Business Credit Lines ABL Financing | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR BUSINESS LINES OF CREDIT!

ASSET BASED LOAN / LINE OF CREDIT SOLUTIONS

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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?

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

EMAIL - sprokop@7parkavenuefinancial.com

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

 

 

 

 

Business credit lines in Canada. Unbeknownst to many Canadian business owners and financial managers, there is a lot going on in revolving credit facilities financing.

 

And we think you'll see that these credit lines have been fixed, but not by whom you necessarily think! Let's dig in on unlocking asset power!

 

WHY USE ABL FINANCE?

 

Businesses in Canada utilize revolving credit facilities to attend to the ups and downs of collecting their sales receivables and managing cash outflows via payables, etc. This type of loan financing - it's not a loan per se ... allows owners and managers to optimize working capital and cash flow... when they need it.

 

And in a perfect world, you clearly would like to be in control of your destiny, i.e. service and collect your own sales without any interference by a third party such as in a traditional factoring finance solution.

 

WHAT IS ABL FINANCING? WHAT ASSETS CAN BE USED BY A COMPANY FOR ASSET BASED LOANS

 

Asset-based lending (ABL) is a business financing solution that leverages your key company assets, bundling them into one facility to secure your business credit line financing needs.   The asset-based lender is typically, but not always, an alternative lender such as a commercial finance company, and typically these firms address the funding needs of Canadian businesses who cannot access some or any bank financing which has more stringent requirements around overall credit quality.

 

  

QUALIFYING FOR ABL FINANCING  

 

When it comes to asset-based lending it's all about your sales and the tangible assets in your business. Unlike traditional financial institutions such as banks which are VERY focused on financial historical performance and overall credit quality around profits and cash flow the asset-based lender is focused on leveraging your business assets - key balance sheet items such as accounts receivable generated from sales, inventories, and fixed assets/equipment  - In some cases intangible assets might be considered - that might include patents, trademarks,  etc.

 

It's those business assets that form a ' borrowing base ' under which you can draw down on when it comes to asset based underwriting guidelines.

 

ABL financing is the acronym for the asset based credit line. It provides the same borrowing mechanism as a Canadian chartered bank facility, with the only difference being a great one - more liquidity and access to capital!  While traditional bank lines allow you to borrow 75% against your A/R the ABL solution typically comes in at 90%, secured by accounts receivable. So you're up 15% already - congratulations on that! Note that real estate can also be part of your asset based loan facility. The ABL facility can also include fixed assets/equipment.

 

 

IS INVENTORY A PART OF YOUR FINANCING NEEDS? ELIGIBLE INVENTORY AND RECEIVABLES  IN ASSET BASED LENDING REQUIREMENTS

 

And then there is inventory. Whether inventories are in raw materials, work in process or finished goods they have traditionally presented a borrowing challenge to banks. The asset-based line of credit focuses on business assets - your inventory is an asset, and as a result, it's not uncommon to have borrowing power anywhere from 25-75% of your inventory component on the balance sheet.

 

While we have in fact focused on inventory as one of most firms' current assets the reality is that many service and technology-type firms in fact have no inventory on their balance sheets. In that case, ABL financing focuses solely on the borrowing power of accounts receivable. Asset-based loans are a key part of financing current assets on the balance sheet.

 

Borrowers should understand the eligibility around the amount they can finance when it comes to inventory and accounts receivables.  It's also important to understand that if your customer base is very concentrated in one client, as an example that might limit the overall facility size.  Receivables that might not be Canadian domestic in nature might also come under scrutiny, but generally, they can be financed. Some companies choose non-recourse facilities which transfer the risk to the ABL lender around issues such as credit risk and bad debt. 

 

Clients using  ABL lending should understand the basics of their borrowing base certificate and how it can both limit and increase borrowing capability.

 

BANK FINANCING VERSUS THE ABL LOAN? ABL LOAN VERSUS TERM LOAN?

 

Held back by traditional lending? Qualifying is of course the $50,000.00 question when it comes to accessing the capital you need to operate and grow. While approval for Asset based lending facilities can hardly be described as ' loose' the fact is that key measurements that the banks use to approve your firm aren't really on the table when it comes to ABL. While the bank focuses on profits, cash flows, and ratios and covenants -   Asset-based financing solutions focus on three other components - assets, assets, and, you guessed it assets!

