A Tale Of Two Business Credit Facilities – ABL Asset Financing And Bank Revolving Secured Facility Business Line of Credit Alternatives in Canada

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UNDERSTANDING 2 DIFFERENT BUSINESS LINE OF CREDIT SOLUTIONS

Both public and private companies in Canada feel the squeeze when it comes to achieving the right financing for their firms in the current economic environment.  Both the business owner and his or her financial managers can be forgiven for being a bit confused on alternative methods of line of credit finance.

So should you be doing what everyone else seems to be doing, or should you strike out on your own with some solid investigation in alternative business models when it comes to lines of credit for Canadian business?

Let's look at what some of those key issues might be in considering alternatives, the ABL FINANCE asset-based loan facility, and the Canadian chartered bank offering. Clearly in both cases you want to be able to ensure you can grow, not just survive in business. So asset-based lending should always be compared to the possibilities of accessing bank finance.

Price is a factor also; you want to know the total cost when it comes to acquiring the right finance facility. Naturally, relationships are important also, you want to be dealing with the right people, it’s as simple as that.

WHAT IS ABL?

In recent years ABL Finance has become a valuable source of financing for Canadian businesses who have been unable to access traditional financing. Utilizing assets such as receivables, inventory, unencumbered fixed assets, and even real estate allows the company to borrow against all these assets on an ongoing basis based on the current values of the assets. Asset based lending is one of the most flexible types of financing in that it can grow as the business grows in sales.

ASSET BASED LENDING CREDIT LINES

So let's take a first pass at asset based lending via an ABL facility.  It is just a business credit facility secured by the assets of your company. Many firms that either cant raise bank financing, or, more importantly, cant raise the amount of financing they need from banks consider ABL.

 Hundreds of Canadian firms now use ABL finance as there preferred method of leveraging their assets for a credit line. Those assets are used to bridge the timing of cash in, and cash out in your business. ABL is available for companies of all size, from major public and private corporations, right down the pecking order to startups.

The facility fluctuates with the amount of asset that your firm generates, typically around A/R and inventory.  Funds are typically managed through a blocked account - that simply means that you deposit all your inflows into one account, while your balances to reduce the line are managed through a separate account. It's not as complicated as it seems. Key benefits are higher margins on receivables and inventory.

CANADIAN BANK LINES OF CREDIT

The more traditional alternative to business credit via a secured facility is the Canadian chartered bank. Facilities are low cost and can be combined with term loans. Banks are cash flow lenders, the ABL facility tends to be asset based, not cash flow based. Your financial statements and current financial history will dictate whether your firm is more cash flow or asset oriented.

Banks will look to what they call secondary forms of repayment and are highly regulated with their offerings. ABL lenders for asset based lending tend to be independent commercial finance companies that are none regulated.  It's a little known fact that many of the banks have small boutique divisions of ABL finance that in some ways compete with their peers in Commercial business credit.

NOTE - Asset-based lending banks do exist in Canada - they have tended to be smaller boutique divisions of Canadian banks and one perceived disadvantage of accessing ABL via a bank is that minimum deal sizes are often pegged in the 5-10 Million dollar range, which eliminates many companies seeking SME COMMERCIAL FINANCE    working capital solutions.

ASSET BASED LENDING RATES

AT 7 Park Avenue Financial we advise clients that for the vast majority of cases ABL asset-based loans will always cost more than traditional bank lines. Additionally, the facilities might in some cases have an appraisal or due diligence fee. Bank ABL's will always cost less than non-bank commercial lenders but the overall ' credit bar ' to access a bank ABL is significantly higher, as well as what we have already mentioned - namely that bank ABL's often tend to start in the multi-million dollar range. 


Note though that dealing with a non-bank asset-based lender still allows you maintain your deposit relationships at a Canadian chartered bank - that is accomplished by a system known as ' blocked ' accounts ' allowing loan advances to be made into your account under the ABL arrangement, as well as ensuring the lender has access to cash inflows from sales.  Well managed bank lines in ABL or banking .. fluctuate! 

