Business Financing Via Asset Backed Lending Solutions | 7 Park Avenue Financial

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

Unlock Capital: The ABL Revolution in Canadian Business Financing

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

Or Email us with any questions on Canadian Business Financing

                                EMAIL - sprokop@7parkavenuefinancial.com

Learn about ABL because it goes beyond traditional bank offerings, offering a lifeline to businesses of all sizes and financial backgrounds.

Canada’s ABL Boom: Financing Your Business the Smart Way 

Introduction

Asset backed lending is often the answer to our clients' main desire in Canadian business financing. That desire? Something that works! Who doesn’t want that?

The new business financing reality is that asset-backed lending, aka ‘ABL’, might be your new choice for company finance needs.

In the ever-evolving landscape of Canadian business financing, companies seek innovative and reliable solutions to fuel their growth and stabilize operations. Enter Asset Backed Lending (ABL)—a flexible financing option  to secure a loan that caters to the diverse needs of businesses by leveraging their most valuable assets versus ' cash flow lending ' solutions.

As a form of secured lending, ABL has rapidly gained traction as a strategic choice for companies looking to optimize their financial strategies without compromising ownership or future earnings potential. This article aims to unfold the intricacies of ABL, guiding businesses on how to harness this powerful tool to unlock their full potential.

The Rising Popularity of ABL

Asset based line of credit facilities are becoming more popular every day. Why? It’s simply a newer lending method to Canadian businesses focusing on assets. 'Assets'. That's the keyword.

Identifying Eligible Assets 

From inventory to accounts receivable, from heavy machinery to real estate, and even extending to intellectual property and tax credits—ABL embraces a wide array of assets to secure the financing that businesses desperately need.

By monetizing these assets, companies can maintain a steady cash flow, enabling them to make strategic investments, cover operational costs, and pursue growth opportunities without delay.

While ABL typically involves tangible assets like inventory and real estate, it's worth considering the untapped potential of intellectual property (IP). Many businesses possess valuable patents, trademarks, and copyrights that can be leveraged for financing.

A creative take on ABL involves monetizing these intangible assets, providing a unique avenue for companies to access capital without selling or diluting ownership of their IP.

Tax Credits as a Finance Asset  

Among other forms of financing assets, such as equipment financing, is another new common category: tax credits, such as SR ED (SR&ED) tax credits. Tax credits are in effect,  accounts receivables, money owing to you from the government that is in the form of a non-repayable type grant.

So, monetizing that asset as soon as possible allows you to employ cash more efficiently in your business. So don't discount your ability to finance that asset, i.e. your R&D capital refund. It beats waiting and accelerates cash flow.

Beyond Basic Bank Offerings 

Clients typically imagine inventory and receivables as the only items they could margin for liquidity with their bank. The reality is that even inventory financing is becoming more difficult in the chartered bank environment, indeed for start-up, smaller, and medium-sized firms. That, therefore, is the main difference in asset-backed lending and a working capital facility; in its simplest form, it's simply the margining of all those other assets to capture maximum liquidity. Repeat - All your assets!

Who Utilizes Asset Backed Lending? 

The Profile of ABL Users

So, who is using these types of cash flow facilities, and why are they a very solid alternative to what is termed 'traditional' bank financing? (We're not so sure these days that 'traditional' bank financing is as available as it used to be - what do you think?!)

 ABL as an Alternative Financing Solution 

The truth is that this type of Canadian business financing is an alternative to bank financing; it's natural, it's available, and it allows you not to have to consider more unpalatable options such as raising new equity and diluting your ownership. Factoring is a subset of ABL and provides an accounts receivable financing stand-alone solution for a/r, viewed as highly liquid collateral.

When to Consider ABL

We are all for secured bank lending... if your firm can qualify for all the lending it needs. But if you have had financial challenges, then consider asset backed lending for certain assets as a solid option. What are some of those ' challenges' we speak of that might not allow you to get Canadian chartered bank financing... its issues such as a temporary loss, a turnaround, new ownership, balance sheet ratios and covenants that might not work for the bank, etc.

Focus on Assets, Not Problems  

Asset based finance doesn’t focus on those issues - yes, they are discussed, but it always comes back to ' the company's assets ' - and if you have them, you can margin them daily for working capital and cash flow.

Understanding the Trade-offs of ABL

The Costs of Asset Based Lending

Asset-backed lending (ABL) often comes with higher costs than traditional bank financing. This is mainly due to the nature of ABL, which focuses more on the value of a company's physical assets rather than its creditworthiness or cash flo

The increased costs manifest in higher interest rates or fees as lenders take on different risks by providing capital against assets that fluctuate in value. Despite these potentially higher costs, many companies opt for ABL because it can offer greater flexibility and more immediate access to capital. Particularly for companies that may not qualify for traditional bank loans due to a lack of credit

history or variable cash flows, ABL allows them to leverage their assets to support growth, manage cash flow cycles, or navigate through periods of financial stress. The willingness to incur higher costs through ABL can be a strategic choice for businesses that value the ability to quickly capitalize on market opportunities or require a tailored financing solution that aligns with their operational needs.

Reporting Requirements  

It also requires more reporting on an ongoing basis. However, most business owners we talk to will gladly pay more finance charges and are okay with reporting if they have all the cash flow they need to grow and profit in today's competitive environment. You can also expect a bit more due diligence on your overall asset quality when you set up the facility.

Who Can Benefit from ABL?   

Whether you are a start-up struggling to secure traditional financing, a medium-sized enterprise looking to expand, or an established firm facing temporary financial hurdles, ABL offers a tailor-made solution that revolves around your assets. This alternative financing model has become a cornerstone for companies at a crossroads, needing capital but unwilling to dilute their equity or suffocate under unforgiving bank covenants.

Future Earnings Potential: Traditional ABL primarily focuses on current assets, but forward-thinking businesses can explore financing based on future earnings potential. By leveraging projected cash flows and revenue streams, companies can access capital to invest in growth initiatives, research and development, or market expansion. This unconventional take shifts the emphasis from historical performance to future possibilities, allowing businesses to access funds based on their growth trajectory.

 Conclusion: The Emerging Power of ABL 

The reality of business financing is shifting. Traditional bank loans, with their stringent requirements and lengthy processes, are no longer the sole go-to for companies needing capital. ABL emerges as a beacon of hope, particularly for those who have substantial assets but require more liquidity to push their business forward. This method of lending focused squarely on 'assets', offers a lifeline to companies that may not have previously qualified under conventional lending criteria.

With an emphasis on assets, ABL allows companies to maintain a daily margin for working capital and cash flow—ensuring the financial agility needed to thrive in today's competitive marketplace. However, like any financial decision, opting for ABL requires a thorough understanding of its cost implications and reporting requirements.

Bottom line? An asset backed line of credit facility is a new and emerging working capital financing that provides your firm with all the liquidity to grow.

Call 7 Park Avenue Financial, a  credible, experienced and trusted Canadian business financing advisor to determine if this working capital and credit facility benefits your firm.