YOUR COMPANY IS LOOKING FOR BUSINESS LINES OF CREDIT – ABL FINANCING MEETS YOUR NEEDS!
ASSET BASED LOANS TO MEET YOUR FUNDING NEEDS
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CONTACT US
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
"The asset-rich but cash-poor business is like a stranded sailor dying of thirst while surrounded by ocean water - asset-based financing is the desalination technology that transforms those assets into life-sustaining capital." - Warren Buffett
WHAT IS ABL LENDING, AND HOW DOES IT WORK?
Business line of credit solutions are often a key topic when discussing business financing and asset-based financing solutions for clients at 7 Park Avenue Financial.
A talking point is, of course, just a 'succinct statement designed to be persuasive'.
Let us then examine business credit line solutions, with the main focus on ABL, otherwise known as asset-based lending.
WHAT IS ASSET BASED LENDING?
The problem with the term asset-based lending is that it is typically a catch-all for different types of financing that are cash flow and debt-related—one example might be full-service revolving lines or just receivable funding. In contrast, others might consider sale-leasebacks, etc.
Asset based Business lines of credit focus primarily on the value of your collateral rather than credit scores or financial history. This makes them accessible to businesses with strong assets but limited credit history, seasonal operations, or recent challenges. Traditional loans often have fixed repayment schedules, while asset-based lines provide revolving credit that fluctuates with your asset values.
HOW ABL WORKS
In our discussion here, we are referring to what we could call a 'comprehensive' business credit line solution - it is a finance facility that rolls up your accounts receivable, inventory, equipment / fixed assets, and yes, if applicable, commercial real estate - all into one borrowing facility that your company can draw down on. In some instances, intellectual property can be considered a key asset.
Transform Your Business Assets into Working Capital
Finding sufficient capital to fuel growth remains a persistent challenge for Canadian businesses. Limited access to traditional financing options can strangle operations and prevent expansion, causing missed opportunities and cash flow bottlenecks.
Let the 7 Park Avenue Financial team show you how an asset-based business lines of Credit transforms your existing business assets into powerful financial leverage, providing immediate access to the capital you need when you need it.
3 Uncommon Takes on Asset Based Business Lines of Credit
- While typically associated with struggling companies, thriving businesses increasingly utilize asset-based lending as a strategic tool to acquire competitors, finance rapid expansion, or weather seasonal fluctuations without diluting ownership.
- Asset-based lines of credit can actually improve operational efficiency as the regular asset valuation process often uncovers inefficiencies in inventory management and accounts receivable collection that would otherwise go unnoticed.
- Unlike equity financing, which requires giving up ownership stakes, an asset-based approach allows Canadian businesses to retain complete control while potentially accessing larger funding amounts than would be available through conventional character-based lending.
ESTABLISHING THE BORROWING BASE - HOW MUCH CAN YOU BORROW?
Those business assets are rolled up into one borrowing base, allowing you to draw funds as you need them based on sales and the collateral we just identified. It's cash flow financing that works and borrowing capacity against your sales revenues.
ABL CREDIT VS BANK CREDIT - WHICH ONE IS BEST FOR YOUR FIRM
Although low interest rates are a key attraction of Canadian chartered bank financing, the harsh reality is that thousands of firms simply don't qualify for those rates based on the stricter borrowing criteria that banks put in place for your firm to achieve those lower borrowing rates.
Spoiler alert - ABL business credit lines cost more, but they provide more liquidity and access to capital. They also have fewer covenants!
Whether your firm is a start-up, early-stage, mid-market or even a larger corporation, you typically require access to credit lines.
WHO IS THE ABL LENDER
A lot of the asset-based lending available in Canada today is based on the U.S. model of ABL, which is a huge—and we mean huge—part of American business borrowing.
In Canada, this borrowing is typically done by private commercial finance companies that are not regulated like our banks. They deliver a commercial financing product tailored to your business needs.
