YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT LINES!
BUSINESS 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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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
ABL Asset-Based Loan revolutionizes how businesses access working capital by leveraging their assets for immediate funding.
Unlock the hidden value of your assets with ABL Asset Based Loan or Line Of Credit
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ABL ASSET BASED LOAN solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
" Canadian Business Financing with the intelligent use of experience"
INTRODUCTION - WHAT IS ASSET BASED LENDING CANADA 'ABL'
Is a business revolving line of credit the only one of its kind in Canada or the universe? The answer is a resounding ' no '! - Apparently, it’s really a ' multiverse '! where asset lending has created a unique version of business borrowing for line of credit revolving credit facilities. Let's dig in on how to get a business line of credit.
Asset Based Loans offer a powerful solution, providing businesses with immediate access to capital based on their existing sales revenues and assets.
This financial strategy improves liquidity and supports growth by leveraging accounts receivable, inventory, and other valuable assets, including fixed assets and commercial real estate. As more Canadian businesses seek reliable and flexible funding options, understanding the benefits of asset-based financing is key.
COMPARING BUSINESS REVOLVING CREDIT LINES - ASSET BASED LENDING VERSUS CANADIAN BANK FINANCING
Asset lending is somewhat of a ' stealth ' borrowing in Canada - unbeknownst to many, it has become trendy.
So in our parallel universe, we have the Canadian chartered bank line of credit and the 'ABL' (Asset Based Lending ‘) facility. While our banks choose to focus on a combination of cash flow, balance sheet proportions, and evidence of good profits, the ABL credit line chooses to keep it simple.
It's all about your assets - namely accounts receivable, inventory, and fixed assets; any single or combination thereof. Your business's Real estate equity can also be bundled into your credit line.
These facilities are short-term and not to be confused with a term loan, which brings additional debt to the balance sheet. They ensure you can never pay your day-to-day operating expenses for the products or services you sell as you grow your business. Working capital problem solved! That's the key difference between loan and line of credit solutions.
You use your normal business bank account in ABL facilities. Funds are deposited as needed, so these are lines of credit similar to bank financing.
OTHER USES OF ASSET BASED LENDING
The asset-based line of credit also distinguishes itself. It can also be used as the base financing for purchasing a business, merging with one, or reviving one via a turnaround.
Larger retailers, who typically only carry inventory as their financeable asset, are excellent candidates for asset lending. As one can imagine, the majority of these types of financing are asset monetization strategies rather than term loans.
THE POPULARITY OF THE ASSET FINANCING LINE OF CREDIT IN CANADA CAME FROM THE UNITED STATES
In the U.S., for example, some of the largest and most successful well-known corporations have turned to asset-based lending as their ' credit line of choice. ‘ It should be mentioned that there is almost no negligible difference in rates/financing costs for larger successful companies when benchmarked against bank lending.
THE COST OF ASSET BASED FINANCING
However, in Canada's SME COMMERCIAL FINANCE area, these facilities, while providing more liquidity, come at a higher cost.
For the business owner/financial manager, it's all about balancing liquidity needs and access to capital versus the cost of financing. Interest rates, in general, are always higher in ABL financing, but for the business owner, it becomes a question of access to capital versus the cost of capital.
And of course, as in all facilities, you only pay interest on what you use at any given time.
The type of credit a business requires will always have a cost factor attached to it. Small business lines are no exception - whether it be traditional financing or alternative finance. Your firm's overall credit profile and the ability to produce proper financing statements are also key to funding success. Small business owners, on approval, can draw funds as needed.
In some cases, facilities are charged maintenance fees, which add additional business expenses to consider in revolver lines.
RENEWING CREDIT LINES
Like bank facilities, the ABL credit line is typically renewed yearly. However, some companies prefer (or are asked) to enter multi-year financing commitments.
NO MORE RATIOS AND COVENANTS!
How do commercial asset-based lenders justify this borrowing regarding their returns and risk? The answer is quite simple - as one top expert said, they are ' fanatical' about asset quality and turnover and putting in more disciplined reporting. This offsets the need for covenants, ratios, and outside collateral, Canada's staple of commercial bank lending.
In most small businesses in Canada, when it comes to traditional financing, the business owner's personal credit score is an essential factor, but that is less so and even non-existent emphasis when it comes to asset-based financing.
