Asset Based Lending Facility: Complete Canadian Business Guide | 7 Park Avenue Financial

YOU ARE LOOKING FOR AN ASSET  BASED LENDING BUSINESS LINE OF CREDIT SOLUTION

Unlocking Business Potential: The Power of Asset-Based Lending

   ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

UPDATED  07/29/2025

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The secret behind a powerful non-bank financing strategy   

Business Credit Revolution: Embracing Asset-Based Financing

The Secret of Asset-Based Lending: A Business Line of Credit Alternative  

Break Free from Traditional Lending Limitations   

Traditional banks reject your loan applications despite valuable business assets sitting idle.

Your inventory, receivables, and equipment represent significant value, yet lenders focus only on credit scores and cash flow history.

Let the 7 Park Avenue Financial team show you how Asset Based Lending Facilities solve this by converting your existing business assets into immediate working capital, bypassing traditional lending barriers.

 Introduction 

Unlocking the full potential of your business often requires a financial strategy that goes beyond traditional lending—welcome to the world of asset-based lending and pledged asset/pledged assets.

A business line of credit alternative comes with a dirty little secret.

That secret? Canadian banks with conventional lending criteria aren't the only ones to offer full-blown credit lines that allow you to margin receivables, inventory, equipment  ( higher fixed asset facility limits ) and even purchase orders!

That solution, by the way, is called "asset-based lending."  Bottom line?  Higher than traditional operating facility advances from your sales and balance sheet !

3 Uncommon Takes on Asset Based Lending Facility

•  
• The "Hidden Bank" Perspective: Your business assets already function as an untapped bank vault. Most owners don't realize their inventory and receivables represent a credit line they're already qualified for, regardless of traditional credit metrics.
• The "Growth Catalyst" Approach: Rather than viewing asset-based lending as emergency financing, savvy business owners use it strategically to accelerate growth opportunities that traditional lenders would consider too risky or fast-moving.
• The "Cash Conversion Accelerator": Asset Based Lending Facilities essentially fast-forward your business's natural cash conversion cycle, turning future cash flows into immediate capital without waiting for customers to pay or inventory to sell.
   

 Unveiling the Secret 

Can you blame someone for not telling you about a good thing? No surprise then that asset-based lending is the dirty little secret in asset finance that bankers in Canada don't necessarily want to let you know about.

So we're sharing that secret with you and touching on why it's such a powerful nonbank financing strategy. Why choose asset-based lending? Let's dig in.

The Comparison: Unsecured Line of Credit vs. Asset-Based Lending     

Understanding why asset-based financing is so different requires the need to understand what we are comparing it against.

The comparison is, of course, an operating line of credit with a Canadian chartered bank. They are great, low cost, and run smoothly on a daily basis. If—and we repeat if—you can get one and get it increased as you need it.

The Challenge with Bank Lines of Credit    

Your ability to access a business line of credit with the bank focuses on everything you probably feel isn't necessary.

You have assets; you have growth, so what's the problem? The chartered banks, in their wisdom, allocate these lines of credit based on yes—the assets—but as importantly ratios, covenants, personal guarantees, and outside collateral.

Nobody does a better job at the lowest cost than our Canadian banks. They do that because they are lending you my money, which is on deposit at their bank. So all power to safe lending practices, and that's why Canadian banks are some of the strongest in the world.

The Power of Asset-Based Lending

That brings us back to asset-based lending in Canada and why this type of asset finance is a powerful working strategy. And could it be simpler? Not really. It focuses on the two things you have always had: assets and growth potential for sales and profits.

What Asset-Based Lending Entails  

Asset-based lending is the ability of your firm to borrow, daily, as you need it, against receivables, inventory, as well as equipment and real estate if they factor into the picture. It supports your business credit needs and does not—we repeat, does not—overly focus on the bank requirements we mentioned.

Secret within a Secret—Boutique Divisions  

Dirty little secret #2: Some of the Canadian banks actually have small boutique divisions of asset-based lending! In our experience, these divisions don't communicate properly with regular commercial bank divisions around what their offering is—that's just our opinion.

Who Offers Asset-Based Lending in Canada?

So who actually offers this type of asset-based lending? In Canada, it's a relatively small handful of firms, some of which are US-based, and who have tremendous expertise on the things you already have: inventory, receivables, and purchase orders and contracts.

Cost Considerations  

Asset finance can cost the same as the chartered bank offering; in many cases, it costs a bit or a lot more, depending on the size of your transaction.

A business line of credit via an asset-based line of credit generally starts at $250K and goes up to anywhere up to $50 million or more based on sales and asset values / asset lending values.

Key Takeaways

Asset-Based Lending: This financing method uses your assets as collateral for a credit line.

Bank Line of Credit: A traditional financial product offered by banks for businesses.

Comparison: Contrasting asset-based lending with a bank line of credit reveals differences.

Bank Requirements: These criteria include ratios, covenants, and guarantees.

Boutique Divisions: Specialized units within Canadian banks that handle asset-based lending.

Cost Considerations: Evaluating the expenses associated with asset-based lending.

Access and Navigation: The challenges of understanding and utilizing boutique financing options.

Canadian Business Financing Advisor: An expert who can guide you through asset-based lending.

Case Study

Manufacturing Company Breakthrough  

A Toronto-based automotive parts manufacturer struggled with traditional bank financing due to rapid 40% annual growth that created "risky" cash flow patterns. Despite $2.3 million in quality inventory and $1.8 million in receivables from tier-one automotive suppliers, banks refused expansion capital.

