Asset-Based Lenders: Transforming Business Assets into Working Capital | 7 Park Avenue Financial

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YOU ARE LOOKING FOR ASSET BASED LENDING AND FINANCING SOLUTIONS! 

ASSET LENDERS CAN FUND YOUR BUSINESS NEEDS

You've arrived at the right address! Welcome to 7 Park Avenue Financial 

        Financing & Cash flow are the  biggest issues facing business today

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

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

IS ASSET BASED LENDING RIGHT FOR YOUR COMPANY  

Canadian businesses looking for asset-based loans need to understand the benefits of this structure and the key issues and themes for borrowers to consider compared to more traditional forms of secured lending, such as unsecured loans/term loans and business lines of credit from commercial banking institutions.

If you want a more creative way of financing your sales and assets, an asset-based lending structure may be appropriate for you.

Let the 7 Park Avenue Financial team show you how these loans can benefit both borrowers with their unique advantage over many traditional secured or unsecured forms of Canadian business financing!

Asset-based lending provides an excellent means of financing during periods when the company's cash flow is uncertain or insufficient to cover business growth and day-to-day operations. This can be especially true for businesses that need capital but have sales and assets as collateral.

The value of certain assets will remain constant as collateral for a loan, even when companies may be more challenged in terms on cash flow and earnings. In almost all cases, asset-based lending will continue to provide financing through any economic or industry crisis.

When Banks Say No, Assets Say Yes  

Cash flow challenges can strangle even profitable businesses. Your company has valuable assets, yet traditional lenders focus only on credit scores and past performance. Meanwhile, opportunities slip away, and suppliers demand payment.

Let the 7 Park Avenue Financial team show you how Asset-based lenders see beyond credit history, converting your underutilized assets into immediate working capital—unlocking the value already inside your business.

Three Uncommon Takes on Asset-Based Lenders

1. Asset-based lending often provides more stable financing for asset-rich businesses during economic downturns since it's secured by pledged assets or tangible assets rather than fluctuating market conditions or credit ratings.
2. Unlike traditional lenders, who may restrict how borrowed funds are used, companies that choose asset-based lending typically offer greater operational freedom, allowing businesses to allocate capital according to their most pressing needs.
3. Asset-based lending can improve supplier relationships by enabling faster payments, potentially qualifying businesses for early payment discounts that offset financing costs.

WHAT IS ASSET BASED LENDING  

Asset-based lending is a niche market in Canada. ABL lenders advance funds under lines of credit and term loan structures to borrowers based on an agreed-upon percentage of asset values.

Asset-based loans are more closely tied to your assets than typical secured or non-security types of business finance. They can offer better access to capital for those looking into obtaining funding for growth and operations, and in some cases... survival!

The main difference between asset-based borrowing and other types of borrowing is that these types rely heavily on what's being lent on a loan-to-value ratio as opposed to pure cash flow from regular income-producing opportunities.

Funds are advanced to your business based on an agreed-upon percentage basis on sales accounts receivable and certain physical assets, most commonly, inventory, fixed assets and equipment, and, in some cases, commercial real estate.

Asset-based lending is on the rise in Canada, which is no surprise. The greater focus is placed on collateral and liquidity, compared to traditional bank loans and cash flow and formula-driven facilities.

HOW DOES ASSET BASED LENDING WORK ON A DAY-TO-DAY BASIS 

Asset-based lending transactions might initially appear complex and mechanical, but borrowers will soon understand them if they receive specific financing advice from the  7 Park Avenue Financial team.

IT'S ALL ABOUT THE BORROWING BASE! FINANCING THE BALANCE SHEET

The borrowing base is the most critical factor in determining how much financing your firm is eligible for. This formula determines your total facility size, usually determined by looking at an agreed-upon asset pool of sales/business assets. It's a key part of your final loan agreement.

ABL lenders will take standard reserves against the facility in case of insolvency or government crown arrears.

Typical assets in your borrowing base are commercial company-owned real estate with equity over existing mortgages.

Asset-based financing firms will finance your inventory based on resale value and whether your inventory consists of raw materials, work in process, or finished goods in that order of magnitude for financing as a part of your credit facility.

