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“Assets are the basis of credit. The strength of an asset-based loan lies not in the borrower’s promise, but in the collateral’s reality.” — Adapted from J.P. Morgan banking principles
Canadian Business Finance Is Changing!
Table of Contents
Canadian Business Finance Is Changing
Clearing Confusion on Asset Based Lending Terminology
What Is an Asset Based Loan Facility?
Why Are Canadian Businesses Turning to ABL?
Ten Fundamentals of Asset Based Lending in Canada
For a deeper dive into how revolving ABL credit lines work in practice, see this guide to asset-based lending lines of credit in Canada.
Who Uses ABL?
Does ABL Work for Turnaround Financing?
Can ABL Support Seasonal Businesses?
What Are the Advantages?
Qualification Requirements
What Does Not Work in ABL?
Borrowing Limits and Margins
Cost Considerations
ABL for Acquisition Financing
Market Importance in Canada
Key Requirements for a Successful ABL Strategy
Conclusion
Business credit in Canada is evolving. As Bob Dylan wrote, “the times they are a-changin’,” and that sentiment applies directly to asset-based lending in Canada.
An asset based loan facility converts your receivables, inventory, and equipment into immediate working capital—giving Canadian businesses a financing path that doesn’t depend on perfect credit scores or years of profitability.
An asset based loan facility (ABL) is emerging as a powerful alternative to traditional bank financing. It provides a revolving line of credit secured by business assets rather than relying primarily on cash flow and net income.
When the Bank Closes the Door, Your Assets Open a Window
You need capital, but your bank keeps asking for more documentation, better ratios, or another quarter of profitability. Meanwhile, your receivables sit uncollected, your warehouse is full of sellable inventory, and your equipment depreciates on the shop floor. The gap between what you own and what you can borrow is costing you contracts, payroll deadlines, and growth.
Let the 7 Park Avenue Financial team show you how An asset based loan facility solves this by lending directly against the value of those assets—so your balance sheet starts working as hard as you do.
3 Uncommon Takes on Asset Based Loan Facilities
1. Growth can be more dangerous than decline without the right facility. Most business owners associate borrowing with financial distress. But in practice, many asset based loan facility clients are growing so fast that their bank lines cannot keep up. A company doubling its receivables in 12 months may actually be cash-poor because the bank’s static borrowing base hasn’t been updated. The facility grows with you—your credit line expands as your assets expand.
2. Your lender might know your inventory better than you do. Asset based lenders conduct field audits and appraisals that many business owners find intrusive at first—but often end up viewing as a free operational diagnostic. These audits can uncover slow-moving inventory, aging receivable problems, or concentration risks you didn’t realize existed. The process itself can improve how you manage working capital.
3. Asset based loan facilities can replace, not just supplement, your bank. Many Canadian mid-market firms assume an asset based loan facility is a bridge product—something you use temporarily until you qualify for a conventional line again. In reality, many companies operate on asset based structures permanently because the borrowing capacity is higher, the covenants are lighter, and the flexibility is superior to anything a chartered bank offers at their size.
Clearing Confusion on Asset Based Lending Terminology
Asset-based lending is often misunderstood. Many business owners confuse it with equipment leasing or standalone receivables financing, even though modern asset-based lending loans and revolvers in Canada are designed as flexible alternatives to traditional bank credit.
A true non-bank ABL facility combines multiple asset classes under one revolving credit structure. This typically includes:
Accounts receivable (A/R)
Inventory
Equipment and machinery
Real estate (when applicable)
The result is a flexible borrowing base that grows as your assets grow.
What Is an Asset Based Loan Facility? (PAA)
An asset based loan facility is a revolving line of credit secured by a company’s tangible assets, as outlined in this detailed overview of asset-based lending for Canadian businesses.
Borrowing availability is determined by a formula known as a borrowing base certificate, not solely by profitability. This makes ABL especially suitable for companies experiencing rapid growth, restructuring, or temporary financial pressure.
