Asset Finance: A Smart Way to Secure Your Business's Credit Line and Working Capital

 

YOUR COMPANY IS LOOKING FOR WORKING CAPITAL FINANCING SOLUTIONS!

Maximizing Your Cash Flow: How Asset Based Financing  Can Help Fund Your Business's Credit Line

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?

CONTACT:

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

 

  

Building Your Business's Future with Asset Finance for Working Capital  

 

Business line of credit needs are often best solved when your firm understands why you need this type of financing/working capital facility. And the good news? 

 

 

What You Need to Know About a Business Line of Credit Via An Asset Finance Strategy 

 

Using asset finance as a business line of credit strategy provides companies with a flexible financing solution to borrow funds as needed for day-to-day short-term expenses. It allows the company to explore growth options. As a working capital strategy, asset-based lending provides the same revolving credit lines based on a higher loan-to-value ratio for borrowing based on asset finance eligibility.

 

 

 

ASSET BASED LENDING IS YOUR ' HACK ' FOR IMPROVING CASH FLOW 

 

Cash flow management is a critical requirement for any business, large or small. By focusing on effective asset turnover and proper management of accounts receivable and inventories, all companies' short-term cash flow gaps experience by all companies can be met by focusing on an ' ABL ' solution.

 

  

  

ASSET FINANCE EXPLAINED  

 

Asset finance is a method of financing a business that uses business assets of the company such as receivables, inventory, and fixed assets as collateral for borrowing. Companies obtain working capital via collateralized loans as a flexible financing option.

 

As a business owner, you don't need one of those ' Artificial Intelligence Bots ' ( such as Chatgpt )  to run thousands of algorithms around your cash flow needs.

 

It's all about understanding how your company is doing and what type of solution is available!

 

Cash flow is vital to all businesses. 60% of business owners say they regularly struggle with cash flow and 40% say the absence of access to cash flow financing restricts their business growth.

 

 WHAT IS THE DIFFERENCE BETWEEN A TERM LOAN VERUS A LINE OF CREDIT? 

 

Both term loans and lines of credit are types of typical business financing - Term loans are lump sum cash flows requiring regular installment payments over a fixed amortization period at a specified interest rate from the lender.

Business lines of credit are revolving credit facilities that businesses use to access funds as required based on a predetermined credit limit.  The line of credit options typically offers more flexibility as it revolves and is used only as needed.

 

WHAT ARE THE CAUSES OF CASH FLOW PROBLEMS

 

Common causes of poor cash flow problems are:

Collections too slow - accounts receivable management and financing of a/r is critical around unpaid invoices

 

The operation capacity (or ability) you have available for your company might be unreliable due to a lack of sales and the ability to meet current liabilities -  Take the time to research various Canadian business financing options with a focus on the nature of your industries and the actual need for working capital - that might be for equipment, real estate, inventory, etc.

 

 

 

SHORT / MEDIUM / LONG TERM FINANCING - WHICH ONE DOES YOUR COMPANY NEE D

 

Small business owners often struggle to find the right financing for their companies. They face many options, including short-term, medium-term and long-term loans - but what does this all mean?

 

If you don't select an appropriate length of time based on your needs as a small entrepreneur, then it could hurt not only your prospects but also your financial stability in general.

 

MATCH CASH FLOW TO LOAN TERMS!

 

Business owners and their financial managers should choose financing terms that align with their current and future cash flow needs.

 

The shorter loan terms offer shorter repayment times but more sizable monthly payments. Longer loan terms mean small monthly payments but longer amortizations --and they may not work unless you have a steady cash flow coming in regularly.

 

 

  

THE IMPORTANCE OF CREDIT SCORES

 

  

Business loans will often, but not always, require a good credit score. Safe to say, though, that business owners with good credit will more likely be approved for loans, but those with bad credit may not.

