ABL Loans Canada  |  Business Financing Via An ABL loan | 7 Park Avenue Financial

 

Asset-Based Lending (ABL) Revolvers leverage a company's assets as collateral, and provide a lifeline to organizations seeking liquidity without the stringent requirements of traditional bank loans.

ABL Credit lines support operations, growth, and restructuring, and allow your company to unlock its full potential.

 

Three uncommon takes on Asset Based Lending  & Loan Collateral 

 

• ABL is often less about “needing debt” and more about unlocking capital trapped inside your balance sheet.

• The best ABL users are not always distressed borrowers; many are stable companies that have outgrown conventional bank structures.rbcroyalbank

• In practice, ABL can be a discipline tool because regular borrowing-base reporting forces tighter visibility into receivables, inventory quality, and cash conversion.

Let's take a look at how  ABL Lending / ABL loans via asset-based lending and financing can be the perfect solution for your revolver facility loan needs.


In business, there’s nothing more urgent than a 'call to action around a working capital or cash flow crisis.   At this point, it's all about 'righting the ship' and helping Canadian business owners and financial managers get their finances under control. It's more often than not a case of simple survival.

WHY CHOOSE ASSET BASED LENDING

Naturally, putting in a proper ongoing financial solution, such as an ABL revolving financing, allows you to get your eyes back on running the company normally on a daily basis - we meet with clients who regularly tell us that a huge amount of time is spent on managing cash crises and juggling things such as vendor payments.

 

The bottom line: it's time to stop putting out the fires and focus on a solution such as ABL finance ... that works!

FINANCING FLEXIBILITY

 

How Does Asset-Based Lending (ABL) Convert Balance Sheet Strength into Usable Liquidity Faster Than Bank Cash Flow Lending?

 

 

Asset-based lending (ABL) focuses on the value of your balance sheet assets, while traditional bank cash flow lending focuses primarily on your historical financial performance and future repayment capacity. That fundamental difference is why ABL can often unlock more capital—and do so more quickly.

 

 

In many cases, companies are seeking growth financing and may even be considering a business acquisition.

It is not unusual for firms in certain industries to face seasonal business, requiring occasional bulge financing to ease cash flows.

 The beauty of the ABL line of credit solution is that it can address some challenges and opportunities at the same time - ie recapitalization, turnarounds, or the challenge of too much leverage on the balance sheet and not enough funding to run and grow the business. We can safely say ABL is ' flexible financing' at its best when compared to traditional operating facilities.

A true asset-based line of credit can allow you to get back the confidence that your suppliers, lessors, and other lenders had in your business, and that’s important. Lenders, investors, and suppliers can truly control the destiny of your company if the perception of a permanent cash-flow shortage persists.

 

What is a borrowing base? Equipment/ Receivables/Inventory

 

A borrowing base is the dynamically calculated dollar limit a lender allows a business to draw from a revolving line of credit, determined by applying specific advance rates to eligible accounts receivable and inventory.

WHAT IS AN ABL REVOLVER?

A revolver facility in asset finance and business credit terms is simply a credit facility that can be drawn under a credit agreement between the company and its senior lender. These lenders are typically asset-based lending commercial financing companies or traditional banks.

DO BANKS OFFER ABL FINANCING? ASSET-BASED LENDING BANKS?

So, enough about the fear! Let's focus on a solution that works.  Simply put, that’s asset-based financing via a revolver facility, which is generally non-bank in nature. (Some Canadian banks now offer this facility, but the credit requirements and deal size criteria are, in our opinion, exceptionally high).


Commercial banks and chartered banks offer solutions focused on cash-flow lending through unsecured or term loans, with or without collateral, such as equipment.


Bank credit and term loans have several financial covenants attached to borrowing, as they deliver low-interest rates while focusing on cash flow and profit versus a company's assets - ABL is considered  'covenant light, ' with little or no emphasis on personal guarantees or outside collateral.
 

 

HOW DOES AN ABL LOAN REVOLVER WORK?

The concept of asset-based lending, aka 'ABL,' is simply securing your assets and leveraging them to the maximum extent possible, resulting in greater liquidity for your company.

 

And by the way, don’t think we have just leveraged up a ton of debt on your balance sheet - 100% wrong; we have simply monetized or 'cash-flowed' existing assets... allowing you to borrow against them.



Comprehensive financial solutions are available for a variety of those assets. Those assets are typically very clear categories of physical and balance sheet assets, such as receivables, inventory, equipment, and, occasionally, real estate and tax credits due to your firm.

 

(Yes, tax credits such as the SR&ED credit can be included in your financing package). Asset-based lending for real estate is typically structured as a separate loan, but it can also be bundled into a facility!


So the question then becomes, don’t banks do this already...? And you have tried that possible scenario. The quick takeaway here is two things. First of all, ABL loans and revolving financing facilities provide greater leverage on current assets.


Accounts receivable are typically margined at 90%, and inventory, often difficult to finance for cash flow, can be margined anywhere from 30% to 70%, for example. If you were getting 75% from your bank on A/R and nothing on inventory, haven’t we just increased your working capital by anywhere from 50-100%?! Wow.


