Unlocking Business Potential: A Guide to ABL Revolver Financing | 7 Park Avenue Financial

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You Are Looking For  A Business Line Of Credit Via ABL Revolver Financing

Revolutionize Your Business's Cash Flow with ABL Financing

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Why ABL Revolver Financing is Outpacing Traditional Bank Loans

Discover in this article because you'll learn why businesses are turning to Asset based lending and  ABL financing over traditional bank facilities for better cash flow solutions

Understanding the Importance of Business Credit

Business Line Of Credit Needs. Will that be small, medium or large? We're not talking about a coffee cup size... we're referring to the fact that no matter the size of the business, your access to a business line of credit is the lifeblood of your company. That's why an ABL revolver (ABL = asset based line of credit) is potentially the solution to turbocharge your working capital and cash flow. Let's examine how.

What is ABL Revolver Financing?

ABL (Asset-Based Line of Credit) Revolver Financing is a credit solution that focuses on a company's assets, such as inventory, receivables, and equipment, allowing businesses to turbocharge their working capital and cash flow.

ABL vs Traditional Bank Financing 

Clients seem to always wrestle with the fact that they don't really understand the differences between this type of business financing and banking as opposed to a ‘regular’ operating facility with the bank.

The differences could not be more dramatic. While a bank facility (by the way, we are all for them also, when they work!) focuses significantly on your balance sheet ratios and overall profitability, etc. the ABL revolver solution hones in on one issue only - your assets and their overall quality and size. It is on that quality and size that the ABL business line of credit is structured. 

Unlocking the Power of Assets    

Borrowing power is what business lines of credit are of course about. When you utilize the ABL approach you in effect leverage all the power of the assets, which certainly isn’t like what we like to call ' traditional bank borrowing '.  

Reasons for Choosing ABL Financing  

So, why would a business such as yours want to unlock that borrowing power?

The reality is there are some very recurring needs for firms that choose this type of business financing. First of all, they either can’t get or can’t get enough working capital borrowing power against their inventory, receivables and equipment. Secondly, all sorts of other problems, challenges, and yes opportunities can be overcome with an asset based line of credit.

Success Stories with ABL Financing    

Many examples exist of firms that have doubled and in some cases tripled their business financing access via this type of finance. The answer is simple - it’s based on asset size, not ratios and covenants and external collateral.  

ABL Financing in Challenging Times  

Those include firms which have large seasonality issues, companies who which to merge with or acquire a competitor on an asset financing basis, and, most commonly, firms that view themselves in turnaround or restructuring mode when it comes to where they are at in their life cycle - i.e. coming out of a challenging economic time or negative business event (operating losses, etc.).

The Unique Value Proposition of ABL Financing    

Did we just say 'operating losses'? Yes, the reality is that even firms that experience operating losses and could otherwise not achieve maximum operating cash flow are excellent candidates for ABL financing. We should mention that the type of facility you get, the pricing on that facility, and how the facility works vary within ABL revolver financing depending on your overall transaction size and asset coverage.  

ABL vs Debt  

We must never forget also that these type of facilities never bring debt to your balance sheet, you view them similarly as an operating line, in that you are just monetizing your assets via an ongoing borrowing base certificate,for working capital and cash flow - the only difference is you've got tremendous flexibility around borrowing power - because you are borrowing against a base of receivables, inventory, unencumbered equipment, and in some cases real estate also.

Key Takeaways  

ABL is a type of financing wherein a business can obtain a line of credit facility based on its tangible assets, including inventory, eligible accounts receivable, equipment, and in some cases, real estate.


Why it's Important:

Understanding what ABL is forms the foundation for grasping how this financing solution differs from traditional ones.

Comparison with Traditional Bank Financing:


Unlike traditional bank financing which focuses on balance sheet ratios, profitability, and credit scores, the ABL asset based loan is primarily concerned with the quality and size of a company's tangible assets which become a part of the entire credit line. While interest rates are often higher ( but not always) they offer more access to capital and cash flow resources.