 

Asset-based lending has become a critical option for businesses addressing their financing needs - Asset-backed loans typically come with fewer restrictions around financial ratios and covenants, and also place much less emphasis on personal guarantees, if at all - Asset financing solutions are a very direct form of financing for short term capital solutions such as business lines of credit or bridge loans.

 

While  Canadian banking solutions offer the broadest range of solutions the restrictions placed on businesses can be challenging - asset based credit lines are typically viewed as more flexible and not business credit score/ owner personal credit score focused -  In considering business credit lines all factors, including of course the cost/interest rates must be weighed by the borrower.

 

Asset based lending for real estate is also available - and is often structured as a separate bridge loan versus a traditional commercial mortgage structure.

 

WHEN DOES ABL FUNDING WORK BEST?

 

Typically ABL financing works best when it comes to firms that require growth financing. The general rule of thumb is that your facilities grow as you grow - In the banking environment typical faculties are approved annually and you are then locked into a business credit limit. We've always found it interesting that a lot of bank credit analysis focuses on the past and not the future, but that's a discussion for another day! If your firm produces proper financial statements on a regular basis and you have sales and assets you are an ABL candidate!

 

ABL funding will often be the best financing solution for a business because of the lack of financial covenants imposed by asset-based lenders in their credit agreements - At the end of the day, it is all about ' COLLATERAL ' and asset eligibility under that borrower based.

 

 

KEY TAKEAWAY - THE BENEFITS OF ASSET-BASED CREDIT LINES 

 

Business credit lines under an ABL finance option are considered to have more flexibility versus borrowing from a traditional financial institution such as a bank - Any business model that has sales and assets can utilize  ABL credit  when the business can't meet traditional bank criteria for credit approval

Business credit lines from ASSET-BASED FINANCING  commercial lenders come with quicker approval guidelines and can include additional assets not financeable by banks

 

Asset-based credit lines are typically specifically tailored to a company or industry as it relates ot loan size, manner of repayment, and which assets can be  bundled into the facility - The ABL solutions are rarely a ' one size will fit all ' solution and reporting and discussions around needs happen regularly with the ABL lender and borrower

 

ABL solutions are based on growth and facilities grow almost automatically as sales and assets increase - unlike predefined bank credit limits - Funding is used for day-to-day operations, growth initiatives, and even business acquisitions - Asset-based lending business acquisition leverages assets of the target business.

 

Well-structured credit lines in ABL will typically not be locked into a long-term commitment for either credit lines or term loans

 

CONCLUSION -  BUSINESS CREDIT LINES VIA ABL FINANCING SOLUTIONS

 

Nirvana is pretty hard to find when it comes to a Canadian business financing solution. So when you do check out an ABL solution for business credit lines remember that there will be costs to assets your assets and that you'll be doing a bit more monthly reporting when it comes to aged a/r lists, inventory summaries, and a/p schedules. But the benefit - more financing!

 

Business owners looking for flexibility and growth financing suited to their needs will embrace asset-based business credit lines - the ability to ' grow into' financing that maximizes your sales and assets is highly desirable by any small business/medium-sized business.

 

But the bottom line? Simply that the  ' gospel ' of ABL  has created a powerful new tool when it comes to daily business borrowing for working capital and cash flow needs.

 

Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in understanding why there’s a new paradigm shift in the biz credit line in Canada.  Let our team help you revolutionalize your business financing strategy when you choose asset based lending solutions!

 

  

  

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

 

What Is an ABL Credit Facility?

Unlike cash flow financing from banks, an abl business credit line facility is a business loan structured around revolving lines of credit that is suitable for a broad range of companies in all industries - For any firm with substantial assets asset-based lines finance a company's assets under a ' covenant light structure ' that provides more capital than credit-based bank solutions under a revolving line facility.

 

Eligible accounts receivable and inventory and other assets such as fixed assets that are unencumbered make up the eligible collateral for the facility - While focusing on physical assets intellectual property can sometimes be included in the borrowing base. These facilities offer more growth opportunities to firms that can't achieve the bank financing they need to run and grow their business - 

 

There are multiple forms of asset back solutions such as factoring and tax credit financing in addition to revolving lines of credit but the most common financial offering is the business credit line facility with the company assets supporting the facility and creating an ongoing borrowing base. Borrowers are required typically to provide monthly reporting around sales and agings of receivables and accounts payable to remain compliant with the facility approved under the credit agreement. 

 

Click here for the business finance track record of 7 Park Avenue Financial