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ABL FINANCE!
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Struggling with cash flow? Discover how ABL revolving facilities can turn your assets into instant working capital.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ABL Revolving Facilities 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”
ABL Revolving Facility Lending
Introduction to Commercial Asset Based Lending
Commercial asset-based lending in Canada is a healthy alternative to traditional bank financing solutions that business owners and their financial managers seek to run and grow their companies.
An asset-based loan (ABL) provides greater flexibility by evaluating the borrower's creditworthiness and the quality and value of the assets offered as collateral.
Most business people agree there is nothing better than healthy competition and asset-based lending solutions; specifically, the business line of credit loans is a direct competitor to Canadian chartered bank facilities.
Evolution of Canadian Business Financing
Dramatic changes in Canadian business financing have occurred in the last business period relative to the 2008-2009 worldwide recession. And let's not forget the COVID-19 pandemic and the financing challenges that occurred during that time!
Some ‘new’ ways to finance your business make commercial borrowing facilities more accessible than ever. Companies can use asset-based lending to refinance existing debt and manage financial obligations. Commercial lenders offer viable solutions to working capital, debt, and cash flow needs Canadian business borrowers seek.
New Players in Commercial Finance
These independent commercial finance companies, both 100% Canadian and some U.S. players doing business in Canada, compete directly with traditional finance sources to offer various financing solutions for your SME COMMERCIAL FINANCE needs.
Negotiating a credit agreement for asset-based lending facilities can be complex, as factors such as a borrower's risk profile and the type of collateral significantly influence the terms and covenants.
Even internet solutions now empower the Canadian business borrower - those searching for ‘abl asset-based line of credit’ via an internet search find numerous offerings that can be specifically tailored to their needs.
Rise of Short-Term Working Capital Loans
Also on the rise are short-term working capital loans - these loans arose out of the cash flow loans made to predominantly retailers and are now well suited to general business borrowing in almost every industry.
Unlike cash flow lending, which relies on a company's financial metrics and can be restrictive during fluctuating sales, asset-based lending uses a company's assets as collateral, providing more flexibility.
It is no secret that Canadian chartered banks often command the first thought regarding business finance for a revolving line of credit. Asset-based business lending for lines of credit is gaining more traction every day.
Understanding Asset-Based Lending (ABL) in Canada
So, let’s provide some clarity around ABL finance in Canada. If there is one differentiator of the product, it’s simply that the total focus of the facility revolves around one word, ‘assets’.
Non-bank asset-based loans are more flexible than a traditional bank offering. At a time when more is better, they leverage your company's assets significantly and much more significantly than a bank facility!
Remember that an ABL loan is typically from an unregulated lender. These lenders have different sources of capital and don’t require key elements necessary in the Canadian chartered bank system.
Characteristics of Asset-Based Business Credit Lines and Accounts Receivable
Asset-based business credit lines are not to be viewed as ‘term loans’; They are simply a ‘monetization’ of the assets you have in your business already - specifically receivables, inventory, equipment, physical assets, and, if applicable, real estate.
While our banks focus on ratios, covenants, outside collateral, personal guarantees, etc. the Asset Based Lender focuses predominantly on … you guessed it … Assets!
Growing Popularity of Asset Based Lending
So, why the sudden and growing popularity of asset-based lending in Canada?
Asset-backed loans have become an essential financing tool for businesses, helping them refinance existing debts or support working capital needs.
We think the answer is that it covers every type of industry: retail, manufacturing, service, etc. But more importantly, it also addresses your company life cycle. Even more important is that these credit facilities grow almost automatically with your sales levels, allowing firms to capitalize on new markets, larger orders, new major customers, etc.
Versatility of ABL Finance
ABL solutions can be achieved for a start-up, an established growing firm, and yes, those firms that have suffered severe financial challenges.
Businesses can use an ABL credit facility to refinance existing debt and improve liquidity and cash flows. In the ‘old days’ (yes, we remember them), it was not uncommon for asset-based lending to be viewed as a ‘last resort’ type of financing.
Fast forward to today, and some of the largest corporations in the world, including Canada, utilize this financing instead of a traditional bank facility. So something must be working!
Assessing Suitability for Asset-Based Lending
To assess your firm’s suitability for this type of line of credit, businesses should be prepared to offer up-to-date financial statements and proper ageings of receivables, inventory and equipment lists if appropriate.