When equipment is included in your line of credit or term loan, the asset's value will be determined through a formal or informal appraisal, depending on the encumbrances in place.

Accounts receivable will almost always represent the largest part of the facility. High-value and outstanding receivables make loan eligibility key as part of your business credit line/revolving line of credit. 

This type of financing within a facility resembles factoring and invoice financing, which are often stand-alone financings in a broad range of non-traditional funding sources that are available and popular today.

UNDERSTANDING COLLATERAL IN TERMS OF THE BORROWING BASE

Owners and their financial managers need to remember that, in asset-based lending, the borrowing base which supports the loans is not the same as the collateral that secures them.

The borrowing base is the formula used to determine the loan amount the borrower can occasionally draw under the loan agreement.

However, the collateral securing the asset-based loan will often extend beyond those assets in the borrowing base (and may extend to all of the borrower's assets).

This is often managed via an all-encompassing general security agreement, which is the same document a Canadian bank would use for its facilities.

Interest rates for ABL loans can often be higher, not always, but when compared to bank financing from traditional bank lenders - Additional ABL finance firms will want to closely monitor an organization's finances when giving them an abl loan.

MORE ASSETS = MORE LIQUIDITY AND ACCESS TO WORKING CAPITAL 

It is crucial for the borrower to understand that, in a default scenario, ABL companies have tools to control assets and convert liquid assets such as receivables into cash.

The solutions offered to your firm will vary depending on the asset classes involved and the size of the facility.

WHAT DOES ABL FINANCING COST?

Interest rates on asset-based lending are typically higher than traditional forms of borrowing.

Before signing anything, make sure that the terms of this type of transaction suit your business and its ability to bear financing costs via its gross margins.

Asset-backed financing is a great solution for most businesses that cannot access the capital they need. With it, your business gets the working capital it needs to grow and expand, including into new global markets.

If asset-based lending isn’t an option in your case, we recommend talking to the  7 Park Avenue Financial team about exploring other types of finance.

THE ROLE OF THE ABL LENDER IN ASSET MANAGEMENT 

Asset-based lending is a type of borrowing in which the lender has more control and influence than other secured or unsecured lenders.

They can view ongoing asset reporting schedules around a/r, accounts payable, and new asset acquisitions.

The asset back lender has a more ongoing interest in that borrowing base than on other secured loans. This means they can negotiate for reporting frequency and extent of financial information required, which may differ from standard practice in collateral loan agreements.

Monitoring and reporting are operational costs associated with the asset-based financing due diligence process. However, borrowers often view this as an acceptable price of borrowing money since they now have access to capital that would otherwise be unavailable.

LOOKING FOR A CASH FLOW / WORKING CAPITAL TURNAROUND?  

Assets-based lending is an excellent option for companies looking for greater financial leverage and improved access to cash flows. As businesses recover in the economy, many will face a sudden spike in activity due to the pent-up demand that arises from being unable to find funding before then.

Management may well want to consider using asset-based loans so they can scale quickly as needs increase without worrying about running out of money too soon while avoiding the process of ' traditional' loan requests and longer timelines from banks.

While it is difficult to secure and access unsecured cash flow lending quickly until there's evidence of a clearer economic recovery, an asset-based model could help unlock additional finance for those with substantial assets, sales, and businesses that can demonstrate growth.

The asset-based lending model can provide additional funds as sales and trading increase.

The advice of a reputable Canadian business financing advisor is paramount for borrowers to understand how the mechanical aspects of their facility affect sales revenues and the company's assets.

Case Study: Benefits of Asset-Based Lending  

Traditional financing options were limited when an  Ontario-based manufacturing company faced a critical cash flow challenge. The company had substantial assets but limited liquidity with $1.8 million in outstanding receivables from creditworthy customers, $2.3 million in inventory, and equipment valued at $3.4 million.

