What Is ABL Lending and How Does It Work? | 7 Park Avenue Financial

 

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YOUR COMPANY IS LOOKING FOR  ASSET BASED CREDIT LINE FINANCING!

ABL LENDING 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

 

 

 

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ABL LENDING and working capital solutions  – Save time, and focus on profits and business opportunities

 

7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”

 

 

 

ABL LENDING

 

A proper business line of credit allows your firm to charge ahead when growing a successful and profitable company.

 

That's why when sometimes all else fails, an ABL LOAN FACILITY is the way to achieve the proper balance of asset monetization and working capital. Let's dig in.

 

 

Much has been written about business as a battle, and when your business is at an impasse and stalled when it comes to growing sales and financing assets, an asset-based line of credit offers one solid solution.

 

Breaking Free from Traditional Lending Constraints: The ABL Advantage

 

Traditional bank loans often fail to meet immediate business capital needs. Rigid credit requirements and lengthy approval processes leave businesses struggling to fund operations and growth.

 

Let the  7  Park Avenue Financial team show you how  Asset-Based Lending provides quick access to working capital by leveraging existing business assets and offering flexible credit limits that grow with your business.

 

3 Uncommon Takes:

 

1. ABL can improve inventory management practices through regular monitoring
2. ABL relationships can strengthen supplier negotiations through verified credit

 

 

What is ABL Lending? Are You Getting All the Bank Financing You Need?

 

In Canada, we’re well known for ‘bank bashing’ at both the business and consumer levels. (Our solution is simple—invest in our banks!)

 

But when a business can’t access the low rate and flexible chartered bank revolving credit facilities/lines of credit, there’s an alternative finance sector out there picking up all the slack and then some.

 

This includes asset-based financing, a loan secured by collateral, primarily targeting established businesses that possess measurable assets like inventory and equipment.

 

 

UNLOCKING THE POWER OF BUSINESS ASSETS

 

Billions of dollars are loaned in Canada via this sector of commercial finance companies to businesses like yours that want to unwrap and finance their assets and sales potential.

 

The abl facility originated in the United States years ago, and most businesses in the U.S. use ‘ABL’ more than bank credit! It is a solid way of financing the balance sheet; for financing, you need to enhance cash flows and draw funds when you need them.

 

Asset-based lenders play a crucial role in providing financial facilities to businesses.

 

They assess potential borrowers based on the amount of finance sought and the necessity for detailed financial statements, offering various asset-based lending options from specialist providers and traditional banks.

 

Why is an ABL loan facility, in effect, a business ‘ non-bank line of credit ‘ unfashionable to some? We’re not sure; perhaps it’s the conservatism in us Canadians that only considers ‘ banks’ as the only solution to business financing challenges.

 

 

WHAT IS AN ABL BUSINESS LINE OF CREDIT

 

An ABL business line of credit is a dynamic financing solution that allows businesses to leverage their assets, such as accounts receivable, inventory, and physical assets, such as equipment and real estate, to secure a revolving line of credit.  In some cases intellectual property can be financed as eligible collateral as part of the facility.

 

This type of financing is particularly beneficial for managing short-term cash flow needs, providing a flexible and reliable source of funds against pledged asset/assets versus unsecured loans from banks, for example.

 

With an ABL business line of credit, businesses can draw and repay funds as needed, making it an ideal tool for handling cash flow fluctuations.

 

Whether it’s covering payroll, purchasing inventory, or maintaining equipment, this line of credit ensures that businesses have the necessary liquidity to sustain operations and drive growth.

 

By securing the line of credit with the business’s assets, lenders can offer more favourable terms, reducing the overall risk and providing a safety net for the company.

 

BENEFITS OF ASSET-BASED LOANS

 

Asset-based loans offer a multitude of advantages for businesses looking to optimize their financial performance:

 

• Increased Access to Capital: By borrowing against their assets, businesses can access more capital than they might through traditional loans. This can be crucial for funding expansion or managing operational costs.

• Flexibility: Asset-based loans can be tailored to meet each business's unique needs, offering flexible repayment terms and competitive interest rates that align with the business’s cash flow patterns.

