Asset Based Lending Facility: Transforming Canadian Business Growth | 7 Park Avenue Financial

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YOUR COMPANY  IS LOOKING FOR ASSET-BASED COMMERCIAL LOANS FINANCING!

AN OVERVIEW OF ASSET-BASED LENDING AND HOW IT WORKS!

You've arrived at the right address! Welcome to 7 Park Avenue Financial

        Financing & Cash flow are the  biggest issues facing businesses today

                 ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

Your  Business Assets Hold  Untapped Potential

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

Asset-Based Lending in Canada ( ABL Finance ): What’s all the excitement about?

Financial markets continue challenging Canadian firms in the small to medium enterprise sector ( ' SME ' ) for various reasons, including a Pandemic! 

Let's examine asset-based loans versus unsecured loans in commercial banking in Canada. This type of lending enables small—to medium-sized businesses and large corporations to access funds by leveraging their assets.

At 7 Park Avenue Financial, we define SME as sales revenues of less than 50 million dollars, but you will find several people with different size definitions. Suffice it to say our numbers are smaller than those in the United States, as usual!

The  7 Park Avenue Financial team has seen countless businesses transform their companies via asset-based financing facilities. They unlock working capital through asset leverage on sales and key balance sheet assets. The bottom line? Flexible funding that grows as you grow sales while adapting to your business model.

WHAT IS ASSET-BASED FINANCE? ASSET-BASED LENDING VS TRADITIONAL LENDING

Asset-based lending is a type of business financing arrangement and loan security that allows your company to secure cash via a bridge loan or line of credit secured by your business's collateral.

Typical asset categories for loan collateral are inventories, receivables, fixed assets, and other company-owned assets such as real estate.

Real estate can be financed separately via ABL term loans based on the property's acceptable face value or inside your overall asset loan arrangement.

Typically a monthly-based borrowing certificate on eligible assets is prepared, allowing the business owner and financial manager to understand the maximum drawdown potential on the facility/loan.

Asset loans are business loans as opposed to other consumer financing solutions.

These loans are best suited for highly leveraged firms that can't meet banking covenants and cannot access traditional capital. They are also best suited for firms experiencing high growth and willing to secure company assets for funding, thereby addressing commercial lenders' ' credit risk ' issue.

Retail financing is available via asset loans tailored to the unique business model of retailers in Canada. Retail financing for small stores is typically addressed through merchant cash advances, aka 'short-term working capital loans '.

ABL is a solid way to help you buy a business in Canada when contemplating a business purchase.

Asset-based lending services substantially add to working capital needs as operating lines of credit facilities grow automatically as the business grows.

COMMON BORROWER  QUESTIONS

What percentage of my assets can I borrow against?

Asset Based Lending Facilities typically offer the following advance rates:

• Up to 90% against eligible accounts receivable (less than 90 days old)
• 50-75% against finished inventory
• 40-60% against raw materials
• 50-80% against new equipment
• Up to 75% against commercial real estate
• Advance rates vary based on asset quality, industry, and historical performance

How quickly can funding be accessed?

The timeline for Asset Based Lending Facility funding breaks down as follows:

• Initial facility setup: 3-4 weeks for due diligence and documentation
• After setup, access to funds is typically:
• Same-day funding for established borrowing base
• Real-time online portal access for draw requests
• 24-hour turnaround for new collateral additions
• Immediate availability for qualified receivables

Will this affect my relationships with current customers?

Asset Based Lending Facilities maintain customer relationship integrity through:

• No direct contact with customers unless specifically agreed
• Invisible to most customers - business as usual
• Professional handling of any verification processes
• No change in payment procedures
• Enhanced ability to offer better payment terms
• Improved service levels due to better cash flow
•  

What makes this different from factoring?

Asset Based Lending Facilities differ from factoring in several key ways:

• You maintain control of customer relationships
• Multiple asset classes can be financed, not just receivables
• Lower overall costs in most cases
• No sale of receivables required
• More flexible terms and conditions
• Higher advance rates typically available
• Professional lending relationship versus transaction-based

How does seasonal fluctuation impact the facility?

