LENDING?  

 

Asset based lending is a business finance option that allows a business to use the physical assets of the business as a loan or line of credit. Assets financing under this type of facility include combinations of accounts receivable, fixed assets and equipment, inventories, and in some cases real estate.

 

Key benefits of this type of loan or line of credit include the ability to be flexible in drawing down funds as the business needs them and scale finance as sales and assets grow. Assets financing under the facility remain in the ownership of the company. Asset-based lenders are experienced in assessing values and advance rates on each asset category, ie receivables.

 

 WHAT IS THE DIFFERENCE BETWEEN INVOICE FACTORING AND ASSET BASED LENDING? 

 

The key difference between factoring and asset based lending lines of credit is the paperwork around the ownership of the invoices - Under a factoring agreement invoices are ' sold ' to the finance company. In contrast, in asset-based lending assets are secured as collateral for the financing.

 

In traditional factoring the factoring company is involved in the collection of invoices, but in asset based lending, businesses retain ownership and the customer relationship around collections.  As we have noted companies choosing  Confidential invoice financing are in fact allowed to bill and collect their own invoices while still enjoying the benefits of immediate cash access.

 

The timing around financing costs is also another difference - In invoice factoring the financing company purchase invoices at a discount. In contrast, interest rates/ financing costs do not start until facilities are drawn down on and used.

 

  WHICH FINANCE OPTION IS RIGHT FOR YOUR BUSINESS? 

 sE

Several factors will define whether  your firm will best benefit from  factoring or a full asset based lending solution - Those factors are:

 

Type of industry

Cash flow needs,

Growth goals

 

Factoring is best suited for businesses with  higher  volumes of invoices and the need for the firm to access immediate cash to cover business expenses and funding day-to-day operations - The ability to finance working capital investment in accounts receivable is a key factor

 

Asset based lending solutions such as term loans or business lines of credit are best suited for companies needing a full business line of credit that funds accounts receivable, inventories and other business assets. Companies that cannot access all the financing they need from traditional bank financing solutions are solid candidates for asset-based lines of credit.

 

Both solutions help companies with cash flow problems

 

  

KEY TAKEAWAYS: INVOICE FACTORING ASSET BASED LENDING 

 

Invoice factoring is a solid alternative financing option for small businesses needing immediate cash

Invoice factoring is the sale and financing of outstanding invoices st third-party factoring companies

Asset based loans and lines of credit is a full-service financing facility which funds business assets and combines them into one facility

Both solutions, ie  factoring and asset-based credit lines provide fast access to cash once facilities are improved and set up

A company will determine whether it needs invoice factoring or asset based loan solutions based on cash flow needs and the overall  creditworthiness of the business

 

  

 

 CONCLUSION - ASSET BASED LENDING VS. FACTORING  

 

Both invoice factoring financing and asset based lending are creative and alternative finance options that can help a business grow via access to capital around the cash flow needs of the business.

Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of success.

 

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK MORE INFORMATION

 

 

Do I lose ownership of my invoices with invoice factoring? 

Yes, invoice factoring involves the selling of outstanding invoices to third-party factoring firms to obtain funds via a cash advance prior to invoice collection - in traditional notification factoring the finance company manages collection and payments.

  

 Does invoice factoring affect my customer relationships?  

In invoice factoring the finance company has contact with customers in the collection relationship, while an asset based lending business credit line allows the company to bill and collect its own receivables as well as manage collections. customers.

   

What industries are suitable for invoice factoring and asset-based lending?   

Any small or medium-sized business that requires working capital to fund operations and growth will benefit from these facilities' cash flow access. More established companies needing full services credit lines to finance a company's assets such as  a/r, inventory and other assets will typically use an asset-based credit line.

 

    

Is factoring considered asset based lending?    

