YOUR COMPANY IS LOOKING FOR AN ASSET BASED BUSINESS
LINE OF CREDIT!
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
A cure for sleeplessness? Well, we're not really saying that ABL asset-based lending via its business line of credit facility is your cure to what we might term as ' business insomnia ', but we do meet many Canadian business owners and financial managers who profess to have some sleepless nights worrying about how to finance their business on an ongoing basis.
So why then is an ABL facility a solution to less worrying about Canadian business financing. It's important therefore to understand what asset-based lending vis a vis a business credit line is, and why it's getting more broad appeal every day in Canada.
WHAT IS AN ASSET BASED LENDING ABL BUSINESS LINE OF CREDIT
ABL is a secured credit facility collateralized against various assets of your firm. You essentially borrow against all those assets under that collateral facility. So the question then begs to be asked, 'why is this any different than a facility from a Canadian chartered bank?'
KEY DIFFERENCES IN BANK CREDIT LINES AND THE ASSET BASED LENDING CREDIT FACILITY
It's a reasonable question, and the answer we guess is two words ' more ' and ' easier'. By that, we mean that 9.9 times out of ten you are going to be able to achieve much more liquidity under an asset-based business line of credit. And with respect to 'easier' the asset-based lender focuses on assets, not cash flows, covenants, ratios, outside collateral, etc.
ARE THERE BANK ABL LENDERS?
Asset-based lending banks do exist in Canada - they are boutique divisions of our Canadian chartered banks - Unfortunately, the minimum deal size is often 5-10 Million dollars and as such many firms seeking SME COMMERCIAL FINANCE solutions are not eligible for bank ABL's.
Asset-based lending rates are almost higher than bank credit facilities but they typically are used by firms who are unable to get all the financing they need to run and grow their companies - additionally ABL transactions can be a key part of acquisition financing solutions for management buyouts, mergers, etc.
ASSETS THAT ARE INCLUDED IN YOUR BORROWING UNDER ABL
The assets that you typically borrow against are inventory; accounts receivable and any fixed assets such as plant, machinery, etc. that aren't already encumbered by another lender or lessor.
HOW DOES ABL DELIVER MORE FINANCING POWER?
How then does this business credit facility generate more financing for your firm, or perhaps a better expression is the potential ability to generate additional cash flow. The answer is that it's all in the margin because typically your business A/R is margined at 90%, unlike the bank 75%. Inventory and assets are appraised at the commencement of your facility and you can enjoy significant drawdown ability with them anywhere typically from 0-70%. (Every business/industry is a little different, so borrowings differ according to the type of inventory, asset, industry, etc.)
Essentially, as we have demonstrated, the assets in your business form the borrowing base for all ongoing borrowings. You can hopefully immediately see that you have much greater access to liquidity and that as your business grows so does your facility. Clearly we have demonstrated that your sales growth is automatically funded by that commensurate growth in client receivables and inventory if in fact, your firm has an industry position.
THE LINE OF CREDIT MONITORING PROCESS
There are various technical aspects of how your ABL business line of credit is monitored and funded. Areas of concern to the ABL lender include warranty returns, credit notes, and inventory composition re raw materials, work in process, finished goods, etc.
CONCLUSION
Asset-based business credit lines provide maximum flexibility and allow your company to exert maximum leverage on the assets and sales of the company. These facilities tend to grow automatically as your company grows based on the borrowing margins you establish with the ABL lender. In many cases, these lending facilities are a transition back to more traditional bank financing although many firms advise us that their critical needs are better met by ABL.
We strongly encourage you to take a hard look at ABL credit as your key working capital revolving facility. Will you sleep better? We hope so, knowing that your business is financed properly and poised for growth and profits. Speak to a trusted, credible and experienced Canadian business financing advisor today.