Asset Based Lending Facilities accommodate seasonal fluctuations through:

• Flexible borrowing base that grows with inventory builds
• Automatic adjustment to seasonal receivables changes
• No fixed monthly payment requirements
• Peak season accommodation built into facility limits
• Regular facility limit reviews to match business cycles
• Ability to support pre-season inventory purchases
• Understanding of industry-specific seasonal patterns

Key Statistics:  

• 78% of businesses see improved cash flow within 90 days of implementing ABL
• Average facility utilization rates range from 65-75%
• The market growth rate of 8.9% annually in the Canadian ABL sector
• 92% renewal rate among established ABL clients
• 40% lower rejection rate compared to traditional loans

ABL financing is collateral-based lending. ABL lenders secure inventories, accounts receivable, equipment, and other property your business owns, such as real estate.

Financing equipment already owned by the company is an excellent way to build on your business equity for borrowing power.

Canadian businesses use asset-based lending to cover short-term solvency issues and continue operating. This type of financing is often termed ' transitional financing,' as it provides a road back to traditional Canadian bank financing.

Asset-based lenders fill the gap regarding a firm's inability to access traditional financing.

Working capital and cash flow financing challenges seem to be constant challenges for Canadian business owners and financial managers.

When we combine that challenge with the fact that many companies have debt and debt service problems, and in many cases, are coming off a bad year ( the worst year ever? ), you can see how any new financing solution very quickly becomes top of mind.

If the Canadian business owner is confident that his liquid and fixed assets can support the financing need, careful thought should be given to an ABL arrangement.

ABL is the term most people refer to when discussing ABL FINANCE if they have a financial background.

SPECIAL CONSIDERATIONS AROUND ASSET BACKED LENDERS

What are those liquid and fixed assets—well, of course, the company’s liquid current assets, receivables, and inventory?

That is also balanced with the firm's fixed assets, and real estate might be included in that and used as collateral. That asset-backed security provides significant comfort for ABL lenders in areas such as receivables loans.

Full ABL facilities can always address business loans for startups, but numerous other Canadian business financing solutions address the needs of start-ups and early-stage businesses.

Whether on the U.S. or Canadian side of the border, asset-based lending lines of credit continue to increase—some of the largest corporations in Canada and the U.S. have either completed such financings or are contemplating them.

Asset-based finance - aka ' ABL ' in Canada grew from the tremendous U.S. asset-based lending industry growth.

HOW CAN YOUR BUSINESS GET AN ASSET LOAN FOR ABL FINANCING NEEDS

As large as the market and potential are in asset-based financing, it is interesting to note that the actual market participants can be reduced to a handful or two key players.

Some large tier-one type firms are primarily offshoots of major U.S. corporations that dominate the market in asset-based lending. Then there are a tiny handful of Canadian well-heeled players.

That is finally balanced by a similar handful of Canadian tier 2 and tier three players who play in niche markets and geographies.

Asset-based lending works only when there are... guess what... ‘Assets ‘! As such, industries that are very capital-intensive – think manufacturing, etc... are the perfect candidates for ABL-type arrangements.

Businesses with high leverage or fluctuating earnings often seek asset-based loans.

A business's cash demands may be extremely time-sensitive, leading it to seek asset-based loans. ABL Lenders focus on the liquidation value of the assets to ensure they can recover the loan amount if the borrower defaults.

HOW ASSET BASED LENDING WORKS

Asset-based financing is essentially an operating loan and credit line that allows Canadian firms to meet everyday cash flow demands as they operate their businesses.

As there is often a significant delay in the final collection of receivables, your business needs cash flow to cover that gap. For companies that can't demonstrate ongoing historical cash flow from operations, the collateral in the business's assets provides business capital to run and grow a business.

WHAT ASSETS CAN BE USED TO SECURE A LOAN?

Asset based loans and lines of credit are typically tailored to a company's needs.

ABL lenders prefer a hierarchy of priority in assets. More liquid assets, such as your receivables and inventory, receive high borrowing margins, but other assets also command good borrowing ability - sometimes dependent on appraisals, etc.

Borrowers familiar with traditional bank covenants and formulas will be happy to know that those restrictive covenants in finance rarely occur in ABL lending.

In the past, there was a significant stigma in the asset-based lending marketplace that this type of financing—i.e., leveraging your current and fixed assets to the max—was a form of alternative funding previously embraced by only firms in some financial trouble or distress.

While a firm can have financial losses, a poor balance sheet capital structure, or very volatile or seasonal cash flows and still be a great candidate for an asset-based line of credit /loan, it should be pointed out that major successful, well-known corporations have added ABL financing to their financing toolkit, so to speak.

