YOUR COMPANY IS LOOKING FOR A DIFFERENT TYPE OF BUSINESS
CREDIT FACILITY? ASSET BASED LENDING ('ABL' ) JUST MIGHT BE IT!
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Your business credit line probably won't be delivered by the Amazon drone that we all read about the other day. If that's the case, one option for the Canadian business owner /financial manager to consider is the ABL line of credit solution. Let's dig in.
And yes, that ' A ‘in ABL facility does in fact stand for ' Assets '. It's your ability to leverage ' ALL ' of the assets in your business in order to fully achieve maximum financing capability in lines of credit.
ABL ASSET BASED FINANCING VERSUS THE BANK
The normal comparison here is Asset Based Lending vs. your Chartered Bank revolving business credit facility. The simple way we explain this to our clients is that our chartered banks, in their wisdom, have chosen to focus on past historical performance and quality of cash flow and debt to equity measurement. Asset based revolving facilities are very similar in a day to day manner as bank facilities.
ASSET BASED LOANS ARE ABOUT ONE THING
That's all fine of course, but your asset-based lender is laser-focused on predominantly one thing - you guessed it - ' ASSETS'! , thereby creating the best asset based loan possible. This method of business borrowing is even larger in the united states where it originated.
WE ARE NOT BANK BASHERS ... BUT
We are always conscious of being ' bank bashers ' - we're told it’s the Canadian way in business we suppose.
5 KEY REQUIREMENTS OF BANK FINANCING
No one supports banks more than us, so if your company can demonstrate:
Profits
Quality Tangible Collateral
Acceptable ratios and covenants on the balance sheet
Outside collateral/owner guarantees
Reputable cash flow/business projections
It's safe to say you are very close to achieving full bank approval for all the capital you need.
When all those criteria cannot be met the best way to achieve business credit line delivery is potentially the ABL asset based line of credit.
While negative issues will certainly be discussed in your negotiations on your ABL credit facility reasonable heads will often prevail because of the past experience of the ABL lender in your industry.
BORROWING LIMITS
If there is one absolutely obvious benefit to asset-based credit lines it’s your ability to borrow more than a bank facility. Let's use the example of a company in the SME sector that has a $1,000,000.00 level of accounts receivable. Typically a bank will lend 750k against that ongoing balance, but the ABL lender is often as comfortable in lending $ 900,000.00 in our same example. The bottom line is working capital enhancement!
Fixed assets also play a key role as part of the credit line if required. although the receivables inventory component is the most widely used components. Your most highly liquid assets on the balance sheet will deliver maximum borrowing power - with the 2 main categories being A/R and inventories.
MARGINING YOUR ASSETS TO THE MAX!
While many banks struggle with inventory loans as a component of the credit line the right ABL lender will take the time to analyze the various components of your inventory ( raw materials, work in progress, finished goods ) and determine a borrowing level that is typically 25-75% of the total value. Note also that your company-owned real estate can be included in your revolving facility based on the equity component.
For firms that are growing quickly and who have a high leverage component to the balance sheet a revolving line of credit can be a business saviour, providing small and medium firms with financing that has maximum tailored flexibility and is approved significantly more quickly than traditional finance solutions.
Asset-based lending, also known as asset backed finance, ABL lending or an asset-based loan, provides your small or medium-sized business with fast, flexible ...
THE COST OF BORROWING
Rarely is any Canadian business financing a ' slam dunk '. In the case of the ABL business credit line, the business owner/manager should expect both a higher borrowing cost and some real due diligence on your firm, including in-house visits, inspections, potentially an appraisal, etc.
REPORTING REQUIREMENTS
While many chartered bank facilities may require you to report quarterly or annually on your performance the Canadian business owner/manager will be expected to submit a minimum monthly package of financial statements, assets, payables and a/r agings , etc. Good businesses should already be able to do that!
CONCLUSION
So is the ABL business credit facility for your firm? Evaluate the option by seeking out and speaking to a trusted, credible and experienced Canadian business financing advisor with a track record of success in credit lines tailored for Canadian companies.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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