Asset Based Lending Lines Of Credit Canada | 7 Park Avenue Financial

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ASSET BASED LENDING COMMERCIAL LENDING

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ASSET BASED LINES OF CREDIT   

Asset based lending in Canada is a solid financing alternative for firms that require financing for the traditional build-up of accounts receivable and inventory that come with sales and revenue growth. 

More and more Canadian firms that purchase products overseas or in the United States marketplace are finding, of course, that to achieve economies of scale in pricing and shipping they have to purchase in significantly larger quantities, and also allow for shipping time.

And, even more, critical is the question of how to address the supplier’s payment request which often includes hefty deposits or full payment in advance.

ASSET BASED FINANCING - THE COMMERCIAL BANKING ALTERNATIVE?  

Although established firms have access to unsecured loans and operating lines of credit with Canadian chartered banks even these facilities often cannot provide the full financing resources that come with strong, explosive, or seasonal bulges in revenue growth. Enter the asset-based loan!

ASSET BASED LENDING - HOW IT WORKS  

Enter asset based lending, or the actual facility which is called an asset based line of credit.  The simple definition and explanation is as follows – it is an operating or revolving line of credit facility that totally focuses on the assets of your firm, those being primarily inventory / finished goods,  accounts receivables, and fixed assets such as equipment.

A' borrowing base certificate' is established for ongoing drawdowns by your business as sales and accounts receivable grow and revolve respectively.

TYPES OF ASSET BASED FINANCING   

If a facility needs to be secured just via accounts receivable a sole receivable financing facility can be established. In other situations, a purchase order financing facility can be implemented.

When your Canadian firm applies for a chartered bank line of credit there is a very strong focus on your operational metrics and your overall balance sheet and income statement ratios. A line of credit is set up with your bank that is very much related to your firm's tangible equity, its debt load, historical cash flow, etc. (Yes, we said historical cash flow!)

This means that the banks focus on how you have generated cash and profits in the past! That is little solace to the manufacturer, wholesaler or distributor in Canada that needs cash flow now to fulfill orders, contracts, etc.

WHAT IS AN ASSET BASED LINE OF CREDIT?  

The asset-based line of credit places only a small reliance on those issues, what it focuses on instead is the true current value of your inventory, receivables and unencumbered equipment assets? Asset-based lending specialists have a very strong sense and experience around the true liquidation values of your inventory, receivables, and fair market values of your equipment.

Therefore the final amount of the asset based line of credit you are approved for is often, almost 99% of the time, larger than a bank facility. That allows you to draw down immediately on the values of those assets, generating more cash flow. Many companies who have bank lines in Canada actually do not even have an inventory component in those facilities – so just the fact that you can now generate cash flow today out of inventory values is a huge cash flow benefit.

ASSET BASED LENDING RATES  

While asset based lending in the U.S. and, more recently in Canada was considered a non – traditional form of business financing it has clearly now entered the mainstream. You would be very surprised at the medium and large corporations in Canada that utilize this type of financing via asset based lenders.

 BENEFITS OF ASSET BASED FINANCING 

Different financing strategies achieve different benefits for each company. The main benefits of this type of financing facility are:

• Easier to set up, get approved, and administer

• Although facilities are set up with an initial cap the reality is that as your assets grow via increased sales the facility grows also – Why? Because, as we said, it's asset based, not covenant or ratio based

• Higher advance margins are placed on receivables, usually 90%, and inventory, which in many cases hasn’t been or couldn’t be financed before is now immediately financeable

• The facility usually always includes A/R and inventory, but more often than not has fixed asset equipment or real estate component also

CONCLUSION - ASSET BASED LENDING - DO YOU QUALIFY

ABL facilities, which is the acronym for these financings are known as specialized financings.

They are an alternative to banks or traditional financing. They are becoming more popular every day, and business owners are encouraged to speak to 7 Park Avenue Financial,  a  financing specialist who is trusted, credible and experienced in this exciting new area of Canadian business financing to assist your working capital need via financing products and solutions.. that work!

FAQ / FREQUENLTY ASKED QUESTIONS / PEOPLE ALSO ASK/  MORE INFORMATION

 How does an asset based line of credit work? 

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