 

 

 DON'T MAKE THIS MISTAKE! STAYING AHEAD OF THE GAME VIA PROPER CREDIT LINE USE

 

 

A working capital line of credit should be used for short-term needs, not long-term ones. Don't confuse short-term working capital needs with long-term, permanent requirements.

 

If credit lines provide one thing it certainly is  ' flexibility ' as it relates to your financing ' wiggle room '. You're borrowing what you need and, of course, only incurring charges for amounts you use which hopefully are constantly revolving as you turn over key assets such as receivables and inventory. Invoice financing is key to running a successful growing business.

 

  

FACTORS AFFECTING LOAN TERM OPTIONS  

 

When considering the type of business loan that will best suit your needs, it's essential first to determine what you hope to use this money for. Beyond deciding which term is right for our situation and given financial circumstances, two other factors are involved in choosing a financing solution: interest rate and potential cost versus cash flows.

 

REASONS YOUR FIRM MIGHT NEED MORE WORKING CAPITAL

 

The cash flow of your business can be volatile. You may need additional capital during the peak seasons or to keep up when there’s less money coming in due to time pressures from suppliers, employees, and government regulations demanding attention all the time.

 

Almost all companies will experience times when more working funds are required just so obligations such as payrolls go through without interruption! ...but these instances typically come at different intervals.

 

Seasonal fluctuations in business cash flow are not uncommon. This can be because many companies need added capital at peak seasons or when they receive less revenue. Others may require more money so their operations keep running smoothly during these slower times of year without cutting back on expenses.

 

Almost all businesses will experience boom-and-bust cycles. Even more, flexibility comes around simply knowing and understanding that your firm can handle the day-to-day surprises ' - aka ‘bulge ' cash flow needs around one of, or seasonal business expenses.

 

Credit lines are of course, also not term debt - while your business assets typically collateralize them, it's at the end of the day, somewhat unsecured.

 

Knowing and understanding the true financial health of your business will often dictate what type of facility you're eligible for. Key to that of course, is how long you've been in business, what type of financing rates your firm can handle, and speed and accessibility to financing approval.

 

Thousands of businesses with SME COMMERCIAL FINANCE needs take advantage of short-term working capital loans, often marketed (or disguised?) as business credit lines and typically not used for more established businesses.

 

They are sought after because they offer quick approvals and approval criteria are far less restrictive than those solutions offered by Canadian chartered banks and provide the additional working capital needed.

 

From a financial perspective, your company's health will typically dictate the type of credit line your firm can access. The two most typical solutions are traditional banking or asset-based lines of credit for funding current assets offered by non-bank commercial lenders.

 

UNSECURED LINES OF CREDIT

 

Unsecured, revolving lines of credit  & unsecured loans are effective tools for augmenting your working capital for a more established business. They provide you with a valuable tool via the ability to finance temporary needs via a small business line of credit.

 

The Line of Credit is a business tool that can be used to help you grow your company. It's important for businesses since they may not always want or need one. Still, instead, use it as needed based on their revenue and balance sheet needs -your firm will pay interest on the facility used at any given time -A personal guarantee is required on unsecured credit lines.

 

Banks as an example, will consider focusing on issues such as business credit history and looking into the healthiness (and longevity) outside an individual’s financial statements: working capital ratio, networking cash position versus annual revenues, copies of bank statements, etc. Although many factors may affect the size of your working capital line of credit, a rule of thumb is that it shouldn’t exceed 10% of your company’s revenues.

 

Knowing how well your business is running and how to calculate working capital needs in the short term is key to both supplier and credit line provider relationships. While volumes are written on how business financial health is determined, the real world dictates it all boils down to:

 

Profit/loss generation

Operating Cash Flows

Positive/Negative net working capital positions

Existing debt

 

 

  

KEY TAKEAWAYS - ASSET FINANCING AS A WORKING CAPITAL CASH FLOW SOLUTION  

 

Asset Financing is tied directly to business asset values.

 

Asset finance for working capital is a good choice if options are limited for other cash flow financing needs.

