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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Is there life after business working capital financing and cash flow runs out? It's unthinkable but the reality is that business failure looms in the horizon when companies in Canada (and everywhere else by the way). Change in working capital cash flow position can dramatically affect your short term funding ability for day to day operations.

THE CASH FLOW   / WORKING CAPITAL CONUNDRUM

Small business owners are sometimes not aware of the nuances around terminology such as the differences between working capital and cash flow. Any change in your current assets and current liabilities, which is your ' working capital ' will affect cash flow. For instance, if payables increase your cash flow increases given you are not paying those payables. By the way, every industry has different working capital requirements - a good example is retail here inventory is a high priority on the balance sheet.

HOW MUCH WORKING CAPITAL IS ENOUGH?

Those textbook folks will talk about your current ratio calculation, and that a 2:1 ratio of current assets to current liabilities is satisfactory for most industries. At 7 Park Avenue Finacial, we advise clients that at the end of the day it's simply all about managing your cash, a/r, inventory and payables and ensuring those latter 3 are turning properly  -  as your cash on hand shouldn't be included in your calculation. That's the true secret to working capital management 101! Note however that negative working capital in your current ratio is NOT a good thing!
So how do you cope with cash flow challenges and what do the Canadian business owner and financial manager need to do to address this financing challenge, and what type of business loan or balance sheet financing mechanism works best for your company's needs? A business loan for startups is even more difficult to address, although more solutions have become available in recent years thanks to Breakthru advances in alternative financing.

As a starter, whether business people like it or not (certainly owners and financial managers) you have to have a grasp on your overall liquidity situation. This essentially becomes a matter of relationships, understanding how the relation of your current assets (accounts receivable, inventory, cash on hand) is relevant to your cash flow success.

Not every analysis of some of these relationships are going to be relative to your firm all the time. The reality is that different industries have different financial profiles and it becomes a case of understanding where your company fits into the industry profile. And by the way, we never met a client yet who didn't think their firm was a bit different!

When you look at cash flow solutions you're looking at really two areas of focus, one is the overall solvency of your firm, and secondly, the amount of risk you're prepared to take in making investments, taking on debt, and growing their company.

That's of course the inner view. The outer view is from lenders and suppliers, who are looking inside your company relative to your debt paying capability and your overall financial health, now and somewhat into the future. They have a vested interest in doing that based on what products or services they are supplying. And lenders don't even get us started on that...! The bottom line is they are looking to get repaid!

So business working capital financing then becomes a measure of looking at your balance sheet, i.e. your company resources...  and addressing the various types of assets you have and how to monetize them to meet your operational goals. Any look into your balance sheet is a 'static one’... it's where you are at one place in time.It basically reflects how you're performing today. That income and cash flow statement basically show you how you got there.

So it's therefore important to understand some of those structural relationships when addressing cash flow financing.

SOLUTIONS FOR WORKING CAPITAL AND CASH FLOW FINANCING IN CANADA

In Canada, your choices for working capital financing are one, or a combination of the following -
A/R Financing
Inventory Loans
Access to Canadian bank credit
Non bank asset based lines of credit
SR&ED Tax credit financing
Equipment / fixed asset financing
Cash flow loans
Royalty finance solutions
Government Of Canada Small Business Loan Program  - The Guaranteed federal business loan

Conclusion

Good management teams will ensure they are funding working capital properly and putting plans in place to do that - they do that by focusing on a/r and inventory and accounts payable management,  accessing business credit lines or short term working capital facilities that make sense for their firm or industry.

The ability of owners/management to increase working capital and provide support for key day to day operations such as supplier payments is key in today's competitive economy.

Which one of the above makes sense for your firm and how do you satisfy those working capital objectives? Speak to a trusted, credible and experienced Canadian business financing advisor today on how to best meet your business finance needs for growth and operational survival.



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

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5 Things You Didn’t Know About Asset Based Lending in Canada

Asset-based lending in Canada – We’re discussing 5 things you didn’t know about ‘ABL Financing ‘ in Canada.

5 THING YOU DID NOT KNOW ABOUT ASSET BASED FINANCING

1. What is Asset Based Lending?
2. What does it Cost
3. How does it Work
4. For what type of firm is it perfect for
5. How to get such financing!


