YOUR COMPANY IS LOOKING FOR AN ABL LOAN VIA ASSET FINANCE !
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Is an ABL loan, i.e. an asset revolving line of credit really a candidate for a position in the business Book of 'Awesome '? We think so. Here's why.
While many forms of Canadian business financing have been around for, well... almost ever... an asset based line of credit is somewhat of the new kid on the block in the context of financing vehicles for business owners and financial managers in Canada.
A key emphasis in various forms of business financing is the concept of 'cash flow' when it comes to repayment of your loans and borrowing facilities. That’s where the ‘asset crowd differs; the asset based line of credit focuses on assets not necessarily cash flow.
So why are more and more Canadian firms, start up, small, and large in size using this method of business lines of credit? Simply because if your business has solid assets in receivables and inventory it immediately qualifies for ABL loan finance. While we do use the term ' loan ' often in the context of our description of this method of finance in reality its not a loan per se, it's a monetization of the asset on the left hand side of your balance sheet.
And by the way, although we specifically mentioned A/R and inventory it can include fixed assets and real estate, even tax credits as part of the mix. But truth be told receivables and inventory make up the majority of the asset based line of credit.
So who in fact uses, and considers this type of finance? It certainly runs the gamut, from wholesalers and distributors, major retailers (here the focus is on inventory), manufacturers, etc. If there is a bottom line, whether you are a service or product oriented company....it’s simply that if you have A/R and or inventory you qualify.
A quick note that some of the largest and most recognized companies in Canada (and the world) utilize ABL.
Several types of Canadian business financing in Canada are considered somewhat 'alternative' when they are benchmarked against traditional business lines of credit. However our perception is that the ABL loan becomes a bit more popular everyday - it's absolutely positively not the 'last resort' scenario that some seem to make out.
Pricing on the asset revolving line of credit differs. While it absolutely can be competitive with bank pricing for firms of that quality quite often it comes at a higher cost, but, and its a bit but ( so to speak!) it provides you with significantly more liquidity. That's because margining of a/r tends to be in the 90% range, even higher on occasion, and inventory financing within you facility can range anywhere from 30- 70%... which in some cases is 30-70% more than you are getting today!
Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in determining if ABL is right for you. You just might now understand why an ABL loan seems to definitely qualify for its chapter in the Book of Awesome.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
