How Does Asset Based Lending Work?

 

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The Future of Business Financing in Canada: Asset-Based Lending

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The Power of ABL Facilities: Guide to Asset Credit Line Solutions in Canada | 7 Park Avenue Financial 

  

Unlocking the Power of ABL Facilities: A Guide to Asset Credit Line Solutions in Canada  

 

 

Introduction

 

In alternative financing, Asset-Based Lending (ABL) facilities stand out as a robust solution for Canadian businesses across the spectrum—be it startups, SMEs, or large corporations.

 

Notably, despite ongoing debates in leading financial publications like the Globe & Mail and Financial Post about the state of business credit in Canada, ABL has proven to be a beacon for those struggling to meet the stringent criteria set by traditional financial institutions for working capital borrowing needs.

 

This article aims to demystify ABL facilities, emphasizing why they're increasingly becoming the go-to resource for savvy Canadian business owners.

 

 

What is ABL and Why Does it Matter in Canada?

 

ABL, or Asset-Based Lending, involves consolidating various business assets into a single credit facility. This unique arrangement accommodates new ventures and is a hit among growing and mature companies.

 

Despite the prevailing perception that Canada is flush with capital, the reality at 7 Park Avenue Financial reveals a different story: Businesses frequently approach us in search of feasible financing solutions.

 

The Canadian Context

 

Canada certainly ranks higher regarding financial stability in the grand scheme of global economies. Yet, the needs and complaints of Canadian business owners can't be ignored. ABL is a versatile tool, enabling operational finance and facilitating the acquisition of competitive businesses by leveraging existing assets for more capital.

 

The Advantages of ABL Over Traditional Lending

 

Traditional lending avenues like banks often fall short when addressing businesses' varied needs. They impose a gamut of prerequisites, from solid balance sheets and profits to collateral, which many companies find challenging to fulfill.

 

The Allure of ABL

 

The popularity of ABL financing has surged because it concentrates more on your business's tangible assets and revenue streams rather than exhaustive paperwork and financial history. It's worth noting that in the U.S., ABL accounts for nearly half of all business credit lines!

 

Its growing prevalence in Canada underscores its effectiveness as an innovative business finance solution.

 

The Core Differences: The 'Naked Truth'

 

The first significant advantage of ABL is the higher margin of assets, allowing for an elevated level of borrowing. This is particularly beneficial for inventory, which traditional lenders may overlook. Secondly, the asset based line of credit focus focus shifts from cash flow covenants to asset valuation, thereby making it more accessible to a broader range of businesses in Canada.

 

Operational Flexibility and Reporting in ABL

 

Asset based lines of credit offer unparalleled flexibility in accommodating the fluctuating financial needs of your business. However, it's essential to maintain detailed monthly reports on the company's assets eligible accounts receivable, inventory levels, physical assets,  and sales to sustain the ABL facility. This reporting framework also gives businesses insights, aiding in more informed decision-making.

In certain cases, intellectual property may be included in the facility, as can commercial real estate.

 

Conclusion

 

Asset-based lending could be your way out if you find yourself handcuffed by traditional financing options.

As a solution tailored to diverse needs, ABL focuses on leveraging your existing assets rather than restricting you with inflexible criteria.

 

To fully understand the ins and outs of ABL financing, call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor -we're ready to offer you the unfiltered truth about how ABL can unlock new growth avenues for your business.

 

FAQ

 

  

What is Asset-Based Lending (ABL)?

Asset-based loans (ABL) are a form of financing where your business assets, such as inventory, receivables, and equipment, serve as collateral for a  revolving line of credit. This allows you to maximize your borrowing power based on your assets rather than traditional credit criteria.

 

How does ABL differ from traditional bank loans?

Traditional bank loans as the primary banking relationship often require a strong balance sheet, good credit history, and even personal guarantees as well as financial covenants. In contrast, an asset based loan focuses on your tangible assets such as eligible receivables as the primary basis for financing, allowing for higher borrowing levels when a business draws funds,  and with more flexibility.

 

Is ABL only for large corporations or can small businesses also benefit?

 

ABL is beneficial for businesses of all sizes. Asset based lines of credit can be customized to meet your specific financing needs, whether you are a startup, a growing SME, or a large corporation.