 

Business lines of credit  are asset-based loans around a fixed amount based on asset values

 

Lines of credit can be secured or unsecured.

 

Businesses use working capital facilities to fund seasonal or cyclical cash flow gaps and fund day-to-day needs and expenses.

 

 

 

 

  

CONCLUSION - THE BENEFITS OF ASSET FINANCING FOR A BUSINESS CREDIT LINE AND WORKING CAPITAL GROWTH

 

If you’re looking for solid assistance and the cash flow/working capital solutions available in the Canadian marketplace call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can provide business credit line offerings and business growth strategies that meet your needs in the small business lending marketplace.

 

Let's explore those asset finance advantages: a working capital loan solution or a business credit line via traditional lenders or non-bank alternative financing firms.

 

FAQ/FREQUENTLY ASKED QUESTIONS / MORE INFORMATION

 

  

What is working capital financing? 

 

The funding of working capital financing is borrowing solutions focused on a company's ability to cover day-to-day expenses and commitments around current liabilities. This type of financing should not be used to purchase equipment and other long-term assets or real estate.  Businesses can also use short-term working capital loans or business credit for immediate cash flow needs.

 

  

What are the benefits of using asset finance for business credit lines and working capital?   

 

A key benefit of using an asset finance strategy for a business credit line is that it allows businesses t obtain financing using only the business assets as collateral while at the same time retaining the full use of those assets. This method of financing a company provides a flexible financing option versus the constraints around traditional bank loans as funding can be achieved more quickly and easily. The ability to generate additional revenue and profits based on cash resources is a key benefit.

Firms that are financially challenged but who have or can increase good gross margins can typically absorb the higher interest rates that come with non-bank business credit lines, often referred to as 'ABLs' -  Asset-Based Credit Lines.

 

 How can businesses determine if asset finance is the right option for their credit lines and working capital needs? 

 

Businesses should consider several factors when deciding if asset finance is the right option for their credit lines and working capital needs.  Issues that should be considered include the value of key business assets and the amount of cash flow financing/working capital the business needs. 

 

Asset financing should be compared to other potential financing options such as unsecured credit lines offered by banks to determine the best suitable option for running and growing the business. Borrowers should also ensure business loan requirements are understood around key issues such as business creditworthiness and credit history.

 

 

What is an asset-based lending line of credit? 

Asset-based lending lines of credit, also called ' ABL'S) is a type of business borrowing and financing where business lenders provide revolving credit facilities based on accounts receivable generated by ales, inventories, and fixed assets - If a company owns real estate that can also be factored into the facility.  These credit lines are used by businesses that can't access some of the business credit they need to fund working capital needs around cash management. These facilities allow a company to arrange borrowed capital they require in the future.

 

 How does asset finance work in Canada?  

 

Asset finance allows Canadian firms to use assets as collateral for a loan or line of credit. Lenders value assets and provide financing based on that value. In addition to working capital lines of credit asset finance is a valuable asset strategy that can also be used to describe equipment financing and real estate financing in business operations.

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

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Let’s play the Match Game Of Asset Finance In Canada 

 

Growth financing in Canada.   As if keeping your business alive as a Canadian business owner or financial manager wasn't enough, what about all the growth financing challenges you have to face?!

 

There probably are thousands of businesses in Canada who are either content to stay roughly the same size, or, at the opposite end of the spectrum, want their business financial assets to grow, but just don't know how,  or where to turn to.  Businesses in the SME sector in Canada are sometimes quite happy to put those earned profits regularly back in the bank accounts of their owners. That’s ok, for course, just not complementary to a growth strategy.

 

As we said though, many firms wish to capitalize on asset finance solutions in Canada to add assets to their business open a new location, buy a competitor, even in some cases franchise their business model.

FINANCING IS THE LUBRICANT FOR BUSINESS GROWTH

So if it is true that financing is the key ' lubricant ' in that growth financing depends on, and if the business owners don't have the ability to fund their firm personally, what are in fact the options? In reality, there are more than you think!

