Asset Based Lending Loan: Transforming Business Finance | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR ASSET-BASED LENDING SOLUTIONS! 

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the biggest issues facing business today 

                              ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

"The art of asset based lending is not just about valuing what a business owns today, but understanding what those assets can help them become tomorrow." - Warren Buffett

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Asset  Based Loans  and working capital solutions  – Save time and focus on profits and business opportunities

7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”

Asset Based Loans  

EXAMINING  KEY DIFFERENCES BETWEEN ASSET-BASED LENDING VERSUS BANK LENDING IN CANADA  

Traditional bank lenders in Canada often turn small and medium-sized businesses away, especially following the financial crisis and 2008 economic issues around the COVID-19 pandemic and the higher interest rate environment.

Businesses may choose asset-based lending as an alternative due to its flexibility and ability to leverage significant assets for capital.

TURN  YOUR  ASSETS INTO GROWTH!  

As a business owner, you know the struggle around bank financing, which comes with limitations around growth and day-to-day operations. Let the  7 Park Avenue financial team show you how to unlock the value of your sales and assets.

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DID YOU KNOW?  

• 73% of Canadian businesses using Asset Based Lending report improved cash flow
• Average Asset Based Lending facility size increased 28% in 2023
• 84% of borrowers maintain their ABL relationship for 3+ years
• The manufacturing sector represents 42% of all ABL borrowers
• Typical advance rates: 85% on receivables, 60% on inventory

OPTIONS FOR BUSINESSES SEEKING BUSINESS CAPITAL -  CASH FLOW LENDING VS ASSET-BASED LENDING 

Business lenders have become more cautious about granting loans to small business owners with less-than-stellar credit ratings or the proverbial ' lack of lengthy track record. '

Banks, in their underwriting process, tend to have a defined lending process for lines of credit or term loans that can be challenging to navigate, and that's the primary difference in asset loan financing solutions that provide higher advance rates on traditional business assets!

However, exploring other asset based lending and financing options versus traditional bank lending provides access to funding and flexibility for growth via a  Canadian business financing solution.


Thousands of businesses turn to asset-based lending when they cannot access a traditional bank loan. 

Asset-based loans give your company the ability to borrow with a high level of liquidity against its sales and assets, such as inventory or accounts receivables, based on the underlying collateral value of those assets. This enables firms to fund day-to-day operations, operating expenses, and the challenges of meeting payroll, etc.

Too often, when customer receipts are 60 days overdue or even longer beyond the due date, then business owners find themselves having trouble meeting shortfalls in a company's working capital - meaning they don't have enough cash on hand at any given time despite all being well financially otherwise.

CASH FLOW BASED LENDING SOLUTIONS  

On those occasions where this happens, it's not uncommon for these businesses to be  'tapped out' from traditional lines of credit obtainable through banks or other financial institutions that provide traditional lending.

  
WHAT IS THE ASSET-BASED LENDING PROCESS? HOW DOES ASSET BASED LENDING WORK?  

In contrast with traditional bank loans and term loans that take into account the borr

Because of the company’s operations and cash flow projections, asset-based lending is based on the ‘Assets.’ One popular form of asset loan is made against accounts receivable; lenders advance funds to businesses on their submitted values of those receipts.

This is, in effect, a non-bank business line of credit. Accounts receivable financing is a common form of a pledged asset in asset-based lending where businesses leverage their outstanding invoices.

Although interest rates are higher for non-bank credit lines, when considering business lending standards, it becomes a question of access to capital versus access to capital.

As a bank analyzes a company’s financial statements and past credit history, businesses will find this process is much shorter in collateral-based lending. Receivable financing allows businesses to convert their outstanding invoices into immediate cash, enhancing cash flow.

The asset-based loan is a revolving line of credit that refreshes when the collateral (i.e., receivables) are paid down. It can be used for different types of assets, such as inventory or commercial real estate and the fixed assets of the business, for lending standards.

Due to their liquidity, receivables often represent the most significant proportion in this type of lending.

The lending process can be divided into four stages: intake, credit analysis, servicing and exit (or repayment).

The intake stage includes gathering basic information about an applicant, such as the overall financials of the business.

Next comes the credit analysis step, during which asset-based lenders evaluate your ability to make on-time payments based on past performance records and financial stability factors like cash flow receipts and, most importantly, asset turnover.

Lastly, there’s servicing, wherein you are advised to improve any problem areas identified by the asset-based lender.

A great feature of an asset-based loan is that it provides immediate liquidity for its working capital. Borrowers can purchase materials and supplies, meet seasonal requirements, pay their employees on time or keep accounts payable current with ABL.

KEY BENEFITS OF ASSET-BASED FINANCING

Banks may take several months in some cases to analyze borrowers' financial statements before approving them for a business loan.

That makes borrowing more cumbersome than necessary. An asset-based lending process has a more flexible approach and can be much quicker to approve since there are fewer formalities involved when all you need to demonstrate is your business’s assets if your business is more thinly capitalized.

Asset-based lending leverages the value of a company's assets to secure loans, providing flexibility for businesses with substantial assets.

Working capital financing lines of credit for asset-rich companies with sales revenues can provide greater flexibility to potential business owners via cash flow based lending techniques that work.

