How An Asset Based Lending Cash Flow Busines Loan Solution Can Help Business

YOUR COMPANY IS LOOKING FOR AN ASSET BASED LINE OF CREDIT METHOD OF FINANCING!

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EXPLORING THE ASSET BASED LOAN AND BUSINESS LINE OF CREDIT IN CANADA

Asset based lending in Canada seems to be catching the ears of more & more business owners/financial managers in Canada.

LOOKING FOR FLEXIBLE FINANCIAL SOLUTIONS?

Is it possible this business loan/cash flow financing solution can actually save your company - or at a minimum grow it? We'll let you decide! Let's dig in.

Let's try and make some common sense around this somewhat unknown financing solution - beginning with: What is an asset based line of credit and could it actually ‘save’ your firm? And if your firm doesn’t need ‘saving’ could this method of business loan still make sense?

In order to determine if asset based finance can ‘save' your firm, it might do us well to understand what it is. Don't get confused around the 'jargon' which tends to sometimes complicate what you are looking for, which is adequate business financing that meets cash flow and working capital needs.

GREATER CREDIT AVAILABILITY

The basics? Simply that asset based lines of credit are revolving working capital facilities that totally focus on your asset base. When you are comparing this type of financing to a banking facility you will of course quickly realize that the Canadian chartered bank commercial banking facility that provides a similar (but not exact) type of financing, typically via unsecured loans, places a lot of focus on issues external to your assets. As we know banks focus on and require very solid balance sheet ratios, outside collateral, and guarantees, etc.

That’s banking 101. Those are not the requirements that are over-focused on when it comes to a business credit line. Asset financing lines of credit/loans are business financing working capital facilities that are revolving lines of credit secured specifically by a company's assets such as accounts receivable, inventory and in many cases physical assets such as equipment . In unique cases, intellectual property can also be financed.

ASSET BASED LENDING FOR REAL ESTATE

Commercial real estate owned by the business or owner can also be financed separately or together with other fixed assets.

HOW DOES THE ASSET BASED LOAN WORK / LINE OF CREDIT WORK?

You basically borrow, on a daily basis, as you need to, on the sole strength of those assets. Many of our clients are in fact able to also on occasion arrange temporary bulges which can even take them higher than their asset based borrowing capability!

An example of this might bring a purchase order financing scenario into play which would allow your firm to temporarily borrow against purchase orders and contracts you have received from your customers. This type of additional supplemental financing is best suited for manufacturers, distributors, and firms who export goods or who are wholesalers.

ADVANTAGES OF ASSET BASED LENDING

Asset based financing solutions tend to be lumped under the umbrella of 'Alternative Finance' solutions - fast becoming more popular. While firms with some level of financial distress or challenge use asset financing a lot, the new reality is that this type of financing is being utilized by every type of corporation of all sizes and all industries in Canada, from start-ups to Canada’s mega-corporations. Something must be working!

The reality is though that in many cases firms who have business financing challenges indeed are the perfect candidates for asset based lines of credit if only for the reason that they provide you with capital and cash flow when traditional sources can’t.

So if your business needs to be ‘saved' because of issues such as inability to achieve traditional bank financing, or you have traditional financing but it is not enough, then an ABL facility is what you should consider. ABL, by the way, is the acronym for asset based line of credit. Sorry for the jargon!

Other issues you might be facing might include firms that are in a turnaround or workout situation. We have worked with a number of clients who in fact are in ‘special loans' scenarios at their bank and they require exit financing from that relationship. Fortunately or unfortunately for traditional business financing in Canada, it’s all about the ratios and covenants.

Alternatively, your firm might be in a turnaround from either a difficult year or a difficult ‘one-off' situation that took place. Perhaps your firm is losing money but is on the road to rebuilding sales and profits again? Asset financing loves sales growth by the way and in some cases, 100% of the face value of assets such as accounts receivables can be financed,

Asset based lines of credit eliminate those ratios you can’t meet because of being over-leveraged (too much debt), or having dramatic seasonal cash flow changes based on your business model and your industry.

The bottom line is simply that your firm now has the ability to be ‘saved’, using our jargon, because you have maximum flexibility in borrowing on your assets, with those assets being the sole focal point of your borrowing base.

As a general rule ABL financing is more expensive than bank borrowing, which is currently at some of its lowest levels in Canadian history. But even paying a premium or significant premium on your ability to borrow in an unlimited fashion against your asset base can still 99% of the time make total sense, that’s simply because your ability to turn capital into profits takes care of a lot of the financing charges.

CONCLUSION - CHOOSE ASSET-BASED LENDING?

Speak to 7 Park Avenue Financial, a trusted, credible, and experienced business financing advisor with a strong reputation, and discover if the asset based funding makes sense for your firm, as well as a broad range of other financing solutions - Let our team with years of experience work with you and understand your business to structure flexible financial solutions that you need to run and grow your company in domestic or global markets via asset-based loans that make sense for your company and it's industry challenges

FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION

WHAT IS ASSET BASED LENDING ?

Asset-based loans and lines of credit can be secured by multiple forms of collateral. An ABL loan can pledge a specific asset or a number of business assets. Facilities can be structured as term loans or revolving credit lines. Interest rates and asset based loan rates for financing costs are typically higher in abl financing but provide more financing and growth opportunities via access to more capital and liquidity via a full range of different subsets of asset finance.

HOW DOES ABL FINANCING WORK VERSUS CASH FLOW FINANCING?

ABL financings are analyzed differently than cash flow financing, with the emphasis on business assets rather than their historical or current cash flows and profits..

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Asset Based Lending Business Loan Cash Flow | 7 Park Avenue Financial