ABL Facility Asset Based Lender Asset Financing | 7 Park Avenue Financial

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Bridging the Finance Gap: Why Savvy Businesses Choose  ABL

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How ABL Facilities Are Redefining Business Financing in Canada

Understanding the ABL Facility in Asset-Based Financing - Dive into this piece because it demystifies the advantages of asset-based loan and asset-based lending, a game-changer for businesses seeking growth financing.

You're on the hunt, and the prey is business financing under an asset financing scenario you have heard so much about. Let’s examine what an ABL facility is, who is the asset-based lender that offers this financing, and, yes, do you qualify?

The Current State of Business Credit Financing

To say that business credit financing is top of mind these days with Canadian business owners and financial managers is an understatement. With the economic clouds now having cleared on the horizon after the 2008-2009 business credit meltdown and post-COVID-19 economic recovery, business owners are looking for more day-to-day and growth financing.

Challenges Faced by Canadian Businesses

And the reality is that the type of operating facilities that you are looking for is getting tougher to secure from Canada's major chartered banks. We are of course, referring in general, to firms that have some challenge because medium-sized and large Canadian firms with great balance sheets, profits, and solid cash flows can access great credit terms from the banks.

Profile of Businesses Seeking ABL Facility

Unfortunately, that isn’t the client profile we're talking to every day - as owners, we meet have challenges such as the inability to secure the operating cash they need, the requirement to acquire additional assets or even a complete acquisition of a competitor. That's where asset based loans come in.

The Aftermath of Economic Turbulence

And that economic turbulence we mentioned earlier usually means that many firms are coming out of a turnaround-type environment and are slowly getting their financials back in order. Therefore, securing an ABL facility (abl = asset based lending) for inventory and receivables becomes the goal in asset financing.

ABL Facility vs. Traditional Bank Credit

So what is the real difference in asset financing under an abl facility compared to a bank line of credit under traditional cash flow financing and cash flow lending, commonly called a ' revolver ' in business finance? The best way we explain it to clients is that the bank focuses on the company's cash flow, the asset-based lender focuses on physical assets and sales revenues. Big difference!

Focus on Cash Flow vs. Assets

So, does your firm qualify for abl financing? In general, as we stated, any firm with assets of receivables, inventory, equipment and real estate qualifies via a loan to value ratio . Where the challenge is determining the overall quality of those assets as well as the size of the facility.  ABL  lending facilities are generally available for any firm with over 250k in a combination of receivables, inventory, and equipment. In certain cases, even tax credit receivables can be financed. There is no upper limit on asset based loan potential.

7 Park Avenue Financial  - Your Right Partner for ABL Financing

You as a business owner have to focus on the choice of a partner in this type of financing. Suppose your facility requirements are in the millions of dollars and you have high-quality business assets (i.e. collectible receivables, inventory that turns). In that case, you can access significantly more credit than under a standard bank facility - at rates often comparable ( but not always )with bank financing. As a general rule, ABL rates tend to be higher.

Additional Benefits of ABL Financing for Small Firms

Small firms pay a premium for this type of facility. Still, when you consider you can access almost all the business credit you need under such a line of credit, coupled with the ability to grow profits and revenues and take on additional orders... well, we'll let you decide if that’s worth a premium.

Key Takeaways

1. Definition of ABL Facility:

   • ABL (Asset-Based Lending) provides businesses with financing based on the value of specific assets, such as receivables, inventory, equipment, and sometimes real estate. The ABL facility is essentially a line of credit or a loan secured by these assets.

2. Difference from Traditional Financing:

   • Traditional bank financing, primarily revolving lines of credit, tends to focus on a company's financial health, profitability, and cash flow. In contrast, asset-based lenders are mainly concerned with the value and quality of the assets pledged as collateral.

3. Eligibility and Asset Quality:

   • While many businesses with tangible assets can qualify for ABL financing, the key is the quality and liquidity of the assets. For instance, receivables from trustworthy customers and inventory that turns over quickly are seen as high-quality assets.

4. Benefits and Costs:

   • ABL can be a lifeline for companies that may not qualify for traditional financing due to cash flow issues, especially if they have substantial assets. However, ABL typically costs more than conventional bank financing, especially for smaller firms.

5. Choosing the Right Lender:

   • The lender's expertise in evaluating and monitoring assets is crucial. Businesses should seek lenders with a track record in asset-based lending and understand the nuances of their industry and the types of assets they're pledging.

Conclusion  

If you want to walk the business financing minefield in ABL comfortably and feel you aren't 100% conversant with the players, requirements, and pricing, call 7 Park Avenue Financial,  a trusted, credible, experienced Canadian business financing advisor in this area.

Maximizing Your Business Credit Potential

P.S. If you found your access to business credit has just doubled, don’t say we didn’t tell you!

FAQ  

What types of companies benefit most from Asset-Based Lending (ABL)?


Companies undergoing rapid growth, mergers, or acquisitions often benefit significantly from ABL. Additionally, businesses facing cash flow challenges or restructuring may find ABL a viable financing solution, especially if they possess tangible assets.

How do Asset-Based Lenders determine the value of assets for lending?


Asset-Based Lenders typically thoroughly appraise or audit a company's assets. This can include reviewing accounts receivable aging reports, assessing the quality and condition of inventory, and evaluating the market value of equipment or real estate.

Can a business lose its assets in ABL financing?


If a business defaults on its obligations, the Asset-Based Lender, having a secured interest in the pledged assets, can liquidate those assets to recoup the owed amount. Companies need to understand their agreements and ensure timely repayments to avoid such scenarios.

How does the repayment structure work in ABL?


The repayment structure in ABL typically revolves around the fluidity of the assets. For instance, as accounts receivable are collected, or inventory is sold, proceeds are used to repay the loan. Interest is often paid monthly, with principal amounts adjusted based on asset turnover.


What types of companies benefit most from Asset-Based Lending (ABL)?


Companies undergoing rapid growth, mergers, or acquisitions often benefit significantly from ABL. Additionally, businesses facing cash flow challenges or restructuring may find ABL a viable financing solution, especially if they possess tangible assets.


How do Asset-Based Lenders determine the value of assets for lending?

Asset-Based Lenders typically conduct a thorough appraisal or audit of a company's assets and the value of the assets. This can include reviewing accounts receivable aging reports, assessing the quality and condition of inventory, and evaluating the market value of equipment or real estate.

Can a business lose its assets in ABL financing?

If a business defaults on its obligations, the Asset-Based Lender, having a secured interest in the pledged assets, can liquidate those assets to recoup the owed amount. Companies must understand their agreements and ensure timely repayments to avoid such scenarios.

How does the repayment structure work in ABL?

The repayment structure in ABL typically revolves around the fluidity of the assets. For instance, as accounts receivable are collected or inventory is sold, proceeds are used to repay the loan. Interest is often paid monthly, with principal amounts adjusted based on asset turnover.

Are there any industries where ABL is particularly prevalent or advantageous?

Industries with significant tangible assets, like manufacturing, wholesale, distribution, and transportation, often find ABL advantageous. However, any industry with sizable accounts receivable, inventory, or other tangible assets can benefit from ABL. Many companies choose accounts receivable financing, which is a subset of the asset based lending landscape in Canada.