ABL Facility Financing: Transforming Business Assets Into Working Capital | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR ABL FUNDING VIA A BUSINESS

CREDIT LINE!

THE ASSET BASED LOAN / ABL REVOLVER  / COMMERCIAL FINANCE SUCCESS!

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Financing & Cash flow are the  biggest issues facing businesses 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

 

 

 

"In business, assets are not just what you own—they're what you can leverage. The difference determines whether your balance sheet is a record of the past or a launchpad for the future." — Warren Buffett

 

 

ASSET BASED LENDING CREDIT FACILITIES IN CANADA

 

 

An ABL credit facility.  Could this be the solution to the business bank loans your firm has been seeking for your revolving credit needs?

 

 

We believe the weight of evidence strongly suggests you look at one of Canada's newer methods of financing commercial business credit lines to fund operations.

 

 

  

Cash Flow Challenges Solved: The ABL Advantage  

 

 

Are you struggling with limited working capital despite having valuable business assets? Traditional lenders often fail to recognize the true worth of your inventory, equipment, and receivables. This cash flow gap stifles growth and threatens operations.

 

Let the 7 Park Avenue Financial team show you how Asset-Based Lending facilities offer an elegant solution, converting your existing business assets into immediate working capital without compromising ownership or operational control.

 

Uncommon Takes on ABL Facility

 

1. ABL facilities can strategically complement traditional financing rather than replace it, creating a layered capital structure that optimizes both security and flexibility for seasonal businesses.
2. Well-structured ABL facilities can improve supplier relationships by enabling faster payment terms, potentially qualifying businesses for early payment discounts while extending customer payment terms.

 

 

WHAT IS AN ABL CREDIT FACILITY?

 

So, what do we think you need to know about this type of asset borrowing facility? Well, you asked for it, so here it is.

 

  

  

ABL FACILITY FINANCING IS AN ALTERNATIVE TO BANK LOANS    

 

 

- Many Canadian businesses use the ABL (asset-based lending) credit line as an alternative to Canadian chartered bank lines of credit. Although on large deals, ABL banking is available, and an administrative agent might be involved -

 

 

  

ABL FINANCE LENDING IS RELATIVELY NEW TO CANADA  

 

 

While this method of financing your business is not as widely known yet, some of Canada's largest corporations have used it, and continue to use it, for years.

 

 

Standard requirements for an ABL line of credit facility include properly prepared and up-to-date financial statements, bank statements, tax returns, and details on any existing secured creditors.

 

Collateral descriptions, as well as aged accounts receivable and accounts payable, are standard business lender requests by asset-based lending banks and commercial non-bank ABL lenders.

 

 

  

 

ABL ASSET-BASED LOANS ARE  ALL ABOUT .. THE ASSETS!  - HOW ABL LOANS WORK  

 

The main advantage of the facility is that it’s based on all your company's assets. Those sufficient  borrower's assets include receivables, inventory, equipment, tax credits, and physical assets such as real estate. Banks tend to focus on cash flow lending, versus asset finance in general.

 

All of those assets are more aggressively margined than at a bank, so your firm can, in many cases, double its borrowing power and working capital funding. Yes, we said ' double '.

 

 

 

ASSET BASED FINANCING LEVERAGES CASH FLOW FROM SALES REVENUES 

 

For various reasons, Canadian business owners and financial managers look to this financing method.

 

We have already mentioned increased daily borrowing power. Other reasons include pricing, the inability to achieve the bank financing you need, leveraging assets rather than traditional bank accounts receivable, and inventory financing.  ABL lenders actively monitor your sales and the collateral securing your ABL facility in case their borrower defaults.

 

  

  

 EVERY TYPE OF  BUSINESS CAN ACCESS ASSET LOAN FINANCING      

 

Almost any firm can utilize an ABL Credit facility.

 

Start-ups, high-growth firms, companies in ' special loans ', and firms in turnaround or restructuring mode typically consider this an alternative to business bank loans. You can be a very 'normal' company or a firm with issues and challenges.

 

Public and private companies alike can access asset-based lending, as can major retailers.

  

 

  

  

BORROWERS SHOULD BE PREPARED TO HAVE UPDATED FINANCIALS, ASSET LISTS, AGED PAYABLES/RECEIVABLES, ETC  

 

  

  

Companies utilizing this type of line of credit can be expected to report more stringently on their assets - but it’s simply the basics, ie aged receivables, inventory lists, equipment lists, and aged payables as well as your monthly balance sheet and income statement. 

 

We don’t think any of those should surprise the business owner.

 

The margins on a typical ABL funding scenario are usually 90% for accounts receivable, 30-70% for inventory (it depends!), and the appraised value of equipment, real estate, rolling stock, etc.

 

  

ABL IS COVENANT LIGHT!  

 

-Covenants and ratios typically demanded by our chartered banks, in their wisdom, don't normally apply to asset-based borrowing lines.

