ABL Asset-Based Financing: Unlock Business Potential

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Uncover the secret of ABL financing in this piece because it might just be the financial solution your business has been waiting for

Maximize Your Working Capital with ABL Asset-Based Facility Financing

Introduction

Impossible clients say. How, in the current business financing environment, could any company triple their access to working capital? The answer is an ' ABL ' or asset based lending facility asset based loan for cash flow needs. Let's examine what, who, and how!

Defining Asset Finance and ABL

As asset finance is more of a general term, we find lets confirm first precisely what we are talking about. That is to say, we're focusing on what we can call a comprehensive business line of credit (not through a bank, by the way) for your receivable, inventory , equipment and real estate financing needs. The industry term for this credit or business financing facility is an ' ABL ' or Asset Based Line of Credit.

The Rising Popularity and Misconceptions of ABL

While this type of lending has been prevalent in the United States for years, it continues to gain traction in Canada everyday. A lot of misinformation exists around this type of lending and financing for various reasons, including the cost of the financing, how it works, and who offers it. So you are forgiven for not fully understanding or knowing about an asset based facility for cash flow and working capital - trust us, you are in good company on that one!

Considering the Cost Factor

Cost is a factor in any financing your firm undertakes, and when we are talking about the largest business credit facility you can have, cost is important. More extensive ABL facilities for medium-sized and larger companies are very competitive with Canadian chartered banks. Smaller firms and start-ups - yes, even a start-up can employ this type of financing!

You may have to pay a premium to access this type of credit. However, that premium can be explained or covered in several ways.

Benefits Outweigh the Cost

First of all, if you could double or triple your access to working capital and cash flow business financing via an asset based facility, then would that cost of financing be worth it? We certainly think it does, and numerous examples of firms have just done that.

One firm that envisioned much more robust growth in the 2023 economic environment recently replaced its chartered bank facility with an asset-based line of credit.

The facility gave them a 90% advance on accounts receivable and a 60-70% advance or borrowing base on inventory. They were previously 'capped' on inventory at an arbitrarily smaller amount that had nothing to do with the true value of the inventory.

Providers of ABL Asset Based Lending

ABL asset based lending is done via highly specialized firms. Typically, they are not banks; they are independent and experts in only one thing - your assets! As a result, the due diligence and value they place on your assets can, in our experience, at a minimum, double your access to business credit. In some cases, firms that were self-financing previously and had no access to business financing now have significant borrowing facilities in place.

Key Takeaways

ABL is a method of providing companies with funds by using company assets as collateral. It focuses on receivables, inventory, equipment, and sometimes real estate. Essentially, companies borrow money against their assets.

Key Assets in ABL:

Receivables: Money owed by customers. Lenders might advance up to 90% of the receivable's value on the accounts receivable aging report via true asset-based loans.

Inventory: Goods ready or being prepared for sale. Lenders typically offer a borrowing base between 60-70% of the inventory value.

Equipment and Real Estate: Physical assets that have tangible value.

It's especially suitable for businesses that might not qualify for traditional lending due to a lack of a long credit history, financial challenges, or those with a high level of assets to sales.

Allows companies to access larger amounts of capital than they might through other forms of credit.

ABL can be more expensive than traditional lending, especially for smaller businesses or startups. However, the potential for increased cash flow and working capital often outweighs the higher cost.

In some scenarios, a company's access to credit can double simply because the lender is focused solely on the value of assets.

Providers of ABL:

Typically, specialized non-bank firms have expertise in valuing and lending against assets. They understand the true worth of assets better than traditional banks, making them more willing to lend higher amounts against them.

Conclusion

Interested? Want to separate the wheat from the chaff as they say, on who offers ABL business financing in Canada, how it works and what it costs.

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

What exactly is ABL Asset-Based Financing?

ABL, or Asset-Based Lending, is a financing method where companies secure funds using their assets like receivables, inventory, and equipment as collateral. The higher loan to value ratio provides more financing when there are sufficient assets.

How can ABL benefit my business over traditional lending?

ABL allows businesses, even those with limited credit history or financial challenges, to access larger amounts of capital based on the tangible value of their assets versus ' cash flow financing' provided by banks and other traditional financial institutions.

Are startups eligible for this type of financing?

Absolutely! Despite paying a slight premium, startups can employ ABL financing to leverage the company's assets on the balance sheet for working capital. Many earlier-stage firms will still qualify for accounts receivable factoring, a subset of asset based loans.

What assets can I use as collateral in ABL financing?

ABL focuses on liquid assets such as receivables inventory and other assets such as equipment and sometimes real estate, valuing them as the foundation for the credit line.

Who typically provides ABL financing?

Specialized non-bank firms often provide ABL financing - ABL lenders have expertise in valuing and lending against assets, ensuring you get the maximum value for your collateral. If the borrower defaults, asset based lenders have asset coverage for their loans.

What's the main difference between ABL financing and a traditional bank loan?

ABL financing involves using company assets as collateral, while traditional bank loans often rely on credit history and financial health. Interest rates on ABL loans tend to be often higher than bank financing. The ' covenant light structure ' in asset based loans is also of great appeal to borrowers.

How quickly can I access funds with ABL financing?

Once approved, businesses can often access funds quicker with greater credit availability than traditional loans since it's based on tangible assets, speeding up the valuation process.

' 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

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