• Reduced Risk: Securing the loan with assets reduces the risk of default, enhances the business’s creditworthiness, and makes it easier to obtain financing in the future.

• Improved Cash Flow: These loans provide the necessary cash flow to cover short-term expenses and invest in growth opportunities, ensuring the business remains financially healthy.

• Competitive Interest Rates: Unlike other financing options, asset-based loans often come with competitive interest rates, making them a cost-effective solution for many businesses.

 

 

HOW ABL WORKS

 

Asset-based lending (ABL) uses a business’s assets as collateral to secure a loan. Here’s a step-by-step breakdown of how ABL works:

 

 

1. Asset Evaluation: The lender assesses the value of the business’s assets, such as accounts receivable, inventory, equipment, and real estate, to determine the borrowing base.

2. Loan Structuring: Based on the asset valuation, the lender structures the loan as a line of credit, typically offering advance rates of 70-85% on eligible receivables and 50-65% on inventory.

3. Loan Disbursement: Once the loan is approved, the lender disburses the funds to the business. These funds can be used to meet various short-term cash flow needs.

4. Repayment: The business repays the loan, including interest and fees, over a specified period. The revolving nature of the line of credit allows for continuous borrowing and repayment as needed.

 

 

This process ensures that businesses have access to the capital they need while maintaining the flexibility to manage their cash flows effectively.

 

 

WHAT IS AN ABL  BUSINESS LINE OF CREDIT

 

Asset-based credit lines monetize assets and sales - simple as that.

 

So, under the umbrella of a business credit line, they allow you to borrow against accounts receivable ( i.e., your sales ), inventories, if applicable, and fixed assets that currently have no lines against them from other lenders, such as equipment lessors.

 

A ‘ ‘ borrowing base certificate’ is established monthly, allowing your company to draw down on margined accounts receivables and inventory. Real estate equity in company-owned property can also be included in your credit line.

 

The terms and conditions of an asset-based loan depend on various factors, including the type and value of the assets offered as security.

 

HOW TO QUALIFY FOR ASSET-BASED LENDING WITH ACCOUNTS RECEIVABLE

 

To qualify for ABL financing, your firm must maintain up-to-date financial statements and properly aged receivables, payables, inventory lists, etc.

 

In contrast to asset-based lending, traditional financing methods often emphasize a business's cash flow. Lenders analyze this cash flow to evaluate a company’s financial health, which is crucial for cash-flow lending.

 

WHAT IS THE COST OF ABL INTEREST RATES

 

We can already hear our clients' first reaction to hearing about such facilities. Their only question is, ‘Sounds too good to be true, so what is the downside?’

 

Our answer all the time is simply that business is about balance. While financing costs are often (not always) higher, these facilities provide unlimited business credit if you have the sales revenues and assets to back them up.

 

By the way, that comes without those ratios, covenants, and outside personal collateral that are often, if not always, demanded by Canadian chartered banks.

 

Lenders use the loan-to-value ratio (LTV) as a key metric in asset-based lending. The LTV determines the funding amount a business can receive based on the value of its collateral. Lenders prefer easily convertible assets to cash, as this lowers their risk and can lead to more favourable loan terms.

 

So, the sad but changing reality about ABL loan facilities is simply that thousands of Canadian business owners and financial managers have not even heard of ABL credit, much less understand how it works.

 

Getting them over the top in understanding this valuable aspect of business financing is often the role of a trusted, credible and experienced Canadian business financing advisor.

 

MANAGING CASH FLOW WITH ASSET-BASED LENDING

 

Asset-based lending is a powerful tool for managing cash flow fluctuations. By leveraging a business’s assets, ABL provides a steady source of capital that can be used to address various financial needs:

 

 

• Covering Expenses: Asset-based loans can cover essential expenses such as payroll, inventory purchases, and equipment maintenance, ensuring smooth operations.

• Investing in Growth: With access to additional capital, businesses can invest in growth opportunities, such as expanding their product line or entering new markets, without straining their cash flow.

