YOUR COMPANY IS LOOKING FOR AN ASSET
BASED BUSINESS LINE OF CREDIT!
ASSET BASED LOAN / ASSET BASED FINANCING SOLUTIONS IN CANADA
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
ASSET BASED LENDING SOLUTIONS IN CANADA
Can the ABL asset-based business line of credit reverse the cash flow ' plunges' that companies inevitably face?
We think it can, and by the way, it’s been proven by the thousands of firms in Canada and the U.S. that utilize this method of revolving credit facility for their business needs. Here's why... and how. Let's dig in.
Asset Based Lending Working Capital: What is an Asset Based Credit Line?
It always helps when the business owner/manager understands the basics.
So, the asset-based credit line for business is simply an asset-based financing solution that allows your company to draw down on working capital. If that plays into the equation, it needs to be based on a high margin against inventory, fixed assets/equipment, accounts receivable, and commercial real estate.
Due diligence by the asset-based lender on asset size, quality, and turnover will deliver more borrowing power!
The bottom line? It’s all about leveraging your business assets on the balance sheet to allow you to consider growth options and fund daily operations. The asset-based lender regularly establishes a borrowing base certificate, allowing you to draw down on the facility when you require funds.
WHAT SIZE OF BUSINESS CAN UTILIZE ASSET BASED LENDING
While a company's track record always helps in any type of business finance, a true ABL solution works for almost any size and firm with assets.
Asset-based lenders provide financing to businesses of all sizes by leveraging their assets as collateral. While transactions on the lower end of the scale might be in the 250K range, there is virtually no upper limit and true asset-based facilities often run into millions of dollars.
The only prerequisites are sales!! .. and assets and the ability to produce proper financial statements on an ongoing basis.
ASSET BASED LOANS VERSUS BANK FINANCING
This method of financing a business line of credit is directly comparable to Canadian chartered bank facilities.
Asset-based loans often use a loan-to-value ratio to determine the amount of money a lender is willing to provide based on the value of the collateral. Whether it’s the bank or your asset-based lender, you grant a secured position on all business assets and then borrow against them.
ABL PROVIDES MORE WORKING CAPITAL FUNDING!
Of course, the immediate question that comes to mind is the difference between choosing the bank and the ABL solution. Accounts receivable financing allows businesses to leverage outstanding invoices as collateral to secure a loan, providing additional working capital.
Typical ABL structures provide borrowing against 90% of receivables, 50-70% of equipment's true value, and typically 50% on inventory. If your company owns real estate, it is quickly thrown into the borrowing mix.
5 KEY BENEFITS OF ASSET-BASED LOANS
It is, therefore, obvious to see some of the key tangible benefits of the ABL line of credit. If we had to summarize them it would be as follows succinctly:
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All business assets become borrowing power versus bank cash flow lending
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Funding is immediate
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As your business grows, the facility grows in lockstep - so the company's cash flow increases
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Easier to qualify than bank financing
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Similar to bank credit facilities, you only pay for what you are borrowing at any given time
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There is no contact with your clients in a true ABL asset-based solution
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Allows businesses to leverage their physical assets, such as real estate, inventory, and equipment, to secure financing
NO MORE RATIOS AND COVENANTS
So the simple difference is that you’re borrowing on business assets and revenue growth, not cash flow ratios, covenants, and debt-to-equity borrowing constraints.
Unlike unsecured loans, which are not backed by collateral and come with higher interest rates, asset-based loans provide financing based on the value of the business's assets.
As some put it, it’s that covenant freedom you have been looking for - it allows you to weather those business ‘ bumps in the road’.
It’s easy to see why this innovative financing solution is gaining more traction daily. In effect, it has become ‘respectable’! However, improper perceptions occur in the marketplace when people think ABL is a last-resort type of financing. It’s the first resort for some of the largest companies in Canada and the U.S.
KEY TAKEAWAYS
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Collateral valuation forms the foundation of asset-based lending, determining borrowing capacity.
