ABL Lines Of Revolving Credit Asset Based Lending | 7 Park Avenue Financial

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Can Asset Based Lending Help Your Company? The ABL Solution Works
Guide To The Asset Based Credit line





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what is an asset based financing line of credit



Is asset-based lending the right financing for your business? That's a question that comes up all the time with our clients, and they want solutions now, not down the road!


A 'one size fits all solution is asset-based lending. These asset based line 'ABL'  financing strategies and solutions via credit lines or term loans could provide all the financing your firm needs in today's competitive environment for a credit line / revolving credit facility that meets your needs.


Asset-based lending industry statistics show explosive growth over the last decade. What is Asset Based Lending, also known as 'ABL'? Simply speaking, it's a lending facility with the collateral being specific company assets.


Utilizing the ABL formula allows your company to fund Accounts receivables, Inventories, unencumbered equipment, and real estate. That's the asset based business line of credit. That latter asset, company-owned property, can be a part of your asset mix.


The combination of those assets will significantly improve overall business liquidity/working capital. One way to view this newer method of financing is to look at it as a ' blending ' of your company assets.




This lending formula, therefore, delivers access to more capital than anyone financing. There are numerous, let us call them ' subsets ' of asset finance:


A/R Financing / Selective invoice discounting  / Confidential Receivable Financing

Inventory loans

Purchase Order Financing

Sale Leasebacks


All of these deliver solid financing when your business needs it.


But combined into an Asset Based Borrowing solution, your firm maximizes total working capital needs. View it as an option to run your business daily or in terms of considering a management buyout or acquisition. It's working capital when you need it most.


Companies that are constantly growing and need additional operating capital are the best candidates for the cash flow generating power of asset-based lenders.


Many of the best candidates for this business finance solution are financially leveraged and are not best suited for traditional Canadian bank financing. While asset based lending banks do exist in Canada one challenge is that the minimum facility size for ABL Chartered Bank solutions is often 5 Million dollars and up .


Business owners and financial managers are looking for finance that grows with their business. As it became difficult to get all the financing they needed after 2008's recession, many business owners investigated the ABL loan solution. Typically, (but not always) asset-based finance is non-bank in nature - specialized commercial finance companies offer it.


It helps businesses access more working capital and cash flow - typically "Job 1" for any business. If your company has long-term debt and is looking to avoid taking on more debt, payables are rising, and you're waiting longer to collect receivables, asset finance is a very logical solution. Ironically many business owners and financial managers, in some cases, haven't heard of this type of financing. In the 'old days' (we remember them well), abl was often touted as financing of last resort. No longer!


Using it can grow your business, expand into new markets, buy a competitor, and oh yes, survive day today!


Summary Of The Benefits Of ABL


New clients at 7 Park Avenue Financial always ask us to clarify the benefits of the asset-based lending solution. A combination of business assets delivers a higher level of liquidity than any one type of finance—the ability to unlock assets traditionally not margined by Canadian banks as part of a working capital revolver with higher advance rates on the face value of the assets.


The ability to restore your firm to a level of financial stability - we meet with a lot of management which by necessity, are always spending management time on cash flow needs. Every industry requires different levels of expertise and funding - ABL suits a wide variety of industries ABL is a legitimate 'catch-all' for expansion, restructuring or refinancing (Yes, you can finance the purchase of an existing business).  Asset finance solutions are low-cost when compared to equity financing.


Traditional Canadian bank requirements around covenants, ratios, etc., make ABL more accessible. Its ability to 'co-exist' with other types of debt is a key positive for firms with different senior and junior debt levels. It is a funding structure that works! That is what we at 7 Park Avenue Financial call a  'covenant light structure'! given that many traditional financing products and services revolve around strict adherence to ratios, outside collateral, personal guarantees, etc.


Most financing products have covenants, though some solutions are more flexible than others. Bank lines of credit have strict covenants designed to limit the bank's risk.


In its purest sense, asset-based lending is often just a revolving line of credit that allows you to borrow against all, repeat 'all' of your assets. Those typical asset categories include receivables, inventory and fixed assets... even real estate if your company occupies and owns its own premises. Therefore the prime security of the loan is a focus on the overall value of your asset base, with less, or no reliance on external collateral, the focus on personal guarantees, etc.




The entire subject of leverage and margining your assets in ABL is critical to understand for the business owner and financial manager. ABL-funded revolving credit facilities are based on a formula based on the liquidation value of your current and fixed assets - a key aspect of asset based lender due diligence .


Naturally, a/r and inventory rank very high in liquidation value and will provide the maximum borrowing power. Typical advances on receivables are 90%, and percentages will vary based on the many types of inventory specific to any industry in Canada.