 

Yes, factoring is often considered a type of asset-based lending because it involves selling unpaid invoices to a  commercial lender, who then provides funding based on the value of those assets. Unlike traditional loans, factoring is sometimes non-recourse, meaning that the lender assumes the risk of non-payment by the debtor. The amount of funding available through factoring depends on the borrowing base, which is the total value of the assets/invoices being factored.

Factoring is often used by manufacturing companies and other businesses with rapid expansion and core operations that require additional money to pay invoices and support important differences in payment. The annual percentage rate and additional fees associated with factoring are typically higher than those of traditional term loans, and lenders view factoring from their perspective of collecting payments on the invoice assets purchased. Overall, factoring is a valuable financing option for businesses that require immediate payment and can benefit from the value of funding unpaid invoices.

 

 

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

Asset-Based Lending (ABL): The Game-Changing Business Credit Line Solution You Need to Know About

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

SUPERCHARGE  BUSINESS GROWTH - LET ABL REVOLUTIONIZE YOUR BUSINESS CREDIT LINE NEEDS

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

 

LEVERAGE BUSINESS ASSES - EMPOWER YOUR BUSINESS - THE ABL BUSINESS CREDIT LINE STRATEGY

 

 

Asset based lending in Canada is the closest thing to a ' generic ' business credit line facility in Canada. So why do we describe clients ' ABL  ' solutions in that manner? 

 

The answer is simply that it's a one size fits all solution to working capital and cash flow needs.  It's generic that it's always, and we mean ' always,' about your business assets. That's why thousands of businesses choose asset based lending.

 

' ABL ' (Asset-based lending ) is a method of financing your business via a revolving line of credit - The company's assets, such as inventories, accounts receivable, and fixed assets are combined into one facility as security interest collateral. This gives the company flexibility around working capital needs experiencing cash flow and/or growth challenges. Let's dig in!

 

 

A BUSINESS CREDIT LINE SOLUTION TO CONSIDER! 

 

The proof in the pudding about ' ABL ' is that top finance experts tell us that asset-based lending gains traction every day - and again, generic if only for the reason that start-ups, small and medium-sized and large firms all can use this facility.

 

 

HOW DOES THE ABL CREDIT LINE WORK? 

 

The asset-based financing method provides a business with a revolving business credit facility where the assets of the business are the collateral - Typically the assets include accounts receivable, inventories, fixed assets and even commercial real estate if owned by the company.  These facilities, unlike bank financing, don't focus on the cash flow of past business credit history, the focus is ..  Assets! 

 

In that way, the company can access via asset based lenders, cash in times of fluctuating cash flows or other unique needs of the business.

 

If ABL credit lines are that generic, how do the business owner and financial manager find the right facility for his firm, and who does he or she find it from?  Here it's all about what we call ' the tiers ‘. There are several types of lenders, and you have to know the size and quality of your transaction and who is best matched to finance it. Working with an expert in the area will, of course, help!

 

 

We're reminded of one of our mentors who once said ' tuition is costly in the school of experience, ‘When it comes down to a strategic financing decision, the cost of a bad experience can be expensive in many ways. 

 

 

 

 

KEY DIFFERENCES BETWEEN ASSET BASED LOANS AND TRADITIONAL   

 

ABL loans differ from traditional bank-type financing in focus on the collateral for the loan - Bank financing will focus on personal guarantees, outside collateral, and business credit requirements around ratios on the balance sheet. Abl focuses on sales and the tangible asset of the business - which allows companies with irregular cash flows or seasonality and cyclicality in their business to access funding. 

 

While many types of bank loans require repayment schedules, the ABL revolver facility allows the business to draw on funds and pay for those funds only when required - allowing for better cash flow management and cash planning.

 

 

ELIGIBILITY CRITERIA FOR ABL  ASSET BASED LOAN FINANCING 

 

In order to qualify for ABL credit lines a business must meet certain criteria -  Typical criteria include the ability to produce proper financing statements and aged schedules of balance sheet items of eligible accounts receivable, inventory,  and accounts payable. The business should also be free from government liens and be up to date with provincial and federal taxes owed. Good balance sheet asset turnover will help approve an ABL line of credit, so firms focusing on dso,  inventory turns, etc are strong candidates. An inventory appraisal might also be required.