• Managing Seasonal Fluctuations: For businesses with seasonal cash flow variations, ABL offers a reliable source of funds during slow periods, helping to maintain stability.

• Improving Cash Flow Forecasting: The predictable nature of asset-based loans allows businesses to improve their cash flow forecasting, making it easier to plan for future financial needs.

 

 

Asset-based lending helps businesses maintain financial stability and seize growth opportunities by providing immediate access to working capital.

 

 

CHOOSING AN ASSET-BASED LENDER

 

Selecting the right asset-based lender is crucial for ensuring your business gets the financing it needs.

 

Here are some key factors to consider:

 

 

• Experience: Choose a lender with extensive experience in asset-based lending and a proven track record of financing businesses in your industry.

• Reputation: Research the lender’s reputation by reading online reviews and asking for references from other businesses that have used their services.

• Flexibility: Look for a lender offering flexible repayment terms and interest rates tailored to your business’s needs.

• Customer Service: Choose a lender that provides excellent customer service and is responsive to your needs. This will ensure a smooth and supportive financing experience.

• Fees: Compare the fees charged by different lenders and select one that offers competitive rates without hidden costs.

 

By carefully considering these factors, businesses can choose an asset-based lender that aligns with their financial goals and provides the necessary support for success.

 

Case Study - 

 

A Canadian manufacturing company faced seasonal cash flow challenges. Through ABL, they secured a $5M revolving facility against receivables and inventory—result: 25% revenue growth in 12 months through improved working capital management.

 

 

KEY TAKEAWAYS

• Asset valuation fundamentals drive lending decisions

• Borrowing base calculations determine available credit

• Asset-based lending works by leveraging assets on a company's balance sheet as collateral for loans.

• Regular collateral monitoring ensures facility health

• Advance rates vary by asset class quality

• Working capital optimization through asset conversion

 

 

CONCLUSION

 

A business line of credit facility may be the solution you are looking for to address business capital needs.  

 

At that point, the financing becomes ' believable,' and the business owner/manager will soon be leading the charge against the competition in their industry, knowing full well they have the financing to win those business battles.

 

Call  7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your business funding needs.

 

 

FAQ

 

How does asset-based lending work for Canadian businesses?

Asset-based lending provides financing secured by your business assets including accounts receivable, inventory, and equipment. The lender establishes a borrowing base, typically offering 70-85% advance rates on eligible receivables and 50-65% on inventory.

 

What assets qualify for ABL financing?

• Accounts receivable (under 90 days)

• Inventory (finished goods and raw materials)

• Equipment and machinery

• Real estate

• Purchase orders from credit-worthy customers

•  

When should a business consider asset-secured business loans?

• During rapid growth phases

• Seasonal business fluctuations

• Working capital shortages

• Acquisition opportunities

• Restructuring needs

 

Where can businesses find reputable Canadian ABL lenders?

Licensed Canadian financial institutions, specialized ABL lenders, and select fintech companies offer asset-based lending solutions. Major banks often have dedicated ABL divisions.

 

 

Why choose a revolving credit facility over traditional loans?

• Flexible credit limits that grow with your business

• No fixed monthly payments

• Faster approval process

• Less emphasis on credit history

• Better cash flow management

 

 

How does ABL improve business cash flow management?

• Immediate access to working capital

• Flexible draw amounts based on asset levels

• Reduced payment stress during slow periods

• Better inventory management

• Improved supplier relationships

 

What makes business asset financing more accessible than traditional loans?

The focus on collateral value rather than credit history makes qualification easier. Businesses with strong assets but limited credit history often qualify for more extensive facilities.

 

 

How quickly can companies access inventory financing through ABL?

Most ABL facilities can be established within 2-4 weeks, with subsequent funding available within 24-48 hours of collateral verification.

 

What advantages do accounts receivable loans provide for growth?

• Immediate conversion of receivables to cash

• Increased purchasing power

• Better customer credit terms

• Seasonal flexibility

• Reduced reliance on vendor financing

 

How does collateral based lending scale with business growth?

Available credit automatically increases as your qualified asset base grows, providing natural scaling without requiring new loan applications or credit approvals.