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Borrowing base calculations establish loan limits based on eligible assets’ value.
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Accounts receivable typically constitute a significant portion of the borrowing base.
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Inventory financing allows businesses to leverage unsold goods for working capital.
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Regular financial reporting ensures lenders maintain visibility into asset performance.
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Loan-to-value ratios dictate the percentage of an asset’s value available for borrowing.
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Credit line flexibility adapts to fluctuating business needs and asset values.
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Asset-based lending often provides higher advance rates compared to traditional financing.
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Working capital optimization improves cash flow management and operational efficiency.
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Risk assessment techniques help lenders evaluate asset quality and borrower creditworthiness.
CONCLUSION
While asset base lending usually, but not always, is more expensive, the fact that you're turning assets, generating profits, and not taking on term debt often makes a lot of sense.
Interest rates on an abl facility will always be higher 99% of the time, but as we say at 7 Park Avenue Financial it's all about access to capital versus cost of capital.
If you wish to reverse the cash flow plunge and let working capital soar, call 7 PARK AVENUE FINANCIAL, a trusted, credible, and experienced Canadian business financing advisor who can assist you with your ABL needs.
FAQ
How does Asset Based Lending Working Capital differ from traditional financing options?
Asset Based Lending Working Capital focuses on the value of a company's assets rather than credit history or cash flow projections, offering more flexibility and higher advance rates for businesses with strong asset bases.
What types of assets can be used as collateral in Asset Based Lending Working Capital?
Common assets used as collateral include accounts receivable, inventory, and equipment. The lender evaluates these assets to determine the borrowing base and available credit line.
How can Asset-Based Lending Working Capital help businesses manage seasonal fluctuations?
This financing solution provides flexibility to increase or decrease borrowing as needed, allowing businesses to access additional funds during peak seasons and reduce borrowing during slower periods.
What advantages does Asset-Based Lending Working Capital offer for growing businesses?
Growing businesses can leverage their expanding asset base to access larger credit lines, supporting continued growth without diluting ownership through equity financing.
How quickly can a business obtain funding through Asset Based Lending Working Capital?
Asset-based Lending Working Capital often provides faster access to funds than traditional loans, with some lenders offering same-day or next-day funding once the facility is established.
What are the typical interest rates for Asset Based Lending Working Capital?
Asset-Based Lending Working Capital interest rates vary based on asset quality, borrowing amount, and overall risk. Rates are generally higher than traditional bank loans but lower than unsecured financing options.
Are there any industries that commonly use asset-based lending working capital?
Manufacturing, wholesale, distribution, and retail businesses frequently utilize asset-based lending working capital due to their significant inventory and accounts receivable assets.
What financial information do lenders require for Asset Based Lending Working Capital? Lenders typically require regular financial statements, accounts receivable aging reports, inventory reports, and collateral updates to monitor the borrowing base and overall financial health.
How does Asset Based Lending Working Capital impact a company's balance sheet?
Asset-based Lending working capital is typically structured as a revolving line of credit, which appears as a current liability on the balance sheet. This can improve financial ratios compared to long-term debt.
Can startups or businesses with poor credit qualify for Asset Based Lending Working Capital?
While startups may face challenges due to limited asset bases, established businesses with poor credit can often qualify if they have strong, valuable assets to serve as collateral.
What key factors should businesses consider when they are prepared to choose asset-based lending, and how do you evaluate that option from asset-based lenders?
Businesses should consider advance rates, interest rates, fees, reporting requirements, and the lender's industry expertise when evaluating asset-based lending Working Capital options.
How does Asset-Based Lending Working Capital's borrowing base fluctuate over time?
The borrowing base fluctuates based on changes in asset values, such as inventory levels and accounts receivable balances. Regular reporting and audits help lenders adjust credit availability accordingly.
What role does technology play in modern Asset Based Lending Working Capital solutions?
Technology enhances asset-based lending working capital by improving asset tracking, automating borrowing-based calculations, and providing real-time visibility into credit availability for both lenders and borrowers.