 

Naturally, early-stage start-up firms in Canada though do in fact rely on initial owner equity. But sooner or later you need growth financing of financial assets for key investments in office space, software, computers, and other infrastructure and business model assets.

 

We never fail, or at least try not to fail at pointing out to business owners/managers that internal cash flow generated from asset turnover is a key to growth finance.  It's just that they are never enough!  And if you're not big enough to go public yet, or engineer a reverse takeover then financing financial assets is in fact going to be a key driver in your revenue and profit growth.

MATCHING ASSET TO THE RIGHT BUSINESS FINANCING SOLUTION IS KEY TO FINANCIAL SUCCESS

Here though we are at a key point in the juncture of your firm. Because here's where mistakes are made, we’re referring to the sometimes inability of the business owner/manager to match the right assets with the right type of financing.  So a very key point is in fact that you should be financing receivables, inventories, and tax credits with short term financing vehicles in Canada.

 

Those solutions include : 

 

Bank lines of credit

Receivable finance

Inventory finance

Asset-based non-bank lines of credit 

Purchase order/supply chain financing

 

 Longer-term assets should be financed with : 

 

Term loans

Equipment leases

Secured or unsecured cash flow loans (unsecured is best!), etc.

CONCLUSION

If you wish to match the right assets you have, or need, with the right type of financing seek out and speak to a trusted, credible and experienced Canadian business financing expert today.

 

P.S. That is of course only if you want to grow your business!

 

 

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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.


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Asset Based Credit Line : A Working Capital Alternative

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Time For Some Fancy Footwork Around Your Business Financing  & Line Of Credit Needs?


An asset based line of credit is an emerging financial alternative in Canada for companies of all sizes that wish to maximize working capital in terms of their growth needs. This type of lending revolves around loans to your business where the collateral of your assets and your ability to generate sales provides all the liquidity you need to operate and grow.

More often than not asset based lending is associated with companies who are unable to arrange or qualify for what most business owner’s term as a bank operating line of credit.



Asset based lending is known as ' ABL financing ' and has risen to great popularity, first in the U.S. where it originated, and now to the Canadian marketplace. Although occasionally Canadian banks choose to participate in Asset Based Lending through separate units within the banks the vast majority of providers of asset finance are commercial finance companies that are independent of the banks.

Why Do Companies Consider ABL Finance And The Asset Based Loan

Asset based credit lines and loans are used for a variety of purposes - we can make the case they are an ' all-season ' Canadian business financing solution. They are used for:

Non-bank asset based revolving credit facilities

Companies that are growing quickly and can't access all the capital they need

Structuring a merger or acquisition or a management buyout

Seasonality in business financing needs - example - Xmas retailer, etc

Companies that have high debt/equity ratios who are ineligible for traditional finance solutions

Turnaround and restructuring facilities/refinancing of existing debt

Financing The Purchase Of A Business

How Is Asset Based Lending Different From Bank Borrowing?

New clients of 7 Park Avenue Financial want to know the difference in bank borrowing versus alternative lending solutions such as ABL. In banking it's all about traditional corporate credit quality and that boils down to profits and capital structure design around a solid balance sheet with solid owner equity. Those elements historically define a great company poised for continued success. Asset based lending on the other hand revolves around shorter-term focus around converting current assets in cash flow and an understanding around the true value of the collateral of the company.

That latter ABL focus doesn't require that a company be doing as well as a bank financed company. So sales turnover and the liquidation value of assets are essentially what the ABL loan is about when it comes to corporate finance.

In accessing asset financing via an asset based credit line for working capital and cash flow your focus should be on the short term liquid assets of receivables and inventory. That will allow your borrowing facility to fluctuate and lower overall financing costs. That constant turnover of sales into cash will make the ABL solution even more beneficial, and, important to know, these facilities can very easily be increased as you generate higher revenues.




