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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Asset-Based Lending in Canada: Mining the Hidden Value of Your Balance Sheet
Unlocking Working Capital from Your Assets
Asset-based lending (ABL) in Canada, when structured as a commercial credit line, turns your balance sheet into a resource mine. What are you mining? Your company’s assets.
Thousands of Canadian business owners feel “squeezed” as they search for reliable financing alternatives. Asset-based credit lines use your total business assets—or selected ones—to fund working capital needs efficiently.
Breaking Free from Cash Flow Paralysis
Your business has assets but no cash. Banks say no while opportunities slip away.
Let the 7 Park Avenue Financial team show you how Asset based business lending unlocks the value already sitting on your balance sheet, converting inventory and receivables into immediate working capital so you can operate without the wait.
3 Uncommon Takes on Asset Based Business Lending
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Asset based lending works best for "ugly duckling" businesses - Companies going through transitions, turnarounds, or rapid growth often can't tell a clean story to traditional banks. Your financial statements might show temporary losses or unusual patterns that spook conventional lenders. Asset based lenders don't need your story to be pretty; they need your collateral to be real. This makes asset based lending the financing choice for businesses in their messiest, most authentic growth phases.
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Your accounts receivable are more bankable than your business plan - Traditional lenders want projections, forecasts, and promises about tomorrow. Asset based lenders want invoices, inventory counts, and proof of what exists today. This flips conventional lending logic on its head. Your 90-day-old invoice to a creditworthy customer carries more weight than your five-year business plan. It's financing based on reality, not optimism.
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Asset based lending often costs less than you think when you factor in opportunity cost - Yes, rates run higher than prime bank rates. But when you calculate the cost of missing a bulk purchase discount, losing a major contract, or watching a competitor grab market share while you wait for bank approval, asset based lending frequently becomes the economical choice. The real expense isn't the interest rate—it's the business you lose while being undercapitalized.
Why Businesses Choose Asset-Based Lending
Many companies turn to ABL for practical reasons:
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Cyclical industries often experience revenue fluctuations.
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Businesses facing financial challenges may not qualify for traditional bank financing.
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Firms need flexible capital tied directly to real assets rather than profit-based ratios.
ABL facilities allow firms to leverage the value of receivables, inventory, and equipment to fund operations and growth.
How ABL Differs from Traditional Bank Financing
The key difference between an asset-based facility and a traditional bank loan is collateral.
ABL loans maximize borrowing power based on tangible assets:
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Accounts receivable: Advance rates of 80–90% are common.
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Inventory and equipment: Additional lending capacity secured by tangible goods.
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Fixed assets (optional): May be included as a term loan component.
The result? More operating capital, even when your business isn’t yet cash flow positive.
Structuring Your ABL Facility
In some cases, the fixed asset portion of an ABL can be structured as a separate term loan. This hybrid approach balances flexibility and stability.
Whether this makes sense depends on your industry, balance sheet composition, and growth stage.
The Evolution of Asset-Based Lending
Decades ago, non-bank financing carried a stigma. Today, that’s no longer the case.
Even major banks now offer ABL through specialized divisions—though typically for deals of $5 million to $10 million or more. For most SMEs, independent ABL lenders provide the most accessible solution.
ABL Versus Cash Flow or Unsecured Loans
Many companies can’t qualify for unsecured cash flow loans due to one simple reason—lack of positive cash flow.
ABL fills this gap by providing funding based on asset strength, not profit. In many cases, raising new equity is unrealistic or undesirable, making ABL the more practical option.
When to Consider Asset-Based Lending
Fluctuating sales or seasonal demand often push businesses to explore ABL.
Proceeds can be used to:
Less Restrictive, More Flexible
Unlike traditional bank loans, asset-based facilities typically lack strict financial covenants and ratio tests.
You manage your business performance—not your lender’s ratios. That flexibility can make a significant difference in competitive or volatile markets.
Who Benefits Most from ABL
While ABL often supports companies with financial stress, it’s equally useful for fast-growth businesses.
For example, in the automotive sector, even successful firms face unpredictable cycles. High-growth firms benefit from ABL because lenders focus on asset value, not earnings volatility.
CASE STUDY
Company: ABC Company, a food and beverage distributor in Ontario
Challenge:
ABC Company faced a severe cash flow crunch despite strong sales growth. Receivables grew to $2.3 million, and inventory investments reached $1.8 million to meet retailer demand. Their $750,000 bank line couldn’t support expansion, and the bank declined to increase funding due to debt ratio violations. The company began turning down new orders and delaying supplier payments.