 

 

 

WHY DO BUSINESSES GRAVITATE TOWARD ASSET FINANCE SOLUTIONS? 

 

The answer is painfully simple - it's a challenging financing environment for companies searching for SME commercial finance.

 

Once owners and finance managers pick up on the fact that access to ABL provides liquidity and often makes a firm more financially competitive, it's easy to see why that road is better travelled.

 

 

WHAT ARE THE TYPES OF ASSETS UNDER ABL LOAN BUSINESS LOANS COLLATERAL? 

 

Some confusion around ' ABL ' is that many business folks consider it as only an equipment financing solution - however, in our context, it’s a business credit line that finances all your current and fixed assets - typically A/R, inventory, and equipment. Like bank credit lines, it's a ' senior facility 'and provides aggressive financing on those assets via eligible collateral.

 

Accounts receivable are a key form of ABL collateral - invoices under 90 days old are eligible for financing at advances rates in the 90% range.

 

Inventories can be in the form of  raw materials, work in process, or finished goods and each type of inventory will have an advance rate placed on borrowing power

 

Fixed assets used in the business and critical to business operations can be included in abl credit lines, as well as commercial real estate if that applies to the transaction - Often, a real estate component might be under a short-term separate bridge loan.

 

More and more asset-based abl business lenders can include some form of financing around IP, patents, brands, and copyrights if that is applicable to a transaction.

 

It should be noted on very large transactions in the millions in the form of appraisal or field exam might be required- although note this is for very large deals generally in the range of 10M  plus.

 

The uniqueness of this business credit line is that those assets named above are financed under one revolving facility. The best ' deliverable ' for ABL is its ability to allow you to borrow aggressively on the real assets in your business, based on their ' real values.  Bottom line = higher borrowing margins!

 

So who's using and/or checking our ABL finance? Its companies can access any or enough bank financing for firms that can’t meet ratio, covenant, and personal guarantee requirements typically mandated by the bank.

 

Bottom line? Investigate ABL business credit lines as a viable working capital option used by thousands of companies like yours, including your competitors. Opting for this solution will give you overall liquidity and cash flow that helps your business grow and succeed.

 

  

KEY BENEFITS OF ASSET-BASED LENDING ABL BUSINESS CREDIT LINE SOLUTIONS  

 

Working capital access - short-term business needs can be met around cash flow/working capital

 

ABL facilities are custom tailored via flexible credit structures and higher borrowing advances than traditional loans - Busines access cash when needed

 

Asset-based credit facilities are known as covenant light -  reporting requirements and eligibility criteria are significantly easier to manage around business operations and finance needs -

 

Reporting process revolves primarily around monthly borrowing base requirements around a/r and inventory, as well as a/p schedules.

 

  

KEY TAKEAWAYS - ABL FINANCING  

 

All types of businesses can use asset-based lending  to finance their business

Typical borrowers include manufacturers, distributors, retailers,

Businesses that are restructuring or focused on turnaround are perfect for an ABL solution

Companies using ABL financing face minimum reporting and  little to no focus on the balance sheet and financial ratio covenants required by banks

ABL increases financing capacity and allows companies to be flexible in financial decision-making without third-party lender approval

 

 

  

CONCLUSION - ASSET BASED LENDING ABL FINANCE  

 

Asset-based finance solutions provide a unique and flexible form of financing for Canadian businesses requiring working capital.

 

Leveraging assets solves the business cash flow challenge and growth goals. Talk to the  7 Park Avenue Financial team to ensure you make an informed decision around this business financing method.
 

Asset-based financing is growing in popularity every day as a business financing solution for companies seeking flexible access to cash flow and working capital - The unique ABL business credit line options allow businesses that are leveraged and who might not be able to achieve traditional bank financing to secure the money the company requires for business needs.

