YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE
ABL ASSET BASED LENDING … ABL FINANCE WORKS!
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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An ABL Asset based line of credit. Could this form of financing be the ' rude awakening ' you need when it comes to understanding what type of business credit line is available to your firm? We're talking about asset based lenders!
THERE ARE DIFFERENT SOURCES OF BUSINESS CREDIT LINES
What many Canadian business owners and financial managers don’t understand is that there are different sources of business lines of credit, and while it might all seem like a blur sometimes it's worth sorting through the differences to ensure your firm is financed properly - those differences primarily revolve around asset based lending and the solutions offered by traditional Canadian chartered banks
Things you'll be considering in this sort of analysis include the rates around line of credit pricing, what type of financial strength is required and the overall risk and benefits associated with any type of financing you might take on for your business.
WHO ARE THE ASSET BASED LENDERS?
Asset based lenders in Canada consist of both Canadian and U.S. firms doing business in the Canadian marketplace and marketing the asset based abl facility. They are differentiated by the amount of capital they provide (in some cases unlimited), geographical preferences, and most important industry and asset type focus.
The most important thing you can derive from any analysis in determining if ABL finance is right for your firm is to ensure you understand the differences between bank lines of credit and ABL revolving facilities. They are the same, and they are different... in some cases very different.
THERE IS A DIFFERENCE IN ASSET BASED LENDING & BANK CREDIT LINES - WHICH ONE IS RIGHT FOR YOU
Why the difference? It comes down to the fact that asset based lenders providing credit lines are not regulated like our Canadian chartered banks. In essence, they can do what they want, as long as transactions meet their own risk criteria.
What does that statement in effect translate into then? Simply that there is a lot of flexibility, and probably liquidity around any ABL FINANCING arrangement you consider. It comes down to the focus on collateral, whereas the bank is focused on ratios, covenants, cash flow formulas, etc. That’s not a bad thing; it’s just ' different '!
WHAT ASSETS ARE INCLUDED IN THE ABL LOAN OR LINE OF CREDIT?
The total focus of ABL asset based lending credit lines revolves around the total value of your assets, with typical categories being accounts receivables, inventories, and unencumbered equipment. Those assets significantly increase the working capital promise of ABL. Real estate can also be added into the facility or financed under a separate loan. In effect its a complete financing of the balance sheet. In certain cases a purchase order financing facility might be part of the financing solution.
How does the ABL lender do this when the bank sometimes cannot? That is the asset based finance difference. The key to that answer is that proper appraisals and closer reporting of your ongoing situations translate into greater borrowing power for your firm's financing needs. Asset based loans typically require more monitoring by an ABL than a bank might do.
ASSET BASED LENDING FINANCING GROWS AS YOUR COMPANY GROWS!
The concept of ' evergreen' is often a true ' rude awakening ' when it comes to the ABL business credit line. Simply speaking it’s that these unique lines of credit don’t have set repayment schedules - they grow as your firm grows, so the concept of a cap at a bank is a significant differentiator.
QUALIFICATIONS FOR AND ABL ASSET BASED LOAN
Oh, and about those qualifications. We can make a broad statement that almost every firm qualified, whether your company is enjoying strong sales growth and profits, or if you're at the other end of the spectrum and have some severe challenges and distress issues. It all comes back to your asset base and its value. To qualify you simply should be able to present properly updated financials and aged lists of receivables, inventory, etc.
CONCLUSION
In our business and even personal lives rude awakenings are either a good thing or perhaps not so good. Canadian business owners and financial managers might well find a positive awakening when it comes to differences and benefits in an ABL loan and asset-based lending credit lines. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in defining the differences and benefits of asset loans.
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Stan Prokop
7 Park Avenue Financial/Copyright/2020