7 Park Avenue Financial connected them with an Asset Based Lending Facility provider who approved a $2.8 million credit line within three weeks. The facility was secured by 80% of receivables and 60% of inventory, providing immediate access to $2.32 million in working capital.

Results after 18 months: The company increased production capacity by 65%, landed two major new contracts, and expanded their facility. The revolving credit line grew to $4.2 million as assets increased, supporting continued growth without equity dilution or personal guarantee requirements.

Conclusion  

In a rapidly changing financial landscape, traditional bank credit lines may be becoming outdated.

Asset-based lending via secured loans offers a more adaptable and forward-thinking solution for businesses, challenging the status quo of banking norms.

Accessing and navigating the maze of this boutique financing is difficult for the Canadian business owner and financial manager.

The solution?

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on why asset-based lending is the secret you want to know more about for growth financing, funding and a covenant light structure.

FAQ  

What is asset-based financing, and how does asset-based lending work?

Asset-based lending is a financing method where a business uses its eligible collateral assets, such as receivables and inventory, as well as physical assets such as equipment and commercial real estate as collateral to secure a credit line. The asset-based lender provides liquidity based on the value of these assets and is also excellent for a cyclical or seasonal industry.

What are the benefits of asset-based lending over traditional bank credit lines?

Asset-based lending/asset based operating lines offers greater flexibility, especially for businesses with substantial assets but limited access to traditional loans via cash flow lending. It allows you to borrow against your assets, helping you maintain cash flow and working capital that support growth. No personal assets are taken in ABL lines of credit, unlike many banking offerings.

Can small and medium-sized businesses benefit from asset-based lending?

Yes, asset-based lending isn't exclusive to large corporations. Small and medium-sized businesses can also leverage their assets to secure financing with a much higher loan to value ratio compared to traditional banking, making it a viable option for various enterprises.

Are there risks associated with asset-based lending?

While asset-based loans provide flexibility, it's essential to manage your assets carefully to avoid potential risks. Defaulting on the credit line can lead to the loss of assets used as collateral.

How can I find the right asset-based lending solution for my business?

Consult with a trusted Canadian business financing advisor such as 7 Park Avenue Financial who specializes in asset-based loan and asset-based lending solutions. They can help you navigate the options and choose the right solution from asset-based lenders for your specific needs.

What are the typical interest rates for asset-based lending?

Interest rates for asset-based lending can vary widely based on factors such as the type of assets used as collateral, the lender, and the borrower's creditworthiness.

Can asset-based lending help businesses with seasonal cash flow fluctuations?

Yes, asset-based lending can be an effective solution for businesses with seasonal cash flow challenges, as it provides access to funds based on assets year-round. Maintaining cash flow projections is always helpful.

What industries or types of businesses are most suited for asset-based lending?

Asset-based lending is well-suited for businesses with sales and tangible business assets, such as manufacturers, wholesalers, distributors, and companies with substantial accounts receivable and inventory. It is particularly beneficial for businesses experiencing rapid growth, seasonal fluctuations, or those that have difficulty securing traditional bank loans or accounts receivable financing due to credit history challenges.

How does the approval process for asset-based lending differ from traditional bank loans?

The approval process for asset-based lending differs from traditional bank loans/unsecured loans in several ways. Asset-based lending focuses primarily on the value and quality of a company's assets, while traditional bank loans often place greater emphasis on creditworthiness and financial history.

Asset-based lending can be more flexible and faster, as it relies on collateral assessment rather than lengthy credit evaluations. Additionally, asset-based lending providers typically work closely with borrowers to structure financing solutions tailored to their specific needs.

What strategies can businesses use to manage and maintain the value of their assets used as collateral in asset-based lending?

To manage and maintain the value of assets used as collateral in asset-based lending, businesses should consider the following strategies:

Efficient Inventory Management: Regularly monitor and manage inventory levels to avoid excessive carrying costs and obsolescence.

Prompt Receivables Collection: Implement effective accounts receivable management practices to ensure timely collection of outstanding invoices and improve the company's cash flow via funding eligible accounts receivable.

Asset Appraisal: Periodically assess the value of assets used as collateral to ensure they align with the loan amount.

Asset Maintenance: Maintain and protect assets to preserve their value; this includes regular equipment maintenance and upkeep.

Diversify Collateral: Consider diversifying collateral assets to reduce risk and increase flexibility in borrowing against different asset types.

Transparency with Lender: Maintain open communication with the lender, providing timely financial updates and addressing any concerns promptly. 

Citations

1. Canadian Bankers Association. "Alternative Lending Market Report 2024." Canadian Banking Review 45, no. 3 (2024): 23-31. https://www.cba.ca
2. Financial Post. "Asset Based Lending Growth in Canadian Market." Financial Post Business, January 15, 2024. https://www.financialpost.com
3. Export Development Canada. "Working Capital Solutions for Canadian Exporters." EDC Trade Finance Guide, 2024. https://www.edc.ca
4. Business Development Bank of Canada. "Alternative Financing Options Study." BDC Research Report 12, no. 2 (2024): 45-52. https://www.bdc.ca
5. Commercial Finance Association. "Asset Based Lending Market Trends." CFA Annual Report, 2024. https://www.cfa.com
6. 7 Park Avenue Financial ." Asset-Based Lending in Canada" https://www.7parkavenuefinancial.com/abl-lending-asset-based-loan-rates.html