 

What types of assets can be included in an ABL facility?

The ABL facility asset credit line can include different assets for eligible collateral, from accounts receivable and inventory to equipment and real estate. This diversified approach to collateral gives you a broader borrowing base for firms with substantial assets that can't meet bank credit criteria that often come with a financial covenant list!

 

Highly liquid assets such as receivables and inventory receive a higher borrowing margin, almost always higher than bank margins if they have an existing line with a bank or other commercial finance firm.

 

Are there any reporting requirements for maintaining an ABL facility?

Yes, asset based lenders usually require you to submit regular reports on various business metrics like inventory levels, sales, and accounts receivable. This helps the lender assess your current financial state and empowers you to understand better and manage your business.

 

 

How quickly can I get approved for an ABL Facility?

The speed of approval for an Asset-Based Lending facility can vary depending on the lender's requirements and the complexity of your financial situation. However, since ABL focuses on tangible assets, the approval process is often faster than traditional loans, sometimes taking as little as a few business days.

 

What are the interest rates for ABL compared to traditional loans?

 Interest rates for Asset-Based Lending facilities may be slightly higher than those for traditional bank loans due to the perceived risk associated with asset-based financing. However, the added flexibility and speed of access to capital often make ABL a more attractive option for businesses needing quick liquidity.

 

Are there any industries where ABL is particularly advantageous?

Asset-based lending is versatile and can benefit various industries, from manufacturing and retail to healthcare and technology. Businesses that have a significant amount of tangible assets like inventory or machinery will find ABL particularly advantageous.

 

Can ABL facilities help businesses going through restructuring or turnaround?

 

Asset-based lending can be an ideal solution for businesses undergoing restructuring or a turnaround. Traditional lenders may shy away from such scenarios due to perceived risks, but ABL focuses on assets, providing the necessary capital to navigate through challenging periods.  

 

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How Does Asset Based Lending Work ?

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Why Use Asset Based Lending ? It Works

The asset based credit line is a key part of alternative financing options available to Canadian businesses. As simple as the solution is ( i.e combining all your business assets into one borrowing facility ) it just might be the perfect solution for businesses that can't access any, or all, of the business credit they need in Canada.

It is interesting to note that this revolving facility is perfect for new, growing, and even large mature corporations , many of whom use the facility now days. When it comes to SME COMMERCIAL FINANCE needs business people would be surprised as to how many firms use this type of business finance.

There's probably no agreement on actually how tight business credit is or isn't in Canada - that debate constantly rages on . We continually read in both the GLOBE & MAIL and FINANCIAL POST that Canada is awash in capital, but here at 7 Park Avenue Financial we encounter clients with borrowing needs everyday, many of them dissatisfied with traditional access to business credit.


Naturally it goes without saying that Canada, despite the complaints of the Canadian business owner and financial manager, is probably in better shape than many other countries.

Asset based financing can be used for a business credit line, as we have noted, or also as a financing vehicle for purchasing a business or competitive business. It used the leverage in your assets to monetize your cash flow needs .

The ability of a business to fund both it's operations as well as growth is key to any level of business success. When it comes to banks and other more ' traditional ' lenders thousands of businesses can't meet the credit quality criteria that is required by these lenders.

So why has asset based lending gained such a dominant foot hold in the Canadian business landscape. While chartered banks have great rates and virtually unlimited amount of capital to lend many companies don't have the balance sheets, profits, and outside collateral often demanded by our banks, who for all the right reasons are more conservative in their lending practices.

So for that reason alone thousands of firms have gravitated to asset based finance solutions that focus on your assets and sales levels. As an interesting aside asset based lenders provide close to half of all of the business credit lines in the U.S. - So it is not hard to see why ' ABL ' facilities are growing in Canada - where relatively speaking it's a newer business finance solution.


So why consider ABL financing ? Simply if your firm can't meet traditional lending criteria and you still have assets and sales it allows you to harness new borrowing power .


Yes of course those same assets are being margined, just as your bank would have, but there are two major differences, we can call them the core of our ' naked truth ‘.



How Does Asset Based Financing Work ?