Credit types vary, and traditional bank financing places a heavy emphasis on the overall financial position of your income statement and balance sheet. Therefore, if that is the focus then firms such as yours with either balance sheet issues, or experiencing temporary financial losses or other negative circumstances do not quality for margined lines of credit with institutions such as Canadian chartered banks.

HOW IS THE ASSET BASED CREDIT LINE LIMIT CALCULATED?

The calculation of your borrowing limits under your credit facility has some basic formulas attached to it . Accounts receivable and inventory are the two key drives, but fixed assets and any real estate can play a key role also.

The formula and final limits of your facility are called a ' borrowing base ' and this number is reviewed, typically every month to determine what your new limits are based on the value of your a/r and inventories. This is the revolving part of the facility, and often the fixed assets and real estate part of the facility are under a separate term type of loan. Usually the advance rate on your sales/receivables is higher than the inventory part of the facility, but it should be recognized that asset based lenders are experts in understanding the true value of inventory and are in a position to generate higher advance rates than chartered banks.



Typically A/R under 90 days is an essential part of the borrowing formuls. Typically funds are advanced a 85-90% of the a/r portfolio under 90 days. As you collect receivables your reduce the advances that have been made under the facility, not dissimilar to a bank LOC. The ABL underwriter will look at your overall DSO/COLLECTION period and also look at individual issues such as any one client being a large percentage of yoru sales ( 'concentration' ) or any set-offs you might have in place with suppliers or customers .

KEY POINT - It is essential that your firm is up to date on provincial and federal taxes, as CRA arrears can destory your lenders security on the facility. If you do have CRA arrears they can be paid out at the start of the facility, or you can ensure you have a documented payment plan in place on those arrears.

Inventory advances are where Asset Based Lenders shine. They understand the different components of inventory such as raw materials, work already in process, and finished goods. Their ability to underwrite and advance against inventories is a key differentiator in asset based lending. To you the borrower it's simply more borrowing power!



Asset based lines of credit take the reverse position from banks, simply that you have the assets, let's finance your firm on the strength of your assets, with minimal, if any, in fact, focus on ratios, covenants, outside collateral, operating metrics, personal guarantees, etc.



An asset based line of credit partner will tend to work through with your unique challenges in your industry or your business model. Some of those challenges might be the seasonality of your business or the special ‘one-of' situations we referred to. Some of those circumstances might be making an acquisition, restructuring your firm, or being in the receipt of large new contracts or purchase orders that are out of line with your traditional financing arrangements.



Operating capital financing, or rather the lack thereof(!) can often be the reason your firm is unable to take advantage of strong market opportunities to maintain your competitiveness.



One of the largest parts of an asset based lending facility is receivables financing. In small firms this is often taken care of by a factoring facility – your invoices are sold to the lender, you receive immediate cash, and you can structure facilities around such issues as credit insurance, non-recourse to your firm, etc.



The asset based line of credit, in a true sense, offers all of the advantages of factoring but operates instead like a true bank facility – your receivables, and inventory, are highly margined to the maximum value, and your access to cash availability is directly commensurate to your sales growth – in other words, you have no real cap on your operating facility – you receive cash for receivables and inventory as fast as you can sell and move our product and services!



Your firm will probably find that anyone in the asset based finance area has a stronger knowledge of your business model and assets. If your company has a strong focus on understanding the true collateral value in your business, and is focused on asset turnover in a/r and inventory your firm will be a true beneficiary of the asset based credit line. The general attributes of ABL financing

What Does Asset Based Lending Cost? Factors To Consider

Asset based lending credit lines and facilities usually are higher cost than bank financing when it comes to credit in the capital markets. The low interest rate environment has allowed asset based lenders to become more competitive and in a small number of cases asset based lenders can be competitive or on par with banks on higher quality deals. From a borrowers perspective clients need to weight the access to significantly more business capital versus the cost, more so when your company cannot in fact access bank credit.