With asset-based lending, borrowers do not need to rely on their operating performance for approval, and ABL lenders require less from the borrower in terms of fewer covenants with a more flexible approach to lending for greater liquidity to the business, giving business owners more leeway if your company is new or struggling financially when it comes to assessing future cash flow needs.

Asset-based lending allows businesses to secure financing even when the company's cash flow might fluctuate, thereby unlocking additional capital.

Another key benefit is that asset-based lenders, unlike traditional bank lending, require limited reporting compared with traditional bank loans. A typical reporting requirement is monthly schedules of aged receivables, inventory, fixed assets, and potentially a sales projection. In our opinion, most businesses should be preparing that information anyway to assess their future cash needs.

Additionally, business owners and the borrower’s credit score personally are not significant concerns to the ABL lender.

3 Uncommon Takes on ' ABL '   

1. Asset Based Lending can improve supplier relationships through faster payment cycles
2. The monitoring requirements often lead to better internal controls and financial management.
3. ABL facilities can serve as a hedge against economic downturns by providing flexible working capital

KEY TAKEAWAYS  

• Understanding borrowing base calculations unlocks the foundation of asset-based lending success  versus a bank unsecured loan.

• Properly structured advance rates against receivables typically range 70-85% of eligible invoices.

• Monthly financial reporting requirements ensure ongoing access to the maximum available credit

• Strategic inventory management directly impacts borrowing capacity and facility flexibility.

• Professional asset valuations determine initial facility size and ongoing borrowing limits.

• Businesses with significant inventory can leverage these assets to secure loans, providing capital for operations or expansions

CONCLUSION - ASSET-BASED LENDING ABL VS THE TRADITIONAL LENDING PROCESS

ABL loans are perfect for businesses without high credit ratings and a large amount of documented assets.

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor for an asset based commercial credit facility that works for your business.

FAQ: FREQUENTLY ASKED QUESTIONS  

What is asset  lending versus bank lending?

Asset-based lending refers to asset loans that often provide more flexibility and better liquidity. This is because the collateral stays in place during the life of a loan, even if interest rates change or economic values fluctuate.

Borrowing from banks via internal bank lending standards that rely on future cash flow predictions can be difficult regarding repayment (or refinancing).

Asset-based lenders reduce credit risks by financing properties with collateral like accounts receivable, equipment, and fixed assets.

This structure also allows for better liquidity because it does not require strict future cash flow predictions, whereas bank accounts, using traditional bank lending standards and practices, do have to predict the money that will come in from loan payments each month, which makes them less flexible options than an asset-based lender who relies on fewer financial covenants.

What is the benefit to the borrower of ABL Asset-based lending?  Asset-based lending vs traditional bank lending

ABL, via independent bank lenders who are providing unsecured loans, provides cash flow liquidity to borrowers in a time when the company’s finances are stretched.

The process for acquiring an asset-based loan has many benefits including less specific reporting periods and financial covenants as well as fewer borrowing agreements between borrower and lender when compared to traditional banks.

Asset-based lending often involves leveraging physical assets such as inventory, machinery, and equipment to secure loans.

How do asset-based lending loans provide faster access to capital than traditional financing?

• Approval focuses on asset quality rather than credit history

• Funding is typically available within 2-3 weeks

• Simplified documentation requirements

• Flexible structure adapts to business needs

Businesses should consider a lender's industry expertise when selecting an asset-based lender, as it can impact the loan structure and fee transparency.

What makes asset-based lending ideal for seasonal businesses?

• Borrowing capacity fluctuates with inventory levels

• Draw funds when needed, repay when cash flow improves

• No fixed monthly payment requirements

• Accommodates cyclical revenue patterns

How Can Asset Based Lending help improve supplier relationships?

• Early payment discounts become accessible

• Stronger negotiating position with vendors

• Ability to bulk purchase inventory

• Enhanced credibility with trade partners

How does Asset Based Lending support business growth?

• Scales automatically with revenue growth

• Finances new equipment purchases

• Supports larger customer contracts

• Enables market expansion opportunities

What advantages does Asset Based Lending offer over traditional bank loans?

• Higher advance rates against assets

• No fixed monthly payments

• Less emphasis on personal credit

• Greater operational flexibility

How is the borrowing base calculated?

• Regular evaluation of eligible assets

• Different advance rates for various asset types

• Weekly or monthly reporting requirements

• Real-time access to available credit

What ongoing requirements come with Asset Based Lending?

• Monthly financial statements

• Regular asset reports

• Periodic collateral audits

• Borrowing base certificates

What types of businesses benefit most from Asset Based Lending?

• Manufacturing companies

• Wholesale distributors

• Seasonal operations

• High-growth enterprises

• Companies with significant receivables

What happens if my business experiences a downturn?

• Facility adjusts with asset levels

• No fixed repayment schedule

• Focus on collateral preservation

• Workout options available

How does Asset Based Lending differ from factoring?

• Broader asset consideration

• Lower overall costs

• Greater client confidentiality

• More flexible structure

• Maintained customer relationships

What role do asset appraisals play in the facility?

• Determine initial advance rates on valuable assets

• Establish borrowing limits on asset lending values

• Guide ongoing monitoring of financial performance

• Support facility increases

• The term loan advance portion is often based on fixed assets facility limits of the appraisals.