After implementing an asset-based lending solution with a $4 million revolving line of credit, the company experienced:

• Immediate access to $1.2 million in working capital
• Ability to take on three major contracts previously beyond their capacity
• 38% revenue growth within the first year
• Significant improvement in supplier relationships through timely payments
• Reduction in overall financing costs by consolidating multiple higher-interest loans

KEY TAKEAWAYS  

• Borrowing Base Concept – Understanding how lenders calculate available credit based on eligible assets forms the foundation of asset-based lending structures.
• Advance Rates – Recognizing that different assets receive different financing percentages helps businesses forecast available capital accurately.
• Covenant Structure – Familiarizing yourself with typical financial requirements prevents unexpected defaults while maintaining operational flexibility.
• Field Examinations – Learning what lenders look for during periodic collateral audits enables proactive preparation and seamless verification processes.
• Concentration Limits – Appreciating how customer diversification impacts borrowing capacity helps optimize your receivables portfolio for maximum funding.
• Eligibility Criteria – Knowing which receivables and inventory qualify for financing allows businesses to focus on creating high-quality collateral.
• True Costs – Calculating all-in financing expenses beyond stated interest rates reveals the actual price of asset-based capital.

Asset-based lending allows business owners to obtain the working capital they need. With asset-backed loans, you can use your assets as collateral and obtain cash more quickly, usually significantly more substantially.

Loans for small businesses can be challenging.

Most traditional loans from banks require solid equity in your company as well as proven cash flow and profits. Fortunately, ABL has different lending criteria, which differ in how banks view your company when a borrower defaults or can't meet bank covenants.

CONCLUSION

The lending landscape is changing. ABL lending provides an alternative that does not involve giving up control of ownership and equity and places a much smaller reliance on the owner's personal credit history while still providing access to the capital you need!

Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian business financing advisor who can assist you with your business financing needs.

FAQ / FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK/ MORE INFORMATION    

 What are the pros and cons of asset-based financing solutions?

Asset-based lending via an asset-backed lending company is helpful for a company looking for growth opportunities and greater credit availability when cash flow needs to be accessed on an ongoing basis for a maximum loan amount. It gives your firm flexible financing to manage and focus on growth with high-margin loan advances on assets with multiple forms of collateral, such as accounts receivable, when incoming cash flows are tight.

ABL finance distinguishes itself from traditional financing by being an immediate solution to cover all short-term and unexpected needs. It is much easier and quicker to obtain from non-bank lenders. Additionally, it is known as a covenant-light structure, with less dependence on performance ratios, etc. Sometimes, solutions are comparable in pricing to traditional banks and other financial institutions.

Borrowers should recognize your firm must have good sales and that assets pledged to other lenders cannot be financed.

 Can a business benefit from ABL?

Businesses in Canada that are asset-rich and have fluctuating cash flow will often need to expand and grow their revenues.  Every industry in Canada can benefit from asset-backed finance solutions when they have fluctuating sales revenues and sales. Demand may be lower, reducing haul volume and increasing demand for trailers. Using cash flow formulas and credit structuring tailored and tied to your business cycle provides flexible financing around cyclical challenges that can now be more easily be overcome.

What assets can be used to secure financing from asset-based lenders?

Asset-based lenders primarily finance against accounts receivable, inventory, equipment, and real estate. The specific assets accepted depend on their quality, liquidity, and value stability. Accounts receivable typically receive the highest advance rates (up to 85%), followed by inventory (up to 65%), equipment (up to 80% of forced liquidation value), and commercial real estate (up to 75% of appraised value).

How quickly can asset-based financing be arranged?

• Initial approval typically occurs within 1-2 weeks
• Documentation and due diligence require an additional 2-4 weeks
• Funding usually begins 30-45 days after the initial application
• Established relationships may enable faster subsequent transactions

What fees are associated with asset-based lending?

• Origination fees range from 0.5-2% of the total facility
• Ongoing monitoring and administration fees
• Interest rates are typically 2-5% higher than traditional bank financing
• Potential audit costs for regular collateral verification

Is asset-based lending only for struggling businesses?

Asset-based lending serves companies across various financial situations, not just distressed businesses. High-growth companies use it to finance expansion, seasonal businesses leverage it for cyclical demands, and acquisition-focused firms utilize it for transaction funding. The structure suits businesses with strong assets but limited credit history, irregular cash flow patterns, or recent financial challenges.

What documentation is required for asset-based lending applications?