CONCLUSION

Investigate both the ABL secured asset financing revolver, and the more traditional Canadian chartered bank line.  Weight the benefits and potential disadvantages of both in coming up with your preferred method of business financing. Speak to a trusted, credible and experienced Canadian business financing advisor today on differentiating that ' TALE OF TWO FACILITIES '!





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

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Asset Financing Solutions in Canada - The New Financing Alternative

Asset Based Lending in Canada ( ABL ) ; What’s all the excitement about? As we are well into our 2020 business year in Canada the financial markets continue to provide challenges to Canadian firms in the small to medium enterprise sector ( ' SME ' ) for a variety of reasons, one of which is a Pandemic!

At 7 Park Avenue Financial we define SME as Sales revenues less than 50 Million dollars, but you will find a number of people with different size definitions. Suffice to say our numbers are smaller than those in the U.S, as usual!

WHAT IS ASSET BASED LENDING?

ABL financing is simply collateral-based lending - It secured inventories, A/R, equipment, and other property your business owns, such as real estate for example. Canadian businesses use asset based lending to cover short term solvency  issues to run their businesses - it is often termed as ' transitional financing '.

Working capital and cash flow financing challenges seem to be a constant source of challenge for the Canadian business owner and financial manager. When we combine that challenge with the fact that many companies have debt and debt service problems, and in many cases are coming off a bad year ( the worst year ever? ) you can see how any new financing solution very quickly becomes top of mind. If the Canadian business owner is confident that his liquid and fixed assets as a whole can support the financing need careful thought should be given to an ABL arrangement.

ABL is the term most people refer to when discussing ABL FINANCE if they have a financial background.

SPECIAL CONSIDERATIONS  

So what are those liquid and fixed assets – well they are of course the company’s liquid current assets, receivables and inventory? That is also balanced with the firm's fixed assets and real estate might be included in that. Whether on the U.S. or the Canadian side of the border the asset based lending lines of credit continue to increase – some of the largest corporations in Canada and the U.S. have either completed such financings or are contemplating them. ABL in Canada grew out of the tremendous growth in the U.S. asset based lending industry.

HOW CAN YOUR BUSINESS GET AN ASSET BASED LOAN

As large as the market and market potential are in asset based financing it is interesting to note that the actual market participants can really be brought down to a handful or two of key players. There are some large tier one type firms that are primarily offshoots of major U.S. corporations who dominate the market in asset based lending, and then there are a very small handful of Canadian well-heeled players.

That is finally balanced by a similar handful of Canadian tier 2 and tier three players who play in niche markets and geographies. Asset based lending works only when there are... guess what... ‘Assets ‘! As such industries that are very capital intensive in nature – think manufacturing, etc... Are perfect candidates for ABL type arrangements?

HOW ASSET BASED LENDING WORKS

Asset based financing is essentially an operating loan and line of credit that allows Canadian firms to meet everyday cash flow demands as they operate the business. As there is often a significant delay in the final collection of receivables your business needs cash flow to cover that gap. For companies that can't demonstrate ongoing historical cash flow from operations the collateral in the assets of the business provides business capital to run and grow a business.

WHAT ASSETS CAN BE USED TO SECURE A LOAN ?

Asset based loans and lines of credit are typically tailored to a company's specific needs. There is kind of a hierarchy of priority in assets that ABL LENDERS prefer. More liquid assets such as your receivables and inventory receive high borrowing margins, but other assets also command good borrowing ability - sometimes dependent on appraisals, etc. Borrowers familiar with traditional bank covenants and formulas will be happy to know that those restrictive type of covenants in finance rarely occur in ABL lending.

In the past there was a major stigma in the asset based lending marketplace that this type of financing – i.e. leveraging your current and fixed assets to the max, is a form of alternative financing that was previously embraced by only firms who were in some sort of financial trouble or distress.

While a firm can have financial losses, a poor balance sheet capital structure, or cash flows that are very volatile or seasonal and still be a great candidate for an asset based line of credit /loan, it should be pointed out that major successful well-known corporations have added ABL financing to their financing toolkit so to speak.

 WHAT DOES ASSET BASED FINANCING COST VS BANK FINANCE?   PROS AND CONS OF ASSET BASED LENDING

When CFO’s and business owners meet with chartered banks to structure operating and term financings the discussions revolve around balance sheet ratios, debt covenants, cash flow coverage, and personal collateral. When all of those issues are generally positive in nature the Canadian chartered banks are providing lines of credit and term facilities at very low interest rates.

