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Redefining Financing: ABL / Asset Based Lending Loans in Canada for Modern Businesses
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Understanding ABL / Asset Based FInancing Solutions: Unlocking Working Capital Potential
The Power of ABL Loans in Canada
We're the first to admit that 'change' is one of the most difficult things to cope with sometimes, both in our personal lives and in business.
Hindsight has become a great friend, and that's why we use this analogy in talking today about ABL financing in Canada. When business owners and financial managers discover the true power of asset-based lines of credit finance and lending in Canada, their first reaction is 'Where has this been all my (business) life!’
7 Park Avenue Financial understands that the world of lending can often feel like uncharted territory, fraught with complexities and obstacles. It's a landscape where entrepreneurs and financial managers are constantly seeking the most advantageous route to secure the working capital needed to propel their companies forward.
Picture this: you're a business owner, and your company is poised for growth. Traditional bank loans might have been your initial go-to, but you've discovered the limitations of their rigid criteria and slow approval processes.
Why choose asset based lending? It's a financial tool that has been reshaping countless businesses across Canada. This is not merely a loan; it's a strategic financial maneuver that can unlock the dormant potential within your company's assets, propelling it to new heights of success.
Key Differences and Benefits of Asset-Based Loan Financing - Asset-Based Line of Credit: A Game Changer
Let's examine some of the key differences and benefits of asset-based loan financing in Canada, specifically the asset-based line of credit revolving working capital facility that fills the need around a company's cash flow requirements.
It seems simple... and also difficult to realize why this is different than traditional Canadian chartered bank financing. Because it's simply a business line of credit financing facility secured by inventory and receivables. In many cases, both equipment and real estate are added into our 'mix,' leveraging even more assets for working capital purposes.
Why Business Owners Turn to Asset based Financing
So why do thousands of business owners utilize ABL loans (they are not loans per se...more about that later)? The basic answer is that they cannot access this amount and type of credit elsewhere, predominantly at their bank.
Special Loan Facilities: A Way Out for Some
So service firms, distribution companies, and companies that manufacture gravitate to this type of cash flow financing for the obvious reason - they can't get financing elsewhere. In some cases, clients have been asked to exit the bank and find themselves in 'Special Loan' facilities - essentially a holding tank or purgatory for firms that have violated or can't meet bank ratios and covenants.
Available Facilities and Adoption / Asset-Based Lines of Credit
What size of facilities is available for asset-based lines of credit in Canada? Small facilities start in the 250k range based on the overall size of your current assets, predominantly, as we said A/R and inventory.
And from there? ABL financing loan facilities go up to the tens of millions of dollars, and some of the largest corporations in Canada have 'forgotten' about traditional bank lending and financing for credit lines, adopting the ABL model instead.
Demystifying the Term 'Loans'
Oh yes... we had mentioned the term 'loans.' A true ABL facility is not new debt on our balance sheet; it's not a term loan, it's simply monetizing the current assets into a revolving line of credit facility, that's important to understand!
ABL Lending for Diverse Scenarios / ABL Financing for Start-ups
Start-up firms in Canada can be financed by ABL lending, as can firms that have significant current operating and financial challenges... the one thing they do have, and need, is 'Assets' to facilitate the type of lending we are talking about. That's our other key takeaway point for clients, that the actual approval of such facilities is not, we repeat 'not' dependent on balance sheet strength, profitability, or ratios and covenants. Even personal guarantees play a very small part in the approval of ABL facilities, or some of the subsets of this type of finance.
The Role of Profitability
Naturally, it helps when you are moving back to profitability via a plan that will work!
Our final point today on ABL financing is simply that it's all about liquidity. Receivables are typically margined at 90% of your portfolio, and inventory is assessed on an individual basis, often ranging up to 70% in financing leverage.
Key Takeaways
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Asset-Based Loans: A financial tool securing working capital via asset collateral.
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Differences from Banks: Distinct from traditional bank financing due to asset focus.
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Leveraging Assets: Including inventory, receivables, equipment, and real estate.
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Unique Appeal: Businesses turn to ABL l when other options fall short.
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Facility Sizes: Starting at $250k, ABL credit facilities range to multimillion-dollar facilities.
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Not Traditional Loans: ABL finance solutions do not add debt but convert assets into credit.
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Versatility: ABL loans accommodate startups and firms facing financial challenges.
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Approval Criteria: Dependent on assets, not balance sheets or personal guarantees.
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Profitability Matters: Moving towards profitability enhances ABL loan approval.
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Liquidity Emphasis: ABL lendingfocus on liquidity, with 90% AR and up to 70% inventory leverage.
Consider the Alternative: ABL Financing in Canada
The world of Asset based financing is not just about borrowing; it's about transforming your business's financial landscape and unlocking unprecedented growth potential. Explore how an ABL Loan can revolutionize your business's financial strategy and set it on a path to unparalleled success.
So should you forget everything you know about traditional finance business credit lines? Maybe not a great idea, but we can assure you that you are missing out if you don't consider the alternative!
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on the benefits of such business financing in Canada.
FAQ
What exactly are ABL Loans, and how do they differ from traditional bank loans?
Asset-Based Loans, are a unique form of business financing in Canada. Unlike traditional bank loans, they are secured by your company's assets, such as accounts receivable, inventory, equipment, and even real estate. This collateral-focused approach makes them accessible to businesses that may not meet traditional bank criteria, offering a more flexible financing solution.
How can ABL Loans benefit my business?
ABL Loan solutions offer several key benefits. They provide access to working capital based on your existing assets, improving liquidity. They are suitable for startups and businesses facing financial challenges. ABL Loans don't add debt to your balance sheet; instead, they transform your assets into a revolving line of credit. They are ideal for companies striving to become profitable again, as profitability is a valuable factor in the approval process
Are ABL Loans only for large corporations, or can small businesses benefit from them as well?
ABL Loans cater to a wide range of businesses, from small enterprises to large corporations. Small facilities can start at around $250,000, making them accessible to businesses of various sizes. Even startups and businesses with financial challenges can utilize ABL Loans if they have valuable assets to leverage. Accounts receivable financing which is a subset of asset-based lending can fund many small businesses.
How does the approval process for ABL Loans differ from traditional bank loans?
The approval process for ABL Loans primarily depends on the quality and value of your balance sheet and physical assets, such as accounts receivable and inventory. Unlike traditional bank loans, it's not heavily reliant on factors like balance sheet strength, profitability, or personal guarantees. This makes ABL Loans more attainable for businesses with unique financial situations as they provide a higher loan to value funding for sales and assets
What industries can benefit the most from An Asset Based Lending ABL Loan?
ABL Loans are versatile and can benefit various industries. Service firms, distribution companies, manufacturers, and businesses with substantial assets often turn to ABL Loans when traditional financing options are limited. They are especially valuable in industries where working capital is crucial for growth and stability.
What are the typical interest rates associated with ABL Loans in Canada?
Interest rates for ABL Loans can vary depending on factors like the lender, the borrower's creditworthiness, and market conditions. Rates are often competitive compared to other financing options due to the collateral involved.
Can ABL Loans be used for refinancing existing debts?
Yes, ABL Loans can be used to refinance existing debts in some cases, especially if the collateral is valuable and the lender is willing to structure the loan accordingly.
What are the potential risks or downsides of ABL Loans?
While ABL Loans offer flexibility, they may come with higher costs compared to traditional loans. Additionally, if a borrower defaults, the lender has a claim on the collateral, which could result in asset loss.
Is personal credit history a factor in the approval of ABL Loans?
Generally, the personal credit history of owner/business owners has a limited impact on ABL Loan approvals since the focus is primarily on business assets. However, it may still be considered by some lenders, especially for small businesses or startups.
Can ABL Loans help businesses with seasonal cash flow fluctuations?
Yes, ABL Loans can be a valuable tool for businesses with seasonal fluctuations. They provide access to working capital based on your assets, allowing you to bridge gaps in cash flow during slow seasons.