 

Investigate ABL as a viable working capital option - work with an expert in the area. If you opt for this financing solution, your liquidity and overall cash flow should improve significantly!

 

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor to explore ‘generic ‘business credit line solutions to maximize borrowing capacity!

 

  

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK  MORE INFORMATION  

 

  

  

 What types of assets can be used as collateral in asset-based lending (ABL)?     

 

Asset-based lending uses a variety of business balance sheet assets as collateral - these include a/r, inventories fixed assets and real estate. Business lenders evaluate each asset category and construct a credit line that will provide liquidity to the borrower.

 

 

 

How does asset-based lending differ from traditional cash-flow lending regarding financial covenants and flexibility? 

 

Unlike traditional cash flow lending that focuses on financial covenants and balance sheet and liquidity ratios around debt and debt service, ABL lending has few covenants and allows businesses to access liquidity based on sales growth and business assets. That financing provides flexibility to the business borrower to improve cash flow.

 

 

 

What limitations or risks are associated with asset-based lending (ABL) as a business credit line? 

 

Businesses should ensure abl financing does not encourage overleveraging of the company - and they should be aware of monthly reporting requirements and the types of assets used as advances for the facility on a day-to-day basis.

  What type of business can benefit from ABL Financing?   

 

Businesses that can benefit from ABL financing solutions include manufacturers, distribution companies, and some types of service companies.  Any business facing a cash flow challenge or requiring financing for larger orders around seasonality in their business can benefit from ABL business loan borrowing capacity credit approval secured by assets.

 

   

What are the limitations of ABL Asset-based lending solutions?   

Businesses should ensure that declines in sales or asset values and be a potential facility risk to future growth. As borrowing bases are reduced the amount of credit availability declines on financial and physical assets around the company's cash flow. Companies with growing sales and good asset turnover present less risk to the ABL business loan lender. Not all business assets might be eligible for collateral financing, including highly specialized assets or inventories with no real resale value.

 

 

 

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

How Asset-Based Lending Cash Flow Asset Finance Solutions Can Help Your Business

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YOUR COMPANY IS LOOKING FOR CANADIAN ASSET FINANCE ASSET-BASED LENDING CASH FLOW  FINANCING! 

UNLOCK THE POWER OF YOUR BUSINESS ASSETS - LET ASSET BASED LENDING HELP YOUR CASH FLOW NEEDS

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 LENDING - YOUR ALTERNATIVE FINANCING SOLUTION!  

 

Asset based lending in Canada often brings a straightforward question from our clients - namely: Can you explain asset finance cash flow solutions to us?

Businesses all over Canada in every industry keep hearing about nontraditional lending solutions for their businesses - in many cases, their competitors are already taking advantage of them. They want to know more... so... let's dig in.

 

WHAT IS ASSET BASED LENDING?

 

In today's challenging business environment, it's all about access to business loans and cash flow for a company's ability to thrive .. and survive!  Asset-based lending is  secured lending finance, allowing a business to use its sales and business assets such as :

 

Accounts receivable

Inventories

Fixed assets/property plant and equipment /rolling stock

Commercial real estate owned by the business

 

These assets become collateral and a  ' borrowing base ' for a loan or line of credit availability. That allows the company to maintain the liquidity needed to fund day-to-day operations and cover short-term expenses. Businesses utilize asset-based lending as an alternative to traditional bank financing. Asset-based lenders are experienced in valuing business assets on the balance sheet and use that expertise to provide the maximum amount of funding as a line of credit or business term loan solution.

 

 

WHAT IS THE DIFFERENCE BETWEEN ASSET BASED LENDING VS. TRADITIONAL BANK  LENDING? 

 

The key differences between asset-based loan solutions and unsecured loan / cash flow based loans and lending by banks revolves around the focus of each type of lending - For asset-backed loans, it is all about assets - for banks, it is all about cash flow. Banks view cash flow performance as the key to repayment - Asset-based lenders view business assets as sources of repayment.