LET'S DEFINE ASSET BASED LENDING 

Asset-based lending and financing for your business is simply the utilization of your business assets for maximum business financing based on your business needs. Business owners and financial managers should understand that this is a replacement or specific financing as an alternative to either traditional financing ( via a Canadian chartered bank ) or to a firm that is unable to get financing that might otherwise be called traditional.  Firms in that category might include start-up operations or firms that have had business challenges. 

ABL financing is the utilization of your current and in some cases your long term business assets for the leveraging and monetization of working capital and cash flow. The current assets are almost always accounted receivable and inventory, and longer-term assets in some cases might include equipment or real estate that your firm may own – for example, owner-occupied premises.  

All assets must be unencumbered, that is to say that they should not have any liens or registrations against them, otherwise it would be difficult, if not impossible, to structure an asset based loan.
Typically the asset-based lender pays out any existing creditors and takes a charge against the assets being financed.

WHAT DOES ABL COST?

Does asset-based financing differ in cost to traditional financing? We have to use your lawyer’s typical answer (it depends) but the reality is that in Canada the costs of asset based lending are all over the map. In some cases they are actually lower than chartered bank financing; in most cases, they are more costly.


When we indicated to clients that financing of this type is more costly we point to clients that they have to balance any additional costs against what they are receiving. And what they are receiving quite often is simply the maximum working capital they need based on their asset and growth needs. That can rarely be achieved these days in the current challenging economic crunch - pandemic issues included.

THE EVERYDAY WORKING OF AN ASSET BASED CREDIT FACILITY

 So how do asset based loans work? A few simple key points will help you better understand how this type of financing might work for your firm on a day to day basis, and, as importantly, for long term growth.   The ‘key word’ here is ‘Asset’!  ABL financing focuses on the real true market value of your assets.

 Many other traditional types of financing, i.e. a bank line of operating credit, etc, is in fact focused on many other metrics such as the lender's perception of what industry you are in,  and typical financial ratios and metrics such as cash flow coverage analysis,  debt to worth ratios, etc, etc, etc!


Asset based lending puts those items aside. Using specialized industry experience, analysis, and in some cases appraisal of your assets you are provided with the maximum amount of capital those asset categories can achieve.

So, as an example, if you have  500,000.00 in account receivable you can borrow against that  $500,000.00. That typically is not how traditional financing works. We often point out quite frankly that asset based lending is in fact becoming a traditional financing method for Canadian businesses of all sizes.

WHO IS ' ASSET BASED ' ABL FOR ANYWAY?

So who is this type of financing for? The answer becomes very simple. It is for industries of all types in Canada – Typical transaction on the small side are $250,000.00 and deal sizes are in the multi-millions when it comes to large facilities. 

In some cases, sky is the limit and some of Canada’s largest corporations have adopted this financing method.  Asset-based lenders are specialists in understanding what your business is about, what are its cash needs and cyclicality, and what type of optimal structure works for your firm.

 HOW CAN MY FIRM ACCESS ASSET BASED LENDING ?   SPOILER ALERT - CONTACT '  7 PARK AVENUE FINANCIAL '

 How does your firm investigate asset-based lending on the Canadian business scene? Since the financing is rarely front-page mainstream news then it is highly recommended that you work with a trusted, credible and experienced advisor in this area. The Canadian landscape is cluttered with small firms, mega-corporations out of the U.S., as well as boutique divisions of other well-known institutions you know of but was not aware this type of financing was being offered to Canadian business.


So what’s out bottom line – its simply be informed, work with an expert, understand your cash needs on an immediate and long term basis, and consider structuring such a facility for your growth and benefit. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your asset-backed 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

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 Financing In Canada: Grown Up Loan & Growth Finance Solutions

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Opportunity Lost – Is Your Company Missing Out For Lack Of Business Financing

Business financing in Canada often faces the challenges of ' opportunity lost ‘.  Business Growth finance and loan and finance solutions are a part of your company  ' growing up ' - so we're examining those ' grown-up ' solutions that can accelerate your small business success. Let's dig in.

HOW DO YOU FINANCE BUSINESS GROWTH - In the real world!

