YOUR COMPANY IS LOOKING FOR ASSET BASED A/R FINANCE!
Asset Based Financing Factoring: Your Solution for Immediate Cash Needs
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Financing & Cash flow are the biggest issues facing business today
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Asset-based finance factoring revolutionizes business financing by turning receivables into immediate working capital.
Unlock cash flow now: transform receivables into instant financial leverage!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ASSET BASED FINANCE FACTORING solutions that solve the issue of cash flow and working capital and cash flow gaps – Save time and focus on profits and business opportunities
INTRODUCTION
ABL Financing in Canada. How do you know when it just might be time to both discover and utilize one of Canada's best financing mechanisms for a business?
There are, in fact, some strong signals and warning signs when it comes to switching to an asset-based finance business credit line. Let's examine asset-based lending in Canada.
Asset-based finance factoring is a transformative strategy for businesses aiming to optimize their cash flows via financing tangible assets/balance sheet assets and enhancing liquidity without incurring debt.
By converting a company's assets such as receivables into immediate capital, companies can ensure a steady cash stream, supporting operations and growth opportunities even during market volatilities. This financial tool not only facilitates stability but also empowers businesses to manage their receivables more efficiently, offering a robust alternative to traditional lending mechanisms.
WHAT IS ABL FINANCING?
ABL financing seems to go by a lot of names these days, so clients at 7 PARK AVENUE FINANCIAL can be forgiven for occasionally getting confused about what this method of finance is .
Simply speaking its a corporate business loan or a business line of credit secured by the assets and sales of your business. Those ' sales ' generate receivables, which is one of the key assets in any business line of credit.
Although some of the largest and well-known corporations in the world utilize ABL financing or an asset-based loan, the true value of this method of funding a business is probably in the SME COMMERCIAL FINANCE sector of Canadian business.
It's these thousands of firms that have investments in accounts receivable, inventory, and equipment and are unable on occasion to access proper traditional bank credit.
Given the need to fund daily operations and exploit growth opportunities, ABL finance allows a company to ' leverage ' assets and meet the working capital demands of running/growing a business. When taking on new debt or raising equity is not an option ASSET BASED FINANCE lending is the solution!
The key assets of a business - a/r, inventories, land, and equipment make up the total asset mix that is financeable. Using these assets' current and real values allows a firm to borrow against them and maximize financing potential.
While traditional Canadian bank financing has a total focus on clean balance sheets, profit, and predictable and demonstrable cash flow, Asset-based finance solutions look toward sales and assets - that's the ABL difference!
Various subsets of asset-based lending & asset loans can get the job done for many firms - that includes:
OTHER EXAMPLES OR SUBSETS OF ABL FINANCING VIA ASSET BASED LENDERS
A/R Financing
Inventory Financing Loans
Non-bank asset-based lines of credit - a true abl facility
SR&ED Tax credit financing
Equipment / fixed asset financing
WHY HAS ASSET BASED FINANCE BECOME SO POPULAR AS A BUSINESS FINANCING SOLUTION
It kind of sneaked up on us, but asset-based finance is growing and becoming more popular every day in Canada as a business finance mechanism. While banks and other lending institutions focus on cash flow and ratios and covenants, the asset-based line of credit lenders sits quietly in the corner and focuses just on one thing- ' Assets '!
WHEN SHOULD YOU CONSIDER ABL FINANCING?
We're going to discuss how you can recognize some key early warning mechanisms around when to consider this finance method. Still, the simple rule of thumb is that you have to have assets such as accounts receivables, inventories, lien-free fixed asses, and even real estate... well, let's stay... you qualify! That’s why wholesalers, retail organizations, manufacturers and service companies of all types are gravitating to ABL finance.
ASSET BASED LENDING IS THE NON BANK COMMERCIAL CREDIT FINANCING SOLUTION
We're always surprised when we hear clients say they haven’t even heard of ABL. More so when you consider some of the largest companies in Canada have abandoned bank facilities and moved to ABL.
While for the larger company asset-based finance business, credit lines can, in fact, cost less and be more flexible, the reality is that for the small to mid-size sector, the cost of such a facility will, in fact, be more than bank credit.