Those personal credit scores and credit ratings in traditional funding for a small business line of credit also dramatically impact the interest rate on small business borrowing as they consider your ability to pay back business loans.
ABL = MORE BORROWING POWER
Regarding a revolving line of credit and its key benefits, it's essential to know that typical asset lending provides a borrowing margin of 90% on receivables and a much higher borrowing power on inventories and fixed assets.
ABL facilities are not focused on a credit limit per se, as they are easily increased as your sales grow. This is not a lump sum term loan structure but a revolving drawdown as you need funds and then repay them as your clients pay.
KEY TAKEAWAYS
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Definition and Process: ABL Asset Based Loan enables businesses to leverage their assets to secure immediate funding, enhancing liquidity and operational efficiency.
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Benefits: This financial model provides quick access to capital, allowing companies to manage cash flow effectively and invest in growth opportunities without delay.
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Eligibility: Businesses with strong asset bases, such as accounts receivable and inventory, are typically eligible for ABL, making it accessible to various industries.
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Comparison: Unlike traditional loans, ABL offers more flexibility and does not require long-term debt commitments, making it a preferred choice for businesses needing short-term capital.
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Impact: By providing immediate funds based on assets, ABL supports business growth, helping companies expand, innovate, and navigate financial challenges more effectively.
CONCLUSION
So, if you haven’t figured it out, small businesses can access different solutions in business lines of credit and revolving credit line needs.
Whether it's traditional bank financing or credit line achieved via asset lending, call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you navigate the financing universe, or should we say ' multiverse.'
FAQ
What benefits does ABL Asset Based Loan offer to Canadian businesses?
ABL Asset Based Loan provides rapid access to working capital, allowing businesses to improve cash flow and invest in growth opportunities without waiting for payment terms to conclude. Both physical assets and other of the company's assets such as a/r and inventory can funded.
How does ABL Asset Based Loan differ from traditional loans?
Unlike traditional loans, ABL does not involve long-term debt but focuses on short-term advances against receivables, offering greater flexibility and quicker access to funds.
Who is eligible for ABL Asset Based Loan?
Businesses with strong sales ledgers and consistent accounts receivable are ideal candidates for ABL, as the facility depends on the reliability of incoming payments.
What is required to apply for an ABL Asset Based Loan?
Applying for ABL requires detailed financial records, particularly accounts receivable reports, and often a good credit history to ensure the credibility of the borrowing entity.
How can ABL impact my business growth?
By providing immediate funding based on accounts receivable, ABL allows businesses to manage cash flow more effectively, supporting investments in operations and growth without funding delays.
What industries most commonly use ABL in Canada?
Industries with high receivables turnover, such as manufacturing, retailers, wholesale, and services, frequently utilize ABL to manage their cash flow and finance short-term operational needs.
Is ABL secure for both the lender and the borrower?
ABL is considered secure financing, as loans are backed by the receivables, reducing the risk for lenders and allowing more flexible terms for borrowers.
What are the typical interest rates for ABL?
Interest rates for ABL can vary, typically depending on the lender's risk assessment, the borrower's creditworthiness, and the overall economic conditions. Bank unsecured loans provide the lowest cost of financing.
Can ABL be used for businesses in financial distress?
Businesses facing temporary challenges in cash flows often turn to ABL as a viable option to stabilize operations and regain financial footing.
What are the future trends expected for ABL in Canada?
Future trends in ABL include increased technology integration for faster processing, broader accessibility for small to medium enterprises, and potentially more competitive rates as the market grows.
How does an ABL Asset-Based Loan improve cash flow?
It converts outstanding invoices, which become the pledged asset, into immediate cash, enabling businesses to meet their financial obligations without delay and improve overall financial performance.
What assets are typically used in ABL financing?
Common assets used in ABL financing include accounts receivable, inventory, equipment, and real estate, providing multiple options for businesses to secure funding. Accounts receivable financing can also be a stand-alone solution, as it is essentially a subset of asset based lending - Borrowers can achieve up to a 90% advance on billed receivables based on the higher loan to value ratio in a/r financing versus bank financing.
How does the application process for an ABL Asset-Based Loan work?
The process involves submitting financial records, particularly those related to accounts receivable and other assets, to demonstrate the value and reliability of the assets being leveraged. This ensures the lender can accurately assess the risk and provide the appropriate funding.
