Working Capital Loan Via Asset Based Lending Solutions

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THE RIGHT BUSINESS LOAN AND WORKING CAPITAL SOLUTION FOR YOUR BUSINESS?

As a business owner or financial manager are you looking for effective financing solutions that are cost-effective based on your business capital needs?

In Canada companies in the SME sector of Canadian business have a choice between a broad range of traditional bank-type financing that often comes with an unsecured loan and a lower cost or in some cases alternative financing solutions from non-banks that provide the capital for businesses unable to attract some of all of the financing they need.

In many cases, businesses might be experiencing good growth and prospects but not possess the track record and overall business credit rating that qualifies for traditional funding and an unsecured working capital loan.

So what is the solution? It just might be secured loans, ie an asset based loan / asset based line of credit. Times have never been more challenging as firms battle pandemic consequences, recession, higher interest rates and tightening commercial credit availability- At 7 Park Avenue Financial we meet clients who in fact have some financing in place from commercial banking, business-oriented credit unions, etc but are unable to achieve the additional capital they need.

Growing sales and slow-paying clients create somewhat of a ' double whammy ' on business cash flow, resulting in fluctuating cash flow and working capital.

Often the need for additional funding might be an asset-based lending solution. Structured as either a term loan or a business line of credit revolver facility on multiple forms of the firm's existing assets in accounts receivable, inventories, fixed assets and equipment can provide solid collateral for the Asset based lenders finance solution.

CASH FLOW VS ASSET BASED LENDING FOR YOUR WORKING CAPITAL NEEDS?

A secured business loan strategy will often reward Canadian business owners and financial managers with an excellent rate - but business owners and financial managers are best to remember other financing options such as ABL finance. Rates, terms, repayment etc. are critical but numerous other solutions can provide the business capital you need.

Secured loans bring the word ' collateral ' to mind of course. So it's all about assets.

HOW TO UNDERSTAND THE DIFFERENCE BETWEEN ABL LENDING AND TRADITIONAL BANK FINANCING

The ability to achieve your cash flow/working capital needs by using the flexibility of an asset-based lending solution is attractive to many business owners. While the banks focus on historical and present cash flows coupled with an emphasis on personal guarantees, outside collateral, etc the ' ABL ' approach achieves financing growth in a different manner - with a focus on the balance sheet!

Your more liquid assets such as receivables and inventories provide a superior level of margin and borrowing ability - Typical advances are in the 85-90% range - significantly higher than that of the bank. Most importantly your borrowing capacity grows automatically - no pre-set credit limits!

REQUIREMENTS AROUND THE LENDING PROCESS

Understanding the strength and quality of your balance sheet assets is key to approvals under working capital solutions via asset-backed loan facilities - so lending standards vary significantly compared to traditional financial institutions - The term ' covenant light structure ' is popular in asset finance cash flow solutions - much less reliance placed on debt to equity ratios, borrowing covenants, or the amount of equity in the business - borrowers who can demonstrate good sales revenues and the ability to produce proper accounting and asset schedules are rewarded with borrowing power.

So what exactly do lenders look at when they are taking your firm's entire picture into focus, as well as of course the collateral? They look at your overall industry, the business financial credit history, and of course the general picture of cash flow.

While the current craze of 'online lenders' seems extremely popular these lenders look mostly at the cash flow coming in and out of your business. They will often do this simply by reviewing bank statement history. These lenders are essentially unsecured - they have a promise to pay from the company and its owners, but almost never any collateral.

Asset based lending solutions make it possible for SME COMMERCIAL FINANCE borrowers and mid sized companies to look at new equipment, expansion, or simply the financing of inventory and receivables as the business grows. Most business folks are not aware that non-bank asset based lines of credit will often come at a cost, but will in fact provide unlimited amounts of capital that are in lockstep with your sales and growth plans.

That is the finance optimism that business owners and their financial managers are looking for!

In fact, the Asset Based Finance company solution can best be described as a one-stop solution - given that it combines the ability to finance inventory, receivables, equipment, and, if applicable, commercial real estate.

More firms than ever looking to these types of solutions even when they are challenged in financial performance and can't access traditional Canadian chartered bank financing. Companies look to these ' ABL ' (asset based lending) solutions as an alternative to having owners raise additional equity. Often times the business might have enough debt already and asset financing solutions monetize assets.

HOW DOES ASSET BASED LENDING WORK

So how does the borrowing base work - it is a non-bank solution with an independent firm and provides you with 90% receivable financing, and inventory borrowing that’s based on the actual collateral valuation around the value of your inventory, not some predetermined cap or limit that many banks impose on the face value of assets (That’s because banks generally don’t have the ability to understand your inventory values and eligible collateral- ABL lenders do!).

KEY BENEFITS OF ASSET-BASED LOANS - MAXIMIZE YOUR BORROWING CAPACITY

So why choose asset based lending ? Flexible financing! Understanding the key benefit of asset-backed loans for ongoing cash flow needs is critical given that the ABL cost of borrowing is generally higher - not always, but most of the time!

The ability to achieve dependable cash flow to run your business on a day-to-day basis removes the financial stress of fluctuating sales and collections - Ongoing purchases from supplies, meeting the demands of new contracts and larger orders while maintaining positive relations with your suppliers are key benefits of a working capital ABL facility for cash flow financing.

The majority of business borrowers in Canada understand the time it takes for the approval of bank credit lines or term loans. Non-bank working capital facilities on the company's assets via an asset-based lender are generally considered easier to obtain and financing is often very customized to the physical assets on the balance sheets and the borrower's business model or industry dynamics. That is why working capital financing via asset finance is one of the best options for many businesses.

CONCLUSION - COMPETITIVE FINANCING TERMS FOR YOUR CASH FLOW NEEDS

FAQ : FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What is asset based lending?

Asset-based financing solutions are business loans that can be both term loans or lines of credit - These facilities are backed by the balance sheet of the company, with a focus on specific assets such as accounts receivables, inventories, fixed assets and equipment and commercial real estate.

What are the benefits of a working capital loan?

' 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 Canada Working Capital Loan | 7 Park Avenue Financial

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