For the ABL lender it is simply a lending decision around the lenders ability to convert collateral to cash under the ABL facility. While asset-based lending interest rates are almost always higher than traditional bank financing rates have come down significantly and the final cost of borrowing will depend on the overall credit profile of your company and industry, as well as its current financial position and years in business.

When there are major challenges in satisfying bank requirements those ratios and loan covenants are not on the discussion table with your asset based lender, only the liquidation value of all your assets is. Receivables and inventory in most firms are of higher quality and can be margined in the 90% range, while appraisals are performed on other fixed type assets. That gets your company maximum asset financing, and that is what ABL is all about.  Real estate owned by the company can also be part of the asset mix.

Is it more expensive than traditional bank financing – we would say 95% of the time it is. But as a business owner do you want no or a small credit facility at a great rate or all the financing you need at a more expensive rate? Asset based lenders have a thorought due diligence process around your financials and the assets that ultimately finalize a term sheet / offer to finance. Canadian companies looking for SME COMMERCIAL FINANCE solutions and who have business assets are eligible for asset based financing loans.

Whether your business is a major corporation of an up and coming startup it's cash flow that is like ' gasoline to a car '. Operations must be funded and working capital financing must be conserved and maximized. Thousands of companies cannot satisfy ' cash flow based loans ' and are unable to demonstrate past and future cash flow generation. That is one of the main reasons why asset based financing works.

 CASH FLOW VS ASSET BASED LENDING - WHATS THE DIFFERENCE ?   

Companies that have bank financing in place for cash flow based borrowing are subject to potential reductions in their business lines of credit when their profits drop due to company-specific of general economic issues. On the other hand firms that borrow using ABL finance have the assets on their balance sheet backing up collateral for loans and lines of credit - cash flow is really a secondary consideration for the ABL lender.

ABL credit lines are formed by a percent of the value of your total assets, and facilities typically grow automatically as sales and assets grow !
ABL allows you to leverage assets and is often an intermediate step back to traditional bank financing for many companies; it's flexible and is often used in conjunction with buying a business or is part of a TURNAROUND FINANCING and a restructuring or refinancing strategy.

Various types of asset based financing such as inventory loans, purchase order financing and factoring ( pledging accounts receivable) form part of the ABL solution .For information on PO FINANCING click here , and for an understanding of how factoring works click here.
  
CONCLUSION  

Asset based lenders allow companies to borrow money based on the liquidation value of assets on its balance sheet. A recipient receives this form of financing by offering inventory, accounts receivable, and/or other balance sheet assets as collateral. While cash flows (particularly those tied to any physical assets) are considered when providing this loan, they are secondary as a determining factor.

They are fast flexible solutions outside of traditional financing and banking covenants. Ensure you are aware of this newer financing alternative – now it's your turn to decide, so talk to a trusted, credible and experienced Candian business financing advisor to see if asset based financing will work for your firm.





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

Business As Unusual - Asset Based Lending Works Because Its Business As Unusual !

Asset Based Lending In Canada

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Asset based Lending - Canada is catching on quite quickly to a new breed of financing facility that has been in existence in the U.S. for a number of years. Whether your firm is relatively new, large or small, you have the option of looking at an asset based loan as an alternative financing facility in Canada, unlocking your assets for capital! Let's dig in.

The acronym for Asset Based Lending is ' ABL ' - ABL has grown popular for some very simple reasons :

1. ABL facilities will often resemble a bank credit line, providing the client with full-service banking needs

2. ABL lenders have a solid understanding of specialized asset values

3. Transactions are often very much ' customized ' to a particular firm or industry

4. There are limited or no ' financial covenants in asset-based lending; As an example banks are focused on ' leverage covenants ', thereby forcing firms to meet debt to equity ratios as an example that may be unachievable for many firms. Covenants in finance in banking scenarios become a real challenge as a firm tries to balance ratios versus growth opportunities.