WHAT DOES ASSET BASED FINANCING COST VS BANK FINANCE? PROS AND CONS OF ASSET BASED LENDING & RISK-BASED PRICING

When CFO's and business owners meet with chartered banks to structure operating and term financings, the discussions revolve around balance sheet ratios, debt covenants, cash flow coverage, and personal collateral.

When all of those issues are generally positive, Canadian chartered banks provide lines of credit and term facilities at very low interest rates.

The ABL lender makes a lending decision based on the lender's ability to convert collateral to cash under the ABL facility.

While asset-based lending interest rates are almost always higher than traditional banks, financing rates have come down significantly, and the final cost of borrowing will depend on the overall credit profile of your company and industry, as well as its current financial position and years in business.

When satisfying bank requirements is challenging, ratios and loan covenants are not discussed with your asset-based lender; only the liquidation value of all your assets is.

Receivables and inventory in most firms are of higher quality and can be margined in the 90% range, while appraisals are performed on other fixed-type assets. Therefore, those asset-based lending finance rates provide maximum borrowing power around your asset financing, and that is what the ABL  loan agreement is all about.  Real estate owned by the company can also be part of the asset mix.

Is it more expensive than traditional bank financing – we would say 95% of the time, it is. But as a business owner, do you want no or a small credit facility at a great rate or all the financing you need at a more expensive rate?

Asset-based lenders conduct thorough due diligence on your financials and assets, ultimately finalizing a term sheet/offer to finance. Canadian companies looking for SME commercial finance solutions and those that have business assets are eligible for asset-based financing loans.

Whether your business is a major corporation or an up-and-coming startup, its cash flow is like gasoline to a car. ' Operations must be funded, and working capital financing must be conserved and maximized. Thousands of companies cannot satisfy ' cash flow-based loans ' or demonstrate past and future cash flow generation. That is one of the main reasons why asset-based financing works.

CASH FLOW VS ASSET-BASED LENDING - WHAT'S THE DIFFERENCE? 

Companies with bank financing in place for cash flow-based borrowing are subject to potential reductions in their business lines of credit when their profits drop due to company-specific general economic issues.

On the other hand, firms that borrow using asset-based finance lending companies and consider ABL finance have assets on their balance sheets backing up collateral for loans and credit lines—cash flow is a secondary consideration for the ABL lender.

ABL credit lines are formed by a percent of the value of your total assets, and facilities typically grow automatically as sales and assets grow!

ABL allows you to leverage assets and is often an intermediate step back to traditional bank financing for many companies; it's flexible and is often used in conjunction with buying a business or is part of a turnaround financing and a restructuring or refinancing strategy.

If a bank has placed a loan in its ' NPA ' (non-performing asset) particular loans category, asset-based loans can be effectively used to pay out the bank with new senior lending in place.

A special loan classification of loans and bank advances can be very stressful for business owners—ABL can fix that - i.e. more credit availability.

Various other business financing options and types of asset-based financing, such as inventory loans, purchase order financing and factoring ( pledging receivables/invoice factoring ), form part of the ABL solution for sufficient assets.

For information on PO Financing, click here, and to understand how factoring works, click here. Accounts receivable financing allows businesses to utilize their outstanding invoices as collateral to secure a loan for a pledged asset.

Acquisition financing and financing a takeover are also everyday uses of asset-based financing when raising funds.

3 Uncommon Takes on ' ABL'  

1. ABL facilities can improve supplier relationships through faster payment terms
2. These facilities often provide better cybersecurity protection through lender monitoring systems.
3. ABL can serve as a strategic tool for acquisition financing, not just working capital

KEY TAKEAWAYS

• Borrowing Base Fundamentals drive facility size and availability

• Advance rates determine immediate access to working capital

• Monthly reporting requirements ensure compliance

• Collateral monitoring systems protect both parties

• Asset valuation methods impact borrowing power

CONCLUSION  -   FLEXIBLE FINANCING THAT GROWS WITH SUCCESS

Asset-based lenders allow companies to borrow money based on the liquidation value of assets on their balance sheet.

A recipient receives this form of financing by offering inventory, accounts receivable, and/or other balance sheet assets as collateral. While cash flows (particularly those tied to any physical assets) are considered when providing this loan, they are secondary as a determining factor.

