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Monetize Your Assets: A Comprehensive Guide to ABL Financing in Canada
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Asset Based Loans and Business Collateral for Financing in Canada
Introduction - The Disruptive Power of ABL Business Collateral Loans
Canadian businesses looking for working capital and operating financing increasingly turn to asset-based lending (ABL) secured loans. This article sheds light on how ABL can be a powerful, even disruptive, tool for business credit and financing within Canada.
Every once in a while, something disruptive emerges in the business financing landscape. ABL business collateral loans are the new disruptive trend in Canadian business financing. These loans are designed with the understanding of assets and working capital, and they offer a unique, sensible approach to funding when compared to the requirements around unsecured loans from banks.
Asset-Based Lending vs. Traditional Bank Facilities
In ABL finance, it's all about cash flow and working capital. Unlike traditional bank operating facilities, The asset based line of credit focuses on monetizing your current assets, mainly accounts receivable and inventory, as well as fixed assets /physical assets if desired by the borrower. Commercial real estate owned by the business can also be bundled separately or financed as a bridge loan.
Though commonly referred to as a 'loan,' ABL is more about the cash flow and monetization of assets, transforming them into an ongoing operating line of credit.
Understanding the Borrowing Capacity in ABL / Asset Monetization and Borrowing Capacity
Borrowing capacity with ABL is primarily determined by the assets. Receivables are typically financed at 90% of total a/r, and inventory ranges from 40-70%, depending on the product nature.
Interestingly, you can sometimes increase these percentages after establishing a solid history with the lender. This may even include an overadvance on assets, offering unprecedented flexibility in Canadian business financing.
Managing ABL Business Collateral Loans
ABL business collateral loans are managed similarly to standard bank facilities in Canada. Monthly borrowing base certificates for both inventory and receivables must be maintained. The underlying assets' eligibility, quality, and nature are critical discussion points.
Special Considerations: Progress Type Billings
For companies dealing with progress-type billings, monetizing these receivables under the same facility offers a significant advantage. This flexibility can overcome numerous challenges, especially in complex scenarios involving contracts and progress payments.
The Advantage of ABL as a Disruptive Form of Business Financing
ABL asset-based lines of credit are disruptive because they maximize cash flow and business credit, offering greater accessibility in supporting long-term working capital growth as your asset base expands.
CONCLUSION
Picking and structuring a suitable asset based financing ABL facility can be challenging for those new to the field. Speak to 7 Park Avenue Financial, a trusted, credible, and experienced business financing advisor who understands the Canadian market and can help you achieve the commercial financing options best suited to your business needs.
FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
What is Asset Based Lending (ABL), and how does it work?
ABL is a type of financing that focuses on monetizing a company's assets, mainly receivables and inventory. It transforms these assets into an operating line of credit, providing flexible and accessible working capital for businesses in Canada.
How is ABL different from traditional bank loans?
Unlike traditional bank loans, ABL is not considered term debt. It revolves around cash flow and working capital, relying primarily on the value of current assets. This allows for higher borrowing capacities and can even include over-advances on assets. Typically asset based credit line rates come with a higher cost but offer more access to capital.
What assets can be used for ABL?
ABL typically monetizes liquid assets such as receivables and inventory on the balance sheet. Depending on your business and the nature of your product, receivables are usually financed at 90%, and inventory ranges between 40-70%.
Is ABL suitable for companies dealing with progress-type billings?
Yes, ABL is highly flexible and can include progress billings. It can monetize these receivables under the same facility, providing a substantial advantage in complex financial scenarios versus a bank unsecured loan facility and its corresponding requirements.
How can I choose the right ABL facility for my business?
Selecting the right ABL facility via asset based lenders can be challenging, especially if you're new to this type of financing. Consulting with a trusted and experienced business financing advisor who understands the Canadian market can guide you to the facility that best meets your business needs.
