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CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Asset-based lending in Canada – We’re discussing 5 things you didn’t know about ‘ABL Financing ‘ in Canada.
5 THING YOU DID NOT KNOW ABOUT ASSET BASED FINANCING
1. What is Asset Based Lending?
2. What does it Cost
3. How does it Work
4. For what type of firm is it perfect for
5. How to get such financing!
LET'S DEFINE ASSET BASED LENDING
Asset-based lending and financing for your business is simply the utilization of your business assets for maximum business financing based on your business needs. Business owners and financial managers should understand that this is a replacement or specific financing as an alternative to either traditional financing ( via a Canadian chartered bank ) or to a firm that is unable to get financing that might otherwise be called traditional. Firms in that category might include start-up operations or firms that have had business challenges.
ABL financing is the utilization of your current and in some cases your long term business assets for the leveraging and monetization of working capital and cash flow. The current assets are almost always accounted receivable and inventory, and longer-term assets in some cases might include equipment or real estate that your firm may own – for example, owner-occupied premises. All assets must be unencumbered, that is to say that they should not have any liens or registrations against them, otherwise it would be difficult, if not impossible, to structure an asset based loan.
Typically the asset-based lender pays out any existing creditors and takes a charge against the assets being financed.
WHAT DOES ABL COST?
Does asset-based financing differ in cost to traditional financing? We have to use your lawyer’s typical answer (it depends) but the reality is that in Canada the costs of asset based lending are all over the map. In some cases they are actually lower than chartered bank financing; in most cases, they are more costly.
When we indicated to clients that financing of this type is more costly we point to clients that they have to balance any additional costs against what they are receiving. And what they are receiving quite often is simply the maximum working capital they need based on their asset and growth needs. That can rarely be achieved these days in the current challenging economic crunch - pandemic issues included.
THE EVERYDAY WORKING OF AN ASSET BASED CREDIT FACILITY
So how do asset based loans work? A few simple key points will help you better understand how this type of financing might work for your firm on a day to day basis, and, as importantly, for long term growth. The ‘key word’ here is ‘Asset’! ABL financing focuses on the real true market value of your assets. Many other traditional types of financing, i.e. a bank line of operating credit, etc, is in fact focused on many other metrics such as the lender's perception of what industry you are in, and typical financial ratios and metrics such as cash flow coverage analysis, debt to worth ratios, etc, etc, etc!
Asset based lending puts those items aside. Using specialized industry experience, analysis, and in some cases appraisal of your assets you are provided with the maximum amount of capital those asset categories can achieve.
So, as an example, if you have 500,000.00 in account receivable you can borrow against that $500,000.00. That typically is not how traditional financing works. We often point out quite frankly that asset based lending is in fact becoming a traditional financing method for Canadian businesses of all sizes.
WHO IS ' ASSET BASED ' ABL FOR ANYWAY?
So who is this type of financing for? The answer becomes very simple. It is for industries of all types in Canada – Typical transaction on the small side are $250,000.00 and deal sizes are in the multi-millions when it comes to large facilities. In some cases, sky is the limit and some of Canada’s largest corporations have adopted this financing method. Asset-based lenders are specialists in understanding what your business is about, what are its cash needs and cyclicality, and what type of optimal structure works for your firm.
HOW CAN MY FIRM ACCESS ASSET BASED LENDING ? SPOILER ALERT - CONTACT ' 7 PARK AVENUE FINANCIAL '
How does your firm investigate asset-based lending on the Canadian business scene? Since the financing is rarely front-page mainstream news then it is highly recommended that you work with a trusted, credible and experienced advisor in this area. The Canadian landscape is cluttered with small firms, mega-corporations out of the U.S., as well as boutique divisions of other well-known institutions you know of but was not aware this type of financing was being offered to Canadian business.
So what’s out bottom line – its simply be informed, work with an expert, understand your cash needs on an immediate and long term basis, and consider structuring such a facility for your growth and benefit. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your asset-backed finance needs.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