Borrowing Power through ABL:


ABL allows businesses to leverage the full power of their assets to access more significant working capital and cash flow. This often translates into higher borrowing limits compared to traditional bank borrowing. The credit limit , unlike bank financing, is increased almost automatically as sales grow - it's maximum borrowing potential!


Why it's Important: Recognizing the potential of ABL to boost cash flow and working capital can be crucial for businesses in need. No minimum monthly payments are required although the business owner should realize the facility should fluctuate on the outstanding balance,  with consistent payments to the facility via a/r collections.

Flexibility and Coverage of ABL:


ABL facilities are structured based on the assets' quality and size, providing more flexibility in borrowing power. Additionally, it doesn't bring any outstanding debt to the balance sheet, as it's a way of monetizing substantial assets for cash flow for credit availability.



ABL in Various Scenarios:


ABL is beneficial for businesses with large seasonality issues, those looking to merge or acquire competitors, or those in a restructuring mode after a challenging economic period.


Beyond its financial benefits, an Asset-Based Line of Credit (ABL) can serve as a psychological booster for business leaders. Knowing that they have a flexible financing solution that is directly tied to the tangible growth of their assets can instill a greater sense of confidence and reduce the stress associated with navigating uncertain financial waters. This positive mindset can, in turn, lead to more informed and growth-oriented decision-making.

Conclusion

In summary, ABL revolver financing gives you full-service business financing, it's cost-effective, addresses almost every financing problem you have had related to cash flow, and is available in facilities from 250k to many millions of dollars. -It is somewhat of a secret to many that some of Canada's largest corporations choose this type of financing via an asset based lender over a traditional bank facility.

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on why 'ABL' gives you that 'turbocharge' boost in cash flow we've talked about.

FAQ   

How does ABL differ from traditional bank borrowing?

While traditional bank facilities focus on balance sheet ratios and profitability, ABL financing emphasizes the quality and size of a company's assets, granting flexibility and increased borrowing power.

Why would a company choose ABL financing over other credit solutions?

Businesses might opt for ABL when they can't obtain sufficient working capital from traditional bank line means or to overcome challenges and leverage opportunities using their assets as leverage.

Can businesses experiencing losses benefit from ABL financing?

Absolutely! Even businesses with operating losses can access ABL financing because it's based on asset size and not solely on profitability.

Do ABL facilities add debt to the company's balance sheet?

No, ABL facilities don't bring debt to the balance sheet as they fund operations. They operate similarly to an operating line, monetizing assets for working capital and cash flow and enhancing financial planning.


Are there any downsides to using ABL Revolver Financing?

Like all financing solutions, it's vital to understand the terms. Some businesses might find the costs associated with ABL higher than traditional financing, especially if the asset quality isn't optimal.

How quickly can a business access funds through ABL?

While times can vary, many businesses find ABL solutions offer faster access to cash flows compared to traditional bank loans, especially if they have robust asset portfolios that will allow a maximum amount of financing.

Can startups or new businesses qualify for ABL financing?

While ABL typically focuses on assets, startups or new ventures with substantial initial assets (like equipment or inventory) might qualify for a revolving line , but terms and conditions might vary. Many SME businesses choose factoring to fund day to day operations, which is a subset of asset based financing and provides capital against eligible receivables. A good credit score of the business owner will always help small businesses achieve financing approval.

Are there industry-specific ABL financing solutions?

Yes, some ABL solutions from ABL lenders cater to specific industries, considering the unique nature of their assets, like agriculture, manufacturing, or retail. Technology companies may be able to include intellectual property as part of the credit facility. Eligible inventory can always be financed for companies that are inventory-heavy on the balance sheet. A good profit margin for the business will always be able to help manage financing costs.

How does ABL impact a company's credit score?

Responsibly managing an ABL facility can positively impact a business's credit score. However, as with any credit solution, mismanagement can have negative consequences.

Click here for the business finance track record of 7 Park Avenue Financial