You Are Looking for an ABL Lending Facility!
Asset-Based Loans: Your Key to Enhanced Working Capital
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Why should you read this article? Because asset-based lending is reshaping the way Canadian businesses access capital
Asset-Based Lending vs. Traditional Banking: Which is Right for You?
Introduction
Unlocking the full potential of your business's financial strategy begins with exploring the dynamic world of ABL lending facility solutions
Operating lines of credit, as in 'access to' have been a challenge for many Canadian business owners and financial managers. So is there an alternative to consider? The answer is a resounding 'yes', and it's called the asset based loan/line of credit. We can prove it because it's working for thousands of firms in Canada.
Are traditional lending institutions leaving your business strapped for capital, while ABL lending facility solutions offer a lifeline? How can you make the right choice?
The Mystery of Asset Based Loans (ABLs)
It is somewhat ironic that many business folks have not even heard of this type of facility, i.e. what it is, and more importantly, how it works.
Types of Asset Based Credit Lines
There is some confusion sometimes around the fact that there are a couple of different versions of asset based credit lines, also known as 'ABLs'. Even some of the name changes on this facility are confusing, such as:
- Working capital facility
- ABL revolver
- Asset Based Lending
- Etc.!
In pure terms, this type of credit line is simply an operating line based on underlying collateral. The most common assets for this 'collateral' are accounts receivable and inventory. But also included can be equipment and real estate. Your ability to margin all these assets turns into true liquidity - bottom line more cash flow!
ABL vs. Traditional Bank Lines of Credit
Chartered banks also offer lines of credit via unsecured loans and cash flow lending - no secret there.
The difference is that asset-based lenders use higher margins via a higher loan to value ratio on your assets and credit requirements are much less restrictive. Most commercial asset-based lenders have a lot of expertise in different industries. At the same time, they really want to understand your business and require a consistent level of reporting.
Simplified Reporting Requirements
The reporting we refer to above is pretty standard stuff, i.e. receivable and payables lists, sales forecasts, etc. ABL lenders are very much less focused on those 'ratios' that our friends in banking obsess about!
Unlocking Cash Flow
Don't think of asset based credit as 'term loans' or debt. You are simply cash flowing the assets that you already have, in a bigger way!
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Economic Resilience Booster: Instead of viewing ABL lending as just a financial tool, consider it as an economic resilience booster. ABL lending can help businesses weather economic storms and uncertainties by providing them with a flexible and adaptable source of capital. In this light, ABL becomes a strategic asset for businesses to build resilience against economic downturns.
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Unlocking Hidden Value: A less common perspective is to see ABL lending as a way to unlock hidden value within a company. Beyond its immediate financial benefits, ABL can reveal underutilized assets and operational inefficiencies. By leveraging these insights, businesses can not only secure the necessary funding but also optimize their operations for long-term success.
Key Takeaways
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Asset-based lending is a financing approach relies on collateral like accounts receivable and inventory to secure a credit line.
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ABL vs. traditional banks: Asset-based lenders offer higher-margin loans with less restrictive credit requirements compared to traditional banks.
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Types of assets: Collateral for ABL includes accounts receivable, inventory, equipment, and real estate.
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Reporting requirements: ABL lenders require standard reporting, such as receivables, payables lists, and sales forecasts.
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Liquidity and cash flow: ABL loans provide increased liquidity by leveraging existing assets to generate more cash flow.
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Non-bank credit lines: Consider non-bank options when traditional lenders cannot meet your working capital needs.
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Business financing advisor: Seek guidance from a reputable and experienced Canadian advisor for tailored solutions.
Conclusion
In the battle between asset-based loan solutions and traditional banking, it's becoming increasingly clear that ABL is not just a challenger but the superior choice for businesses looking to thrive in today's financial landscape. Traditional banks are lagging behind in flexibility, and ABL is the future of financing.
Bottom line? Check out non-bank business credit lines if you have working capital needs that traditional lenders can't satisfy. Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor.
FAQ
What is Asset based lending and how does it work?
Asset-based lending (ABL facility) is a credit facility financing approach that uses collateral value balance sheet assets such as eligible receivables, inventory, and more to secure a credit line, providing businesses with increased liquidity.
How does ABL differ from traditional bank loans?
ABL lenders offer the ability to gain access to higher margin loans and a better borrowing base with less restrictive credit requirements compared to traditional banks, making it an attractive option for businesses with diverse asset bases. These facilities are often not at all, or minimally subject to a financial covenant, unlike bank financing which comes with numerous financial covenants and potential outside collateral needs.
What are the primary assets used as collateral in ABL lending?
Collateral for ABL includes balance sheet assets such as accounts receivable, inventory, and physical assets such as equipment, and commercial real estate, allowing businesses to leverage existing assets for cash flow. In some cases, intellectual property can be included in the facility as a pledged asset.
How can ABL loans benefit my business's cash flow?
If a company has sufficient assets ABL loans will enable businesses to unlock cash flows from their assets, providing greater credit availability, and helping to meet working capital needs and drive growth initiatives via the company's assets and sales. Those borrowing base assets fund the faclity.
Where can I find guidance on ABL Financing & lending in Canada?
Seek assistance on asset based financing solutions from a reputable Canadian business financing advisor such as 7 Park Avenue Financial to explore tailored asset-based loan solutions and financing strategies at interest rates that make sense for your company.