At 7 Park Avenue Financial, we get that one a lot. Clients have explored their own personal finance situations, friends and family,  crowdfunding, bank loans, angel investors, government grants,  and even VC and private equity firms - all to no avail. Entrepreneurs are always looking for the holy grail of business loans for startups.  So let's get ready to explore ' real world ' finance options to solve those business needs with a financing program that works in your industry.

  
BALANCING EQUITY, DEBT AND GROWTH IS A MAJOR BUSINESS CHALLENGE   

Naturally, it's a fine line between taking on too much financing versus the ownership capital in your business. Nevertheless, it's every owner/mgr/entrepreneur dream to not miss out on growth opportunities. Again it's that balancing act we've referred to in the past - being too aggressive in growth or simply...missing out and watching your competitors leapfrog you, while all the while ensuring you can achieve an interest rate and overall cost of financing that benefits the firm and matches your business credit profile .

In truth, short term financing goals are probably easier to achieve than long term fixes. But if you take on the right type of debt and manage your cash flow and finances well opportunities abound.

BUSINESS LOANS AND MONETIZING ASSETS HAS A LOWER COST THAN NEW OWNER EQUITY

In some cases, particularly for start-up and earlier stage companies debt financing and monetizing existing assets is in fact simply a more realistic solution than searching for new owner equity capital when it comes to the challenge small business owners face in raising business capital and finance.

It's important to note also that the amount and type of business funding loans are also sometimes somewhat dictated by the type of industry you are in and how capital intensive it is. Also, as your company grows within your industry numerous types of financing emerges as being more applicable.

Loan and growth finance solutions that are a bit more ' alternative ' in nature include:

A/R Financing
Inventory Loans
Access to Canadian bank credit
Non bank asset-based lines of credit
SR&ED Tax credit financing
Equipment / fixed asset financing
Cash flow loans Or Term Loans
Royalty finance solutions
Government Of Canada Small Business Loan Program  - Guaranteed federal business loan -one of the best financing programs available - Call us at 7 Park Avenue Financial to ensure you are working with the right financial institution

More established businesses with track records of achieving some level of financial success already include:

Bank operating credit lines/term loans
Equipment financing
Unsecured cash flow loans
Working Capital term loans

Knowing what type of capital all these solutions deliver on, and what they cost is key go growth finance success. It's all about ' linking' the type of capital you need to those growth opportunities.

As a general rule, you need to understand how other companies in your industry finance their business, while at the same time understanding limitations around your current stage of growth and how much debt you either have in place already or are prepared/able to take on. Unfortunately, the amount of loan accessibility is sometimes also dependent on the lending market's current view of your industry, as some industries occasionally find themselves temporarily ' out of favour'.

CONCLUSION

We have explored numerous government loan programs that deliver, the ability to source credit lines via alternative lenders as well as banks, and asset monetization strategies for immediate working capital. Each type of financing has costs, benefits, and risks associated with that type of financing. Understand your options and If you're looking for ' grown up ' financing for small businesses or larger established companies  seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your loan 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

business financing loan growth finance

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Business financing in Canada often ' revolves ' around the need to include revolving loans in your business finance mix. How does this type of credit facility work?

WHAT IS A REVOLVING LOAN FACILITY

Revolving loans are a type of business credit provided by banks and other commercial lenders that allow a business to draw down on financing and continue repaying and drawing down based on cash inflows from receivables, etc. These are known as ' facilities ' in that it is a type of service such as a defined line of credit that revolves.

WHY CONSIDER A REVOLVING LOAN?

Revolving business credit lines are a key tool in business finance and should be a part of your firm's overall business finance strategy. These ' revolvers' allow you to meet day to day operating needs and plan for anticipated cash flows based on sales and cash collection projections.  In more mature companies that are established, they are a part of the overall capital structure of the business and are complemented by other long term financings such as term loans, leases, etc.

HOW DO REVOLVING CREDIT LINES WORK?

Revolving business line of credit loans allows a company to access a defined amount, typically called a ' credit limit.  Normal uses of this type of credit facility are for buying inventory from suppliers, maintenance and repairs, funding marketing,  and addressing gaps in either the carrying of larger amounts of a/r and inventory or seasonal requirements based on the industry in question. A Typical revolving credit line is secured by the assets of the business - with the most common security being accounts receivable and inventory. In the case of asset-based lenders, they allow fixed assets that are owned by the company to be monetized within the same facility. Typically chartered banks do not include fixed assets as part of the' borrowing certificate ' that banks calculate monthly based on your levels of a/r and inventories.
In some cases, commercial lenders may utilize the concept of an Unsecured line of credit - which provides a certain level of borrowing based on a general security agreement - ' GSA ' on all the assets of the company. Typically personal guarantees of the business owners play a key role in unsecured credit.

