YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT FACILITIES!
THE ASSET BASED LENDING LINE OF CREDIT
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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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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Asset-based lending facilities transform business assets into powerful tools for securing vital financing.
Unlock the hidden value of your assets and secure the funding your business needs with asset-based lending facilities!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Asset Based Lending Facility solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
7 Park Avenue Financial : “Canadian Business Financing with the intelligent use of experience”
Asset Based Lending Facility: ABL Lending - Canada
Commercial financing for business credit lines.
Is there a revolutionary new way to look at the way businesses in Canada can access operating credit via a revolving credit facility to enable growth opportunities? We know there is, and it’s the alternative to the good old stand-by versus bank commercial borrowing.
It’s called ‘ ABL ‘. Let’s explore it. Businesses can use asset-based lending to unlock needed capital by leveraging a wide range of assets, such as accounts receivable, real estate, and intellectual property.
OPENING
Asset-based lending facilities (ABLF) provide a flexible and efficient solution for businesses seeking to unlock the value of their assets to secure financing. In today’s competitive market, where access to capital can be a decisive factor for growth and stability, understanding how ABLF works can empower business owners to make informed financial decisions. This lending approach allows companies to leverage their receivables, inventory, and other tangible assets as collateral, offering an alternative to traditional bank loans. By focusing on the value of the assets rather than credit scores, ABLF can be a lifeline for businesses with limited financing options. Additionally, asset-based loans can improve a company's cash flow by enabling businesses to leverage their assets to obtain loan amounts that can finance growth, acquisitions, restructurings, and turnarounds.
WHAT IS AN ABL FACILITY
ABLs are business credit lines that are ‘ operating lines’, not ‘ term loans’, and are typically ‘non-bank’ in nature.
Unlike credit and term loans, ABL facilities are typically non-bank and offer more flexibility. Some of the very reasons your firm might not be able to obtain bank financing are the same reasons you’re the perfect candidate for a business credit line via asset-based lending. It is often the most accessible commercial finance facility. Let’s dig in!
ARE ABL LOANS SIMILAR TO BANK FACILITIES?
Non-bank commercial entities offer an operating line for credit availability that operates similarly to bank revolving credit facilities to deliver the working capital your company needs.
All these facilities monetize your current assets - typically A/R and inventory. The asset-based credit line takes it two steps further to allow for sales growth. The terms and conditions of an asset-based loan depend on the type and value of the assets offered as security.
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It often includes fixed assets, which increase your borrowing base, but the facility revolves in the same manner
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Borrowing margins are significantly higher on your working capital assets - Accounts receivable are typically financed at 90% - Inventory in the 30-70% range depending on the quality and mix of the asset in question
REAL ESTATE AND ACCOUNTS RECEIVABLE CAN BE ADDED TO YOUR CREDIT LINE
Note also that if your company has real estate, it can be margined into the credit line for additional borrowing power.
Companies seeking a turnaround strategy often turn to asset-based loans to help restructure short-term capital needs. Physical assets such as real estate, machinery, and equipment can be used as collateral to increase borrowing power.
ARE YOU OFFSIDE ON YOUR RATIOS AND COVENANTS WITH YOUR SENIOR LENDER
At 7 Park Avenue Financial, we often encounter business owners who are growing or have their debt-to-equity and cash-flow ratios temporarily out of whack. They are also very appropriate candidates for this method of operating facility revolving lines of credit.
Asset-based lending is more accessible to businesses with lower credit scores or no credit history.
Don’t get us wrong, though - you still have to have qualified commercial receivables to decent clients and inventory that has the appropriate amount of turnovers and can be liquidated by the asset-based lender if needed.
Hopefully, that is never going to be the case, though!
THE HISTORY OF ASSET-BASED LENDING
Asset-based financing started in the United States and is also prevalent in Europe.
It continues gaining a strong foothold in Canada, but fewer players are involved. This often makes it challenging for the Canadian business owner and manager to access the right partner. Some expertise in picking the right partner is highly recommended.
Positive financial performance is crucial for determining eligibility for asset-based lending.
WHAT IS THE MINIMUM AND MAXIMUM SIZE OF AN ABL LOAN - SPOILER ALERT - THERE IS NO MAXIMUM!
Clients often question us about the minimum and maximum transaction sizes for business credit lines that are non-bank in nature.
Typically, $250,000 is the minimum, and all things being equal, there is no upper borrowing limit if your firm has the assets to qualify. It is all about financing the balance sheet. The middle market is very well served by asset-based loans.
