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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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
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 dig in.
WHAT IS AN ABL FACILITY
ABL’s are business credit lines are ' operating lines', not ' term loans', that are typically 'non-bank' in nature. 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 in a very similar manner 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 :
1. It often includes fixed assets which increase your borrowing base, but the facility revolves in the same manner
2. 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 quality and mix of the asset in question
REAL ESTATE CAN BE ADDED INTO YOUR CREDIT LINE
Note also that if your company has real estate that can be margined into the credit line for additional borrowing power. Companies that are looking for a turnaround strategy often turn to asset based loans to help with restructuring short term capital needs.
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 are also very appropriate candidates for this method of operating facility revolving lines of credit. Don't get us wrong though - you still have to have qualified commercial receivables to decent clients, as well as 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 to gain a strong foothold in Canada, but clearly, there are fewer players 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.
WHAT IS MINIMUM AND MAXIMUM SIZE OF AN ABL LOAN - SPOILER ALERT - THERE IS NO MAXIMUM!
Clients often question us on the minimum and maximums size of transactions 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 when it comes to asset based loans.
ARE YOU RELUCTANT TO PUT MORE EQUITY INTO THE BUSINESS? ASSET BASED LENDING TO THE RESCUE!
Many businesses are pressured either via banks or other lenders or their equity investors to put additional equity into the company. 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, distributors, almost every industry is a candidate.
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 flow coverage doesn't really play a role in this type of borrowing.
CONCLUSION
The average business owner, financial manager, CFO rarely feels they have the ‘upper hand ‘when negotiating day to day credit facilities for business services for financing solutions they require.
Seek out and speak to 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 suits your company business needs the best and helps strengthen and monetize those balance sheets.
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Stan Prokop
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