5. There are no real ' upper limits' on the amount a firm can borrow in ABL, while the smaller transactions commence in the 250k range, which is considered a very small facility

6. An ABL loan line of revolving credit facility will almost always deliver more liquidity to a business because loan margins are much more generous; typical advance rates for a/r and inventory are significantly higher than bank credit lines. Stand-alone inventory loans can also be accessed as an inventory loan is a subset of asset based lending.

7. Many company's and certain industries, in general, are very ' seasonal ' when it comes to revenue recognition, need to build up inventory, etc. Asset-based credit address this issue head on. Additionally, certain industries become ' out of favour' in traditional financing circles, and ABL can often easily finance cyclical or industry specific challenges

8. Outside of general borrowing needs asset finance loans are very appropriate for acquisitions and or management buyouts.

9. Certain banks also offer ABL loans and pricing is extremely competitive KEY POINT: It should be noted that in general non-bank commercial asset based lenders have higher rates than Canadian chartered banks

10. Asset based non-bank revolving credit facilities are not really 'capped' with an upper credit limit - they can easily grow as your sales and asset base grows. This is a key differentiator vs a bank line of credit.

Asset Based Lending Versus Cash Flow Lenders

Part of the reason that asset-based lending - ' ABL ' has caught on in Canada is the current state of commercial business banking and in Canada and the access to liquidity challenges that many firms face in the post-2010 business environment. Suffice to say the 2020 pandemic has brought those same liquidity challenges to Canadian businesses

A BUSINESS LOAN WITH COLLATERAL

When your company has significant assets tied up in accounts receivable, inventory equipment, and sometimes real estate you want to ensure you are financing them at optimal levels for both survival and growth. Asset financing is the ultimate working capital finance option, as it comes with flexibility and can deliver urgent timely cash flow needs that many companies require when they are in a process of transition, or, alternatively, exploring significant growth options.

HISTORY OF ABL FINANCING IN CANADA

Although the basic financing concept is new ABL has been prospering in the U.S. for a number of years - Canadian firms compete with U.S. ABL lenders in our own business financing marketplace. Every industry in Canada has potential access to asset financing lending solutions - we note though that many industries are the perfect ' poster child' for ABl. Manufacturers, distributors, retailers are very typical users of the ABL solution.


As we noted some of the largest corporations in Canada utilize this type of financing, but the demand for ABL probably grew more out of the need for smaller and medium-sized firms in Canada - let’s say with revenues under 20 Million dollars - to get the operating financing they need.

BENEFITS OF ASSET BASED LENDING

The benefits of ABL financing seem very obvious to Canadian business owners and financial managers. The financing revolves totally around assets, and places only a very small reliance on debt to equity ratios, operating ratios, cash flow coverage, etc.



When Canadian businesses cannot satisfy their bankers on the above ratios and loan cash flow coverage they view ABL as an alternative financing solution. We would point out that ABL financing, similar to any other commercial financing, is not a solution to a firm who is in a death spiral - years ago ABL had the taint of a 'lender of last resort' - that is categorically not the case now and is utilized by firms who want to maximize operating and working capital financing but cant in many cases satisfy all Canadian chartered bank requirements.

WHEN YOU SHOULD CONSIDER AN ASSET BASED LENDING SOLUTION

ABL finance is a business loan that relies exclusively on the value of assets that become the collateral for a loan or revolving credit facility. Banks as an example place a huge emphasis on a firm's ability to generate positive cash flow from operations. Firms that are unable to demonstrate cash flow but still require financing utilize asset based lending arrangements to generate cash. There may be a number of reasons why a firm cannot temporarily satisfy banking covenants - the firms' financials may not be ready or updated as an example.


The typical scenarios under which a firm considers an asset-based lending arrangement are:



Growing very quickly - in high growth mode



Expanding into new markets



Merging with another firm



In 'Special Loans 'now and wishes alternate financing



We can't over emphasis the before mentioned point about financial statement characteristics - Asset based lines of credit focus solely on assets, that is where the liquidity and the operating facility works at its best. In many cases firms that have previous financing arrangements can significantly increase their credit availability by switching to an ABL line of credit.

EXAMPLE OF AN ASSET BASED WIN!