Sufficient assets, such as receivables, inventory, and real estate, are crucial for qualifying for larger asset-based loans.
ARE YOU RELUCTANT TO PUT MORE EQUITY INTO THE BUSINESS? WORKING CAPITAL AND ASSET BASED LENDING TO THE RESCUE!
Many businesses are pressured by banks, other lenders, or their equity investors to raise additional equity, thereby strengthening the capital structure.
ABL revolving line of credit facilities allow you to eliminate the ‘equity’ component of your overall financing strategy. As a result, it’s good for larger retailers, tech firms, manufacturers, and distributors; almost every industry is a candidate. Businesses can use pledged assets, such as equipment or real estate, as collateral to secure asset-based loans.
THE COST OF ASSET BASED CREDIT
Is it all ‘ apple pie and motherhood ‘ when it comes to an ABL revolving credit facility?
Not all the time, as this financing solution is typically (not always) more expensive and you have to be prepared to report a bit more regularly on the assets being financed. That’s because they are the sole collateral for your borrowing! Debt to equity and cash
KEY TAKEAWAYS
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Asset Valuation: Understanding the process of determining the value of assets is crucial for leveraging them as collateral. Accurate valuation directly impacts the amount of financing a business can secure.
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Receivables Financing: Utilizing accounts receivable as collateral can provide immediate cash flow, helping businesses meet operational expenses and growth needs.
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Loan-to-Value Ratio: Knowing the ratio of loan amount to collateral value helps businesses understand the maximum borrowing potential and manage expectations.
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Collateral Management: Effective strategies for managing and monitoring collateral ensure the ongoing value and security of the loan.
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Creditworthiness Assessment: Evaluating the borrower’s ability to repay the loan is essential for both lenders and borrowers to ensure a mutually beneficial agreement.
CONCLUSION
The average business owner, financial manager, or CFO rarely feels they have the ‘upper hand ‘when negotiating daily credit facilities for business services and financing solutions they require.
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you select between a bank and an abl facility in a manner that best suits your company's business needs and helps strengthen and monetize those balance sheets.
FAQ
What is an asset-based lending facility?
An asset-based lending facility allows businesses to secure financing using their assets, such as receivables, inventory, and equipment, as collateral.
How does asset-based lending differ from traditional bank unsecured loans?
Asset-based lending focuses on the value of a company’s assets rather than its creditworthiness, making it accessible for businesses with less-than-perfect credit.
What types of assets can be used as collateral?
Typical assets include accounts receivable, inventory, machinery, and equipment. The specific asset values that are accepted depend on the lender's policies.
Why Choose Asset Based Lending and How can asset-based lending benefit my business?
Asset-based lending can provide quick access to working capital, improve cash flow, and offer flexibility in managing business operations and growth.
What are the typical costs associated with asset-based lending?
Costs can include interest rates, appraisal fees, and monitoring fees. These costs vary based on the lender and the specifics of the loan agreement.
How do I apply for an asset-based lending facility?
To apply, you typically need to provide financial statements, details of the assets to be used as collateral, and a business plan. Lenders will assess the value of your assets and your business’s financial health.
What are the eligibility criteria for asset-based lending?
Eligibility criteria can vary but usually include having sufficient valuable assets, a stable financial history, and a sound business plan. Each lender will have specific requirements.
How does asset-based lending affect my company’s balance sheet?
Asset-based lending can improve liquidity and cash flow but also increase liabilities. Proper loan and asset management is crucial to maintaining financial stability.
Can I use asset-based lending to refinance existing debt?
Asset-based lending can be used to refinance existing debt, providing a more flexible and potentially lower-cost financing option.
How do lenders monitor the collateral in an asset-based loan?
Lenders typically conduct regular audits and appraisals to ensure the collateral's value remains sufficient to cover the loan. They may also require periodic financial reporting.
What industries commonly use asset-based lending facilities?
Industries like manufacturing, wholesale, distribution, and retail commonly use asset-based lending due to their substantial inventory and receivables.
How quickly can I access funds through an asset-based lending facility?
Funds can typically be accessed within a few weeks, depending on the lender’s processes and the complexity of the asset valuation. Many businesses choose accounts receivable financing, which is available even more quickly regarding facility approval with receivables as the main pledged asset.
What happens if the value of my collateral decreases?
If collateral value decreases, lenders may reduce the loan amount or require additional collateral. Continuous monitoring helps mitigate this risk if the borrower defaults.
