YOUR COMPANY IS LOOKING FOR ABL ASSET BASED LENDING FACILITIES!
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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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Boost your business’s liquidity instantly with ABL Finance Facility!
Navigate Cash Crunches with ABL Finance Facility
ABL ASSET BASED LENDING
Business financing requirements for Canadian businesses often require very timely solutions.
Alternative finance solutions for your business are more and more becoming the new norm for funding companies in Canada. They get our clients to the 'goal line' in a timelier manner when it comes to some of the timelines imposed on firms applying for traditional bank credit. Asset-based lending, commonly called 'ABL' solutions, provides a solid funding alternative for your cash flow and working capital needs.
Asset-based financing solutions, such as full-service business credit lines or accounts receivable financing, allow companies to maintain control over their financial destiny without diluting equity or the burden of traditional debt structures.
Key Requirements for Asset-Based Lending
Clients of 7 Park Avenue Financial will often ask what the key requirements are for asset-based credit lines and other funding solutions within the ABL world. That key requirement? Assets! Those assets can come in the form of receivables, inventory, equipment and fixed assets, company real estate, and, in a roundabout way, orders and contracts—those latter two being valuable but not on the balance sheet.
Types of Assets Used in ABL
Those assets are collateralized or 'cash flowed' in asset-based borrowing facilities. Revolving credit facilities, like business bank lines of credit, are the standard solution for many clients.
Cost of ABL Financing
Cost always becomes a factor in ABL origination - it is more expensive than traditional bank rates. Still, the harsh reality is that many companies can't meet the key criteria banks require, such as solid, consistent profits, clean balance sheets, and outside collateral and personal guarantees available to secure bank financing.
Comparing Costs with Other Financing Options
It's safe to say that most forms of business financing, however costly, are cheaper than giving up owner equity in your firm, especially for a growing firm that promises great value and success.
Although we stated that ABL typically costs more than bank finance solutions, larger, higher-quality deals can compete with those bank rates while providing much more liquidity!
Valuing and Monetizing Assets
So, how does the asset-based lender value and monetize those assets? Receivables are typically financed at 90% of the a/r base; inventory margins vary depending on the nature and marketability of inventory and can range anywhere from 30% to 70%; and finally, equipment and real estate are typically appraised at their market or liquidation values. The bottom line? More borrowing power!
Key Benefits of Asset-Based Lending
So, what are some of the key benefits of asset-based lending solutions? They include, as we mentioned, quicker approval.
That is because the main focus of the ABL lender isn't all those financial covenants and ratios imposed by banks. For ABL it's all about ... you guessed it ... Assets!
Flexibility of Asset-Based Lending
Another point is flexibility. We see this a lot. It all comes down to the fact that your business is likely to be different from many other businesses and in a different type of industry.
We often see that a tremendous amount of flexibility can be applied via ABL asset-based lending to your circumstances. Some of those circumstances might be the seasonality of your revenues, cash flows, etc. ABL is known for its 'covenant light structure', unlike bank facilities which come with significant ratio and covenant requirements - that appeals to companies with high leverage but who have sales and assets
The maturing of of Asset Finance in Canada
Asset finance has matured significantly in Canada. It's relatively new historically, but it has exploded onto the business landscape due to choices, costs, etc. Many Canadian banks have explored and are exploring these types of solutions. In the Globe & Mail or Financial Post, we keep reading about the abundance of capital in the markets, and ABL lending is one of those reasons.
That's a good thing for Canadian business borrowers.
Characteristics of ABL Facility Asset Finance Solutions
Asset finance solutions and ABL Facilities are typically revolving facilities and rarely add debt to the balance sheet. That's a good thing!
KEY TAKEAWAYS
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The nature of the ABL Finance Facility: This financial solution involves businesses selling their accounts receivable or other assets to a financier to gain immediate cash. This process is not a loan but a sale, providing businesses with liquidity without increasing their debt levels.
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Immediate Liquidity: By converting invoices into cash, the ABL Finance Facility quickly enhances a company’s liquidity, usually within a few days. This is particularly advantageous for managing cash flow and funding operations without waiting for customer payments.
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Eligibility Requirements: A business must have creditworthy customers and reliable invoices to utilize this financing via ABL lenders. The quality of the receivables and inventory determines the amount of funding against the face value and the terms of the agreement.
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Costs Involved: The primary costs include a factor fee and a discount rate applied to the total value of the receivables. The volume of invoices influences these rates, the customers' credit risk, and the length of the repayment period. Interest rates are generally higher in ABL facilities, but they provide more cash based on the borrowing base of balance sheet assets.
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Risk Management: While ABL enhances cash flow, it introduces risks such as dependence on the financier's practices and potential discrepancies in invoice payments. Properly managing these relationships and terms is crucial to mitigating customer default and disputes risks.
Conclusion
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor with a track record of successfully providing financing alternatives for growth financing that are achievable for your firm, no matter your circumstances. We're experts in delivering and executing abl transactions.
FAQ
What is ABL Finance Factoring Facility?
ABL Finance Facility is a financial service where businesses sell their accounts receivable to a financier to receive immediate cash.
How does the ABL Finance Facility benefit businesses?
It accelerates cash flow, reduces waiting times for payment, and minimizes credit risk via committed revolving lines.
What types of businesses are eligible for the ABL Finance Factor Facility?
Businesses with reliable invoices from creditworthy customers are ideal candidates.
What are the typical costs associated with ABL Finance Facility?
Costs generally include a service fee and a discount rate on the invoices factored.
How does ABL Finance Facility differ from traditional loans?
Unlike loans, ABL Finance Facility does not involve debt accrual but monetizing existing assets, such as invoices, on the company's balance sheet.
How does the ABL Finance Facility impact business relationships?
Properly managed, it should not negatively affect relationships as dealings are with the finance provider, not direct customers.
Are there risks associated with using the ABL Finance Facility?
Risks include dependency on customer payments and potential costs if customers fail to pay on time.
Can ABL Finance Facility improve a company's credit rating?
Indirectly, improving cash flow and reducing late payments can improve credit standing.
What happens if a customer fails to pay an invoice under the ABL Finance Facility?
Depending on the terms of the asset-based financing agreement, the business might need to repurchase the invoice or cover the shortfall on the loan.
How quickly can funds be accessed through the ABL Finance Facility?
Funds for ABL loans can typically be accessed within 24 to 48 hours after verifying invoices. If a company is in a cyclical or seasonal industry, this is critical.
What is the maximum percentage of an invoice that can be funded?
Depending on the agreement and the quality of the receivables, the standard loan-to-value ratio on invoices can be funded at up to 90% of the invoice value.
Fixed assets facility limits vary based on the type and size of the asset as asset lending values differ based on the various balance sheet categories - Traditional operating facility advances from banks are much lower, so ABL provides more leverage. These facilities can be used to refinance existing debt based on overall collateral value - Operating credit and term loans are available, including bridge loans on the appraised value of commercial real estate, versus conventional lending criteria and bank structures.
Can an asset-based lending ABL Finance Facility be used for international invoices?
It can be applied to international receivables, depending on the financier's capabilities and risk assessment. Credit insurance can be purchased to avoid the risk of borrower defaults.
