YOUR COMPANY IS LOOKING FOR ASSET- BASED LOANS FOR FINANCING OPERATIONS AND GROWTH!
Maximizing Cash Flow with Asset-Based Lending Solutions
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?
CONTACT US - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
"Asset-based lending offers a powerful and flexible financing solution that propels business growth by leveraging your company's assets."
"Unlock your business's potential: Discover how asset-based lending can transform your financial challenges into opportunities for expansion and success."
Introduction to Asset Based Loans
It's certainly not an unreasonable question. The question from clients is simple: "How do asset based loans via an ABL financing arrangement provide more cash to a business than a traditional lending arrangement?" As we said, fair enough. Let’s explain.
Who Needs Asset Based Loans?
Whether you are a manufacturer, a distributor or wholesaler, or even a retailer with inventory and receivable investments on your balance sheet... well guess what, you need a business line of credit that a bank unsecured loan may not be able to provide.
The Role of Revolving Credit Facilities
A revolving credit facility via either a bank or an independent non-bank finance firm provides you with ongoing operating capital to optimize your firm’s growth. Naturally, your inventory and A/R are the essential collateral behind asset based loans. As you convert inventory into receivables or cash sales your working capital and cash flow fluctuate, daily. Naturally, along the way, there are seasonal or one-time bulges in your sales and finance needs.
Alternatives to Asset Based Lending
By monetizing that collateral (our aforementioned A/R and inventory) you create cash flow to keep your business surviving, and, hopefully, growing! Naturally, you have one other alternative to all this, which is putting more of your own personal owner equity into the business or bringing in outside capital. That’s allowed by the way, it’s just more expensive and dilutes your ownership - so in general not a good thing for all the obvious reasons.
How ABL Facilities Increase Cash Flow
So back to our question, which was "How does the ABL facility add more cash than say, for example, a bank facility?" The answer - it’s all in the margining. By drawing down on better margins on eligible inventory and receivables you accelerate cash flow based on growing sales. In essence, you're also turning money over quickly, and those increased turns of your accounts and stock lead to a greater return on equity. That’s a good thing!
Real-World Applications of ABL Margining
So that’s the basic theory behind ABL-backed revolving credit facilities - let's check into the real world for a minute and demonstrate exactly how that pledged asset margining might work compared to unsecured loans from banks and other more traditional financial institutions.
Inventory Financing in ABL
Naturally, there are all kinds of 'inventory' in the Canadian business landscape. And not to complicate things, but that inventory is broken down into raw materials; work in process (‘WIP’) and of course finished goods. By agreement with your ABL lender, you create an ongoing borrowing base for your type of inventory, given its cost and ability to be sold.
In general, we can make the statement that finished goods and raw materials can often be financed anywhere from 30-70 cents on the dollar inside an asset based line of credit solutions.
We hate to generalize, but given the variety of inventory, it’s safe to say each industry and company is a bit unique in that manner.
The Value of A/R in Asset Based Loans
So, on to A/R. What's the scoop here? Receivables can be said to be the most coveted collateral by your ABL lending and financing partner. Very common advance rates are in the 90% range, and it’s certainly not uncommon if you have good records and a track record to even negotiate one-time temporary bulges.
Key Takeaways
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Asset-Based Lending Defined: This financing method involves borrowing against company assets, like inventory and receivables, to secure ongoing working capital.
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Key Collaterals: Receivables and inventory stand as primary collaterals, enabling businesses to transform these assets into liquid capital for operational needs.
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Margining Process: Lenders offer funds based on a percentage of the collateral's value, often resulting in higher liquidity compared to traditional loans.
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Flexibility and Growth: Through this financing, companies can access more cash, supporting expansion and smoother cash flow management despite sales fluctuations.
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Eligibility and Benefits: Virtually all businesses with substantial assets can qualify, offering a strategic advantage in cash flow enhancement over conventional banking products.
Conclusion: The Advantages of Asset Based Loans
In summary, when you consider that all companies in Canada of any substance are eligible for asset based loans, and giving weight to the fact that they provide more cash flow than traditional bank financing, it is safe to say this financing solution should be at least examined by Canadian business owners and financial managers looking to enhance working capital.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor on how your firm can get a better deal on cash flow financing.
FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
How do asset based loans work?
Asset based loans involve borrowing against the value of a company's assets, such as inventory and receivables, to provide working capital. Understanding asset based lending solutions when compared to traditional bank financing is key for the borrower.
What types of assets can be used for these loans?
Typically, accounts receivables and inventory are used by the asset based lender as collateral in asset based financng, offering businesses a way to liquidate these assets into cash. Physical assets such as equipment and commercial real estate can also be bundled into the facility.
Who benefits most from asset based lending?
Businesses in need of capital to manage cash flow, expand operations, or navigate seasonal sales variations find great value in asset based loans given higher loan to value rations on financed assests.
How does this differ from traditional loans?
Unlike traditional loans focused on cash flow lending , asset based loans focus on the value of your assets rather than credit history, often allowing for more flexible borrowing terms.
Can asset based loans improve cash flow?
Yes, by providing immediate funds based on asset values, these loans can significantly enhance a company's cash flow and operational flexibility.
What are the typical interest rates for asset based loans?
Interest rates vary but are generally competitive based on overall credit quality , reflecting the loan's secured nature against tangible assets.
Are there specific industries that benefit more from asset based loans?
Industries with significant inventory and receivables, like manufacturing and wholesale, often gain the most from asset based lending.
How quickly can a business access funds through an asset based loan?
Funding timelines vary, but businesses can often access capital swiftly once the lender appraises the collateral.
What security measures do lenders take with asset based loans?
Lenders typically require a first lien on the assets used as collateral, ensuring their investment is protected in case the borrower defaults.
How does asset valuation affect the loan amount?
The loan amount is directly tied to the value of the collateral; higher-valued assets can secure larger maximum loan amount.
Can a business use asset based loans for any purpose?
Generally, yes. Funds from asset based loans can be used for a range of business purposes, including growth initiatives and operational expenses.