 

The full focus is on your business assets' value and turnover. High growth, viewed by commercial bankers as a minus, not a plus, is welcomed in an ABL funding environment.

 

  The borrower and lender will determine the best answer regarding 'abl facility vs term loan ' and the optimal financing structure.

 

  

  

HOW MUCH DOES ABL COST?    

Asset-based loans are priced based on various factors, including overall deal facility size, quality of the collateral, type of lender, and the general creditworthiness of the company and industry.

 

Certain large transactions will often enhance productivity and are competitive with bank financing but typical rates are in the  8-15%  range regarding interest rates.

  

Case Study on ABL Facility Benefits  

 

A Canadian specialty outdoor equipment manufacturer faced critical cash flow challenges during their production ramp-up period. With 70% of annual sales occurring in just four months, their traditional banking relationship couldn't accommodate the significant inventory build required six months before peak season.

 

After implementing an ABL facility that leveraged its inventory and equipment assets, the company secured a $3.2 million credit line that automatically expanded during production periods. This flexible financing allowed it to increase production volume by 35% while extending more competitive payment terms to key retail partners.

The results proved transformative: sales grew 42% within 18 months, supplier relationships improved through consistent early payments (earning additional discounts), and the business avoided the dilutive equity round they had initially considered. Most importantly, management now focuses on strategic growth rather than constant cash flow firefighting.

 

  

10 Specific Use Cases for ABL Facility  

 

Manufacturing Expansion: A growing manufacturing company needs to purchase additional equipment and raw materials to fulfill a major new contract, but despite having substantial inventory and equipment assets, it lacks sufficient cash reserves.

Seasonal Retail Inventory: A retail business needs to build up significant inventory six months before their peak selling season, creating a substantial cash flow gap between production expenses and eventual sales revenue.

Business Acquisition Financing: A company with strong tangible assets seeks to acquire a competitor without diluting ownership through equity investment, using their combined asset base to secure acquisition funding.

Supply Chain Disruption Response: A business facing extended supplier lead times needs to increase inventory holdings by 40% to maintain consistent operations. This requires additional working capital despite already having significant assets.

Government Contract Fulfillment: A service provider awarded a large government contract needs immediate working capital for staffing and equipment while managing extended payment terms typical of government work.

International Expansion: A Canadian business entering US markets needs additional working capital to fund cross-border inventory positioning and extended receivables cycles while establishing new distribution channels.

Post-Restructuring Growth: A company emerging from financial challenges with damaged credit but valuable assets needs working capital that traditional lenders won't provide despite improved operations.

Technology Modernization: A distribution business with aging systems needs substantial capital investment for technology upgrades while maintaining existing operations, with significant asset value but limited additional debt capacity.

Commodity Price Fluctuation Management: A raw materials processor facing increased commodity costs needs to maintain larger inventory positions to hedge against price volatility, requiring significant additional working capital.

Recovery From Natural Disaster: A business suffering physical damage from flooding or fire needs immediate working capital while insurance claims process, using undamaged inventory and receivables as collateral for immediate funding.

 

  

KEY  TAKEAWAYS  

 

 

• Asset valuation methodology forms the foundation of any ABL facility, with lenders typically advancing between 50-85% of the eligible asset value, depending on liquidity and verification ease.

 

• Borrowing base calculations determine your available credit, requiring regular reporting that monitors collateral value fluctuations while providing real-time financing flexibility.

 

• Advance rates vary significantly by asset class, with accounts receivable commanding premium rates (70-85%) compared to inventory (50-65%) due to conversion predictability.

 

• Covenant structures for ABL facilities focus more on collateral performance rather than financial performance, making them accessible for companies with strong assets despite challenging income statements.

 

• Eligibility criteria for receivables typically exclude accounts over 90 days, foreign receivables, and concentration issues where one customer represents excessive exposure.

 

• Operational monitoring involves periodic field examinations that verify collateral existence and valuation, becoming less frequent as borrowers demonstrate reporting reliability.

 

• Seasonal businesses gain exceptional flexibility through ABL facilities that automatically increase during inventory build-up periods without requiring additional approval processes.

 

• Reporting requirements include regular borrowing base certificates detailing eligible collateral, though modern systems now automate much of this previously burdensome process.

 

 

 CONCLUSION  - ABL LOANS AND THE RISE OF ABL FINANCING IN CANADA

 

Numerous factors will come into play when considering an abl credit agreement, but at the end of the day, it's all about sales revenues and collateral, as well as a financial covenant if imposed under the security agreement and borrowing base availability under the term sheet.

 

The lender will always monitor ABL agreements as long as the company can provide up-to-date sales and financial statements for eligible assets under the credit agreement.

 

So, how was your visit through the portal into a new world of asset-based commercial revolving credit facilities? 

 

Not always a long-term solution, many firms utilize this method of Canadian business financing as a bridge back to traditional finance solutions.

 

Speak to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can provide negotiating tips for determining whether your focus on business bank loans should instead be on an ABL credit facility.

 

 

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK /MORE INFORMATION

 

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