How Is The Exact Value of ABL Secured Loans In Canada Calculated?


The asset-based lender will focus on your firm's company's assets via the balance sheet to ensure a detailed analysis of your overall potential liquidity.


Factors that come into play include specific industry issues as well as current economic conditions, pandemics included! For example, the ageing for a/r and inventory will determine eligible amounts of borrowing under the facility, i.e. all receivables under 90 days are usually a typical borrowing power measure.


Physical assets such as equipment, machinery, technology and commercial real estate are also included in the mix when appropriate. In some cases, certain types of other assets such as intellectual property might be included.


There might be a 'dilution' part to the formula - that might allow bad debts/uncollectible accounts. The final borrowing base certificate will demonstrate maximum borrowing power for your firm including eligible accounts receivable. It should go without saying your firm should have good reporting and accounting systems capabilities.


Canadian asset-based finance candidates can appreciate that numerous fluctuations in their business sometimes deliver a challenge to those borrowing base calculations. Retails or distributors might require excess borrowing capacity at certain times of the year, so seasonality must be factored into any common sense formula.


The best way to address that is to ensure your lender has visibility to historical documents around cash on hand, current asset levels, accounts payable, etc. Here's where overall averages can really help the final formula. Yes, assumptions must be made, but those cushions will be an excellent 'shock absorber' in available borrowing.


Traditional bank financing often revolves around strict reporting periods on financial statements and aged reports on receivables and inventories and often comes with a term loan structure. If your firm requires what the pros call 'bulge financing, ' traditional bank-type facilities cannot necessarily solve the cash flow crunch. The more liquid your accounts receivable and inventories are regarding turnover will mean a higher loan to value in drawing down on your facility.






Simple - You can borrow significantly, on an ongoing basis, against those assets. Smaller ABL facilities tend to be in the 250k range, but they can easily run into the millions. Many large corporations use ABL also, by the way! By now, you may have picked up on the fact that as your business grows, you can borrow more on an ongoing basis, as your assets have also grown - with virtually no upper limit.


While Canadian chartered banks focus on ratios, covenants, debt service formulas and personal guarantees and high net worth, the asset finance solution focus... you guessed it... mostly on your business assets. ABL comes in different flavours and can be specifically based or full service against all assets. The more  Liquid assets such as receivables provide higher margining thank bank facilities. That allows you not to postpone business success!


Can you afford not to access this solution? So what can ABL do for your company - if you're growing, let asset-based financing finance that growth. Growth financing is a challenge for every business. If you are considering funding an acquisition, ABL can play a part in that financing. Many entrepreneurs don't realize the critical part that asset finance can play in acquisition financing. It is often the cheapest, quickest, and most efficient way to fund acquisitions versus going the equity financing route, as well as demonstrating a more efficient underwriting process.


An asset-based lending mortgage can also be part of any new facility. If your requirement is a turnaround or recapitalization, this method of business finance is well suited to your needs and can be delivered promptly when timing counts!


CONCLUSION  - ABL Lines Of Revolving Credit Asset Based Lending


Working with  7 Park Avenue Financial, an experienced advisor with a track record of financing success will also allow you to address any cross-border financing that might be required. The seasonality of any industry can greatly impact cash flow - let this form of financing help you with the cash flow strain. And should your company require  'turnaround' asset finance as a proven method of restructuring your firm?


Speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of success in achieving the benefits of ABL finance. Let our team tailor a specialty facility tied to your business within its industry. We will demonstrate how to unlock working capital to meet all your cash flow needs with the right total financing option. Next step? Growth/success, because ABL solutions let you grow with confidence.


What is an asset-based financing line of credit?

Asset-based lines of credit are for companies looking to secure credit lines on accounts receivable and via other substantial assets on eligible collateral - i.e inventory, equipment, and real estate if applicable. ' ABL LOANS' secured these assets in the form of one revolving line of credit. Interest rates are higher on these facilities but provide firms with greater access to capital as their annual revenue grows.


What is an ABL Facility Via An Asset Based Lending line of credit?


An  ABL Facility is an asset-based revolving line of credit facilities via an abl agreement with the company and the abl lender. These working capital and receivable facilities are secured by the collateral assets of the company- These facilities are an alternative to commercial banking unsecured lines of credit. Companies selling into U.S. and global markets are also eligible for asset loans.


How is factoring receivables priced?

Asset-based lending solutions are typically priced via an interest rate benchmarked against the prime rate. Factoring receivables uses a discount or fee-based pricing. Many smaller companies with a lower monthly revenue base consider third party factoring finance solutions.

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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil