Asset Based Lenders: Transforming Canadian Business Finance | 7 Park Avenue Financial

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 HOW ABL WORKS ! ASSET BASED FINANCING BASICS!

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        Financing & Cash flow are the  biggest issues facing business today 

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"The best way to predict the future is to create it." - Peter Drucker

Your business assets hold untapped potential that could fuel your next growth phase.

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer ASSET BASED FINANCING   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”

Asset-Based Lenders: Revolving Lines of Credit and Term Loans (ABL Finance)

Business financing in Canada often has owners/financial managers searching for the ‘Silver Bullet.’ In many cases, that might mean asset-backed lending via an asset lender.

Asset-based lending can optimize a company's cash flow during financial challenges by leveraging owned assets to unlock capital, enabling businesses to navigate sales and operational needs fluctuations.

That’s where asset-based lenders and ABL lending, in general, come in. Those searching for that business silver bullet are looking for something that ‘cuts complexity’ and provides an immediate solution via your company’s assets via credit lines and revolving facilities that work!

We’re examining exactly how and why asset based lending firms can provide you with the finance Silver Bullet you want. Let’s dig in on asset-based financing basics!

BREAKING FREE FROM CASH FLOW  CONSTRAINTS

Are you running a thriving business but getting rejected by traditional banks? You're not alone. At 7 Park Avenue Financial, we know you have sales and valuable assets while struggling with working capital needs. The ABL solutions offer a practical solution, unlocking the value in your business assets to provide flexible financing that grows with your company.

3 UNCOMMON TAKES ON ' ABL'  

1. Asset-based lending often signals business strength, not weakness - it shows you have valuable assets worth leveraging.
2. The higher costs compared to traditional banking can result in better ROI due to increased business agility.
3. Asset-based lending can be a stepping stone back to traditional banking by helping establish stronger financials.

DID YOU KNOW?

• Market size reached $465 billion in North America as of 2023
• Average advance rates: 85% on receivables, 60% on inventory
• 70% of asset based borrowers report improved cash flow
• Processing time averages 3-4 weeks versus 8-12 for traditional loans
• Default rates below 2% industry-wide
• 40% year-over-year growth in Canadian market adoption

WHY ASSET BASED LOANS PROVIDE FLEXIBLE FINANCING SOLUTIONS

It’s no secret that most top experts today maintain that asset-based lenders, aka ‘ABL lenders,’ emerge as the true alternative to traditional bank financing.

At the same time, we might think of asset finance as ‘debt’, which is definitely not always the case - as they also monetize the left-hand side of your balance sheet - making your business assets work for you.

ABL Financing via a true asset based loan can provide a revolving line of credit that accelerates your business liquidity around financing current assets such as accounts receivable and inventory and other physical assets as well as commercial real estate.

Unlike unsecured loans, which typically have higher interest rates and lower borrowing capacities due to the lack of collateral, asset-based loans offer the advantage of larger capital flows and higher loan amounts. Every growing business needs a business line of credit.

SOME QUICK BACKGROUND ON ASSET BASED FINANCING

Asset-based lenders  are financial institutions that specialize in providing asset-based loans to businesses.

Unlike traditional banks, these lenders focus on the value of a company’s assets rather than its credit history. This makes asset-based lending an attractive option for businesses that may not qualify for conventional loans or need quick access to capital.

By using assets such as accounts receivable, inventory, equipment, and commercial real estate as collateral, asset-based lenders offer a flexible financing solution that can adapt to each business's unique needs.

This approach allows companies to leverage their physical assets to secure the funding they need to grow and thrive.

HERE IS SOME QUICK BACKGROUND ON ASSET-BASED LENDERS

Many business folks aren't aware of asset-based lenders only because they are relatively new to the scene.

They are typically commercial finance companies that, unlike banks, are unregulated in commercial financing. These firms are a combination of Canadian firms, both public and private, and branches of larger U.S. firms that have chosen to finance specific assets in Canada.

Their focus on financing in ABL = flexibility!

ASSET BASED LENDING BANKS

At 7 Park Avenue Financial, we are often asked if our  Canadian business banks provide asset based loans and lines of credit via commercial banking as clients know the term.

This is in contrast to cash flow loans and unsecured lending provided by banks as our Canadian traditional financial institutions as a business loan solution -

For the most part, they do. These are separate groups with the bank, but borrowers must note that the credit threshold is quite high, as typically facilities must start in the 5-10 million dollar range and often carry higher setup costs and due diligence requirements around appraisals-

Bank ABLs, who compete with non-bank Canadian financing companies, offer loans and selective invoice discounting at the best interest rates available if your fIrm qualifies with these multiple forms of collateral under a broad range of solutions for companies selling goods and services domestically or exploring growth opportunities in global markets.

The advantage of using ABL to finance your company's growth is that you are not bound by the covenants usually found in cash-flow lending.

This allows for more freedom when it comes time to service debt and maintain leverage, which can positively affect both short-term finances and long-term stability.

ABL focuses on a ' covenant light structure,' which differs from traditional bank loan finance, which has covenants, ratios, and a high focus on personal guarantees. Regarding asset-based lending rates, borrowers should understand the cost and requirements of asset-based lending.

HIGHER FINANCING MARGINS MEAN MORE BUSINESS CREDIT TO YOUR COMPANY!

This asset loan process includes a review of your company’s financial statements and assets. The review determines the borrowing base and the eligible collateral, which leads to a calculation on how much money a company can borrow at any given time.

In some cases, such as high-quality receivables, 100% of the face value of the a/r can be financed.

A pledged asset is a physical asset used as collateral to secure a loan, and lenders often require a negative pledge clause to prevent the borrower from using the same pledged asset for additional loans.

That flexibility means higher loan-to-value margins, resulting in more cash flow and liquidity for your business. ABL lending does that because it places a greater focus on real-world values as long as you are regularly able to report changes in your business assets - i.e. aged accounts receivable, a/p, etc -

It may come as a surprise to many business borrowers but if your company owns real estate that equity can be bundled into your line of credit via ABL financing companies in Canada or funded separately via an ABL bridge loan on just the real estate.

While interest rates are higher in ABL loans, the question often becomes access to capital versus the cost of capital when it comes to your business needs and your ability to provide asset-based financing collateral.

WHAT STAGE OF FINANCING NEED IS YOUR BUSINESS IN?

Again, we're circling back to flexibility.

Any industry is rarely totally' out of favour' with an asset-based lender.

Why? Based on their internal expertise and their ability to work with your firm at any stage of your existence (start-up, high growth, turnaround, recapitalization, etc.), almost every Canadian firm is eligible for an asset-based line of credit facility. An asset-based financing structure is always tailored to your needs and sales, and assets.

If we had to name one of the greatest flexibilities, it would be that the facility grows as your firm grows, continuously providing the working capital you need—that certainly is not the case when it comes to more traditional forms of financing or term debt.

If a company has been in business for at least a couple of years and is at a point where it is unable to obtain Canadian bank financing, and it is in the category of a fast-growing business and is financing some financial challenges, it is a strong candidate for ABL Finance.

Will asset-based commercial lenders always be able to provide the solution you need for funding and liquidity? The answer is a resounding ' YES ' if you follow the following guidelines we emphasize with clients:

Ensure you are looking for the right type of financing for short-term, intermediate and long-term solutions - 100% maximum use of a revolving credit line might suggest the need for term loans or new equity.

WHAT CAN ASSET-BASED LOANS DO FOR YOUR BUSINESS

Focus on financing that helps you generate sales and profit growth - Asset-based lending for real estate is also available under a term loan or bridge loan structure.

Asset-Based Loan Structure

An asset-based loan structure involves a lender providing a loan to a business based on the value of its assets.

These assets include accounts receivable, inventory, equipment, and commercial real estate. The lender typically advances a percentage of the asset’s value, known as the loan-to-value (LTV) ratio.

For instance, if a business has $100,000 in accounts receivable, the lender might advance $80,000, or 80% of that amount.

This structure allows businesses to convert their assets into immediate cash flow, providing the liquidity needed to manage operations and support growth. The flexibility of asset-based loans makes them a valuable tool for businesses looking to leverage their assets effectively.

Eligibility and Qualification

A business must have a significant amount of assets that can be used as collateral to qualify for an asset-based loan.

Additionally, the business should demonstrate a stable cash flow and a solid financial history. To assess eligibility, lenders will review the company’s financial statements, including the balance sheet and income statement.

Regular financial reports and updates may also be required to ensure the loan is used appropriately.

This thorough evaluation process helps lenders determine the borrowing base and the eligible collateral, ensuring that the loan aligns with the business’s financial needs and capabilities. By meeting these criteria, companies can access the flexible financing solutions offered by asset-based lending.

KEY TAKEAWAYS

• Understanding borrowing base calculations unlocks the foundation of asset-based lending success.

• Mastering eligible receivables criteria determines the maximum available funding.

• Recognizing advance rates impact instantly reveals accessible capital amounts.

• Monthly reporting requirements shape the ongoing relationship dynamics

• Strategic inventory management maximizes borrowing potential substantially

CONCLUSION - ASSET-BASED LOAN SOLUTIONS / ASSET-BASED COMMERCIAL LENDERS

Why choose asset-based lending? Financing isn't the only solution to every business challenge. 

Want to learn more about the new ' silver bullet  ' in Canadian business financing, the top non-bank asset-based lenders, and how to get an asset-based loan?

Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who will help you determine the right facility for your company regarding asset-based lenders in Canada!

FAQ: FREQUENTLY ASKED QUESTIONS

How Does An Asset-Based Loan Work?

Asset Based Lending is financing using a borrower’s assets as the only collateral for the loan under an asset-based finance facility. Cash flow financing works as your sales grow. Categories of more liquid capital include accounts receivable and inventory, but hard assets such as real estate and fixed assets/equipment can be financed by small and medium-sized businesses to fund short-term funding for business needs. Leveraging highly liquid assets, such as cash or marketable securities, can result in better loan terms compared to less liquid ones, thereby impacting the financing options available to businesses looking for quick access to capital.

What is Asset-Based Lending?

Asset-based lending is a financing method that allows businesses to use their assets as collateral to secure a loan. This type of lending is particularly beneficial for companies with substantial asset value but less-than-perfect credit histories. Asset-based lending provides quick access to capital, bypassing the lengthy approval processes typical of traditional loans. By focusing on the value of assets like accounts receivable, inventory, and commercial real estate, asset-based lending offers a practical solution for businesses seeking to improve their cash flow and working capital. This flexibility makes it an ideal choice for companies needing immediate financial support.

What are the types of asset-based loans?

Asset-based loans include accounts receivable financing facilities, inventory loans, asset-based equipment financing, and asset-based real estate loans. The terms and conditions of an asset-based loan depend on the type and value of the assets provided as collateral. These assets are pledged as collateral for funding required to run and grow a business.

Why do companies like asset-based lending?

Companies like asset-based lending because it is fast, easy and flexible compared to traditional bank loans and lines of credit. Facilities are structured to each company's needs and are focused on leveraging assets and greater liquidity to meet business capital and growth needs.

What is asset-based lending / ABL, and how does it work?

The ABL process focuses on the value of your business's assets. It's a loan based on assets, which are used as collateral to secure a loan. Receivables less than 90 days old and other business assets such as inventory, equipment, fixed assets, real estate, and, in some cases, intellectual property /IP secure the loan facility.

What companies can benefit from ABL?

Businesses with good assets on the balance sheet and fluctuating cash flows for ongoing working capital needs can benefit from an asset-based loan solution.

How does the asset-based lender differ from traditional banks?

• More flexible lending criteria

• Focus on asset quality over credit history

• Faster approval processes

• Higher advance rates available

• Growth-oriented lending approach

What makes inventory eligible for asset based lending

• Current, non-obsolete stock status

• Strong turnover rates

• Established market value

• Proper storage and insurance

• Clear title and ownership

How quickly can asset based lending scale with my business

• Automatic credit line increases with asset growth

• No additional approval process needed

• Flexible borrowing base adjustments

• Real-time availability updates

• Seamless expansion capability

What advantages does ABL  Financing offer growing companies

• Immediate working capital access

• Seasonal flexibility

• No equity dilution

• Reduced personal guarantees

• Operational freedom maintenance

What collateral types do asset based lenders accept

• Accounts receivable

• Inventory assets

• Equipment and machinery

• Real estate holdings

• Purchase orders

• Intellectual property (in some cases)

What monitoring requirements exist for asset based lending

• Monthly borrowing base certificates are required

• Regular asset valuation updates

• Periodic field examinations

• Financial statement submissions

• Customer payment tracking systems

• Inventory status reports

How are advance rates determined by asset based lenders

• Historical collection patterns analyzed

• Asset quality assessment conducted

• Industry-specific factors considered  versus unsecured loans from a bank

• Customer concentration evaluated

• Seasonal variations reviewed

• Market conditions assessed

What fees are associated with asset based lending

• Origination fees detailed

• Monthly monitoring charges

• Unused line fees explained

• Field examination costs

• Collateral evaluation expenses

• Annual renewal fees

What industries commonly use asset based lending

• Manufacturing sectors

• Distribution companies

• Wholesale businesses

• Seasonal operations

• Growth-stage companies

• Turnaround situations

How does the application process work

• Initial consultation conducted

• Due diligence requirements

• Document submission timeline

• Field examination process

• Closing procedures

• Funding timeline explained

How do asset based lenders handle business seasonality

• Flexible borrowing base adjustments

• Peak season accommodation

• Off-season support strategies

• Inventory buildup allowances

• Payment schedule adaptation

What exit strategies exist for asset based lending facilities

• Traditional bank transition options

• Refinancing opportunities

• Growth-based graduation plans

• Merger/acquisition considerations

• Market expansion support