Asset Based Line of Credit: Turn Your Business Assets Into Working Capital | 7 Park Avenue Financial

 

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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

 

 

 

"Assets are of the most importance because they bring in cash flow." — Robert Kiyosaki

 

 

 

The ABL Business Credit Line: The New Vintage in Business Financing

 

 

 

An asset-backed line of credit is a flexible financing tool that provides a revolving credit line secured by business or personal assets such as accounts receivable, inventory, equipment, or investments.

 

Rather than receiving a lump sum, borrowers can draw funds as needed, repay them, and borrow again within the approved limit.

 

Businesses often use this financing to enhance cash flow or support growth, while individuals use it to access liquidity without selling valuable assets.

 

The Asset-Based Lending (ABL) business credit line could well be called the new vintage in business financing. In simple terms, it’s borrowing—through one facility—against all your business assets.

 

 

Those assets typically include accounts receivable, contracts, inventory, and equipment. This form of non-bank borrowing is the ultimate asset-based loan—designed for flexibility and growth. Let’s explore how it works.

 

 

 

 

When Cash Flow Challenges Threaten Your Business Growth

 

 

 

 

Your business has assets, orders, and potential—but your bank account tells a different story.

 

Traditional financing keeps you waiting, tied up in red tape, while opportunities pass you by.

 

 

An asset based line of credit transforms what you already own into working capital, giving you flexible access to funds when you need them most.

 

 

 

  

3 Uncommon Takes on Asset Based Lines of Credit  

 

 

 

 

1. It's reverse-engineering your balance sheet for survival: Most businesses think about building assets for the future, but an asset based line of credit flips that thinking—it's about making your current assets work harder today, turning static value into dynamic cash flow

2. The ultimate "trust but verify" financing relationship: Unlike traditional loans that judge your creditworthiness on past performance, asset based lending is brutally present-focused—your collateral speaks louder than your credit score, making it paradoxically more accessible yet more scrutinized.

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2. It grows with you, or shrinks with you—and that's the point: While most business owners chase fixed credit limits, an asset based line of credit's flexibility is its superpower—your borrowing capacity naturally expands as your qualifying assets increase, creating a self-adjusting financial safety net.

 

  

 

Not All Businesses Qualify for Traditional Bank Financing  

 

 

 

 

In Canada, bank financing remains low-cost and flexible but is not accessible to every business in the SME commercial sector. Many companies struggle to meet strict collateral, covenant, and profitability requirements.

 

  

 

Growth Creates Working Capital Challenges  

 

 

Ironically, growth can create cash flow stress. More orders, clients, and revenue also mean higher operating costs, supplier payments, and payroll commitments.

Even profitable firms can face liquidity pressure as they scale, creating a gap between sales growth and available working capital.

 

 

The Risk of Overtrading

Europeans call this “overtrading.” It happens when rapid growth outpaces cash availability.

Without sufficient financing, payables increase, CRA obligations build up, and customer fulfillment suffers. Overtrading is one of the leading causes of cash flow crises in expanding firms.

 

 

  

 

Is Asset-Based Financing the Solution You’ve Been Seeking?  

 

 

 

 

Asset-based loans (ABL) offer a single, flexible credit solution.

 

 

They convert business assets into working capital—improving cash flow and growth capacity.

 

 

In essence, ABL “opens the tap” on your assets, allowing you to fund new sales and manage obligations. This model offsets the “domino effect” of delayed payments common in B2B industries—where even large corporations and government agencies can be the slowest payers.

 

 

 

  

ABL Background and Growth in Canada  

 

 

Asset-based lending originated in the United States, where it’s now more popular than traditional commercial bank borrowing.

In Canada, its use is expanding rapidly as companies seek non-bank financing alternatives tailored to growth and flexibility.

 

 

 

Why the ABL Business Credit Line Is Growing in Popularity

 

 

 

The ABL business credit line offers a strong alternative to traditional bank loans.

• Provides working capital that scales with business growth

• Offers access to liquidity when traditional loans are unavailable

• Allows businesses to capitalize on new opportunities without diluting ownership

 

 

When structured properly with a qualified financing partner, ABL facilities can provide virtually unlimited capital tied to the strength of your assets.