Other tradeoffs are the requirements for more regular reporting on your receivables and payables and inventories and any miscellaneous audits or appraisals that might be required by the asset based lender to justify the higher borrowing levels. As we have stated the ability to access cash without the typical bank covenants and operating metrics is always top of mind with borrowers utilizing asset based lending. The overall flexibility in an asset based credit line tends to work well beyond traditional finance when all the options of each type of financing are considered.



While determining your borrowing strategy should be individualized based upon each business and tailored to your business’s specific needs, borrowers seeking working capital financing need to seriously consider the benefits of working with an asset-based lender, as it can provide greater flexibility and options for businesses seeking to look beyond traditional bank lending. Share which lending strategy has worked best for your business in the comments below.






Since asset-based loans don’t rely on the borrower’s operating performance, but on the quality of the collateral, fewer financial covenants are required of the borrower, and as compared with traditional bank lending, ABL lenders typically require a much more limited degree of reporting back to the lender.

KEY POINT - ABL facilities usually start at a minimum of 250k relative to the approved sized of the borrowing facility. This is the lowest end of the scale and there is no real upper limit to a company borrowing if the firm satisfies assets and sales revenue size.


If a company is too small, or for some reason is not eligible for abl lending then a factoring/ receivable financing facility should always be considered. Even startups or very early stage and smaller firms can consider the factor funding solution. Access to cash flow is fairly quick and easy for firms looking to just finance receivables. Providing your financials, aged payables and receivables and some other general info on your firm will typically get you started and approved quickly.

7 Park Avenue Financial recommends a CONFIDENTIAL RECEIVABLE FINANCING facility for firms considering just an a/r solution, outside of the asset based credit line.

This type of facility allows you to cash flow all your sales immediately, and your firm is responsible for all the billing and collecting very similar to a bank facility. In lieu of an interest rate commercial factoring firms chared a fee for discounting the invoice, and this is typically in the 1.5-2% range , so if your firm absorbs that fee and has good margins your cash flow problems are certainly solved.



We recommend that you seek out and talk to an experienced and credible advisor in Canadian business financing to determine if the advantages of an asset based line of credit work for your firm! It is a business loan with collateral that works.




7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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.


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







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Asset Based Finance Solutions In Canada: Financing Via Business Loans That Make Sense !

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Asset Based Lending Canada

Asset based lenders have the ability to remove many of the challenges faced by business owners and financial mgrs. in Canada. We're examining the abl loan as a method to fund operations and growth.


Most top experts in Canadian business financing consider asset based lending a different form of funding your company - the other end of the spectrum being traditional chartered bank financing.

How is traditional bank financing different from an ABL Loan ? Simply because the entire focus is pretty well on specific assets that essentially give more borrowing power against 4 asset categories, either one of those or in combination.

Asset Categories

Accounts Receivable

Inventory

Fixed assets/equipment ( Must be assets that your firm owns outright )

Real estate - if applicable

Purchase Order financing can also be considered a subset of solutions offered via an ABL lending company in Canada.


Depending on what business and industry your firm is in you're either top heavy in one or more of those asset categories, or perhaps not at all. Service based companies traditionally utilize a/r and contract financing via the asset finance offering.


What then is the key benefit to asset based finance business loans and financing solutions? To put it simply:


FASTER ACCESS TO CASH!


Traditional financing forces you to address key issues such as what your balance sheet looks like, as well as focusing on historical, present, and future cash flow/projections. Your company may not necessarily have what it takes there, or in some cases, you're newer in business or even a start up. We point out that it always helps if you have a business plan and cash flow readily prepared.


A lot of companies that utilize asset based ' ABL ' lending solutions in Canada have a lot of seasonality or ' bulges' in their business cash flow needs. The ability to therefore rely on your ongoing asset base really helps smooth out those bulges!