For any business, it's all about the ability to borrow capital, and companies have different options and choices.
 

 

IMPROVING CASH FLOW AND WORKING CAPITAL

 

So is business financing via asset finance a difficult concept to understand?  Hardly.  Asset-based financing, often called 'ABL' by those in the industry, is simply the method of obtaining the maximum working capital you need from your assets, which include typically receivables, inventory, and in many cases some equipment and/or real estate. That's as simple as it gets.

 

So how can monetizing your assets be your business's ultimate working capital tool?

 

Although it's been in existence for many years, in the past asset finance or asset based lending (we also call it a 'working capital facility') is coming into vogue.

 

It doesn't take rocket science to understand then, given traditional financing almost totally collapsed in the 2008-2009 global meltdown, that companies began searching for options and alternatives to their business financing needs. In our post-pandemic/covid interest rate and business lending challenged market, access to business capital is as crucial as ever.

 

Lenders like asset based financing simply because they are using their expertise and knowledge in your assets to help you cash flow your business.

 

USES OF  ASSET BACKED FINANCING

 

Although many companies turn to asset based lending when they can’t access traditional bank financing the reality is that this type of financing has some unique characteristics that allow you to utilize the financing for other reasons - Those include:

 

Major expansions

 

Buying another business

 

Bridge financing your business while you undergo restructuring or turnaround.

 

In many cases, it's 'buffer' financing, allowing you to return to more traditional 'bank type' financing.

 

 HOW DOES ASSET BASED LENDING " ABL ' WORK?  IMPROVE CASH FLOW WITH ASSET BASED FINANCE

 

As we stated, it's very simple for us to explain to clients what an ABL facility is, it's a bit more complicated to get them to understand how it works. The best way to explain it though is to simplify it all and say that you should consider asset finance via a working capital facility as simply a 'revolving line of credit around all your business assets'. Can that be any simpler to understand?  We don't think so.

 

  

CRITERIA FOR EVALUATING YOUR BUSINESS CREDIT NEEDS  

 

Typically the process is as follows - After the traditional 'application' process, there is an agreed-upon value put on all your business assets - as we said, 99% of the time the assets under this financing include receivables, inventory, equipment, and in some cases real estate.  The most common assets though are receivables and inventory.

 

Your firm provides regular monthly, and in some cases weekly updates on the values of these assets, and you in turn use your regular bank account to draw down on funds, as you need them, to run your business. Similar to a bank revolving line of credit facility your asset-based financing facility fluctuates every day as a dollar of capital flows through your business - you purchase  product, you generate a receivable, you collect your receivable, and of course, the process repeats itself.

 

  

ASSET BASED CREDIT LINES GROW AUTOMATICALLY - AS YOUR BUSINESS GROWS!  

 

If there is one simple advantage of asset-based lending it's that the financing grows as you grow sales and assets! You can truly say you have access to unlimited funding, albeit often at a higher cost.

 

Other forms of asset based lending such as SR&ED Tax Credit Financing, Leasing, factoring receivables, and PO Finance, are being routinely used by many of your competitors. Why not your firm?

 

Asset Finance strategies help you do that. 50% of Canadian businesses report that the inability of their sales growth to generate funds hinders their progress. Top experts such as Canada's BDC cite growing a business as the most common goal of the vast majority of firms.