Compliance with financial covenants and associated reporting requirements is crucial, as it impacts borrowing capacity and lender relationships.
Note - only unencumbered fixed assets may be considered part of your ABL financing credit facility. Many firms, of course, have liens on some fixed assets they are leasing or borrowing against.
KEY TAKEAWAYS
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Leveraging assets: ABL asset based finance facilities use a company’s current assets as collateral.
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Flexible borrowing base: Credit limits adjust based on the value of eligible assets
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Increased liquidity: Businesses can access more capital compared to traditional loans, including fixed assets facility limits based on balance sheet assets
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Scalability: Financing grows with the company’s asset base and revenue based on ongoing borrowing base assets
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Reduced focus on credit history: Lenders prioritize asset quality over traditional metrics when calculating asset lending values
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ABL facility characteristics and benefits: Primarily revolving credit lines with potential term loan components, collateralized by accounts receivable, inventory, and other assets, offering flexible and responsive financing based on asset value
Conclusion
ABL revolving facilities empower businesses to unlock the full potential of their assets, providing a dynamic and scalable financing solution that grows with the company.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success in executing ABL transactions.
Our team will help you better understand how asset-based loans can monetize your firm's assets into an ABL business credit line facility that provides you with maximum working capital and asset leverage.
FREQUENTLY ASKED QUESTIONS
How does an ABL revolving facility differ from traditional bank loans?
ABL revolving facilities focus on the value of a company's assets rather than credit history, offering more flexible and scalable financing options.
Can an ABL revolving facility help my business manage seasonal cash flow fluctuations?
Yes, ABL revolving facilities provide flexibility to draw funds as needed, making them ideal for companies with seasonal or cyclical cash flow patterns.
What assets can be used as collateral for an ABL revolving facility?
Common assets used as collateral include accounts receivable, eligible inventory, and equipment, allowing businesses to leverage a range of assets for financing. In some cases, the value of intellectual property can be included in the facility. This enhances the ability to fund operations and helps with growth financing funding challenges. Additionally, the ' covenant light structure' of ABL , as compared to banks, is a key benefit of this method of funding a business.
Traditional operating facility advances, i.e., from banks, are always small based on bank restrictions and asset advance formulas.
Are ABL revolving facilities suitable for companies in growth phases?
Absolutely. ABL revolving facilities can scale with your business, providing increased access to capital as your asset base grows, making them ideal for expanding companies.
How quickly can my business access funds through an ABL revolving facility?
Once established, ABL revolving facilities typically offer rapid access to funds, often within 24-48 hours of a drawdown request, enhancing cash flow management.
What are the typical interest rates for ABL revolving facilities?
Interest rates for ABL revolving facilities vary based on asset quality, loan size, and company financials but are generally competitive with other commercial lending options.
Is there a minimum company size requirement for ABL revolving facilities?
While requirements vary by lender, ABL revolving facilities are typically available to small and medium-sized enterprises with annual revenues of at least $1 million.
How does the application process for an ABL revolving facility work?
The application process usually involves submitting financial statements, asset details, and business plans. Lenders will then assess the quality and value of the assets before structuring the facility.
Can startups qualify for ABL revolving facilities?
Some lenders offer ABL revolving facilities to startups, particularly those with strong assets or purchase orders, but terms may be more restrictive than for established businesses.
What happens if the value of my collateral decreases?
If collateral value decreases, your borrowing limit may be reduced. Regular asset valuations are typically part of the ABL agreement to ensure appropriate credit limits.
What are the key advantages of using an ABL revolving facility for business financing?
ABL revolving facilities offer increased flexibility, higher borrowing limits based on asset value, and the ability to scale financing with business growth. They also typically have fewer financial covenants than traditional loans.
How do lenders determine the borrowing base for an ABL revolving facility?
Lenders calculate the borrowing base by assessing the value of eligible assets, typically applying a percentage (known as the advance rate) to each asset category. This determines the maximum amount a business can borrow.
What ongoing reporting requirements are typically associated with ABL revolving facilities?
Businesses must usually provide regular reports on their collateral, such as accounts receivable and inventory listings. This allows lenders to adjust the borrowing base as asset values change.