BREAK FREE FROM CASH FLOW CONSTRAINTS -  CONSIDER THE ABL SOLUTION     

The  7 Park Avenue Financial team knows how tough it is to maintain cash flow and grow your business  -  Traditional banking solutions often can't assess seasonality or rapid expansion plans -  Let an asset-based funding solution generate immediate working capital without covenants that restrict your business!

Can asset loans help your business? They are fast, flexible solutions outside of traditional financing and banking covenants relying on financial performance . Ensure you know this newer financing alternative – now it's your turn to decide!

Call  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor, to see if asset-based financing via an abl facility will work for your firm, allowing you to explore growth opportunities for your business.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

What is Asset  Based Lending?

Asset-based lending can be called the business of loaning money secured by collateral, unlike unsecured loans by banks.  The industry serves businesses, not consumers; it's also known as asset-based financing, aka  ' ABL'  Collateral often includes inventory, accounts receivable or equipment, and commercial real estate owned by a borrower who wants to take out a line credit on these assets for working capital purposes - The high loan to value ratio provides more business capital to borrowers via the maximum loan amount in the ABL  formula.

Asset-based loans are a popular choice for small—to mid-sized businesses that need quick funding to cover short-term demands.

Is it difficult to obtain financing with asset-based lending?

Asset-based lending ( ABL ) is less demanding than other methods a company can use to access loans. However, asset-based lending is not seamless and easy! There are pros and cons which every entrepreneur/ business owner should know before using their business assets as collateral for a loan. Lenders prefer liquid collateral such as a/r versus other assets, which can be readily converted to cash if the borrower defaults.

How do asset based loans work?

Asset-based lending involves lending money using the company's assets as business collateral. Liquid collateral is preferred over illiquid or physical assets such as equipment. Small—to mid-sized businesses often use asset-based lending to cover short-term cash flow needs.

How does an Asset Based Lending Facility increase business flexibility?

• Funding grows with your sales volume

• No fixed monthly payment restrictions

• Seasonal fluctuations are accommodated naturally

• Cash is available when opportunities arise

• Credit line adjusts to inventory levels

What makes asset-based lending different from traditional bank loans?

• Focus on asset quality rather than credit history

• Higher advance rates available

• More flexible structure

• Fewer financial covenants

• Faster access to working capital

How quickly can businesses access funds through an Asset Based Lending Facility?

• Initial setup typically takes 3-4 weeks

• Once established, same-day funding available

• Online portal for immediate draw requests

• Real-time borrowing base updates

• Automated payment processing systems

What types of assets qualify for an Asset Based Lending Facility?

• Accounts receivable from creditworthy customers

• Finished goods inventory

• Raw materials

• Equipment and machinery

• Real estate in some cases

• Purchase orders from strong buyers

How does Asset Based Lending support business growth?

• Provides immediate working capital

• Enables bulk purchase discounts

• Supports seasonal inventory builds

• Finances new equipment acquisition

• Backs expansion projects

What ongoing reporting requirements come with Asset Based Lending?

• Monthly borrowing base certificates

• Regular inventory reports

• Accounts receivable aging

• Financial statements quarterly

• Annual third-party audits

How are advance rates determined in Asset Based Lending?

• Based on asset quality

• Industry standards apply

• Historical performance considered

• Customer concentration factors

• Seasonal considerations included

Can Asset Based Lending work alongside other financing?

• Compatible with term loans

• Works with equipment leasing

• Supports government programs

• Integrates with corporate cards

• Complements traditional banking

What exit strategies exist for Asset Based Lending?

• Transition to traditional banking

• Refinance as company grows

• Graduate to larger facilities

• Merge with other credit lines

• Convert to permanent financing

What factors determine the maximum facility size in Asset Based Lending?

• Quality and value of available collateral

• Historical business performance metrics

• Industry sector risk assessment

• Seasonal peak requirements

• Growth projections and forecasts

How does monitoring work in an Asset Based Lending Facility?

• Regular collateral audits

• Electronic reporting systems

• Field examinations schedule

• Asset tracking requirements

• Compliance verification processes

What are the true costs associated with Asset Based Lending?

• Interest rates on utilized portions

• Monitoring and audit fees

• Unused line fees

• Setup and documentation costs

• Annual renewal expenses