YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE
ABL ASSET BASED LENDING … ABL FINANCE WORKS!
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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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ABL lending transforms how businesses secure funding by utilizing their assets as collateral for loans.
Unlock your business's hidden financial potential with asset-based lending – the smart way to fuel growth when traditional banks say no.
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
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
What is ABL Lending? Solutions in Canada
An ABL Asset based line of credit. Could this form of financing be the ‘ rude awakening ‘ you need when understanding what type of business credit line is available to your firm? We’re talking about asset-based lenders!
BEYOND BANKS - HOW ABL LENDING IS RESHAPING BUSINESS FINANCE
Asset-based lending (ABL) is a business financing solution that leverages a company’s assets as collateral to secure funding for a line of credit or bridge loan.
Companies can unlock the value tied up in their inventory, accounts receivable, equipment, and applicable commercial real estate.
ABL lending provides a flexible alternative to traditional bank loans, offering businesses the liquidity they need to fuel growth, manage cash flow, or navigate challenging financial periods.
THERE ARE DIFFERENT SOURCES OF BUSINESS CREDIT LINES
Many Canadian business owners and financial managers don’t understand that there are different sources of business lines of credit.
While it might all seem like a blur sometimes, it’s worth sorting through the differences to ensure your firm is financed correctly. Those differences primarily revolve around asset-based lending and the solutions offered by traditional Canadian chartered banks.
Credit availability is enhanced through ABL lending compared to traditional bank loans, as ABL provides access to significant financing with a covenant-light structure. It focuses primarily on the value of the business's assets and offers flexibility in making future decisions.
You’ll consider the rates around line of credit pricing, the type of financial strength required, and the overall risk and benefits associated with any type of financing you might take on for your business in this analysis.
WHO ARE THE ASSET BASED LENDERS?
Asset-based lenders in Canada consist of Canadian and U.S. firms doing business in the Canadian marketplace and marketing the asset-based abl facility.
They are differentiated by the amount of capital they provide (sometimes unlimited), geographical preferences, and, most importantly, industry and asset type focus. The terms and conditions of an asset-based loan depend on the type and value of the assets offered as security.
The most important thing you can derive from any analysis in determining if ABL finance suits your firm is understanding the differences between bank lines of credit and ABL revolving facilities. They are the same, and they are different… in some cases very different.
THERE IS A DIFFERENCE IN ASSET BASED LENDING & BANK CREDIT LINES - WHICH ONE IS RIGHT FOR YOU
Why the difference? It comes down to the fact that asset-based lenders providing credit lines are not regulated like our Canadian chartered banks. In essence, they can do what they want as long as transactions meet their own risk criteria.
Cash flow lending, on the other hand, relies on the strength and stability of a company's cash flow rather than collateral.
What does that statement, in effect, translate into then? Simply put, there is a lot of flexibility and probably liquidity around any ABL FINANCING arrangement you consider. It comes down to the focus on collateral, whereas the bank is focused on ratios, covenants, cash flow formulas, etc. That’s not a bad thing; it’s just ‘ different ‘!
WHAT ASSETS ARE INCLUDED IN THE ABL LOAN OR LINE OF CREDIT?
Asset-based lending (ABL) is a type of financing secured by collateral, such as inventory, accounts receivable, equipment, or other tangible assets.
Inventory financing allows businesses to use their existing inventory as collateral to secure funding, typically to purchase new inventory or support seasonal fluctuations in demand.
ABL loans can also be secured by physical assets like equipment and inventory, which can serve as collateral. Lenders may prefer highly liquid collateral but consider physical assets, albeit at a reduced maximum loan value.
The total focus of ABL asset-based lending credit lines revolves around the total value of your assets, with typical categories being accounts receivables, inventories, and unencumbered equipment.
Those assets significantly increase ABL's working capital promise. Real estate can also be added to the facility or financed under a separate loan. In effect its a complete financing of the balance sheet. A purchase order financing facility might be part of the financing solution in certain cases.
How does the ABL lender do this when the bank sometimes cannot?
That is the difference between asset-based finance and traditional finance. The key to that answer is that proper appraisals and closer reporting of ongoing situations translate into greater borrowing power for your firm's financing needs.
Asset-based loans typically require more monitoring by an ABL than a bank might do.
Asset-based lending (ABL) is financing secured by collateral, such as inventory, accounts receivable, or other balance sheet assets.
Lenders use the loan-to-value ratio to assess the risk of providing asset-based loans and to determine the loan amount based on the value of the collateral. Unlike traditional bank loans, which are often based on the borrower's creditworthiness, ABL focuses on the value of the assets used as collateral. T
This allows businesses to access funds by leveraging their assets, even if they have less-than-perfect credit.