While personal guarantees are almost always an issue for the business owner we can say that this type of guarantee, considered ' valuable ' or a ' must ' in banking circles has much smaller or no emphasis on asset based lending. Additionally, true asset based finance deals are pure asset monetization.


1. No debt on the balance sheet

2. There is no equity give up - Growing companies can maximize shareholder return without giving up equity when it is most valuable


We do need to mention though that while some consider ABL cash flow solutions as their ' holy grail ' in business cash flow financing you must be able to properly report on assets or be willing to go thru some form of appraisal process when it comes to adding inventories, fixed assets, or real estate.



ABL lenders, mostly commercial non bank lenders, rely heavily on the true marketability and value of your company asset base in the asset categories we have mentioned

ABL asset finance can also be used as an integral part of the financing to purchase a business when you or your company has targeted an acquisition that requires specific financing outside traditional norms


Seek out and speak to a trusted, credible, and experienced Canadian business financing advisor who can assist you with your cash flow and funding needs.

Click here for more info on 7 Park Avenue Financial Business Financing Success

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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
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

Equipment Leasing Companies In Canada

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Equipment Financing Rates & Strategies

Excellent equipment leasing options and solid asset finance solutions do exist in Canada , and suffice to say that equipment finance continues to be a popular and success method of acquiring both new and used assets for your business . Yes Virginia , used assets can be financed also. Financing assets is a proven formula to run and grow your business while at the same time conserving cash and not having to disturb existing credit lines.

Why Is Equipment Lease Finance So Popular with Canadian Business?

There are several key factors that drive the reality success of equipment financing in Canada :

Tax and Accounting Benefits

Conservation of capital and cash flow

An alternative to owning assets that depreciate in value and require replacement

Leasing assets is the ownership alternative - your firm reaps all the benefits of using the asset but is not obligated to the significant capital outlay for those assets. An old adage in the equipment asset finance industry is that businesses benefit through the use of assets , not the ownership . While there is nothing wrong in that other saying - ' pride of ownership ' the reality is that to stay competitive in current times business owners and their financial mgrs must always consider optimal use of capital.

Naturally the additional cash flow saved from lease finance strategies allows your company to invest in other resources and assets to make your business more profitable and competitive.

One of the major concerns for any business, particularly those that are in industries that are deemed ' asset intensive ' is the issue of obsolescence.

Assets that run your business include those shop floor assets as well as the computers and software that drive your business forward. Also some assets have limited long term use - a good example might be the constant upgrades needed for computers and software. ( Yes , application software can be leased !)The constant upgrading of technology needs can be a major cash drain on your business if this component of your business is not addressed properly from a cash flow perspective.

Purchasing assets that have limited long term use is not a solid working capital strategy for any business- your accountant can confirm that one ! Not too many business folks can imagine using todays computers for 3 to 5 years out - doubtful to say the least.

Equipment finance provides your business with ' buying power ' ; that is to say that you can buy more and better assets if your have a lease finance strategy in place.

Example Of Effective Leasing :


Lets say you need a new computer system for 250,000$ and the reality is that an alternate vendor has a better solution for 350,000$. If you were purchasing you have to wrestle down two key issues, laying out 250k , or alternatively coming up with an additional 100k of real cash to complete the second alternative purchase .

The monthly lease payment on a 250k 3 year lease would be approx 7700 dollars, and on a 350k deal it would be approx 10 600 dollars .

So as a business owner which solution do you want to wrestle with - paying either 250k or 350k out of working capital, or working an additional 3k into your operating budget?

Certain assets can also be financed under an operating lease strategy - that's a more technical aspect of equipment finance for another day but one that bears checking into .

The Leasing Bottom Line :

Business owners and financial mgrs must take advantage of some great rates, terms, and structures via one of the most comprehensive and flexible asset finance strategies available to business.

Seek out and speak to a trusted, credible and experienced equipment leasing advisor with a track record of business finance success, You will get the help you need maximize the benefits of this Canadian business financing proven strategy.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
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