Why Are Canadian Businesses Turning to ABL?
Traditional Canadian chartered banks perform well during stable economic periods. However, lending criteria tighten during uncertainty.
Many firms face:
Tax-minimized financial statements
Volatile earnings
Rapid growth that strains working capital
Special loans or turnaround situations
ABL shifts the focus from historical profits to asset strength. This unlocks liquidity when conventional lenders hesitate, and structures such as asset-based lending and confidential receivable financing in Canada can further enhance working capital access.
Ten Fundamentals of Asset Based Lending in Canada
1. Who Uses ABL?
ABL is used across industries in Canada, including:
Manufacturing
Distribution
Transportation
Wholesale and import/export
Turnaround and restructuring environments
Users range from startups to large, profitable corporations.
2. Does ABL Work for Turnaround Financing?
Yes.
Because lending decisions emphasize collateral quality over earnings, ABL can support companies reorganizing under financial stress. It provides liquidity during operational restructuring or exit from special loans.
3. Can ABL Support Seasonal Businesses?
Yes.
ABL is inherently flexible. Borrowing increases during peak inventory or receivable cycles and decreases when assets decline. You typically pay only on funds utilized, which is why many SMEs opt for asset-based lending financing solutions in Canada to manage cash flow swings.
4. What Are the Advantages of an Asset-Based Line of Credit?
Key advantages include:
Maximum leverage against eligible assets
Revolving structure (not fixed-term debt)
Scalability with business growth
Improved financial reporting discipline
Enhanced liquidity for working capital
ABL often strengthens internal controls due to structured reporting requirements.
5. What Are the Qualification Requirements?
To qualify for an ABL facility, a business generally must have:
Eligible accounts receivable
Marketable inventory
Verifiable asset values
Accurate and timely financial reporting
Owner guarantees may be required, but the emphasis is primarily on collateral quality rather than personal net worth.
6. What Does Not Work in ABL?
ABL is not ideal for:
Pure service businesses with minimal hard assets
Companies with poor financial reporting systems
Businesses with obsolete or illiquid inventory
Realistic asset valuations are critical. Inflated expectations undermine facility structuring.
7. How Are Borrowing Limits Calculated?
Borrowing capacity is determined by an agreed borrowing formula. Typical advance rates in Canada include:
Accounts receivable: up to 85–90% of eligible A/R
Inventory: 25–75%, depending on type and liquidity
Equipment: case-specific appraisal-based advances
Real estate: subject to third-party valuation
These margins vary by industry, asset quality, and lender risk tolerance.
8. Is ABL Expensive?
ABL pricing reflects monitoring intensity and collateral complexity.
While interest rates may exceed traditional bank lines, total cost must be evaluated against increased borrowing capacity and growth opportunity. For many firms, access to liquidity outweighs incremental pricing.
9. Can You Use ABL for Acquisition Financing?
Yes.
ABL is frequently used to finance mergers and acquisitions. The purchaser leverages the target company’s receivables, inventory, equipment, and real estate to fund the transaction.
This structure effectively finances the balance sheet being acquired.
10. How Important Is ABL in Canada?
Asset-based lending continues to expand as Canadian businesses seek alternatives to conventional bank lending, supported by a growing ecosystem of specialized asset-based lending companies in Canada.
Sophisticated financial managers increasingly view ABL as a strategic liquidity tool, not merely a last-resort option.
Key Requirements for a Successful ABL Strategy
To implement an effective asset based loan facility:
Work with an experienced Canadian business financing advisor
Ensure accounting systems can support borrowing base reporting
Conduct independent asset appraisals when required
Maintain transparent communication with the lender
CASE STUDY: ABC Company — Industrial Parts Distribution
Company: ABC Company, a mid-sized industrial parts distributor based in Ontario, serving manufacturing clients across Canada with $12 million in annual revenue.