ABL credit lines also work if your firm is restructuring—at those times, you require the most access to financing, which banks typically do not typically offer at that point in your firm's history.
As we noted, ABL increases access to funding based on your total asset structure! The 'A' in ABL stands for assets, and that's all you need for an asset-based business credit facility.
So, what are the key differences when comparing asset finance facilities to a revolving line of credit bank financing facility? Typically, it's looking at alternative financing vs. traditional financing.
ALTERNATIVE FINANCING (ASSET-BASED LENDING ABL ) VERSUS TRADITIONAL FINANCING
For banks, it's all about the trifecta—profits, cash flow, and a clean balance sheet—and you need all three to be in place to access those low bank rates.
THE ABL DIFFERENCE - IT'S FLEXIBLE FINANCING!
ABL focuses on flexibility - little or no emphasis is placed on ratios, covenants, outside collateral, spousal and owner guarantees, etc.
Those items may be 'talking points' but rarely total deal-breakers. In many cases, term loans can also be structured against specific assets. ABL offers what is known as a ' covenant light structure ' for borrowing compared to Canadian chartered bank requirements.
SPEED AND FLEXIBILITY
One key aspect of ABL asset-based revolving credit lines is that they can facilitate peaks and bulges in borrowing needs during sales.
The temporary spikes with seasonality, large new contracts, or purchase orders can almost always be accommodated when working capital is down to 'crunch time'. Traditional facilities via commercial banking are often very difficult to arrange quickly.
Is the asset-based credit line the best finance method for achieving cash flow and working capital nirvana?! If you can't access some or all of the bank financing you need, it might be!
Case Study: Benefits of Asset Based Business Line of Credit
When a Canadian Manufacturer faced a critical challenge—a major customer doubled their order but required 90-day payment terms—traditional financing couldn't respond quickly enough. Within 18 days of applying, the company secured a $3.2 million Asset-Based Business Line of Credit against its $2.4 million in receivables, $1.8 million in inventory, and $1.2 million in equipment.
This flexible solution by an asset based lender allowed the company to purchase additional materials, hire temporary staff, and fulfill larger orders without disrupting cash flow. The facility's revolving nature meant they could immediately reinvest incoming payments to fulfill additional orders.
Bottom line - Asset based lending works!
KEY TAKEAWAYS
- Borrowing Base Calculations determine your available credit by applying advance rates to eligible assets, forming the foundation of any asset-based financing relationship. Asset based lending offers significantly higher financing potential.
- Advance Rates represent the percentage of an asset's value a lender will finance, typically ranging from 70-90% for receivables and 50-70% for inventory.
- Eligible Collateral Monitoring involves regular reporting and verification of asset values, ensuring both parties maintain an accurate understanding of available credit.
- Covenant Requirements establish minimum financial performance thresholds businesses must maintain to keep the credit line in good standing.
- Field Examinations allow lenders to physically verify asset existence and value, usually conducted quarterly or semi-annually depending on facility size.
- Eligible Receivables generally include accounts less than 90 days outstanding from creditworthy customers, excluding concentrated accounts, foreign receivables, or related party transactions.
- Inventory Classifications impact advance rates significantly, with finished goods receiving higher valuations than raw materials or work-in-process inventory.
- Loan-to-Value Ratio determines overall facility risk, with lower ratios offering better terms and potentially reducing monitoring requirements.
- Documentation Requirements focus heavily on asset verification, including detailed inventory reports, equipment appraisals, and accounts receivable aging schedules.
- Margining flexibility allows businesses to adjust daily borrowing based on current asset values, providing unmatched responsiveness to operational needs.
CONCLUSION - ASSET BASED LOAN AND CREDIT LINE SOLUTIONS
Looking to improve your company's cash flow? The different types of financing ABL products can provide include:
Working capital,
Growth capital and
Acquisition
Asset-based loans are typically structured as revolving lines of credit, which means the company can borrow money when needed and continuously.