ASSET BASED LENDING FINANCING GROWS AS YOUR COMPANY GROWS!
The concept of ' evergreen' is often a true ' rude awakening ' regarding the ABL business credit line. Simply speaking, these unique lines of credit don’t have set repayment schedules—they grow as your firm grows, so the concept of a cap at a bank is a significant differentiator.
QUALIFICATIONS FOR AN ABL ASSET BASED LOAN
Oh, and about those qualifications. Accounts receivable financing uses outstanding invoices as collateral to secure a loan, providing working capital for businesses to manage cash flow and meet ongoing financial obligations.
We can make a broad statement that almost every firm is qualified, whether your company is enjoying strong sales growth and profits or if you’re at the other end of the spectrum and have some severe challenges and distress issues.
It all comes back to your asset base and its value. To qualify you should be able to present properly updated financials and aged lists of receivables, inventory, etc.
KEY TAKEAWAYS
Asset-based lending fundamentally relies on using business assets as collateral.
Lenders evaluate the quality and value of these assets to determine loan amounts. A pledged asset, such as physical assets used as collateral, is crucial as it can affect the terms and conditions of the loan. Borrowing bases typically include accounts receivable and inventory.
Companies access revolving credit lines based on their asset values. This financing method offers flexibility for businesses with strong assets but variable cash flows.
ABLs can provide higher loan amounts than traditional options. Ongoing monitoring and reporting are crucial aspects of asset-based loans.
Businesses benefit from improved liquidity without diluting ownership. Potential borrowers must understand collateral types and valuation methods.
CONCLUSION -Turning Assets into Opportunities
In our business and personal lives, rude awakenings are either good or not so good. Canadian business owners and financial managers might well find a positive awakening regarding the differences and benefits of an ABL loan and asset-based lending credit lines.
Call 7 Park Avenue Financial,a trusted, credible and experienced Canadian business financing advisor who can assist you in defining the differences and benefits of asset loans.
FAQ
What is ABL lending?
ABL lending, or Asset-Based Lending, is a type of financing where businesses use their assets as collateral to secure a loan or line of credit.
How does ABL lending work?
ABL lending works by allowing businesses to borrow against the value of their assets, such as accounts receivable, inventory, equipment, or real estate. The lender evaluates these assets and provides funding based on a percentage of their value.
What are the main benefits of ABL lending?
The main benefits of ABL lending include access to working capital, flexibility in borrowing, potentially lower interest rates compared to unsecured loans, and the ability to leverage existing assets to fuel growth.
Who typically uses ABL lending?
ABL lending is typically used by businesses with significant tangible assets, including manufacturers, wholesalers, distributors, and companies experiencing rapid growth or facing temporary financial challenges.
How is the borrowing limit determined in ABL lending?
The borrowing limit in ABL lending is determined by the value of the assets used as collateral. Lenders assess the quality and liquidity of the assets to establish a borrowing base, which is usually a percentage of the assets' total value.
What documentation is required for ABL lending?
Documentation for ABL lending typically includes financial statements, tax returns, accounts receivable aging reports, inventory lists, and asset appraisals. Lenders may also require periodic reporting on the status of collateral assets.
How does ABL lending differ from traditional bank loans?
ABL lending differs from traditional bank loans by focusing on the value of assets rather than credit history or cash flow. This makes it accessible to businesses that may not qualify for conventional loans due to limited credit history or inconsistent cash flow.
Are there any industries that are not suitable for ABL lending?
While ABL lending can be applied to many industries, it may be less suitable for service-based businesses with few tangible assets or companies with primarily intangible assets like intellectual property.
Can startups benefit from ABL lending?
Startups can benefit from ABL lending if they have valuable assets to use as collateral. However, many startups may not have sufficient assets early on, making qualifying for this type of financing more challenging.
What happens if a borrower defaults on an ABL loan?
If a borrower defaults on an ABL loan, the lender can seize and liquidate the assets used as collateral to recover the outstanding debt. This process is typically outlined in the loan agreement.
How does ABL lending impact a company's financial statements?
ABL lending impacts a company's financial statements by increasing both assets and liabilities on the balance sheet. The borrowed funds appear as cash or working capital, while the loan itself is recorded as a liability.
What are the key factors lenders consider when evaluating ABL applications?
Key factors lenders consider when evaluating ABL applications include the quality and liquidity of assets, the company's financial health, industry outlook, management experience, and the ability to repay the loan based on cash flow projections.
How can businesses maximize their borrowing potential with ABL lending?
Businesses can maximize their borrowing potential with ABL lending by maintaining accurate and up-to-date financial records, optimizing inventory financing management, improving accounts receivable collection, and investing in high-quality assets that can serve as solid collateral.
