YOUR COMPANY IS LOOKING FOR A REVOLVER LOAN !
ABL IS THE ULTIMATE REVOLVING LOAN CREDIT FACILITY
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Financing & Cash flow are the biggest issues facing business today
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Are cash flow constraints holding your business back? Explore the dynamic world of revolver loans for flexible financing solutions!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer REVOLVER LOAN solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Unlocking Growth: The Power of Revolver Loans for Business Financing
Introduction
Being well-informed in any area of business is critical, and business financing is certainly an area that comes under that category.
Let's examine 5 typical client questions on ABL asset-based lending revolving credit facility in Canada, and why this type of business credit revolver loan (it’s not a loan by the way) can help your company through growth and or challenging times.
What is ABL Asset Based Lending?
Question # 1 - It’s a simple one. What is ABL? The term is used in many ways (ABL = asset-based lending) but in our context, today is a revolving credit line which Canadian business owners can draw down on. Collateral for the facility is typically your A/R and inventory but can include miscellaneous assets such as equipment, real estate, tax credits, etc. All these assets are collateralized and become your firm’s new line of credit facility based on the ongoing fluctuating values.
Why Consider ABL Asset Based Lending?
We said an ABL credit revolver loan was not a loan per se, and that’s an important distinction. No debt appears on our balance sheet, you are just monetizing current assets on an ongoing daily basis. Canadian businesses is graduating more and more to ABL types of business credit if only for the reason that it gives them more borrowing power than a traditional Canadian chartered bank business credit revolver.
Evaluating the Benefits of ABL
Question # 2 - Why in fact are businesses moving to or considering this type of facility? Our answer here is pretty simple, and we have touched on it already.
It’s the fact that you now can generate cash flow more quickly to support growth. Your firm's newfound ability to create faster asset turnover increases profits. It’s a solid alternative to borrowing via long-term debt, or the dreaded giving up of owner equity, which is never a great solution for business owners.
We point out also that pretty well every firm in Canada that has business 'current assets' is eligible for some form of asset-based lending. Small facilities tend to be 250k and up but the large mega-corporations in Canada also use this method of financing, there is no discrimination when it comes to an ABL revolving loan. And by that way, that includes public companies also.
Understanding Eligibility for ABL Financing
Question # 3- Is the difference in new credit facilities worth considering the move to an asset based line of credit facility?
We're biased of course, so you decide. Typical bank credit lines margin receivables at 75% and inventory anywhere from zero (yes zero) to 50% typically. ABL facilities get you approximately 90% of A/R and inventory financing can go as high as 70% in many industries, depending on your type of inventory.
Eligibility for ABL Financing
Question # 4 - Our company is having some challenges in several areas, are we still eligible? The answer is a resounding yes, yes, and yes! Whether you are a start-up, established, or even in bankruptcy or receivership proceedings (you heard us right!) you are always eligible for this financing, as long as you have one thing - Assets!
Where to Learn More about ABL Financing
Question # 5 - Where can we find out more?
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor on the merits and tangible benefits of ABL asset based lending. There is no better way to finance your firm in current times.
FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
What is a revolver loan and how does it work?
A revolver loan, often referred to as a revolving credit line or revolving loan, is a flexible financing option where the borrower has access to a set amount of funds that can be borrowed again once repaid. Essentially, it works like a credit card for a business where the company can draw down, repay, and reuse funds within a pre-approved credit limit, which helps manage cash flow fluctuations efficiently.
What are the main benefits of using a revolver loan for business financing?
The primary benefits of revolver loans include flexibility in managing working capital, the ability to handle unexpected expenses without applying for new loans, and often lower interest rates compared to fixed loans. They also only require interest payments on the amount drawn rather than the total credit line.
How do interest rates on revolver loans typically compare to other types of loans?
Interest rates on revolver loans are usually variable and tied to a benchmark interest rate, such as the LIBOR or prime rate. This can make them lower than rates on fixed loans depending on market conditions. However, because the rates are variable, they can increase throughout the loan.
Can a revolver loan be converted into a term loan?
Yes, some revolver loans offer the option to convert drawn amounts into term loans at certain points during the loan's term. This allows borrowers to lock in a fixed interest rate for a specific portion of their debt, which can be beneficial if interest rates are expected to rise.
Are there any specific requirements or qualifications needed to secure a revolver loan?
To secure a revolver loan, a business typically needs to have a good credit history, stable revenue, and possibly provide collateral. Lenders also look at financial statements and cash flow projections to assess the company’s ability to repay the borrowed funds.
How does a revolver loan impact a business's credit score?
Utilizing a revolver loan can impact a business's credit score similarly to how personal credit is affected by credit card use. Responsible management of the credit line, such as keeping balances low and making timely payments, can help improve a credit score. Conversely, maxing out the credit line or making late payments can negatively affect the score.
What happens if a revolver loan is not repaid?
If a revolver loan is not repaid according to the agreement, it can lead to default, which may result in legal actions, seizure of collateral, and a negative impact on the business’s credit rating. Businesses need to understand the terms and communicate with lenders if they foresee payment difficulties.
Are there specific industries or businesses that benefit most from revolver loans?
Industries with high variability in cash flow, such as retail, manufacturing, and seasonal businesses, typically benefit most from revolver loans. They provide the flexibility to manage inventory and operational costs that fluctuate throughout the year.
Is it possible to increase the credit limit of a revolver loan?
Increasing the credit limit of a revolver loan may be possible if the borrower has demonstrated consistent repayment and good financial health. This usually involves a review and approval process by the lender, including an updated assessment of the business’s financial stability.
How do lenders determine the credit limit for a revolver loan?
Lenders determine the credit limit based on factors such as the borrower’s credit history, financial health, cash flow stability, and sometimes the value of the collateral offered. They also consider the borrower's current and projected financial needs.
What factors should a business consider before applying for a revolver loan?
Before applying for a revolver loan / revolving line of credit a business should assess its cash flow needs, ability to meet repayment terms and cover interest expense , and whether its financial situation warrants flexible borrowing. It’s also important to compare different lenders' terms and rates to find the most suitable option.
What are the typical fees associated with revolver loans?
Unlike term loans / install men loans which have minimum monthly payments, common fees for a revolving credit loan can include origination fees, annual fees, and sometimes non-utilization fees for not using the available credit. Additionally, there may be charges for late payments and exceeding the credit limit. Actual interest rate charges are only made on the outstanding balance - similar to a home equity line.