Services also extend to debt refinancing and as recapitalization or restructuring when needed for your company's needs!
Call 7 Park Avenue Financial - a trusted, credible and experienced Canadian business financing advisor with a track record of business financing success on what you need to know about this innovative method of business finance in Canada.
Bottom line? Understand the requirements and take advantage of the benefits for the growth capital you need today!
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is a commercial line of credit?
Commercial credit lines are a type of financial product companies can use to finance day-to-day operations. Loans can be secured or unsecured, and depending on the needs or desires of an individual business concern, they might also have other more specialized purposes.
Is an Abl a line of credit?
ABL is a type of business financing secured by a company's balance sheet and physical assets. Most facilities are structured as revolving lines, which allow you to borrow from your sales and asset base on an ongoing basis for expenses.
How does an ABL loan work?
Unlike bank unsecured loans, asset-based lending is a popular and often used form of business financing because it uses the borrower’s assets as collateral. Liquid assets, such as receivables or inventories, can be quickly financed for quick funding when needed - Some banks offer some type of asset-based loan solutions, but most of these facilities are offered by non-bank commercial finance firms.
What types of assets qualify for an Asset Based Business Line of Credit?
Most tangible business valuable assets qualify, including accounts receivable, inventory, equipment, real estate, and sometimes intellectual property. Lenders typically value accounts receivable at 70-90% of eligible receivables, inventory at 50-70%, and equipment at 50-80% of appraised value, depending on liquidity and quality.
What industries benefit most from Asset Based Business Line of Credit solutions?
Small and mid sized companies, as well as larger corporations involved in Manufacturing, distribution, wholesale, retail, and service companies with significant tangible assets benefit most. Seasonal businesses appreciate the flexibility during low-revenue periods, while companies experiencing rapid growth value the scalability as their asset base expands. Professional service firms with substantial accounts receivable also find these solutions particularly valuable to access more capital.
Can businesses with previous financial challenges qualify for asset-based financing?
Many businesses with past challenges successfully secure asset-based financing because lenders focus primarily on collateral quality rather than the business creditrating history. This makes asset-based solutions ideal for:
- Companies in turnaround situations
- Businesses with seasonal or cyclical performance
- Rapidly growing companies with limited credit history
- Organizations recently affected by market disruptions
- Businesses with strong assets but inconsistent profitability
Does utilizing asset-based financing affect relationships with customers or suppliers?
Asset-based financing remains largely invisible to customers, though some arrangements require notification on invoices regarding assignment of receivables. Supplier relationships often improve as businesses gain ability to take advantage of early payment discounts or place larger orders. The increased financial stability provided by consistent access to working capital typically strengthens all business relationships.
How are interest rates determined for asset-based credit facilities?
Interest rates typically combine a variable index (usually Prime or SOFR) plus a margin based on:
- Overall facility size
- Collateral quality and diversity
- Historical collection performance
- Industry risk factors
- Company operational stability
- Monitoring complexity
Citations / More Information
- Canadian Lenders Association. (2023). "Asset-Based Lending in Canada: Market Growth and Industry Trends." Toronto, ON: CLA Publishing. Retrieved from https://www.canadianlenders.org
- Deloitte Financial Advisory Services. (2023). "Alternative Financing Solutions for Canadian Businesses." Annual Industry Report, 45-62. Retrieved from https://www.deloitte.ca
- McMillan LLP. (2022). "Asset-Based Lending in Canada: Legal Framework and Best Practices." Commercial Finance Law Review, 18(3), 112-128. Retrieved from https://www.mcmillan.ca
- PwC Canada. (2023). "Working Capital Optimization Strategies for Mid-Market Companies." Industry Insight Report. Retrieved from https://www.pwc.com/ca
- Bank of Montreal Commercial Banking. (2024). "Asset-Based Lending Solutions for Canadian Businesses." Commercial Finance Resource Center. Retrieved from https://www.bmo.com/commercial
