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Asset based financing via non-bank lenders is one of the most popular and fast-growing business finance options in Canada. But why are these new paradigm asset loan lenders so popular with increased presence and visibility in all aspects of raising capital and cash flow today? We think we know exactly why! Let's dig in!
WHAT DOES THE WORLD OF ASSET BASED FINANCE INCLUDE?
One challenge though is that this type of finance term, i.e. ' ABL ' ( asset based lending ), is a bit of a catch-all term when it is first heard by many business owners and financial managers. There are, in fact, a very distinct number of solutions within the term 'asset based finance ' and asset based financing companies, including a business line of credit that delivers the same benefits as a bank loan and steps up with capital when you need it the most! Let's dig in on business asset based financing basics!
Solutions from asset-based financing companies include :
Asset-based operating lines of credit - The asset-based loan revolver
Factoring / AR finance - Accounts receivable funding/ AR Loans - Asset-based finance factoring solutions include Confidential Receivable Financing
Inventory Loans
Sale Leasebacks / Asset-based equipment financing
Bridge loans - Custom-tailored asset-based bridge loan solutions
SR&ED Tax Credit loans
Acquisition/merger financing
Real Estate - asset-backed solutions for company-owned real estate/land
WHY ARE ASSET BASED LENDERS DIFFERENT FROM CANADIAN CHARTERED BANKS
We think you can see the basics, though - it's borrowing power for cash flow and working capital secured by some or all of your business assets. Unlike Canadian traditional bank solutions, ABL lenders are more often than not commercial finance companies who operate for a profit and, unlike our banks, are not regulated by the government when it comes to asset lending and loans.
That type of regulation often limits borrowing!! Interest rates and cost of financing/asset based financing rates are always higher in ABL lending, but access to more capital is key to business owners. ABL rates are most commonly perceived as the main disadvantages of asset based financing.
So why consider this type of solution? The most common reason is your firm’s inability to get some of all of the credit from those traditional capital sources. In some cases, your firm might be in dire straits and is in the process of exiting the bank. (At their request!)
ASSET BASED LENDING VS. TRADITIONAL BANK LENDING
When it comes to understanding how does asset-based lending works, It is very safe to say that non-bank lenders take more risk, provide more capital, and come with a higher cost of borrowing.
For that reason, the ABL loan agreement is not focused so much on loan covenants, balance sheet ratios, owner credit score/credit history, etc. If your firm is still a startup or early-stage company, you're still often a solid candidate for financing. Hint: Sales revenues also help, as well as your asset based business loan collateral!
How does one access alternative finance solutions? That sometimes is a challenge in and of itself, as the players are small, large, the U.S. owned, Canadian owned, and occasionally geographically focused. All have different rates, structures, solutions, and programs around the asst based loan facility solution they offer. In many cases enlisting the help of a Canadian business financing advisor makes total sense to save time and hone in on the right solution that is comparable to bank lending solutions.
When you do, in fact, focus on the solution that makes sense for your firm, benefits will often include flexibility and quicker access to capital. In a handful of scenarios, it's not uncommon for an alternative financier to also work within your current bank facility, although that's not the norm.
CONCLUSION
Want To Know More About Asset Based Financing Non-Bank Lenders Finance? The bottom line? There is a whole new ' ball game ' when it comes to commercial business financing asset based loans via non-bank lenders.
If you want to know more about how asset based lending works versus bank lending, you're looking for lines of credit, cash flow and working capital solutions, or very specialized finance needs, speak to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with the asset-based financing structure that meets your business finance needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is asset based finance?
Asset based finance is a financing solution that provides businesses with working capital solutions that include term loans and lines of credit. Typical assets that are collateralized by these loans include receivables, inventories, and fixed assets/equipment as well as real estate.
Is it difficult to obtain finance with asset based lending?
When it comes to asset-based lending vs bank financing asset based loans are more easily obtainable than traditional bank loans as the asset based lender focus is on the value of the collateral turnover and asset turnover in categories of receivables and inventories. Less emphasis is based on bank criteria that typically include balance sheet ratios and covenants and guarantees.
What is an ABL term loan?
ABL loans are asset backed loans that are structured in the form of a term loan or a revolving line of credit. The majority of ABL lending is in one of those two structures. Term loans are typically on a fixed installment basis, while credit lines revolve based on borrower usage.
Do Canadian Banks Offer asset based loans?
The rise of bank owners asset-based lenders has grown in Canada. Their solution acts like non-bank lenders and run specialty financing divisions within the Chartered bank regulated structure. Their product solutions are similar to non-bank lenders and are priced more aggressively due to their ability to access lower cost of funds. They are different in that the credit quality must be of a higher grade and deals often start in the 5-10 Million dollar range.
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