Guide To An Asset Based Line Of Credit Via Specialized Asset Finance Solutions

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ASSET-BASED FINANCING / TYPES OF ASSET-BASED FINANCING

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ASSET-BASED LENDING - HOW IT WORKS

Asset finance and revolving credit lines that can generate cash flow/working capital for businesses are almost always a top priority for Canadian business owners and financial managers. Could your company benefit from an asset based loan using this method of financing? We think so, let's dig in.

WHAT IS ASSET BASED LENDING ( ' ABL ' )

Independent finance firms are the real origin of asset credit lines - they are, therefore 'non-bank' in nature and focus on funding your company's assets via the maximum loan available to your business

Entering into this type of facility should always be done with the expertise of a business financing advisor, your accountant, and in some cases... your bank! More on that last one later.

ASSET BASED LOANS IN CANADA

The most important thing you can do in contemplating such a transaction is to both understand the financial offering, and at the same time ensure you understand how the Canadian marketplace works.

Asset finance or asset based lines of credit provide your Canadian firm with maximum utilization of asset values related to 3, possibly essential components of your firm's asset base.

So why does this facility work differently than unsecured loans via a traditional chartered bank line of credit under traditional commercial banking in Canada? The answer?

What is meant by that? Well is simply the ability of your firm to leverage higher borrowing, when and if you need it, against those asset classes which we have just mentioned. In the case of receivables, it tends to be 90% of receivables less than 90 days, and in the case of inventory, it's a case of understanding in advance the true value of your inventory on an ongoing basis are your costs and ultimate marketability of that inventory.

The true cost benefit of an asset-based line of credit facility is that you use the facility when you want and to what extent you want - from a cost perspective that equates to paying for only what you use.

ASSET BASED LENDING RATES

Asset finance and asset based lines of credit tend to traditionally be more expensive than banks' lines of credit. Let's just understand the basics of that. Currently, banks pay between one or two percent, perhaps three percent to depositors in Canada. If they can lend out those funds at 2-300 basis points more - i.e. 5 or 6% rates to your firm the banks consider that a winning proposition.

But they want to be secure on that transaction, so that involves your personal guarantee, lower margining of the asset, and strict rules and covenants around ratios, operating performance, etc.

Independent finance firms borrow from banks, or raise capital themselves - they, therefore, mark up those funds so in general, asset finance and asset-based lines of credit cost your firm more.

But if your firm can grow revenues and increase profits with a higher borrowing cost is that not ok? We think the weight of evidence suggests that proper consideration of an asset finance and asset based line of credit warrants significant merit.

You should consider asset-based facilities if your company is growing or has growth opportunities that need good financing solutions. Bank lending is still difficult to access for many small and medium-sized firms

CONCLUSION - ASSET BASED LINES OF CREDIT

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What is asset based lending

Asset-based lending, also known as asset-based financing is a financing agreement that secures the collateral / physical assets of a business via a business line of credit or in some cases a term loan - This method of financing a business utilizes such assets as accounts receivable, inventories, fixed assets/equipment and in some cases commercial real estate.

More liquid assets such as receivable financing provide more financing, providing valuable working capital financing to fund day to day operations. If a borrower defaults the specific assets secured under the financing are the collateral for the loans or lines of credit. Other assets such as real estate or intellectual property can be financed under the same facilities.

What is an asset line of credit?

Asset Based Lending is a business revolving line of credit that is typically secured via a/r, inventories and fixed assets/equipment. These assets are margined to determine a borrowing base under which the company can borrow.

What is the difference between a loan and a line of credit?

A line of credit for a business typically has a credit limit attached to the facility - funds are paid back as the facility revolves and fluctuates according to the cash flows of the business. Term loans are for the purchase of assets and have fixed payments or installments.

Is factoring a form of lending?

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Asset Finance Asset Based Line Of Credit Canada | 7 Park Avenue Financial