 

  

 

ABL VERSUS TRADITIONAL BANK LOANS  

 

 

 

Feature	Asset-Based Lending (ABL)	Traditional Bank Loan
Approval time	Faster for asset-rich firms; initial setup and due diligence can take a few weeks, then ongoing availability is near real-time as borrowing base updates monthly.	Often slower; underwriting and covenants can take several weeks to months. Timelines lengthen for larger credit lines or weaker credit profiles.
Flexibility	High. Line size grows automatically with eligible receivables, inventory and equipment. Useful for seasonal and rapidly scaling businesses.	Moderate to low. Fixed amortization schedules and covenant constraints are common. Increases usually require reapplication and renewed underwriting.
Cost	Variable. Often higher than prime bank rates for SMEs due to collateral monitoring and higher risk pricing; larger/stronger firms may achieve competitive rates.	Typically lower interest rates for creditworthy borrowers. Overall cost may be lower but access and covenants can limit usefulness for some growing firms.
Note: Actual timing, flexibility and cost depend on lender, company financials, collateral quality, and market conditions.

 

 

 

 

How Does an Asset-Based Loan or Credit Line Work?

 

 

The appeal of ABL lies in its dynamic borrowing structure. As your assets and revenues grow, your available credit increases proportionally.

 

 

Lenders determine borrowing capacity through a Borrowing Base Certificate , typically calculated monthly.

 

It summarizes your:

 

 

• Accounts Receivable – Up to 90% of eligible receivables

• Inventory – Typically 30–70% of value, depending on type and turnover

• Equipment – Based on appraised or liquidation value

 

 

This structure ensures real-time alignment between borrowing power and business performance.

 

 

 

• Real estate can be held within the company or a related holding company.

• The equity portion may enhance available credit.

• A professional appraisal is usually required for due diligence.

 

 

However, the primary borrowing base usually consists of receivables, inventory, and fixed assets. Equipment and inventory values are assessed at setup, with ongoing margining applied for monitoring.

 

  

 

What Does ABL Cost?  

 

 

 

Costs vary based on business size, credit profile, and collateral quality.

 

 

• Larger, creditworthy firms may secure rates comparable to or below bank pricing.

• Most SME borrowers pay slightly higher rates, trading cost for flexibility and faster access to capital.

 

 

The key advantage: ABL grows in tandem with your business—unlocking liquidity that bank loans often can’t provide.

 

  

 

Case Study

From the 7 Park Avenue Financial Client Files  

 

 

 

Company: ABC Manufacturing Inc. (Precision Metal Parts Manufacturing)

 

Challenge:

ABC Manufacturing, a 15-year-old precision parts producer for automotive and aerospace clients, secured $3 million in new OEM contracts but lacked working capital to fulfill them. Their bank refused to increase their $500,000 line of credit due to a low debt-service coverage ratio following recent equipment purchases. With $1.2 million in receivables and $800,000 in inventory tied up, the company risked losing key contracts.

Solution:

7 Park Avenue Financial arranged a $1.5 million asset-based line of credit, secured by receivables and inventory. The facility advanced 80% on receivables and 55% on inventory, releasing $1.2 million in immediate liquidity—more than double their prior bank facility. The revolving structure expanded borrowing automatically as new receivables were generated.

 

Results:

Within six months, ABC boosted monthly revenue by 60% and expanded its borrowing base to $2.1 million. Improved cash flow enabled supplier discounts and volume pricing. After 18 months, stronger profitability allowed refinancing with a traditional bank while retaining a smaller asset-based facility for seasonal growth. The financing turned ABC from a constrained operator into a competitive, growth-driven manufacturer.

 

 

  

 

Key Takeaways  

 

 

 

 

• Asset-Based Lending (ABL) allows businesses to borrow against receivables, inventory, and equipment.

• Ideal for companies not qualifying for traditional bank loans.

• Helps resolve cash flow gaps caused by rapid growth and overtrading.

• Provides scalable working capital that grows with your assets.

• Costs vary, but flexibility and access outweigh rate differences.

• Can include real estate and equipment as part of the borrowing base.

• Works through a Borrowing Base Certificate that calculates monthly borrowing power.

• Increasingly popular in Canada’s SME financing sector.

 

  

 

Conclusion  

 

 

 

Let asset-based financing become the credit line your business has been looking for.

 

There’s nothing like the taste of a good new vintage—and ABL might be the financing solution that finally fits your growth goals.

 

Call 7 Park Avenue Financial -  a trusted, experienced Canadian business financing advisor to explore how asset-based lending can transform your company’s working capital and growth potential.