A very simple way to look at this, and we use this example with clients all the time, is to simply think of the asset-based lender solely looking at the collateral, while the banks will focus on collateral, but mainly historical cash flow, ratios and covenants, and outside collateral via personal guarantees, etc.


(As a general rule, very little emphasis is placed on personal guarantees when an ABL loan facility is put in place. The interest rate on asset-backed loans is usually higher than that of traditional bank financing, but not always!


Oh, and by the way, you absolutely don’t have to be profitable to qualify for asset-based lending facilities, which in Canada start at a minimum of 250k and go up to tens of millions of dollars.

 

 

Case Study#1

FROM THE 7 PARK AVENUE FINANCIAL CLIENT FILES

 

 

Company: ABC Company, a mid-sized industrial equipment distributor in Ontario

 

Challenge: ABC Company had strong receivables and a healthy inventory position but had outgrown its bank line of credit. Sales were seasonal, and the bank's fixed limit didn't flex with their busiest quarters, leaving them short on working capital right when order volume peaked.

 

How We Got There: 7 Park Avenue Financial arranged an ABL loan structured around the company's receivables and inventory rather than a static credit limit. The facility was set up to recalculate borrowing availability monthly, so funding capacity grew with their seasonal order volume rather than remaining fixed.

 

Results:

• Available working capital increased by over 60% during peak season compared to their prior bank line
• Order fulfillment delays tied to cash flow gaps were eliminated
• The company retained full ownership and collection control of its receivables, unlike a factoring arrangement

 

 

 

Case study #2

 

 

Company: ABC Company, a Canadian manufacturing business.

 

Challenge: ABC Company had strong inventory and receivables, but cash flow lagged due to slow customer payment terms.

How we got there: We structured an asset-based lending facility around eligible receivables and inventory, allowing the company to access working capital against assets already on the balance sheet.elfc+1

Results: ABC Company gained more flexible liquidity, reduced pressure on day-to-day operations, and had room to fund production without waiting on customer payments.

 

 

KEY TAKEAWAYS

 

 

Businesses can secure loans based on their sales and assets. Understanding the differences between ABL and Traditional Lending reveals the unique benefits and flexibility ABL offers.

ABL Revolvers allow a company to borrow against assets, providing continuous liquidity.

 

CONCLUSION

Asset based loans are available in multiple forms to Canadian businesses looking for business capital to run and grow the business.

 

Your business assets, such as accounts receivable, inventories, fixed assets, real estate and other assets, can establish a borrowing base for substantial financing based on solid margins on the face value of a broad range of business assets.

 

Let the 7 Park Avenue Financial team help you understand the advantages and potential disadvantages of asset-based lending.



So, cash flow crisis for small and mid-sized companies, or just regular business needs?  Growth challenges/growth opportunities? Looking for a solution such as ABL credit?

 

Call 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor, to ensure an ABL working capital facility is right for your firm.

 

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

 

What does ABL loan mean?


The asset-based loan, aka 'ABL' is a credit facility under a term loan or operating line of credit that is supported by a borrowing base of the assets of the company.

 

Different types of ABL facilities exist, some of the individual subsets of asset finance, such as accounts receivable financing/factoring, inventory finance, and sale-leaseback financing on equipment or commercial real estate owned by the business. The asset finance solution typically delivers ' more financing' when compared to commercial banking under traditional bank finance solutions.

Asset-backed financing solutions are often characterized by a covenant-light structure with fewer restrictive covenants and ratio requirements that must be maintained. Companies with higher balance-sheet leverage are strong candidates for asset-finance funding.

What is an ABL facility?

An ABL  facility is a senior credit facility that provides business funding secured by first-position security on the assets of a business. The asset-based lender conducts appropriate due diligence on asset values, such as accounts receivable, inventory, and fixed assets.



What is a revolving credit limit?

Revolving credit limits allow companies to draw down on a set credit facility on an ongoing basis, using balance sheet asset values, with the facility replenished by collections and cash inflows.

 

How does ABL Revolver differ from traditional loans?

Asset-based lending, or ABL Revolver, offers a more flexible and accessible form of financing by using a company's assets as collateral, unlike traditional loans that focus on creditworthiness and financial history.

 

What assets can be used as collateral for an ABL Revolver?

 

Typically, receivables, inventory, equipment, and sometimes real estate can serve as collateral for revolving debt, providing businesses with a broad range of options to secure funding.

 

How can an ABL Revolver improve my business's cash flow?

 

Providing a revolving line of credit based on asset values ensures liquidity is readily available, improving cash flow management and operational flexibility.

 

What are the typical terms and conditions of an ABL Revolver?

 

Terms vary but generally include interest rates competitive with other forms of lending, with the loan amount based on a percentage of the collateral's appraised value.

 

Who can benefit the most from using an ABL Revolver?

Businesses with significant physical assets, facing growth challenges or undergoing restructuring stand to benefit greatly from the flexibility and accessibility of ABL Lenders.

 

How quickly can a business access funds with an ABL Revolver?

 

Funds from an ABL Revolver can often be accessed shortly after asset valuation, making it a swift solution for immediate financial needs.

 

Is there a minimum business size or revenue requirement for ABL Revolvers?

 

While requirements can vary, there is generally flexibility, with ABL Revolvers accommodating businesses of all sizes and stages, especially those with substantial assets, regardless of revenue.