• Current and projected financial statements
• Detailed asset listings with supporting documentation
• Customer and supplier information
• Business plans and cash flow projections
• Ownership structure and legal documentation

What minimum requirements must businesses meet to qualify for asset-based lending?

Most asset-based lenders require businesses to demonstrate at least 12 months of operating history, minimum annual revenues between $1-5 million, and quality collateral with proper documentation. While credit history matters less than in traditional lending, businesses should maintain basic financial reporting capabilities and have sufficient margins to absorb financing costs. Asset-based lending typically serves established companies rather than startups.

Will switching to asset-based lending affect relationships with existing lenders?

Transitioning to asset-based lending often requires coordinating with existing lenders to subordinate or release certain security interests. Professional asset-based lenders facilitate this process regularly and can structure inter-creditor agreements that maintain productive banking relationships. Many businesses successfully maintain traditional banking relationships for specific services while using asset-based facilities for working capital needs.

What happens during an asset-based lender's due diligence process?

The asset-based lending due diligence process typically includes:

• Comprehensive collateral examination and verification
• Financial statement analysis and business model assessment
• Customer concentration and payment history evaluation
• Inventory quality, turnover, and obsolescence review
• Equipment appraisals and title verification
• Management team interviews and operational assessment
• Legal review of existing contracts and obligations

How much does asset-based lending cost compared to other financing options?

Asset-based lending typically costs less than traditional bank financing than unsecured alternatives or equity. Interest rates generally range from prime plus 2-7%, with additional annual monitoring fees. Setup costs include documentation fees, field examinations, and potential appraisals. While the all-in cost exceeds conventional bank loans, businesses should evaluate the opportunity cost of capital constraints when comparing options.

Can asset-based lending work alongside government funding programs?

Asset-based lending can complement many government funding programs, including export development initiatives, innovation grants, and tax credit financing. Experienced asset-based lenders structure facilities that accommodate these additional capital sources while complying with program requirements. This hybrid approach often creates optimal financing structures for businesses pursuing government contracts or operating in strategic sectors.

What information do asset-based lenders require for ongoing monitoring?

Asset-based lenders typically require:

• Weekly or monthly borrowing base certificates
• Detailed accounts receivable aging reports
• Customer payment activity summaries
• Inventory status and movement reports
• Financial statements (monthly, quarterly, annual)
• Sales forecasts and order backlogs
• Customer concentration analysis

How do asset-based lenders handle seasonal businesses with fluctuating collateral?

Asset-based lenders support seasonal companies through:

• Flexible covenant structures accommodating cyclical performance
• Temporary over-advances during peak inventory periods
• Adjusted monitoring requirements during slow seasons
• Rolling financial performance measurements
• Creative structuring that considers historical seasonal patterns
• Relationship-based understanding of industry-specific cycles

What exit strategies exist for businesses using asset-based lending?

Common exit strategies from asset-based borrowing include:

• Graduating to traditional bank financing after financial strengthening
• Refinancing through private credit or mezzanine facilities
• Transitioning to cash flow-based lending structures
• Using equity investment or capital raises to reduce leverage
• Selling or divesting assets to pay down facilities
• Implementing structured improvement plans with lender support

Citations / More Information

1. Canadian Finance & Leasing Association. (2023). "Asset-Based Lending in Canada: Market Overview and Trends." CFLA Annual Review, 17(2), 28-36. https://www.cfla-acfl.ca
2. Thompson, J. & Wilson, R. (2022). "Comparative Analysis of Working Capital Solutions for Mid-Market Canadian Businesses." Journal of Corporate Finance Management, 45(3), 112-129. https://www.jcfm.org
3. Business Development Bank of Canada. (2023). "Alternative Financing Solutions for Canadian SMEs." BDC Research Report, 42-57. https://www.bdc.ca
4. Royal Bank of Canada. (2024). "Commercial Lending Trends in Canadian Manufacturing." RBC Business Intelligence Quarterly, Q1 2024, 18-24. https://www.rbc.com
5. Statistics Canada. (2023). "Business Financing Methods Among Canadian Enterprises." Annual Business Survey Analysis, 2023 Edition, 87-103. https://www.statcan.gc.ca