Asset Based Lending: The Solution for Small Businesses
Introduction: Addressing Business Cash Flow Needs
Asset-based Lending might just be the best small business line of credit your firm needs.
If you're looking for a financing mechanism that fills the gap in your cash flow needs, we have a solution that's working for thousands of firms in Canada already! And the surprise? Simply put, many business owners and financial managers aren't aware of this solution!
Post-Recession Financing Challenges
After the 2008 financial recession, many firms found it even more difficult to obtain proper business financing. And let's not even talk about the effects of COVID-19 on the Canadian business economy!
In other words, credit had dried up. Banks tightened up, some finance firms disappeared (a good example: GE CAPITAL!), and many businesses and even whole industries found themselves 'out of favour'.
Understanding Asset Based Lending
Asset-based lending takes a deeper look—if your firm has assets, it's financeable! This credit line focuses solely on asset collateral, typically receivables, inventory, equipment, and real estate.
The Mechanism of Asset Based Lending
How does this unsecured credit line work? Simply by having those abovementioned assets margined to a much higher percentage than you would typically get from a bank. In effect, they are your ' borrowing base ' on an ongoing basis.
Expertise of Asset Based Lenders
Asset-based lenders often have great expertise in specific asset categories, namely inventory. An asset-based line of credit provider monitors your assets monthly based on your financials. That typically gets you 90% margins on accounts receivable and 30-70% on inventory.
An updated appraisal on equipment and real estate will often allow even more borrowing power on those two asset categories.
Unlimited Borrowing Potential
Once the ' ABL ' revolver credit line is up and running, your borrowing power is unlimited as your sales and business assets grow. A combination of regular reporting and good-quality assets such as your a/r, etc., will allow you to face even minor downturns, such as a negative income period. Many businesses lose money at certain times in their history.
Key Takeaways
Asset-Based Lending (ABL): Understand the core concept of using business assets as collateral for financing.
Collateral Types: Learn about the accepted asset types, including balance sheet tangible assets such as accounts receivables, inventory, equipment, and real estate.
Borrowing Limits: Comprehend how borrowing limits are determined based on the value of assets, providing flexibility and potential for growth.
Eligibility Criteria: Know the criteria businesses must meet to qualify for ABL, which may differ from traditional loan requirements around cash flows.
Monitoring and Reporting: Understand the importance of regular reporting and asset monitoring to maintain borrowing capacity and compliance.
Conclusion: Maximizing Financing Potential
So if your firm has a solid management team and good business controls, you can expect to receive maximum financing from the asset-based lending solution.
Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor with a track record of success who can assist you with your overall cash flow needs.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK /MORE INFORMATION
What are the main benefits of ABL Asset-Backed Lending?
An ABL asset-based loan is a corporate finance solution that offer flexible financing based on your assets, and asset-based loans have higher borrowing limits based on a better loan-to-value ratio on a company's assets and more accessible eligibility criteria than traditional loans/bank cash flow loans.
How does ABL Asset Backed Lending differ from traditional financing?
Unlike conventional loans, ABL asset based financing focuses solely on your business assets, such as eligible receivables as collateral, providing more flexibility and higher borrowing limits. If the borrower defaults the business assets are the borrowing base assets as collateral.
Can ABL Asset-Backed Lending help my business during periods of low profit and negative cash flow ?
Yes, ABL allows you to borrow against your assets, providing a lifeline during downturns and helping your business navigate challenging times.
What types of assets are accepted in ABL Asset Backed Lending?
ABL typically accepts receivables, inventory, equipment, real estate and potentially intellectual property as collateral for financing. Inventory financing is a key component of many ABL loans.
How can I find a trusted ABL lender for my business?
Seek out experienced Canadian business financing advisors specializing in ABL, ensuring they have a proven track record of success in helping companies like yours.
How do I improve my credit score to qualify for ABL Asset Backed Lending?
Focus on timely payments, reducing debt-to-income ratio, and improving credit utilization to strengthen your credit history and overall creditworthiness.
Can ABL Asset Backed Lending be used for startup businesses?
While ABL is typically suitable for established companies with assets, some lenders may offer specialized programs for startups with the potential for pledged asset financing.
