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Financing & Cash flow are the biggest issues facing business today
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CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - INFO@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Asset based lending in Canada, we maintain, in the context of a commercial credit line puts you in the mining business! What are you mining? Answer: your balance sheet! Let's dig in
Ever felt like you're getting 'squeezed. ' Thousands of businesses in Canada in the SME sector feel that way as most top experts see them search for Canadian business financing alternatives. Asset-based credit lines (called ‘ABL’s) use your total business assets (or parts of them as applicable) to address financing needs.
Many reasons draw businesses to ABL commercial credit facilities. It might be the general cyclicality that comes with many industries, Incertain cases, it might be best for firms with financial challenges and can't be 'banked' properly by our venerable Canadian chartered banks.
What are the key differences then in a senior loan facility from asset based lending versus ' traditional' financing as offered by Cdn banks? Simply speaking, it’s the essence of ' collateral ' - your ability to borrow heavily against inventory and receivables, as well as your fixed assets if you want those in the mix also. The result: More operating funds! , even when cash flow is still not yet positive.
While your balance sheet takes on no debt in an ASSET BASED LENDING commercial credit line in certain cases it might makes sense to structure the fixed asset portion of the ABL facility as a term loan. Bottom line – to quote our lawyer friends, ‘it depends’ !
While some of the largest and most successful corporations in the world utilize asset financing today for their business credit lines we're old enough (unfortunately!) to remember when there was actually some element of a negative stigma to firms that used non bank operating credit facilities! One proof of that? Boutique divisions of banks actually also offer this financing, competing with their ‘regular banking ' peers for these type of facilities. (The one caveat of a bank ABL is that minimum facility size is in the 5-10 Million $ range - often an unrealistic requirement for firms in the SME COMMERCIAL FINANCE sector.
While an alternative for many firms in certain circumstances is a term loan or an unsecured cash flow loan many business miss the only key requirement for that type of financing - Positive cash flow. Enter ABL operating financing to the rescue. It's very safe to say that more often than not new equity capital is either totally unrealistic to consider, or impossible to access.
Fluctuating sales often drive business owners to look for business credit alternatives such as asset based lending. Some of these operating funds might be used to pay down or help organize other existing debt in certain cases.
One other major difference in the eternal ' bank vs. abl ' struggle is the noticeable lack of ratio and covenant requirements in asset-based lending. We've always thought that using financial ratios to run and manage your business is a better use rather than borrowing on them!
While there is no doubt that most ABL loans probably lean towards Canadian businesses that have financial challenges, some of them are driven by the ebb and flow of success and challenge in many industries. Example - automotive seems great now... in the past? Not! using the General Motors bankruptcy as an example. While a combo of fast and high growth is desirable by many entrepreneurs’ banks don't necessarily like the unpredictability of the financial complications and challenges that come with that. ABL likes high growth / fast growth.
If you're ready to consider ' mining ' your balance sheet for additional operating line business credit seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help your balance sheet back to full employment.
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Stan Prokop
