YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT FACILITY!
ABL LENDING SOLUTIONS IN CANADA
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Asset-Based Lending (ABL) empowers businesses to unlock capital by leveraging their existing assets.
Unlock the hidden potential of your business assets and secure the funding you need.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ABL LENDING & solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Canadian Business Financing with the intelligent use of experience
ABL LENDING - CANADA
An ABL Asset-Based Line of Credit for Canadian businesses is, in some ways, a solution to the ' entitlement ' that business owners and financial managers feel around the necessity of accessing commercial credit.
In some ways, it's access to a ' kinder, gentler' method of getting approved for revolving credit to run your business. Let's explain.
What is ABL Lending?
When we talk to clients about their needs and challenges accessing business credit, it’s surprising that many owners and managers have never heard of ABL business loans or credit facilities.
Why is that? Actually, one can be forgiven simply for the fact that the asset-based loan is a newer method of financing in Canada that is gaining traction every day. These credit facilities grew popular in the United States, and the solution has migrated into the Canadian business financing landscape.
Asset-based financing solutions that allow businesses to leverage their assets to secure funding.
If your company is focused on expanding operations, increasing working capital and cash flow, or navigating day-to-day financial challenges, understanding ABL can be a game-changer for your business.
A specific type of ABL is accounts receivable financing, where businesses use their outstanding invoices as collateral to secure a loan. This type of financing provides working capital, helps manage cash flow, and is based on the creditworthiness of a company's customers.
HOW DOES YOUR FIRM OBTAIN APPROVAL FOR ABL FINANCING?
Approval for business financing revolves, of course, around a company's credit rating, which is not dissimilar to that rating that follows us around as consumers.
That business credit rating revolves around the quality of financials, ability to meet obligations to suppliers and lenders, character and capability of management, and, more specifically, cash flow and profit generation.
However, eligibility for asset-based lending (ABL) is determined based on the value of collateral rather than the borrower's credit history, making it a viable option for businesses with a lower credit score or no credit history.
WHEN THE BANK SAYS NO
But what happens if the new or challenged firm can’t access the tremendous rates and flexibility our Canadian chartered banks offer? Businesses still need access to credit—enter stage left ‘ABL’ business lines of credit.
Another alternative is cash flow lending, which involves borrowing money based on a company's projected future cash flows.
WHAT ARE ASSET BASED LENDING CREDIT LINES
Simply speaking, they are revolving loans to businesses that are secured by balance sheet assets, including A/R, inventories, and, uniquely, fixed assets.
These balance sheet assets can be used as collateral for financing. That’s the ‘big difference’ relative to a bank business credit line - simply that the focus is on the current and fixed asset collateral, not the unique emphasis that our banks place on ratios, covenants, and secondary sources of repayment such as outside personal collateral, etc.
BANK LENDING VERSUS ABL
Because Canadian banks, and rightly so we believe, are highly regulated, they can’t take the additional risk that is posed by ongoing management of receivables, inventory, fixed asset valuation, etc. That’s where the ABL facility excels, simply because if you have assets and revenues those ratios become almost meaningless.
Asset-based loans often offer competitive interest rates due to the collateral mitigating risk for the lender.
SOME BANKS DO OFFER ASSET-BASED SOLUTIONS FOR BUSINESS CREDIT, INCLUDING ACCOUNTS RECEIVABLE
While it’s a bit of an unadvertised secret that banks in Canada, or at least most of them, offer ABL facilities, the reality is that, more often than not, they are not unlike traditional banking when it comes to facility size, appraisals, reporting, etc
HOW IS THE BORROWING AMOUNT DETERMINED? LOAN TO VALUE RATIO
The asset-based credit line approval amounts fluctuate and are geared toward the constant growth and change in the sum of your A/R, inventory and fixed asset values.
In almost all cases a strong assessment of these values will be made to ensure you've got maximum borrowing power. A ' borrowing base ' is established for assets such as accounts receivable and inventory, allowing you to drawn down on funds as needed on a day-to-day basis.
KEY TAKEAWAYS
Asset-Based Lending (ABL) involves leveraging a company's assets, such as accounts receivable, inventory, and equipment, to secure financing.
Key concepts include understanding the commonly used asset types, recognizing benefits such as improved cash flow and growth potential, and grasping the fundamental differences between Asset based lenders and traditional lending.
The ABL lending process in an asset based line of credit facility typically involves asset valuation to determine the maximum loan amount around asset lending values, underwriting, and continuous monitoring. Awareness of the risks, such as potential asset liquidation, is crucial for effectively utilizing ABL.
CONCLUSION
Asset based lenders are the ultimate working capital solution for your business capital needs. That borrowing base certificate can include company-owned real estate with an equity component, further adding to your borrowing ability! It is the power of financing the balance sheet.
Call 7 Park Avenue Financial to ensure you have access to business credit and asset-based loans that might not otherwise be available from Canadian banks.
We are a trusted, credible, and experienced Canadian business financing advisor who can assist you with your borrowing needs.
FAQ
What is Asset-Based Lending?
Asset-Based Lending (ABL) is a financing method in which businesses use their assets, such as accounts receivables or inventory, as collateral to secure loans.
How does ABL differ from traditional lending?
ABL focuses on the value of a company's assets, whereas traditional lending often relies on creditworthiness and cash flow for loan approval. ABL is a covenant light structure compared bank covenanats
What types of assets can be used in ABL lending?
Common assets used by asset-based lenders in ABL lending include accounts receivable, inventory, machinery, equipment, and bridge loans on physical assets such as commercial real estate. Fixed assets facility limits will sometimes depend on appraisals.
What are the benefits of ABL lending?
The asset based lender provides improved cash flow, flexibility in financing, and the ability to leverage existing assets or a pledged asset for business growth.
What are the risks associated with ABL lending?
The primary risk of ABL lending is the potential liquidation of assets if the borrower defaults on the loan.
What are asset-based lending rates?
Asset-based lending rates vary depending on the lender and the specific terms of the loan but generally include interest rates and fees associated with managing the collateral. Due to the complexity of managing and monitoring the assets, these rates can be higher than traditional loans.
What is the ABL borrowing base calculation?
The ABL borrowing base calculation determines the maximum amount a business can borrow based on the value of its eligible assets, typically including a percentage of accounts receivable, inventory, and sometimes equipment. Lenders usually apply a discount rate to these assets to account for potential value fluctuations.
What does the term 'ABL revolver' mean?
The term 'ABL revolver' refers to a revolving line of credit secured by a company's assets, allowing the business to draw funds as needed up to a specific limit. This type of financing is flexible and helps manage cash flow by providing access to funds based on the value of the collateralized assets.
