YOUR COMPANY IS LOOKING FOR AN ABL BUSINESS LINE OF CREDIT FACILITY!
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Financing & Cash flow are the biggest issues facing business today
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Unlock the hidden value in your business assets and fuel your growth with ABL Asset Based Finance
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Asset Based Financing and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
ABL Asset Based Financing: A Solution for Business Financial Challenges
Introduction
As a business owner or financial manager, you want to ensure that a business line of credit can assist your firm before, during, and after serious financial challenges occur.
That’s where asset-based financing, specifically the ABL asset based finance facility, comes in.
In a perfect world (we know it’s not), you want to be able to detect financial challenges, understand why they happen, and then implement a solution to avoid them.
Understanding the problem (or problems) allows you to make the difficult decisions to continue your business successfully.
Identifying Business Problems
So, what problems can your business encounter? From our experience, some are obvious and others not so obvious.
ABL can be a specific type of business loan that helps solve financial challenges by leveraging valuable company assets.
More importantly, is there one specific business strategy—in our case today, the ABL asset-based line of credit—that can, in fact, help you execute the turnaround?
Early Warning Signs
There are probably 5 significant early warning signs that your firm might need an alternative financing solution.
So, what are some of those early warning signals? They are as follows:
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Too much short-term debt
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You’re trapped in a vicious cash flow cycle
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You’ve accumulated current assets that have little or no value (for example: obsolete inventories, poor receivables)
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Your investment in fixed assets has put a major strain on your liquidity
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Your firm is trying to find itself as it struggles to make sales projections without the proper assets and financing to back up that growth
The Asset-Based Lending Solution
So, whether your company purposely created some of these challenges or whether external market forces have the good news is that there is a solution. The one we are recommending today is the ABL facility.
Asset-based loans provide businesses with various options for leveraging their assets. They are a business line of credit like no other.
How ABL Differs from Traditional Bank Facilities
The ABL business line of credit differs from a bank facility in that you can margin, at very solid levels your current and fixed assets, all in the form of a revolving business line of credit.
A critical metric lenders use in asset-based lending is the loan-to-value ratio, which evaluates the risk of the loan by comparing the loan amount to the value of the collateral. A lower loan-to-value ratio typically indicates lower risk and can result in better loan terms for borrowers.
Typically, the liquidity provided by this facility gives you access to much more cash flow and working capital and doesn’t punish your firm by forcing you to totally focus on meeting ratios and covenants and even provide outside collateral.
That is to say, the ABL revolver facility allows you to continue to operate, probably with much more liquidity despite your capital structure, your historical challenges or financial losses, etc.
Accounts Receivable Providers in Canada
In Canada, ABL facilities are typically provided by non-regulated commercial finance firms.
The ultimate irony we’ve observed over the years is that Canada’s chartered banks, recognizing the limitations of traditional facilities, have even ventured into this ‘non-bank‘ financing idea. Now, that’s business irony.
Businesses might choose asset-based lending as a financing alternative when traditional cash-flow lending may not suffice.
This is particularly suitable for asset-rich companies experiencing cash flow fluctuations, allowing them to unlock capital based on their assets rather than solely on cash flow metrics.
3 uncommon takes on ABL Asset-Based Finance:
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ABL can be used as a strategic tool for rapid expansion, not just financial recovery.
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Some businesses intentionally choose ABL over traditional financing due to its flexibility, even when they qualify for bank loans.
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ABL can serve as a bridge to equity financing, allowing companies to improve their financial position before seeking investors.
KEY TAKEAWAYS
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Asset valuation forms the foundation of ABL, determining borrowing capacity.
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Working capital optimization is crucial for leveraging ABL effectively.
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Understanding collateral types expands financing options significantly.
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Cash flow management improves with proper utilization of ABL facilities.
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Flexible borrowing base calculations allow for increased liquidity.
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Seasonal business fluctuations can be better managed through ABL.
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Financial covenants are often less restrictive compared to traditional loans.
Conclusion
ABL Asset Based Financing revolutionizes how businesses access capital, offering a lifeline to companies struggling with traditional financing options.
If you want solid insight into some of the early warning signs that your current financing strategies aren’t working, call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, about a possible solution to those upcoming or existing challenges.
FAQ
How does ABL Asset-Based Finance improve cash flow?
ABL provides immediate access to working capital based on your assets, allowing for better cash flow management and the ability to seize growth opportunities quickly. One specific method is accounts receivable financing, which leverages outstanding invoices as collateral to enhance cash flow.
Can ABL Asset Based Finance help my business during seasonal fluctuations?
ABL offers flexibility to increase or decrease borrowing, making an asset based loan ideal for businesses with seasonal revenue patterns.
Is ABL Asset-Based Finance suitable for businesses in financial distress?
ABL can be an excellent option for businesses facing challenges, as it focuses on asset value rather than credit history or profitability.
How does ABL Asset-Based Finance differ from traditional bank loans?
ABL typically offers higher advance rates, more flexible terms, and fewer financial covenants than traditional bank loans based on the balance sheet values of physical assets.
Can ABL Finance support business growth and expansion?
Absolutely. ABL provides the working capital to fund inventory purchases, expand operations, or take on larger contracts, supporting overall business growth.
What types of assets can be used as collateral in ABL Asset-Based Finance?
ABL typically uses a company's assets, such as accounts receivable, inventory, and equipment, as collateral. Some lenders may also consider real estate or intellectual property. Accounts receivable financing is, in effect, a subset of ABL solutions.
Are there minimum revenue requirements for ABL Asset-Based Financing?
Requirements vary by lender, but many ABL providers focus on businesses with annual revenues of $1 million and a minimum length of time for a company's operation to be in business.
How quickly can a business obtain funding through ABL Finance?
Once approved, initial funding can often be provided within 2-4 weeks, with subsequent draws available much more quickly.
Is Asset Based Finance more expensive than traditional bank loans?
While interest rates may be higher, the increased availability of funds and flexibility often make ABL cost-effective for many businesses.
Can startups qualify for ABL Asset Based Finance?
Most ABL lenders prefer established businesses, but some may consider well-funded startups with valuable assets or strong growth potential.
What due diligence process is involved in securing ABL Asset Based Finance?
The process typically involves thoroughly reviewing the business’s financial statements, asset valuations, and operational procedures. Lenders will assess the quality and liquidity of the assets being used as collateral.
How does the borrowing base work in ABL Asset-Based Finance?
The borrowing base is calculated by applying advance rates to eligible assets. For example, a lender might offer 80% on eligible accounts receivable and 50% on inventory. This base is regularly updated to reflect changes in asset values.
What reporting requirements are associated with ABL Asset Based Finance?
Businesses typically must provide regular reports on their collateral, such as accounts receivable aging reports and inventory listings. Some lenders may require more frequent reporting compared to traditional loans.