But, consider this, if you don’t qualify for the amount of bank financing you need, that lower interest rate doesn't mean much when you're forced to restrict growth and focus almost all day on managing cash flow in an often crisis-type mode.
That's when reasonable financing costs should be the least of your problems. Business owners will be pleased to know that ABL does not use the banking covenants and balance sheet ratios that come with access to traditional Chartered bank financing.
WATCH OUT FOR THE WARNING SIGNS!
Let's get back to some of those early warning signs that might signify your need to check out a new paradigm in business lines of credit. Sales revenue directly relates to working capital needs because those higher sales and growth opportunities bring higher levels of receivables and inventory and, of course, higher levels of payables.
ASSET TURNOVER IS KEY
Velocity, aka ' speed.' It now becomes a greater challenge to turn over assets to generate that working capital. It's up to the Canadian business owner and financial manager to, as you're growing, establish what is acceptable in inventory levels, A/R collection days, as well as, oh yes, paying those suppliers.
TWO METHODS OF MONITORING YOUR CASH FLOW
Two ways to monitor your financial cash flow and working capital needs over time are to keep a simple track of working capital to sales and working capital turnover itself.
The former is calculated simply by taking your current assets and dividing them by sales for, say, an annual period. Working capital turnover is measured by taking your sales and dividing them by your working capital for any period. You then track those! Understanding your firm's financials will also make you more successful in asset finance and more comfortable with lending companies.
Let's say you kept track of your working capital turnover and notice the ratio is trending lower. That means poor working capital performance, and you probably are feeling this via cash flow pressures.
When you utilize an ABL Financing facility, you will find those assets can be monetized faster, with more liquidity in margining, resulting in higher borrowing power for working capital needs.
KEY TAKEAWAYS
Invoice Discounting: This involves a business selling its invoices at a discount to a third party to secure immediate capital.
Receivables Management: Efficient handling of the sales ledger and collections can significantly improve a company's liquidity.
Working Capital Optimization: Accelerating cash inflows via factoring enhances the ability to manage day-to-day operations and invest in growth initiatives.
Liquidity Management: Factoring improves liquidity by converting accounts receivable into immediate cash, reducing the cash conversion cycle.
Credit Risk Assessment: Factoring transfers the debtor risk to the financier, who assumes the risk of customer default, thus protecting the seller's financial health.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor when you feel your firm just might be exhibiting signs of a need for a better way in a Canadian business credit line via asset-based finance.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK /MORE INFORMATION
What are the primary benefits of using asset-based finance factoring?
The accounts receivable financing option provides immediate cash flow from receivables when a company sells and finances a/r, reduces credit risk, and improves liquidity management via the cash advance, without increasing debt and allows the company to address immediate financial obligations.
How does asset-based finance factoring differ from traditional loans?
Unlike traditional bank financing loans, factoring involves selling your a/r and does not incur debt but instead involves selling your receivables at a discount for immediate capital.
What types of companies can benefit most from asset-based finance factoring?
Businesses with strong sales but long payment cycles, such as manufacturing and wholesale, can significantly improve their cash management.
Can asset-based finance factoring improve my company's credit rating?
Yes, by ensuring timely payment of obligations and better liquidity management, factoring and asset based loans can positively impact your business creditworthiness.
What is the typical process involved in asset-based finance factoring?
First, a business sells its invoices to a factor, who pays an advance on the receivable's value and takes over the collection responsibilities.
What is the impact of factoring on a company's balance sheet?
Invoice Factoring helps clean up the balance sheet by converting accounts receivable into immediate cash, thereby reducing current assets and liabilities proportionately.
Is there any industry that does not fit the asset-based finance factoring model?
Industries without invoice-based sales or those involving high-risk credit sales are less suitable for factoring company solutions.
What risks are associated with asset-based finance factoring?
Risks around factoring companies include dependency on customer creditworthiness, the potential for higher factoring fees, and the possibility of customer relationships being affected by third-party for businesses not using Confidential receivable financing
