YOUR COMPANY IS LOOKING FOR COMMERCIAL ASSET FINANCING SOLUTIONS!
THE ASSET BASED LOAN FROM ASSET BASED LENDERS
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business 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
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
"Stop letting your valuable assets sit idle - turn them into immediate working capital today."
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Asset Lender 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”
FLEXIBLE FINANCING VIA ASSET LENDER COMMERCIAL LENDING SOLUTIONS
Commercial lending by banks in Canada is not the only way Canadian businesses finance themselves.
When we talk to clients about non-bank solutions, a certain level of ‘discomfort’ sometimes exists. An asset-based lending loan can benefit businesses needing quick capital, especially during growth or seasonal demand.
THE ROLE OF THE ASSET-BASED LENDER IN CANADA
We don't know where it comes from, as thousands of firms in Canada are financing via secured loans using non-bank methods.
That’s the role of the Asset-based lender - who comes in all shapes and sizes! Let’s dig in.
ABL Lenders prefer assets that will quickly turn into cash if the borrower defaults on payments. A pledged asset is crucial in this context, as it is collateral to secure financing, especially when there is insufficient cash flow.
WHAT IS ASSET-BASED LENDING?
Generally speaking, asset-based lending is simply a broad term for non-bank commercial finance firms that provide various business lending solutions using assets as collateral to Canadian business owners and managers.
Choose asset-based lending for businesses with significant assets that may experience fluctuations in cash flow. These companies have carved out their own ‘ niche’ for specialty lending in equipment, current assets, tax credits, etc.
Asset-based loans, or ‘ ABL’ loans, are focused on collateral your company can provide based on your assets and sales.
While the bank lender focuses on cash flows, the ABL approach hones in on the ability of your sales and assets to cover the loan payments. Even well-known larger corporations have utilized asset-based loan solutions.
DID YOU KNOW?
- Asset-based lending market has grown 10.8% annually since 2019
- 78% of businesses consider alternative lending options
- The average approval rate is 75% higher than that of traditional banks
- Processing time is 60% faster than conventional loans
- 82% client retention rate in asset-based lending
HOW ASSET-BASED LENDING WORKS
Asset-based lending is a financing method that allows businesses to leverage their assets as collateral to secure a loan.
This type of loan is based on the value of the assets, which can include accounts receivable, inventory, machinery and equipment, real estate, and even intellectual property.
The process begins with the lender evaluating the value of these assets to determine the advance rate, which is the percentage of the asset’s value that can be borrowed. For instance, if a company has $100,000 in accounts receivable, the lender might offer an advance rate of 80%, enabling the company to borrow $80,000.
Asset-based lending typically involves a thorough field examination and inventory appraisal to ascertain the eligible collateral and the corresponding advance rates.
Lenders may also require monthly reports to update the status of the borrowing base. This type of financing provides access to significant capital with a covenant-light structure, offering businesses the flexibility to make future decisions without stringent restrictions.
THE GROWTH OF ASSET BASED LOANS
Asset-based loans have grown in popularity, especially among small and medium-sized businesses.
Unlike traditional bank loans that often demand a strong credit history and stable cash flow, asset-based loans focus on the value of the assets. This makes it easier for businesses with valuable assets but limited cash flow to secure the necessary financing.
The increasing demand for alternative financing options has fueled the growth of asset-based loans. Many businesses seek ways to access capital without relying on traditional bank loans.
Asset-based loans provide a flexible and efficient means to secure financing, making them an attractive option for businesses looking to manage cash flow or invest in growth initiatives.
THE ABL FOCUS - SALES AND ASSETS!
Asset-based lending zeroes in on two critical areas: sales and assets.
Lenders evaluate the company’s sales performance and the value of its assets to determine the advance rate and the loan amount. This approach allows businesses to leverage their assets to secure financing, even with limited cash flow.
The ABL focus on sales and assets makes it an appealing option for businesses with strong sales performance but constrained cash flow. Using their assets as collateral, companies can access the capital needed to invest in growth initiatives or manage cash flow challenges effectively.
ASSET-BASED LOAN OPTIONS
Asset-based loan options vary depending on the lender and the asset type used as collateral. Some standard asset-based loan options include:
-
Accounts Receivable Financing: This type of financing allows businesses to borrow against their outstanding accounts receivable.
-
Inventory Financing: This option enables businesses to borrow against their inventory.
-
Machinery and Equipment Financing: Businesses can borrow against their machinery and equipment.
-
Real Estate Financing: This type of financing allows businesses to borrow against their real estate assets.
Each option has advantages and disadvantages, and the choice of which one to use will depend on the business's specific needs.
THE GROWTH OF ASSET BASED LOANS
Why are commercial asset lenders successful in Canada in funding sales and balance sheet assets and growing in size and scope for the solution?