Challenge: ABC Company won a major supply contract worth $4.2 million annually, but their bank declined a credit line increase citing declining profit margins from the previous year. Without additional working capital to purchase inventory and fund expanded receivables, the company faced losing the contract.
Solution: Through 7 Park Avenue Financial, ABC Company secured a $3.5 million asset based loan facility with a borrowing base that included 85% of eligible receivables and 55% of appraised inventory. The facility was structured in 45 days with lighter covenants than the bank’s original line.
Results:
Funded within 45 days of engagement.
Secured the new contract and grew revenue by 35% in year one.
Borrowing capacity automatically increased as receivables grew.
Key Takeaways
An asset-based loan facility is secured by receivables, inventory, equipment, and sometimes real estate.
Borrowing is formula-driven through a borrowing base certificate.
ABL supports growth, turnarounds, seasonality, and acquisitions.
Advance rates typically range from 85–90% on receivables and 25–75% on inventory.
Qualification depends on asset quality and financial reporting accuracy.
ABL is scalable and revolves with business activity.
It is widely used across Canadian industries.
Conclusion
Canadian business finance is evolving.
An asset based loan facility provides maximum borrowing power, scalability, and flexibility when traditional cash-flow lending falls short, especially when structured through specialized asset-based lending solutions in Canada.
For growth, turnaround, seasonality, or acquisition financing, ABL represents a disciplined and strategic approach to capital access.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor
FAQ/FREQUENTLY ASKED QUESTIONS
What is an asset based loan facility and how does it differ from a traditional bank line of credit?
An asset based loan facility is a revolving credit structure secured by a company’s assets, primarily accounts receivable, inventory, and equipment. The key difference from a traditional bank line:
Bank lines are based on financial covenants, credit scores, and profitability history.
Asset based loan facilities are based on the appraised value of collateral, with borrowing capacity that adjusts as assets fluctuate.
Approval focuses on asset quality, not solely on the borrower’s overall financial health.
Who qualifies for an asset based loan facility in Canada?
Qualification for an asset based loan facility depends primarily on the quality and type of assets, not solely on the borrower’s credit profile. Typical qualifiers include:
Manufacturers, distributors, and wholesalers with receivables above $500,000.
Companies experiencing rapid growth, turnaround situations, or seasonal revenue swings.
Businesses declined by traditional banks due to covenant violations or thin profit margins.
How much can my business borrow through an asset based loan facility?
Borrowing capacity under an asset based loan facility is determined by a borrowing base formula. Typical advance rates:
Accounts receivable: 75–90% of eligible receivables.
Inventory: 50–65% of appraised net orderly liquidation value.
Equipment: 50–80% of fair market or forced liquidation value.
Facilities typically range from $250,000 to $50 million+ in Canada.
What types of assets can secure an asset based loan facility?
An asset based loan facility can be secured by multiple asset categories:
Accounts receivable (most common and highest advance rate).
Inventory (raw materials, work-in-progress, finished goods).
Machinery and equipment.
Real estate (in some structures).
Intellectual property (less common, used in specialized facilities).
What industries benefit most from an asset based loan facility?
Asset based loan facility structures are especially effective in asset-heavy industries:
Manufacturing and industrial distribution.
Wholesale and retail with significant inventory.
Transportation and logistics with equipment fleets.
Staffing agencies with large receivable books.
Construction firms with progress billing receivables.
How long does it take to set up an asset based loan facility in Canada?
Setup timelines for an asset based loan facility typically range from 30 to 60 days. Key variables include:
Complexity of the asset base (receivables-only is faster than multi-asset).
Availability of current financial statements and aging reports.
Whether a field audit or appraisal is required before closing.
What are the costs and fees associated with an asset based loan facility?
Cost structure for an asset based loan facility includes several components:
Interest rate: typically prime + 1–3% for larger facilities; higher for smaller or higher-risk deals.
Facility fees: 0.5–1.5% annually on the total commitment.
