YOUR COMPANY IS LOOKING FOR ABL LENDING VIA AN ASSET BASED LOAN FACILITY!
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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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"Asset-based loan facilities revolutionize business financing by transforming assets into powerful leverage points for growth."
"Unlock your company’s potential with asset-based lending – where your assets do the talking!"
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ASSET BASED LOAN FACILITY solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Leverage More, Worry Less with Asset Based Loan Facilities
Introduction to ABL Asset Based Loans
And that's when it hits you. We're talking about a Canadian business financing 'epiphany' - that being the term used for a 'sudden, intuitive perception or insight'.
And what exactly is that 'insight'? It is simply that an ABL facility, which is the asset based lending term for a business line of credit based on the company's assets is different, and in many ways a lot better than traditional term loans or Canadian chartered bank facilities.
The Difference Explained
So, that’s a fairly dramatic statement, so let’s set out to provide some facts and valuable information on these business revolving credit facilities in asset based financing
An asset based loan facility is a strategic solution to unlock liquidity and foster growth.
By leveraging assets such as receivables, inventory, and equipment, Asset based finance solutions provide a flexible approach to financing that can adapt to the unique demands of any business, ensuring stability and scalability in competitive markets.
Why Choose ABL Over Traditional Bank Lines?
Canadian businesses use ABL financing to leverage their assets, typically receivables, inventory and equipment into liquidity for working capital and cash flow. The most common question we get around this type of business financing is 'Why is an ABL facility different than a bank line of credit?" Fair question, right?
The Basics of ABL
The answer is simply as follows - it’s your asset values that determine the amount of business credit line you are eligible for. Banks view business lines of credit in Canada in an entirely different manner. It’s just a different way of looking at things.
Asset based lending looks at the assets themselves as the 'prime' collateral. In the cases of banks, they look at what's important to their criteria, which are typically historical cash flow, profitability, a balance sheet that has reasonable debt, outside collateral, etc.
Key Advantages of ABL solutions
It's this difference then that is what becomes almost shocking to a degree on Canadian borrowing for business. Just imagine, no rations, covenants, reliance on personal guarantees, just a focus on the assets themselves. And the more verifiable assets you have the more you can borrow.
Accelerating Cash Flow with ABL
Therefore the key advantage to this type of borrowing and financing is that the ABL facility accelerates that cash flow and allows your company to access all its working capital needs as you grow.
Naturally, your company now has an alternative to taking on additional debt or having to dilute some or a large part of your equity ownership. Remember, almost always equity is much more expensive than debt in the long run.
Eligibility and Requirements for ABL Transactions
Is everyone eligible for an asset based lending abl facility?
The general answer is yes. Junior type asset based lending and financing facilities for inventory and A/R can start as low as 250k and quite frankly there is no upper limit for facility size. Unbeknownst to many some of the largest corporations in Canada utilize this type of financing, having forsaken bank lines of credit in the traditional sense.
What's Required to Qualify?
Eligibility always is a key question for clients. 'What's required?' is really their question.
First of all, you have to have proper financials and be able to maintain solid reporting records on key assets such as receivables, inventory, etc. We don’t necessarily consider it a downside, but it is safe to say there is a bit more monthly reporting in an ABL facility, if only for the reason that it's all about the assets, not the ratios and covenants you might be used to now.
Advance Rates in ABL origination
The advance rates (how much you can borrow!) are significant in asset based lending. A/R is typically margined at 90%, and inventory (yes, inventory!) is anywhere from 30-70% depending on the type of product you produce/sell.
Key Takeaways
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Collateral Management: Effective management of collateral is crucial as the loan amount is based directly on the value of the assets pledged.
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Loan Structure: Understanding the structure is essential since it impacts the flexibility and cost of the loan.
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Eligibility Requirements: Knowing what makes a business eligible helps in pre-assessment and preparation for application.
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Working Capital Optimization: Utilizing ABL to enhance working capital ensures businesses can maintain operational efficiency.
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Financing Growth: This type of facility is particularly suited to support expansion activities without diluting equity.
Conclusion: The Quiet Revolution in Business Financing
So, that’s the epiphany! Just that sudden insight that there's a quiet revolution going on in business financing that you might want to check out.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor on the merits of ABL financing.
FAQ
What determines the loan amount in an asset-based loan facility?
The loan amount is primarily determined by the value of the assets pledged as collateral, such as receivables, inventory, and equipment.
What are the main advantages of using an asset-based loan facility?
The primary advantage is increased flexibility in financing, as it allows businesses to leverage existing assets for liquidity rather than seeking external funding sources.
How does asset-based lending differ from traditional bank loans?
Unlike traditional loans that focus on credit scores, cash flows and an unsecured loan structure based on financial history, asset-based lending emphasizes the value of tangible assets, offering more accessibility for businesses.
Can asset-based lending improve my company’s cash flow?
Yes, by converting assets into working capital, an asset based line of credit provides immediate cash flow improvements, essential for operational and growth needs.
What types of businesses benefit most from asset-based loan facilities?
Businesses with substantial physical assets like manufacturers, wholesalers, and retailers often gain the most, as they can leverage their inventory and receivables efficiently.
How do interest rates for asset-based loans compare to other financing options?
Interest rates are generally competitive, reflecting the lower risk associated with secured lending against tangible assets and unsecured loans.
What happens if the asset values decline during the loan term?
If asset values decline, the borrowing base may be adjusted, which might require additional collateral or repayment to maintain the loan balance.
Is there a minimum business size or revenue requirement for asset-based loans?
Asset-based lenders typically have varying requirements, but they generally cater to small to medium-sized enterprises with substantial physical assets.
What is the typical duration for an asset-based loan?
Loan terms can vary but often align with the cyclical nature of the business's use of the assets, usually one to three years. Commercial real estate may be structured under a long-term/amortization or a short-term bridge loan
How quickly can a business access funds through an asset-based loan?
Once the facility is set up, businesses can typically draw funds quickly based on their current asset values.
What distinguishes an asset-based loan facility from factoring?
Unlike factoring, which involves selling receivables at a discount, an asset-based loan is a credit line backed by various assets, offering more flexibility without selling the receivables.
Are there any specific sectors that find asset-based loans particularly beneficial?
Sectors with high inventory levels or large accounts receivable balances, like manufacturing, wholesale, and retail, benefit significantly from the flexibility and liquidity offered by ABL pledged asset financing
What are typical covenants associated with an asset-based loan?
Covenants may include maintaining a minimum asset coverage ratio, providing regular financial updates, and ensuring pledged assets remain insured, protecting both lender and borrower interests.
