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Unlocking Growth: Explore Commercial Asset Based Lending
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Asset-Based Line of Credit (ABL) financing revolutionizes the way Canadian businesses access capital, offering a more flexible and tailored approach to meet their evolving financial needs."
"Struggling with business financing? Discover how ABL can turn your company's assets into a powerful funding tool."
Introduction: Unlocking the Potential of ABL Asset Based Lines of Credit for Canadian Businesses
If you speak to Vince Lombardi or Charlie Sheen, winning is apparently everything. We're not sure that applies in business all the time, but we think we can prove to Canadian business owners and financial managers that an ABL asset based line of credit is as close to the perfect commercial revolving credit facility that you can obtain. Here's why.
Understanding ABL: A Unique Business to Business Lending Approach
An ABL firm is a business to business lender - yes we know that Canadian chartered banks are also that... but they are operating under a totally different set of rules. That is why small, medium, and even the largest firms in Canada utilized asset based lines of credit for working capital and cash flow financing.
Maximizing Financing with ABL: Receivables and Inventory
The essence of an ABL is the financing, to the maximum amount possible, of your receivables and inventory. Medium and larger firms can actually include a healthy component of fixed assets and real estate into that mix.
While traditionally associated with tangible assets like inventory or real estate, some progressive lenders are now considering intangible assets, including patents and trademarks, for asset-based loans. This shift reflects a deeper understanding of the value and potential of intellectual property in today's knowledge-driven economy
The Advantage of Asset Based Revolving Credit
The extra financing capability that your firm receives from an asset based line of revolving credit (versus the traditional bank facility) gives you choices. What are those choices? Mostly good things - expanding your business... acquiring a competitor or peer, working through a turnaround scenario. or simply restructuring to get your firm where it needs to be.
Comparing ABL with Traditional Bank Financing
But can't we get the same sort of opportunity via a Chartered bank in Canada? ask clients.
In fact, we agree that commercial credit and lending in Canada via our chartered banks is in fact on the rise, all recent stats back up that statement. However, 2 simple issues come to mind when we talk over these financing challenges with clients - Would you in fact be approved for a facility via a traditional commercial revolving line of credit... and, as germane, would your company get all the financing it needs?
The Reality of Bank Financing Versus ABL
The hardcore reality is that many firms we meet find themselves out of favour at the bank, they are either 'capped' to a preset limit, or find themselves in the very 'unspecial' feeling that comes from finding yourself in Special Loans. (Trust us on that, special is taken out of context in this financial term in Canada!)
Cost-Benefit Analysis of ABL Financing
We do agree with clients that in many cases when all things are equal, bank facilities might seem cheaper from a short-term commercial line of credit.
Actually, in numerous instances, an ABL asset based line of credit can actually be cheaper than the bank, roughly the same in pricing, or in a lot of instances more expensive financing... but... and it's a big but... you have to weigh the fact that ABL delivers more borrowing power allowing you to enjoy discounts with suppliers and to purchase more effectively.
Equity Financing Versus ABL: A Cost Comparison
Any commercial or revolving line of credit that allows you not to have to give up ownership percentage is in fact always cheaper than the reality of looking to equity financing, a partner, a merger, etc.
Meeting the Requirements for ABL Financing
In ABL financing your higher borrowing capability comes with only two requirements essentially, you have to have the assets to borrow against, and you must have reasonable financing and reporting controls to validate the significant amounts you are now borrowing.
Key Takeaways
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Asset Utilization: ABL hinges on leveraging a company's assets (receivables, inventory, equipment, etc.) as collateral for credit. This approach differs from traditional loans that often focus on credit scores and financial history.
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Flexibility in Lending: These facilities are more flexible than conventional bank loans. Credit limits fluctuate based on the value of the underlying assets, providing businesses with more adaptable financing options.
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Eligibility Criteria: ABL facilities cater to a wide range of businesses, often including those not qualifying for traditional bank loans. Key eligibility factors include the quality and value of the assets, not just the company's creditworthiness.
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Risk Management: Lenders mitigate risk by closely monitoring the collateral. Regular audits and reviews of the borrower's asset base ensure loan security.
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Cost Considerations: Generally, ABLs might carry higher interest rates compared to traditional loans, but they offer greater borrowing capacity. This trade-off is crucial for businesses needing immediate cash flow or growth financing.