First of all your borrowing levels are raised significantly because your assets are margined at a higher rate , and the inventory component of margining is very aggressive, where in some case a bank facility might not even address that asset at all, or at lease only nominally .

Asset based credit lines also can include your equipment and real estate, if applicable, as part of your new borrowing power - bottom line : increasing borrowing power of your company .

And what about that 2nd difference or truth? It's a key point, in that the focus on ABL approval is not cash flow coverage and covenants, its just mainly about assets, which has great appeal to Canadian borrowers, especially those that struggle to meet those cash flow covenants imposed by traditional lenders.


Quite often we see tremendous flexibility in the size of such a facility, because in many cases business has peaks and valleys and bulges in financing requirements.

We don't consider it a drawback necessarily, but most asset based business lines of credit have your reporting on your monthly levels of a/r, inventory, sales, etc, allowing the ABL lender to monitor and justify your borrowing needs. In many cases we have seen that it allows companies to understand and run their business more successfully.

That then is some of the naked truth in this asset credit line .It's a part of the new reality of Canadian business financing that you should take a serious look at, especially if things are not working well now .

Speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success - Get the stripped down truth on the Asset Based Lending advantage .

Naked Truth And Insights Into The ABL Asset Credit Line Facility . Canadian Business Financing Unexpected!

Information on the business asset credit line ABL facility . Why asset based financing gains more traction everyday.




Stripped down. An ABL facility asset credit line for your business financing needs just might be the most basic, yet perfect Canadian business financing vehicle your company needs. Oh, and by the way, that’s if you are a start up, in the SME sector, or one of Canada's largest corporations, because those three are already using this type of asset based business line of credit.

The ongoing debate of whether business credit financing in Canada is still tight rages on. One could make the case that the patient, i.e. the economy and business credit is still sick. So is there a patient cure?

Naturally it goes without saying that Canada, despite the complaints of the Canadian business owner and financial manager, is probably in better shape than many other countries.


The weaker economy h as one advantage, and that’s that many of your competitors are still struggling, downsizing, or just plain in trouble. We always never forget to mention that the asset based ABL facility is also a great strategy to purchase one of those competitors, as is makes optimum use of asset leverage.

So can you properly fund your company via the use of abl funding at a time when traditional access to funding is still perceived as having dried up? You can via asset based lines of credit, even if you don't qualify for the higher credit quality that is required by banks and insurance companies. So let's strip down and examine some of those naked truths

And by the way, why exactly have asset based lines of credit in fact grown so much in popularity in Canada. We would say the best answer to that is that in the past there was either the Canadian chartered bank solution, which had great rates, or no solution at all. The ABL facility was generally not heard of or not available in years gone by - and that has changed. That's a bit strange because over half, yes half of all asset credit line activity in the U.S. is via ABL.

So why the move to ABL ?It is simply that if your firm has fluctuating, or even negative profits you still have huge borrowing power via this method of financing .

Yes of course those same assets are being margined, just as your bank would have, but there are too major differences, we can call them the core of our ' naked truth ‘. First of all your borrowing levels are raised significantly because your assets are margined at a higher rate , and the inventory component of margining is very aggressive, where in some case a bank facility might not even address that asset at all, or at lease only nominally .

And your new business line of credit, via ABL in fact can include the appraised values of equipment and real estate, thereby increasing revolving credit borrowing power.

And what about that 2nd naked difference or truth? It's a key point, in that the focus on ABL approval is not cash flow coverage and covenants, its only assets, which has great appeal to Canadian borrowers, especially those that struggle to meet those cash flow covenants.

Quite often we see tremendous flexibility in the size of such a facility, because in many cases business has peaks and valleys and bulges in financing requirements.

Do you work harder to maintain or get such a facility? Our naked truth... yes. The one aspect of this method of financing is that you'll find yourself reporting on your assets more often than you would in a bank environment.

Thats some of the naked truth in this asset credit line .It's a part of the new reality of Canadian business financing that you should take a serious look at, especially if things are not working well now . Speak to a trusted, credible and experienced Canadian business financing advisor for the stripped down truth on the ABL advantage.







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_facility_asset_credit_line_financing.html