Our firm, 7 Park Avenue Financial, worked with a firm that was in Special loans with a chartered bank. They had an original line of credit of 750,000.00 - the bank cut it down to 500,000.00 and also put the customer into a Special loans category. We originated an asset based line of credit for 1,000,000.00 based on the firm's receivables, inventory, equipment and real estate. The customer utilized the ABL for about 18 months and then migrated back to commercial chartered banking arrangements with another bank. That story plays out over and over again in Canada.


We can say that the amount of funding a company can receive in an ABL arrangement is really based on a hierarchy of value of any given asset category. So as assets become more liquid on your balance sheet and work up to 'cash on hand; they have higher loan to value ratios. So while it is improbably and very unlikely your firm would receive 100% financing receivables as an example typically qualify for 85-90% funding. Many firms owner their own premises and there is significant equity in real estate, so that category also would receive a higher 'ltv' ( loan to value) possible in the 75% range as is common. Standalone inventory loans are also a subset of ABL financing.



CONCLUSION

Asset Based Lending In Canada can be one of the most effective business credit facilities for customers unable to achieve full traditional bank financing. Securing liquidity through company assets allows your borrowing to expand and contract when you need cash flow. Companies of any size or transitional stage can take advantage of working capital provided by asset based lenders.


Asset based lending will work for your business credit needs if your cash flow requirements are seasonal and revenues fluctuate. If your business plan includes acquisition financing, a turnaround or restructuring, or even a need for capital outside of equity considerations ABL will work for your company. ABL allows you to leverage company assets and is often a bridge back to traditional financing for many companies in Canada. The ability to finance a firm when it is in transition is a key part of ABL's success in Canada.



Asset based lines of credit? Your mission, should you choose to accept it? Investigate this unique financing option and work with a trusted, credible and experienced Canadian business financing advisor if the solutions meet your working capital needs.






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 lending canada

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

Business Leasing & Equipment Finance – Do You Know These 4 Secrets Of Lease Financing ?

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INFORMATION ON EQUIPMENT LEASING LOANS AND ASSET ACQUISITION FINANCING IN CANADA

Business leasing and equipment finance in Canada. Does your firm take advantage of these 4 secrets of lease financing in Canada, thereby maximizing the benefits of an already proven business finance tool used by 80% of North American ( that’s Canada too by the way !) business.

Let's focus on some of the advantages of leasing, thereby giving you some great reasons to consider entering into a lease when your firm acquires assets. Yes there are other ways to acquire assets - they include term loans, or putting in additional equity into your company but time and time again Canadian business owners and financial managers come to realize that lease finance is competitive and offers some of these ' special ' advantages that arent available elsewhere .

So, is lease financing the right decision? Let's examine secret # 1 - which simply speaking is your ability to get 100% financing on. And even if a down payment is in fact required 90% financing, as an example surely isn’t a bad thing. Oh and by the way, the additional costs that you might have to incur in acquiring an asset, i.e. delivery, installation, training, maintenance, etc. can easily be bundled into your transaction. If you went the term loan route many of these softer costs couldn’t be financed and therefore drain your cash flow.

Secret # 2 in business leasing. It's your ability to be a ' hedger '. A hedger? We mean of course a hedger in terms of an inflationary environment. As you make your payments over time the lease company that receives your cash of course recognizes that’s its worth less over time whenever there is positive inflation in the economy. They lose, and you win. Naturally this is probably not the greatest economic decision driver when you acquire and asset but its one more positive in the lease advantage scenario. And since lease terms are available anywhere from 2- 7 years typically you keep on being the winner.

Secret # 3- In your kingdom of business, cash flow is king. We all know that .The drain on cash flow in your company can be offset by utilizing lease financing. Firms with good credit ratings can get great rates these days, and even firms that have credit challenges are able to take care advantage of ' structured ' transactions, allowing them to acquire the asset under perhaps a shorter term or higher monthly payment.

Secret # 4- The lease financing transaction typically is complimentary to your overall banking and debt strategy. Banks or other institutions might have what we call ' negative covenants ' about how you run you business from a financial ration perspective. Leasing can often address your other loan covenants with lenders in a positive manner, but we do caution business owners and financial managers to review their covenants prior to entering into a lease.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in maximizing asset finance needs.





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