YOUR COMPANY IS LOOKING FOR AN ABL SECURED BUSINESS LINE OF CREDIT!
Unlocking Capital: The Power of Asset Based Lending Credit Lines
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Introduction to Asset Based Lending in Canada
What Canadian business owner or financial manager hasn't wondered if they have properly considered all the financing alternatives available to their firm in today's challenging borrowing market? One mechanism not fully known or understood properly is the secured ABL asset based line of credit. Is it for your firm? You'll decide shortly!
Unlock the potential of your business assets with asset-based lending, It's a new approach to credit lines that redefines business financing in Canada - Struggling with traditional bank loans? Discover how asset-based lending can turn your company's assets into a gateway for growth and financial stability
The Challenge of Traditional Bank Financing
Struggling with traditional bank loans? Let the 7 Park Avenue Financial team show you how asset-based lending can turn your company's assets into a gateway for growth and financial stability
Although Canadian commercial bankers still proudly trumpet the fact that chartered bank commercial credit facilities are widely available hundreds or thousands of businesses in Canada are unable to meet the qualifications for such financing.
Basic qualifications for a bank credit facility that margins receivables (and hopefully inventory) are not complicated to understand. They are of course difficult to achieve or provide! They include clean balance sheets, income statements that show profitability, and positive cash flows, both historical and current.
Oh, and by the way, owners must often backstop these facilities with guarantees that often require personal assets to be either pledged or collateralized.
The Secured ABL Facility: A Focus on Assets
So, enter the secured ABL facility. Here's business working capital and cash flow financing with an emphasis on only one word: 'Assets'! The ABL lender is focused. That focus? Your key business assets of receivables, inventory, and unencumbered fixed assets. You borrow against the total current market value of these assets via a revolving secured business credit facility. If there is a bottom line it’s a simple one - a focus on collateral, not ratios, covenants, or outside collateral.
The Upper Limit of ABL Facilities in Canada? There isn't one!
A common question from clients revolves around what dollar level of facilities is either the entry point or the cap on such secured facilities. The good news is that there is no upper limit on ABL deals in Canada. In fact, unbeknownst to many, some of Canada's largest companies utilize ABL facilities, having forsaken bank facilities that no longer make sense for their business.
Entry Point and Scope of ABL Facilities
We consider a solid entry point for such facilities to be in the 250k range, which more often than not is a combination of receivables and inventory. We hasten to add that there must be a reasonable mix as typically A/R has a higher borrowing value. However, there is always an exception to the rule, so a good example of a great ABL solution is the financing of inventory for retail chains, etc.
Pricing of Secured ABL Facilities
Pricing on secured ABL facilities fluctuates widely in Canada. Pricing can be either below bank comparables, slightly higher, than or as high as 1 -1.5% per month depending on whom you choose to deal with. Mid-market firms who have assets are great candidates for this type of business financing and some firms can achieve bank financing rates.
Preparing for an ABL Facility Application
A proper submission for an ABL facility should include financials, properly aged payables, receivables and inventory, as well as miscellaneous information you would associate with any type of business finance application.
Key Takeaways
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Asset Utilization: Asset-based lending involves using a company's assets, like inventory and receivables, as collateral for a line of credit. This approach allows businesses to unlock capital tied up in these assets, providing a flexible financing solution.
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Borrowing Base: The amount a company can borrow is typically determined by the value of its eligible assets, known as the borrowing base. This base is a percentage of the assets' worth, ensuring lenders have sufficient collateral coverage.
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Lending Criteria: Unlike traditional loans, asset-based lending's eligibility is less dependent on credit scores or profitability. Lenders primarily focus on the quality and value of the collateral assets for a line of credit facility , making it accessible for businesses with strong assets but weaker financial statements.
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Flexibility and Accessibility: This type of lending offers more flexibility than conventional banking lines, adjusting credit availability based on the changing value of assets and eligible collateral.. It is particularly beneficial for businesses in growth phases or those with fluctuating cash flows who cannot access a bank unsecured loan line of credit - ABL financing is known as a covenant light structure with little or no emphasis on financial ratios and other bank type restrictions
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Risk and Cost: The risk for lenders in asset-based lending is generally lower due to secured assets, potentially leading to more favourable interest rates for borrowers. However, costs can vary based on the asset types and the borrower's overall financial health.
Conclusion: Maximize Borrowing Power With Asset-based Lending
So why consider an alternate method of financing?
It's about increased borrowing power, easier qualifications, and competitive pricing commensurate with your overall credit and asset quality. Call 7 Park Avenue Financial, a trusted credible and experienced Canadian business financing advisor on reasons to make a change in your finance strategy.
FAQ:FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK /MORE INFORMATION
Collateral Loans
Business Financing
Working Capital Loans
Secured Lending
Inventory Financing
Accounts Receivable Financing
Commercial Lending
Financial Solutions for Businesses
SME Finance
Business Credit Solutions
Liquidity Solutions
Corporate Finance
Asset-Based Loan Facilities
Revolving Credit Facilities
Commercial Credit Lines
Loan Underwriting
Risk Management in Lending
How does asset-based lending benefit businesses struggling with cash flow?
Asset-based lending provides immediate cash by using business assets as collateral, ideal for companies facing cash flow challenges and the ability to use a pledged asset/assets for financing.
What types of assets can be used for asset-based lending credit lines?
Common assets for asset based loans include inventory, accounts receivable, and equipment, which serve as collateral for the lending facility.
Is asset-based lending suitable for small and medium-sized enterprises?
Yes, SMEs can greatly benefit from asset-based lenders, especially when traditional bank loans are not feasible. This financial is particularly suitable for firms unable to access unsecured loans and lines of credit from banks
How does the borrowing base in asset-based lending work?
The borrowing base is determined by the value of eligible assets, offering a flexible line of credit that adapts to the company's cash flow business needs.
What distinguishes asset-based financing from traditional bank loans?
Companies choose Asset-based lending because it focuses on collateral value rather than credit history or profitability, offering a more accessible financing option. Advances are higher on current assets such as eligible accounts receivable, and are typically in the 90% range.
What is the typical interest rate for asset-based lending credit lines?
Interest rates vary, often depending on the asset type and borrower's financial health, but generally are competitive with traditional loans.
Can asset-based lending improve a company's business credit score?
Responsibly managing an asset-based credit line can positively impact a company's credit profile over time.
Are there any industries particularly suited for asset-based lending?
Industries with significant physical assets, like manufacturing and retail, often find asset-based lending especially beneficial.
What happens if the value of collateral assets decreases?
If asset values decline, the borrowing base may be adjusted, potentially affecting the available credit limit. Commercial real estate can also be financed via ABL financing as well as of course more liquid assets such as accounts receivables and inventory.
How quickly can a business access funds through asset-based lending?
Once approved, businesses can typically access funds from asset based lines quickly, often within a few days to a week.
How does asset-based lending offer flexibility compared to other loans?
Asset-based lending provides a revolving line of credit, allowing businesses to draw funds as needed, offering greater flexibility than fixed-term loans.
What are the risks associated with asset-based lending?
The primary risk is potential asset seizure if the loan is not repaid, making it crucial for businesses to manage their borrowing responsibly.
Can startups or new businesses utilize asset-based lending credit lines?
Startups with substantial assets may qualify for asset-based lending, although lenders might require a more thorough assessment due to the lack of financial history.