The key aspect of revolving business lines of credit is clearly ' flexibility'. The continual drawdown and repaying of the facility creates a ' pay as you go ' scenario as businesses both use and consume cash as they run and grow their business. That's good news!

The key differentiator in business credit facilities that revolve is that it's not a term loan, via that continual drawing down and repayment we just referenced. However, like term loans, they do often come with ' limits’, but more importantly they vary with your assets.

Here an important distinction occurs. When it comes to bank credit lines these pre-imposed limits are often fixed and relate directly to typically receivables and inventory. However, if you chose an asset-based non-bank line of credit via a commercial finance firm that borrowing base typically has no upward limit if you in fact have growing sales and commensurate assets.

That monthly ' borrowing base' that banks and asset finance companies utilize comes with some pretty basic formulas. In the case of banks, utilizing receivables as an example the borrowing base is 75% of your A/R; asset-based lenders typically lend against 90%. (In both cases receivables must be under 90 days old). Those calculations are a key part of a revolving credit facility agreement, and establish your ' borrowing base ' which the lender documents regularly with a 'borrowing base certificate '

CALCULATING THE BORROWING BASED ON REVOLVING LOANS

Asset-based lenders and banks determine your borrowing power by ' margining' a discount factor against a specific asset based - most commonly receivables and inventory.  As an example, if an asset-based lender allows a discount factor of 90% on receivables, which is common, a 1 million dollar receivable portfolio can represent a revolving loan of 900,000.00. The same type of calculation applies to inventory, and asset lenders also allow your unencumbered fixed assets to be margined in the same manner! Banks typically have revolving loan facility agreements around a/r and inventory only, with possible exceptions.

Various nuances might exist in your A/R margining relating typically to issues such as government receivables, high balance concentrations with one customer, etc.

Revolving loans from banks come with various covenants and restrictions. In general, we can make the statement there is a lot less restriction from non-bank asset lenders on this issue.

What then are some of the key issues around pricing revolving loan credit facilities? No one disputes the fact that Cdn chartered banks offer the lowest cost business financing rates - if you can satisfy the risk profile desired by the banks. That risk profile typically includes growing sales, profits, clean balance sheets and demonstrable cash flows.

Interest rate pricing on non-bank asset financings varies proportionately to credit risk. The good news here is simply that almost any firm with sales and assets is eligible for asset-based credit lines. So it’s overall credit risk and the amount and type of debt a company has is the driver behind asset-based revolving loans and other alternative working capital solutions.

  
TERM LOANS VERSUS REVOLVING LOANS  

Commercial lenders have a clear separation around term loans versus revolving loans/credit lines. Credit criteria for a term loan involve a firm's total credit profile with a focus on clean balance sheets,  profits, and the ability to generate cash flow as repayment of the loan over several years.
Business financing when it comes to credit lines is all about operating performance. Credit lines don't require fixed payment terms, they ' revolve ' and we can make the case they come with a maximum amount of financial flexibility. A bank or an alternative lender offering non-bank lines of credit ultimately like the facility to revolve and at some point be very significantly reduced before it is drawn down again based on the needs of the business.  When it comes to revolving loans from either banks or an ABL lender it's your revenue and operating performance that allows you to access short term operating capital.

CONCLUSION

Revolving loans and bank or asset-based lines of credit provide a safety net for the business as the credit facility allows you to draw down on cash flow needs over time as your company generates sales. Interest rates are often higher when accessing business capital via an alternative lender but these ' ABL ' lenders provide capital when a company can't access traditional bank financing, particularly for small business and medium-sized companies who can't access public markets.
If you're on the search for the right type of credit facility for your firm your search will almost always end well by seeking out a trusted, credible and experienced Canadian business financing advisor who can assist you with your credit facility 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

Business Financing In Canada: Your Search For Revolving Loans & The Right Credit Facility Just Ended

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