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The Not So Secret Origin of Asset Based Non Bank Revolving Credit Lines
OVERVIEW – Information on asset finance solutions in Canada. The asset based line of credit can solve the working capital and cash flow needs of Canadian Businesses In the Small To Medium Enterprise sector
Asset finance and revolving credit lines that can generate cash flow / working capital for business are almost always a top priority for Canadian business owners and financial mgrs. Could your company benefit from this method of financing? We think so, let's dig in.
Independent finance firms are the real origin of asset credit lines - they are therefore ' non bank ' in nature.
Entering into this type of facility should always be done with the expertise of a business financing advisor, your accountant, and in some cases... your bank! More on that last one later.
The most important thing you can do in contemplating such a transaction is to both understand the financial offering, and at the same time ensure you understand how the Canadian marketplace works.
Asset finance, or asset based lines of credit provide your Canadian firm with maximum utilization of asset values related to 3, possibly essential components of your firms asset base.
Those components?
Inventory
A/R
Equipment
(In some cases real estate can be blended into your credit line)
So why does this facility work differently than a more traditional chartered bank line of credit? The answer?
Higher borrowing/margining limits!
What is meant by that? Well is simply the ability of your firm to leverage higher borrowing, when and if you need it, against those asset classes which we have just mentioned. In the case of receivables it tends to be 90% of receivables less than 90 days, and in the case of inventory it's a case of understanding in advance the true value of your inventory on an ongoing basis re your costs and ultimate marketability of that inventory.
The true cost benefit of an asset based line of credit facility is that you use the facility when you want and to what extent you want - from a cost perspective that equates to paying for only what you use.
Asset finance and asset based lines of credit tend to traditionally be more expensive than banks lines of credit. Let's just understand the basics of that. Currently banks pay between one or two per cent, perhaps three per cent to depositors in Canada. If they can lend out those funds at 2-300 basis points more - i.e. 5 or 6% rates to your firm the banks consider that a winning proposition .
But they want to be secure on that transaction, so that involves your personal guarantee, lower margining of the asset, and strict rules and covenants around ratios, operating performance, etc.
Independent finance firms borrow from banks, or raise capital themselves - they therefore mark up those funds so in general, asset finance and asset based lines of credit cost your firm more .
But if your firm can grow revenues and increase profits with a higher borrowing cost is that not ok. We think the weight of evidence suggests that proper consideration of an asset finance and asset based line of credit warrants significant merit.
The bottom line is as follows:
You should consider asset based facilities if your company is growing or has growth opportunities .Bank lending is still difficult to access for many small and medium sized firms
Investigate asset finance, determine your needs, and work with a credible advisor to ensure your Canadian asset facility can help your firm grow revenues and profits.
7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
ABOUT THE AUTHOR
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