Conclusion - Ready for financial flexibility? Let’s talk about your ABL options
Asset-based loans, often perceived merely as a financing tool, can drive strategic business decisions. By unlocking the value in underutilized assets, these facilities enable companies to explore unconventional growth opportunities or pivot their business models in innovative ways, not just cover short-term cash needs."
Contrary to popular belief, asset-based lending isn't exclusively for businesses facing financial distress or liquidity issues. Many financially stable companies leverage these facilities to maintain operational agility, ensuring they can rapidly respond to market changes or seize unexpected opportunities without diluting equity.
If you want to explore ABL asset-based lines of credit as a solid alternative to funding your company, either temporarily, or permanently call 7 Park Avenue Financial, a trusted, credible, trusted and experienced Canadian business financing advisor who will work with you on an ABL asset based lending solutions that makes sense for the business line of credit that suits your needs.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How do commercial Asset Based Loan Credit Facilities work?
These facilities allow businesses to borrow money by using their assets, like inventory and receivables, as collateral, providing a flexible credit solution.
What makes these facilities different from traditional loans?
Unlike traditional loans, the asset based lender will focus on the value of a company's assets rather than its credit score, offering more adaptable borrowing options for the company's cash flow needs.
Are commercial Asset Based Loans suitable for all businesses?
They are particularly beneficial for companies with significant sales and current assets, as well as physical assets such as equipment, etc but may struggle with traditional credit criteria, offering them vital financial support. Many companies do not qualify for a bank unsecured loan facility so ABL is a strong alternative.
What are the risks involved in these types of loans?
The primary risk is losing collateral assets in case of default. However, with proper management, these loans can be a safe and effective way to finance business needs.
Can these facilities help in business expansion?
Asset-based lenders provide the necessary capital for growth initiatives like acquiring new equipment, expanding operations, or purchasing inventory.
What types of assets can be used as collateral?
Assets like accounts receivable, inventory, equipment, and sometimes real estate can be collateral for these loans.
Is the approval process quicker than traditional loans?
Generally, yes. The focus on assets can expedite the approval process compared to traditional credit evaluations.
How do these loans impact cash flow?
They can significantly improve cash flow by providing immediate funds based on asset values.
Do I retain ownership of the assets?
Yes, businesses retain ownership of their assets; they are merely used as collateral for the loan.
What happens if the value of my collateral decreases?
A decrease in collateral value may affect the credit limit, and in such cases, lenders might require additional collateral or repayment.
What determines the borrowing amount in these facilities?
The borrowing amount is typically a percentage of the appraised value of the collateralized assets, determined through an asset evaluation.
How does asset valuation impact the loan?
Asset valuation is crucial as it directly influences the loan amount and terms. Regular revaluation may be required to adjust the credit limit.
Are there any industry-specific asset-based loans?
Yes, certain industries may have tailored asset-based loans, considering the unique nature of their assets and business operations.
What is an asset-based credit facility?
An asset-based credit facility is a type of financing where the loan is secured by the borrower's assets. This can include inventory, accounts receivable, equipment, or other property. The borrowing capacity is typically based on a percentage of the value of these secured assets.
What are the ABL facilities?
ABL facilities, or Asset-Based Lending facilities, are credit facilities where the loan amount is based on the value of the borrower's assets. These facilities often include revolving credit lines and are commonly used by businesses for working capital needs. The value of assets like accounts receivable, inventory, and sometimes fixed assets, determine the borrowing capacity.
What is commercial asset-based lending?
Commercial asset-based lending is a form of business financing where loans are provided to companies and secured by company assets. This type of lending is often used by businesses that need working capital and may not qualify for traditional unsecured loans. The loans are typically secured by assets such as inventory, accounts receivable, machinery, or real estate.
What is the difference between a credit facility and a loan?
The key difference between a credit facility and a loan lies in its structure and flexibility. A credit facility is an arrangement where a financial institution offers a borrower the ability to borrow money up to a certain limit over a set period, which can be used, repaid, and used again. A loan, on the other hand, is a fixed amount of money borrowed for a specific purpose and period, with a clear repayment schedule and end date. Credit facilities offer more flexibility and ongoing access to funds, while loans are typically one-time, lump-sum borrowings.