 

  

KEY TAKEAWAYS - ALTERNATIVE ABL FINANCING  

 

Asset-based loans are a method of secured financing via business assets on the balance sheet - allowing a company  to access business capital

A Cash flow loan relies on a company's ability to generate cash flow as repayment

Cash flow loans are suitable for businesses that are not asset-intensive such as service-based companies that rely on higher profit margins

Asset-based loans are best suited to businesses that are more capital intensive and who have balance sheet assets -

 

  
CONCLUSION - UNLOCKING THE POWER OF BUSINESS ASSETS FOR CASH FLOW 

 

Asset-based lending will allow your company to borrow for lines of credit or short-term bridge loans based on balance sheet asset values. The traditional focus on cash flow is secondary, as the asset-based business lender funds are based on inventory, a/r, and fixed asset values. Even real estate owned by the business can be bundled into the facility or used as collateral for a separate bridge loan solution - Asset based lenders offer higher borrowing margins against the face value of business assets - As an example, 90% of receivables can be financed.  Receivables finance/factoring is a stand-alone business financing solution within the asset-based lending business model.

 

Call 7 Park Avenue Financial, a trusted, credible business financing advisor in this area to ensure you understand the options and of course, the benefits of this unique and creative method of business financing.

 

FAQ- FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What is asset-based lending, and how does it differ from other forms of financing?

Asset-based lending is a form of secured business lending that allows a business to use key business assets such as receivables, inventory, and equipment as collateral for a line of credit o term loan. This method of financing physical assets via specialized asset-based lenders is the primary difference and determining factor versus bank financing cash flow lending techniques, which focus on various measures of business score around financial history, cash flow generation,  outside collateral, and loan covenants tied to an unsecured credit facility.  The majority of companies using asset-back financing are not able to receive some or all of the financing they required from traditional financial institutions such as banks.

Asset based loans typically are shorter in duration and are often seen as a bridge back to traditional financing.

 

What are the benefits of using asset-based lending for cash flow management?

Asset-based lending solutions can provide a company with a business revolving line of credit or short-term bridge loan based solely on the value of business assets - that allows a company to cover day-to-day operating expenses and maintain liquidity based solely on sales revenues and business assets.  Companies with good balance sheet assets but who might have lower profit margins and cash flow generation abilities are excellent candidates for asset-based lending solutions.

 

What types of companies are most likely to benefit from asset-based lending?

Companies that are asset rich and who have growing sales and accounts receivable and inventory are strong candidates for asset finance loans and lines of credit - Many services-based companies, including technology companies, are well suited to this method of financing. Companies that have seasonality or cyclicality in their business model and who have good balance sheet assets as collateral are candidates for ' ABL' financing as a working capital or bridge loan solution. While banks focus on key business ratios such as the debt-to-equity ratio asset backed lenders are ' covenant light ' and do not insist on loan covenants that banks might require. Some banks are in fact asset based lending banks but these are smaller divisions within the bank.

 

How do lenders evaluate a company's creditworthiness when offering asset-based lending?

Asset-based lenders evaluate overall creditworthiness with a focus on valuing company's assets as well as other general risk assessment techniques. In some cases,  asset appraisals of certain  key assets may be required for firms with asset rich businesses.

 

 

 

What are some potential drawbacks of using asset-based lending for cash flow management? 

 

One drawback of asset-based financing as a cash flow management technique is the fact that credit facilities are limited to the value of company collateral assets and the sales growth of the business. Interest rates and financing costs tend to be higher than traditional bank financing, and borrowers should understand that the collateral for pledged asset-backed facilities is subject to default/repossession when they borrow money under asset backed finance.

 

 type of financing isn't necessarily better than the other. One is better suited for larger companies that can post collateral or operate with very tight margins. The other may be better suited for companies that don't have assets (i.e. many service companies) but are confident in future cash flow

 

 What is cash flow lending? 

Cash flow-based lending solutions are an alternative to secured financing and asset-based loan solutions - Cash flow lending focuses on cash generation and significant cash flow potential and profits for loan or line of credit repayment. Traditional bank loans backed by a company's cash flow do normally not require collateral securitization and the loan approval and underwriting process is generally more time-consuming and detailed as the focus is on issues such as how the company will perform in any economic cycle when it comes to cash flows. Companies with profits, cash flow and good margins can benefit from lower rates in unsecured business cash flow based financing.

 

 

 

 

 

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