YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE!
ASSET BASED REVOLVING LINE OF CREDIT SOLUTIONS IN CANADA
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
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South Sheridan Executive Centre
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Oakville, Ontario
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Business credit line solutions in Canada actually, believe it or not, come with choices. One choice is the ' ABL ' revolving credit facility; it’s the cornerstone of ' Asset Based Lending ' in Canada. What then are the reasons that Canadian business owners / financial managers choose this finance solution? It's all about credit facilities versus a term loan/term debt solution. Let's dig in.
HOW CAN YOUR FIRM USED AN ABL ASSET BASED CREDIT LINE / ASSET BASED LOAN
The crux of the matter in ' ABL ' credit is really understanding the differences between other financing options and how it's used in various circumstances. While most companies seeking this method of credit line asset financing do, in fact, qualify, it’s important to understand how the facility is structured versus a term financing type solution.
ASSET BASED LOANS ARE ' COVENANT LIGHT '
One of the main good news pieces in ABL revolving credit lines is that they are ' covenant light '; business isn't always good news, though, and some aspects of this type of borrowing includes typically higher borrowing costs as well as the need to provide more ongoing reporting information around ' assets.'
WHAT IS THE DIFFERENT BETWEEN BANK FINANCING AND ASSET BASED FINANCING
A good way to define the difference between asset-based credit lines and traditional Canadian chartered bank solutions is simply understanding one is very ' asset-based.' At the same time, the other is very ' cash flow ' based, the latter being, of course, the bank offering. It's that ongoing focus on borrowing on all your assets under one facility that distinguishes the asset-based revolver. Rightly or wrongly, the banks our banks don't really look at it that way.
QUALIFYING FOR ASSET BASED LENDING
In almost all cases, asset-backed lenders have a lot more ' asset ' expertise, which one top expert calls ' predictable ' financing. Where banks look at historical, present, and future cash flows, the asset-backed credit lender, it’s your accounts receivable, inventory and fixed assets that form the substance of your credit line and cash flows.
WHY DOES ABL MAKES GOOD FINANCING SENSE
The best example we can provide to clients around why an ABL credit line revolver makes sense is that growing sales places huge pressures on working capital investment; the result? When you need credit line financing, the most is when bank ratios and operating cash flow ratios limit your company borrowing! No longer do you have to worry about the balance sheet concerning financial covenants imported by banks or other commercial lenders. Talk about a double whammy of bad news.
The ABL lender will establish a regular ' borrowing base ' under your credit agreement that will allow you to draw down on funds based on sales and assets - that's a true ABL line of credit facility!
WHO USES ABL REVOLVING LOAN / LINES OF CREDIT? SPOILER ALERT- EVERYBODY!
So who uses Asset-backed financing solutions? Some of the largest companies in the world, actually, it's just not generally advertised. For the larger facilities for companies with good credit, ABL solutions pricing is often even better than bank financing, but that certainly doesn't apply to SME Commercial finance borrowers. Your interest rate will vary based on overall credit quality and credit risk. Still, it is safe to say that ABL financing is typically more expensive than bank financing - but it is accessible short term finance providing you with access to capital that otherwise might not be achievable.
CONCLUSION
So which revolving credit line solution makes sense for your firm, a traditional bank facility or an asset-backed ABL revolving credit line? Seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you make the right choice.
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Stan Prokop
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