Demand Bank Loan Recall Refinance Solutions | 7 Park Avenue Financial

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Strategic Responses to Bank Loan Terminations

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Special Loans Scenario: How to Pivot Successfully 

Introduction - Business Demand Loan Recall

Understanding Your Bank Loan Situation

Are you a Canadian firm that has had your bank loan called in - that's of course the terminology used by Canadian banks when they terminate a banking relationship due to your firm's covenant breaches. In some cases, you might just be struggling with that relationship.

Common Breaches in Banking Relationships 

Typically 'breaches' of that relationship revolve around a couple of key areas: ratios out of whack, financial losses, cash flow generation challenges, your industry being out of favour (think General Motors in 2008 - 2009), etc., or when the borrower fails to meet repayment demand on an outstanding balance in a short period of time

Debt to equity seems to be the most common 'breach' our clients face when they apprise us of being in a 'special loan' scenario.

A shocking statistic? Recent studies reveal that nearly 30% of small businesses facing a demand bank loan recall manage to secure alternative financing within just three months, demonstrating remarkable resilience and adaptability in the face of financial adversity

Alternatives to Traditional Banking 

What we won't be sharing with you is of course why the bank has acted as they have, that's between you and them. But here's the good news, that there are immediate solutions to the special loan scenario, and they are available to your firm today!

The Downside of Staying in Special Loans

The alternative of course to exiting special loans with a new operating facility is staying in special loans. Not recommended. It might work sometimes - over time the relationship is mended and you go back to your traditional bank financing facility.

Seeking Turnaround Financing 

However, we're assuming your company doesn’t want to stay in a special loan scenario, and you agree that your bank loan called is a reasonable reason to seek turnaround financing.

The Shock of Loan Recall

Clients in, or being told they are going into special loans are always in a minor state of shell shock - A typical reaction is simply ' If my bank has called my loan who else would even consider refinancing us? Again, asset-based lending to the rescue.

Asset-Based Lending Solutions 

The reality - that replacement financing is available, it may come at the same cost, it may come at a lower cost, but more likely it’s going to be a higher-priced facility until your turnaround strategy is in place.

Two Key Alternatives  

Two key alternatives are available to your firm, and they come in the form of an asset-based lending facility. That typically is a non-bank entity, and the specialization is focused on their ability to understand that you have viable assets - they typically include receivables, inventory, and fixed assets/equipment.

Determining the Right Financing Option

We say 'two alternatives' because the size of your operating facility request will determine if you are ready for a true asset-based line of credit, or if a working capital facility with a smaller firm is in fact the turnaround financing you need.

 Exiting Special Loans with Success! 

Many firms want to exit special loans simply because of the stigma. We don't want to dwell with clients on how you got there; we want to ensure you have a clean exit out with a new cash flow facility that works. That allows you to rebuild your firm and focus on growing and generating profits again.

1. Innovative Asset Utilization: Surprisingly, a demand bank loan recall can act as a catalyst for businesses to reassess and better utilize their assets. This unexpected turn of events often leads to discovering underused resources or innovative ways of asset deployment, which may not have been considered otherwise. Such a reevaluation can uncover hidden financial opportunities, turning a challenging situation into a profitable one.

2. Strategic Partnerships Emergence: Often overlooked, the pressure of a bank loan recall can prompt businesses to seek strategic partnerships. These alliances, forged in times of financial strain, can lead to long-term collaborations that wouldn't have been pursued under normal circumstances. Through these partnerships, companies often find new markets, enhance their capabilities, or improve operational efficiencies.

3. Enhanced Financial Acumen: A less discussed benefit of facing a demand bank loan recall is the rapid development of financial acumen among business leaders. Confronted with the need to navigate complex financial landscapes, executives and entrepreneurs often gain a deeper understanding of fiscal management, risk assessment, and strategic planning. This enhanced skill set can prove invaluable for the future growth and stability of the business.

 Key Takeaways 

1. Loan Recall Triggers: Banks often call in loans due to covenant breaches. These breaches typically involve financial ratios, cash flow issues, or industry downturns. Understanding these triggers helps in identifying the primary reasons behind loan recalls.

2. Special Loans Scenario: Firms find themselves in 'special loans' situations when banks have concerns about their financial health. This term often indicates intensified bank scrutiny and altered lending terms.

3. Asset-Based Lending: As a key alternative, asset-based lending provides a solution when traditional bank loans are recalled. It relies on the firm’s assets, like receivables and inventory, as loan collateral.

4. Turnaround Financing Need: Businesses often require immediate financing solutions to replace the recalled loan. Turnaround financing, particularly through asset-based lending, is crucial for maintaining operations.

5. Advisory Services Role: Consulting with experienced financial advisors is vital. They guide businesses through the complexities of navigating loan recalls and securing alternative financing.

Additional Financing Strategies

Several other alternative financing strategies can be implemented to generate cash and working capital in challenging times - they include:

• Sale leasebacks
• Tax Credit Financing
• A/R factoring
• PO / Supply Chain Financing

Conclusion - Mastering the Loan Recall Challenge  

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you in your special loans exit strategy via a true asset-based lending solution.

 FAQ 

What is a Demand Bank Loan Recall?



A Demand Bank Loan Recall occurs when a bank decides to terminate a loan agreement, often due to covenant breaches like poor financial ratios or cash flow issues.




How can asset-based lending help if my loan is recalled?

Asset-based lending uses your company's assets, such as inventory or receivables, as collateral. This provides a viable financing option when a bank calls the loan and when traditional loans are no longer available and the company has an immediate repayment demand from a bank or other commercial lender




What are the benefits of asset-based lending over traditional loans?

Asset-based lending offers more flexibility than a traditional financial institution, often has fewer covenants, and can be a lifeline for businesses facing financial challenges or those with substantial assets but weaker cash flows.



Can I access asset-based lending if my industry is currently out of favour?


Yes, asset-based lenders focus more on the value of your assets than your industry's current status, making it a suitable option for businesses in less favoured sectors.



What should I do first if my bank loan is recalled?


Consult with a financial advisor experienced in business financing when under a bank loan recall notice. They can guide you through alternatives like asset-based lending and develop a strategy tailored to your situation.



Is asset-based lending more costly than traditional loans?


Typically, asset-based lending can be more expensive with a potentially higher interest rate due to higher risks for the lender. However, it offers flexibility and availability during financial challenges such as recall of demand loans

What types of assets can be used for asset-based lending?


Common assets include accounts receivable, inventory, equipment, and sometimes real estate. The lender evaluates the liquidity and value of these assets.



How quickly can I secure asset-based financing?


The timeframe varies but is often faster than traditional loans. It largely depends on the lender’s assessment process and the readiness of your asset documentation.



Are there any industries that particularly benefit from asset-based lending?


Industries with significant physical assets, like manufacturing or retail, often find asset-based lending advantageous due to their substantial inventory and equipment values.


Can new businesses access asset-based lending?


Yes, startups and newer businesses can access it, especially if they have sufficient collateral assets. Traditional loan options might be limited due to their short credit history.


What happens if my assets decrease in value during the loan period?


If asset values decline, lenders may require additional collateral or adjust the loan terms. Continuous asset valuation is a critical aspect of asset-based lending.

Can I use asset-based lending for business expansion?


Absolutely. If your current assets are substantial, you can leverage them for additional financing to support growth and expansion initiatives.

How does asset-based lending impact my company's balance sheet?


Asset-based loans are typically recorded as liabilities on your balance sheet.
However, they can improve liquidity ratios by turning assets into usable capital. In some cases so or parts of the ABL loan may be structured under term loans.