What is Asset-Based Lending - Unlock Your Business Potential

Unlock your business's potential with asset-based lending—a gateway to growth when traditional loans don't measure up.

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ASSET BASED LENDING solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities

Leverage Your Business Assets for Better Cash Flow with ABL

Introduction

Asset-based lenders could provide your competitors with all the working capital & cash flow solutions you need - but don't know where to look. Let's dig in.

Asset-based lending (ABL) is at the forefront of financing solutions for businesses, transforming their sales and physical assets into business capital.

This innovative financial practice allows companies to leverage their inventory, equipment, accounts receivable, and other tangible assets as collateral to secure loans, offering a lifeline to those looking for non-bank cash flow financing.

By converting sales and balance sheet assets into liquid funds, ABL provides immediate funding relief fuels growth and operational flexibility and allows a business to capitalize on strategic opportunities.

Understanding Asset Based Lending

Can this ' relatively ' newer form of Canadian business financing really alter your financing success? We think so - here's why.

The Essence of ABL

The acronym for this type of financing is A B L; simply speaking, its daily cash flow provides against your current, and sometimes not so current, assets. Asset based lenders require no or fewer covenants compared to traditional financial institutions.

Leveraging Your Assets

What do we mean by that? Simply put, this facility allows you to margin your receivables, inventory, and, in most cases, should you choose, fixed assets and company-owned commercial real estate - all at higher loan to value ratios than bank unsecured loans for a pledged asset.

. You are probably saying to yourself that you could arrange financing for those fixed assets and real estate—but we are talking about using those assets as collateral for your daily revolving asset based line of credit. That higher maximum loan amount appeals to business owners!

Debt-Free Working Capital

Asset financing typically doesn't add debt or long-term loans to your balance sheet; you are just leveraging your ' assets ' (that's the 'A' in ABL!) for daily cash flow and working capital.

The Potential of Asset Based Lending

And why are we claiming that this working capital financing might be your key to business success? Simply because you have probably found it has been challenging to get the total amount of business credit you need. In some cases, you might have discovered it’s been a challenge to get business lines of credit of any manner.

Eligibility and Criteria

So if your competitors are using this type of financing today, who exactly is eligible for it, and is your firm a candidate? The answer is simply that if your firm has a combination of 250k in working capital assets, you are immediately eligible for asset-based lines of credit.

Exploring Alternatives

We would add that firms with smaller asset sizes can still monetize those accounts receivables via invoice financing or discounting, but that's not our key focus for today's information exchange. For straight A/R solutions, we recommend ' CONFIDENTIAL RECEIVABLE FINANCING ', which allows you to bill, collect, and finance your receivables on your own.

Special Situations

So now you know the offering is out there. But why should you consider it? Simply because your firm might be in one of a number of special situations—that includes issues such as your need for increased daily operating cash, your wish to merge with or finance an acquisition, your inability to obtain inventory financing elsewhere, your growth too quickly for traditional Canadian chartered banking financing, etc.! We are pretty sure you get the picture now!

Recap on Benefits

A recap on benefits! The benefits of this type of business financing must be pretty obvious by now. It's all about access to working capital financing and cash flow that you couldn't access before. Assets that couldn't be financed are now financeable, and inventory financing, previously limited or unavailable now looms on your growth horizon.

Other Short Term Asset Based Finance Solutions

There are, in fact, other short-term asset-based finance solutions that might provide you with the ' bulge financing ' you need. They include:

Key Takeaways

Types of Assets Used in ABL: Understanding which assets can be leveraged is foundational. Typically, inventory, equipment, and receivables are the primary assets utilized.

Benefits of Asset-Based Lending: The flexibility, speed of access to capital, and ability to turn assets into operational funds highlight ABL's advantages.

Eligibility Criteria for ABL: Potential borrowers must know what lenders look for, such as the type and quality of assets, financial history, and creditworthiness.

Comparing ABL with Traditional Lending: ABL offers a more flexible and accessible option for businesses that might not qualify for traditional bank loans due to stringent credit requirements.

Steps to Secure an Asset-Based Loan: Familiarity with the application process, from initial assessment to asset valuation and final approval, guides businesses on preparing and what to expect.

Conclusion

We'll leave that one for another day, but if you want to investigate asset based lines of credit for your firm (remember, your competitor probably already has).

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

Asset-based lending involves securing a loan by offering your business's physical assets as collateral. This method is particularly beneficial for companies with substantial inventory, equipment, or receivables but might struggle to obtain traditional financing.

Asset-based lending offers quicker access to capital, flexibility in the types of assets used as collateral, and potentially more favourable terms for businesses with strong asset bases but less-than-perfect credit histories.

While most businesses can explore asset-based lending, those with tangible assets such as inventory, equipment, and accounts receivable will find it most beneficial. The key is having assets easily valued and converted into cash.

The primary risk is the potential loss of assets if the loan cannot be repaid. Businesses must also manage their assets wisely to ensure they remain valuable as collateral.

The process begins with assessing your assets' value and finding a lender specializing in ABL. You'll need to provide financial statements, asset inventories, and possibly undergo a valuation of your assets.

Interest rates vary widely based on the lender, the quality and liquidity of the collateral, and the borrower's creditworthiness. Generally, rates are competitive with other types of business loans.

Responsibly managing an asset-based loan—making timely payments and meeting all terms—can positively impact your business credit score over time.

Industries with high inventory or receivables, such as manufacturing, wholesale, retail, and distribution, often benefit most from asset-based lending due to their significant tangible assets.

Lenders typically conduct a detailed appraisal of the assets being used as collateral, considering market value, liquidity, and the potential to convert the assets into cash, similar to other loans in business.

If the collateral's value decreases significantly, the lender may require additional assets to secure the loan or adjust the loan's terms to ensure the loan remains adequately secured. If the borrower defaults asset based lenders, similar to bank demand loans, will take measures to recoup loan advances,

Asset-based lending involves loans secured by various assets with a high loan to value ratio on assets compared to banks, while factoring involves explicitly selling your accounts receivable to a lender in exchange for immediate cash, without taking on debt. Typical receivable advances are in the 90% face value range as A/R is considered solid-liquid assets on balance sheets.

The timeline can vary but generally ranges from a few weeks to several months, depending on the lender's process, the complexity of your assets, and how quickly you can provide the necessary documentation. In general, the process is always faster than that of a bank unsecured loan facility.

Yes, businesses can use the funds from asset-based loans for various purposes, including operational expenses, growth initiatives, and debt refinancing, providing considerable flexibility in how the funds are utilized.

' 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

What is Asset-Based Lending In Canada | 7 Park Avenue Financial