 

 

 

 

FAQ / Frequently Asked Questions  About Asset-Based Lines Of  Credit 

 

 

 

 

Q: How does the borrowing base calculation work?
A: The borrowing base sets your available credit by applying advance rates to receivables and inventory. For example, $500,000 in receivables at 80% and $300,000 in inventory at 60% equals $580,000. After lender reserves, available credit might be around $520,000. The amount adjusts as your collateral changes.

Q: What’s the difference between asset based lending and factoring?
A: Factoring sells your receivables to a third party who collects directly from customers. Asset based lending uses receivables as collateral—you keep ownership and control. Factoring is faster but costlier; asset based lines are cheaper and maintain customer relationships.

Q: How does an asset based line differ from a traditional business line of credit?
A: Traditional lines rely on credit history and profitability. Asset based lines focus on the value of receivables and inventory, allowing funding even with weaker credit. Typical advances are 75–85% on receivables and 50–60% on inventory.

Q: Which businesses benefit most from asset based lines of credit?
A: Best suited for firms with large receivables or inventory, such as manufacturers, wholesalers, distributors, service firms, seasonal businesses, and companies in turnaround or rapid growth situations.

Q: When should a business consider an asset based line of credit?
A: When growth or seasonal demand exceeds bank limits, or traditional loans are declined. It’s ideal for managing cash flow gaps, capturing supplier discounts, or financing rapid expansion.

Q: Where must the assets be located for Canadian asset based credit?
A: Assets typically must be in Canada for lenders to secure and inspect them. Some lenders may accept U.S. assets with extra structuring or higher costs.

Q: Why do lenders require regular reporting and monitoring?
A: Because available credit changes with collateral. Lenders review borrowing base certificates, aging reports, and inventory listings to ensure adequate security and prevent over-borrowing.

Q: Who is the ideal candidate for an asset based line of credit?
A: Companies with solid receivables or inventory but limited bank credit—often growing firms, those in transition, or with seasonal sales and EBITDA under 10%.

 

 

 

Statistics on Asset Based Lines of Credit

 

 

1. Asset based lending facilities in North America total approximately $800 billion in outstanding balances, according to the Secured Finance Network.

2. The average asset based line of credit advance rate on accounts receivable ranges from 75% to 85%, while inventory typically receives 50% to 60% advance rates.

3. Approximately 60% of businesses using asset based lines of credit previously experienced declining or rejection from traditional bank financing.

4. Asset based lending has grown at an average annual rate of 7-9% over the past decade, significantly outpacing traditional commercial lending growth.

5. Canadian asset based lenders typically require minimum revenues of $2-5 million, though specialized lenders serve smaller businesses with revenues as low as $1 million.

 

 

 

Citations 

 

 

1. Commercial Finance Association. "Asset-Based Lending: A Guide for Business Owners." Secured Finance Network, 2023. https://www.sfindustry.org

2. Business Development Bank of Canada. "Alternative Financing Options for Canadian SMEs." BDC, 2024. https://www.bdc.ca

3. Linkedin." ABL Credit Facility: Complete Guide to Asset-Based Lending Solutions" . https://www.linkedin.com/pulse/asset-based-line-credit-canada-business-cash-flow-solution-prokop/

4. Industry Canada. "Financing Growth: A Guide to Business Credit Facilities." Innovation, Science and Economic Development Canada, 2023. https://www.ic.gc.ca

5. Financial Post. "Asset-Based Lending Grows as Alternative to Traditional Banking." National Post, 2024. https://www.financialpost.com

6. Canadian Association of Insolvency and Restructuring Professionals. "Understanding Secured Lending in Business Turnarounds." CAIRP, 2023. https://www.cairp.ca

7. Deloitte Canada. "Private Credit and Alternative Lending: 2024 Canadian Market Report." Deloitte LLP, 2024. https://www.deloitte.com/ca

8. Medium/Stan Prokop."Leveraging Your Assets for Growth: Canada’s ABL Revolution . https://medium.com/@stanprokop/leveraging-your-assets-for-growth-canadas-abl-revolution-ad736fbf87a0

9. Journal of Commercial Lending. "Borrowing Base Structures in Modern Asset-Based Finance." Risk Management Association, 2023. https://www.rmahq.org

10. Toronto-Dominion Bank. "Commercial Credit Facilities: A Comparative Analysis." TD Bank Group, 2024. https://www.td.com

11. 7 Park Avenue Financial ." Asset Based Line of Credit: Complete Guide for Canadian Business Owners"  https://www.7parkavenuefinancial.com/asset-based-lines-of-credit-debt-financing.html?desktop=true