Audit and monitoring fees: $2,000–$5,000 per field exam (usually 1–3 per year).
Legal and closing costs: one-time, typically $5,000–$25,000 depending on deal size.
Can a startup qualify for an asset based loan facility?
Startup qualification for an asset based loan facility is possible but limited. Key considerations:
Startups with existing receivables or purchased inventory may qualify for receivables-based facilities.
Pre-revenue companies rarely qualify because there is no collateral to lend against.
Asset based lenders prioritize the quality of collateral over the age of the business.
What is the difference between an asset based loan facility and invoice factoring?
An asset based loan facility and invoice factoring both leverage receivables, but they differ structurally:
An asset based loan facility is a loan—you retain ownership of receivables and repay a revolving credit line.
Factoring is a sale—you sell individual invoices to a factoring company at a discount.
Asset based facilities typically offer lower costs and higher borrowing limits than factoring.
Factoring is faster to set up and accessible to smaller or newer businesses.
How does an asset based loan facility help during a business turnaround?
Asset based loan facility structures are commonly used in turnaround situations because:
Lending is based on asset value, not on recent losses or covenant breaches.
The facility provides immediate liquidity to fund operations during restructuring.
Borrowing capacity can increase as the company stabilizes and asset values recover, particularly when using tailored asset-based lending solutions for Canadian businesses.
Statistics: Asset Based Loan Facility
Note: Statistics on asset based lending are published by industry associations and financial regulators. The following figures represent widely cited data points. We recommend verifying current figures with the sources listed below, as market conditions change.
The Secured Finance Network (SFNet) reported that total asset based lending commitments in North America exceeded $800 billion USD in recent years, reflecting continued growth in the ABL market.
Canadian asset based lending has grown at an estimated 5–10% annual rate over the past decade, outpacing traditional commercial lending growth.
Average advance rates for receivables in Canadian ABL facilities range from 75–90%, compared to 60–75% for traditional bank margining.
The Canadian Finance & Leasing Association (CFLA) reports that the broader commercial finance market, including ABL, supports over $150 billion in assets under management.
Turnaround and restructuring firms report that 60–70% of their clients use some form of asset based financing during the restructuring process.
Citations
Secured Finance Network. “Asset-Based Lending Industry Data.” Secured Finance Network. Accessed 2025. https://www.sfnet.com
Canadian Finance & Leasing Association. “Canadian Commercial Finance Market Overview.” CFLA. Accessed 2025. https://www.cfla-acfl.ca
Linkedin."ABL Loan for Business: Your Assets, Your Capital, Your Growth" .https://www.linkedin.com/pulse/abl-loan-business-your-assets-capital-growth-stan-prokop-u2zic/
Bank of Canada. “Business Outlook Survey and Senior Loan Officer Survey.” Bank of Canada. Accessed 2025. https://www.bankofcanada.ca
Government of Canada. “Personal Property Security Act—Provincial Legislation Overview.” Justice Laws Website. Accessed 2025. https://laws-lois.justice.gc.ca
Medium/Stan Prokop/7 Park Avenue Financial."Asset Based Loan Facility: How Canadian Businesses Unlock"Hidden Capital" . https://medium.com/@stanprokop/asset-based-loan-facility-how-canadian-businesses-unlock-hidden-capital-a6e775de864e
Export Development Canada. “Financing Solutions for Canadian Exporters.” EDC. Accessed 2025. https://www.edc.ca
Deloitte Canada. “Restructuring and Turnaround Services: Financing Alternatives.” Deloitte. Accessed 2025. https://www2.deloitte.com/ca
PricewaterhouseCoopers Canada. “Canadian Lending Market Trends.” PwC Canada. Accessed 2025. https://www.pwc.com/ca
7 Park Avenue Financial ."Asset-Based Lending: Funding Canadian Businesses" .https://www.7parkavenuefinancial.com/asset-based-lending-business-bank-abl.html