Traditional bank loans primarily rely on a company's cash flow ratios for approval, making cash flow a critical factor. The reality is that they aren’t regulated like the Canadian banking system requires of unsecured loans from our commercial banking traditional financial institutions -
So, like your teenagers, they (try to) do what they want! And pretty well, all of them do that well.
THE NON-BANK ASSET-BASED LINE OF CREDIT / REVOLVING LOAN
Certain types of asset finance focus on particular industries.
Non-bank asset-based lines of credit offer revolving credit facilities for almost every type of company in Canada that can offer some form of collateral via accounts receivable inventory, fixed assets, tax credits, and even real estate.
The terms and conditions of an asset-based loan depend on the type and value of the assets provided as collateral. A constant borrowing base is established, allowing you to draw down on funds as you generate sales and require cash.
Borrowers should be prepared to supply regular monthly financial statements and appropriate agings of asset categories such as accounts Receivables and Inventory.
Also, physical assets such as commercial real estate, a specific asset, or fixed assets for equipment financing as part of the facility can be bundled into your business credit line if they are part of your company’s assets.
Although interest rates are higher on asset-based loans, they provide the capital you need to grow your product and service sales. Asset-based lenders may grant up to 90% of the face value of highly liquid security, such as accounts receivables, and 60% for commercial real estate.
At 7 Park Avenue Financial, ‘ABL’ (ASSET BASED LENDING) lending can be ‘hybrid’—financing different assets of your firm similarly, all under the same credit facility.
DEBT FINANCING / EQUITY FINANCING .. OR CASH FLOW FINANCING?
Many Canadian business owners and financial managers seek asset finance solutions because they are an alternative to equity financing.
In particular larger transactions, an asset or mezzanine lender might ask for small equity ownership or an option in your firm—but this is generally very rare.
The appeal of asset lenders is that as your business and assets grow, your financing capability with your chosen lender grows.
Whether it's inventory financing or receivable-based factoring solutions, asset-based loans work! Cash flow loans are a type of loan that is better for service companies with high margins or low-margin products.
KEY TAKEAWAYS
-
Collateral Valuation fundamentally drives lending decisions.
-
Advance rates determine available funding amounts
-
Regular reporting ensures continued access to capital
-
Asset monitoring protects both lender and borrower
-
Flexible draws accommodate business cycles
RISKS AND CONSIDERATIONS
Asset-based lending carries several risks and considerations that businesses should be aware of before entering into a loan agreement. Key risks and concerns include:
-
Risk of Default: If the business cannot repay the loan, the lender may seize the assets used as collateral.
-
Risk of Asset Depreciation: If the value of the assets used as collateral decreases, the business may be required to provide additional collateral or repay the loan.
-
Risk of Changes in Market Conditions: Changes in market conditions can affect the value of the assets used as collateral, impacting the loan agreement.
Businesses should review the loan agreement carefully and understand the terms and conditions before signing. Working with a reputable lender and maintaining open communication throughout the loan process is also essential.
CONCLUSION
We previously mentioned that if your firm is in a death spiral, your hopes for asset financing success should not be high.
But if you are in legitimate turnaround mode, you are absolutely a candidate for this financing, which would not otherwise be possible through a bank.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you in structuring asset lender solutions that meet your business needs and growth opportunities for commercial lending in Canada for your long-term financing needs.
FAQ: FREQUENTLY ASKED QUESTIONS
What is Cash Flow Lending?
Cash flow lending is a method of financing that uses the cash from existing enterprises to lend money against future cash flows. Unlike an unsecured loan, which does not require collateral, asset-based financing options are backed by collateral, allowing businesses to access more significant amounts of capital.
How does asset-based lending improve cash flow?
-
Provides immediate working capital
-
Reduces payment cycle times
-
Enables bulk purchase discounts
-
Supports seasonal business fluctuations
-
Eliminates waiting for customer payments
What makes Asset Lenders more flexible than banks?
-
Focus on asset value over credit history
-
Faster approval process
-
More flexible covenants
-
Higher advance rates available
-
Accommodates growth phases
What types of businesses benefit most from asset lending?
-
Manufacturing companies
-
Distributors
-
Wholesalers
-
Service providers
-
Growth-stage businesses
How does the application process work?
-
Initial consultation
-
Asset evaluation
-
Term sheet presentation
-
Due diligence review
-
Funding deployment
What ongoing requirements exist?
What exactly is an Asset Lender?
-
Specialized financial institution or commercial non-bank lender
-
Focuses on asset-based lending
-
Provides business capital
-
Uses assets as security
-
Offers flexible funding solutions
Are personal guarantees required?
How does pricing compare to traditional loans?
What differentiates top Asset Lenders?
-
Industry expertise
-
Funding capacity
-
Processing speed
-
Customer service
-
Technology integration
What makes assets suitable for lending?
-
Value stability
-
Market demand
-
Condition quality
-
Age considerations
-
Industry standards
How do advance rates work?