Solution:
7 Park Avenue Financial structured a $3.2 million asset-based lending facility secured by receivables and inventory. The advance provided 80% against eligible receivables and 55% against inventory. Funding arrived within 12 days, allowing ABC Company to restore supplier relationships and accept new business.
Results:
Within six months, revenue rose 34% as the company added new retail chains and grew existing accounts. The revolving facility expanded with sales, reaching $4.1 million during peak season. Receivable days dropped from 52 to 41, improving cash flow and supplier terms. After 18 months, ABC Company refinanced back to a traditional bank line with stronger financial performance and profitability.
Key Takeaways
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Asset-based lending converts business assets into immediate working capital.
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Ideal for firms with fluctuating sales, high growth, or bank financing challenges.
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Provides flexible credit without restrictive covenants or ratio tests.
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Commonly used by Canadian SMEs to replace or supplement bank lines.
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Accessible financing alternative focused on asset value, not profit history.
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Can combine revolving lines for receivables/inventory and term loans for equipment.
Conclusion - Mining Your Balance Sheet
If you’re ready to unlock capital tied up in your receivables, inventory, or equipment, asset-based lending may be the right move.
Work with 7 Park Avenue Financial , a trusted, experienced Canadian business financing advisor to structure a facility tailored to your needs and industry realities.
FAQ
How quickly can I access funds through asset-based business lending?
Funding is typically available within 5–15 business days after collateral verification. Companies with clean receivable portfolios close faster than those using inventory or equipment. The process prioritizes collateral valuation, making it much faster than traditional bank financing, which can take up to 90 days.
What types of businesses qualify for asset-based lending in Canada?
Manufacturers, distributors, wholesalers, and service firms with $500,000 or more in tangible assets often qualify. Businesses in growth, turnaround, or seasonal cycles find this financing especially useful. Industries such as construction, transportation, food distribution, and import/export commonly use it.
What assets can be used as collateral?
Collateral includes accounts receivable, inventory, equipment, and real estate. Receivables usually advance 75–85%, inventory 50–65%, and equipment 60–80% of liquidation value. Collateral must be verified, insured, and appraised regularly to remain eligible.
How does asset-based lending differ from traditional bank financing?
This financing focuses on asset value, not credit scores or profitability. Banks rely on financial statements and debt ratios, while asset-based lenders review collateral monthly. Though rates and fees may be higher, businesses gain larger, more flexible credit lines with fewer covenants.
What are the typical costs?
Expect interest rates from prime plus 2–6%, setup fees of 1–3%, and monitoring or audit fees. Annual costs generally range from 8–15% when all fees are included. The higher expense reflects faster access and flexible approval standards.
Can startups qualify?
Yes, if they hold sufficient verified assets such as receivables or equipment. Lenders prefer some operating history, but startups with strong collateral can qualify for facilities starting around $500,000.
What happens as my assets fluctuate?
Borrowing capacity adjusts monthly based on your borrowing base. As receivables grow, credit expands; when invoices are paid, availability decreases. This self-liquidating structure supports seasonal cash flow changes.
How are international receivables handled?
Lenders often accept U.S. receivables and some from stable markets, advancing 70–80% with added insurance or hedging. Foreign currency receivables face reduced advance rates or longer eligibility periods due to exchange and collection risks.
What reporting is required?
Monthly reports include aged receivables, inventory details, and financial statements. Lenders conduct periodic field audits to verify collateral and maintain credit integrity.
Can I combine this with other financing?
Yes. Asset-based lines often work alongside term loans, mezzanine debt, or equipment financing through intercreditor agreements. Proper coordination allows access to greater total capital.
Benefits of Asset-Based Lending
How does it help with seasonal cash flow?
The facility expands during peak periods, letting you draw against increased inventory or receivables. As sales are collected, balances naturally decline, ensuring flexibility and lower interest costs.
What advantages does it offer growing businesses?
Credit lines scale automatically with asset growth, supporting expansion without repeated approvals. This flexibility helps fund new contracts, market entry, or acquisitions.
Why does it provide more certainty than bank lines?
Availability depends on collateral quality, not financial covenants. As long as receivables and inventory remain solid, credit access continues—even during losses.
Why is it more accessible for companies with credit challenges?
Lenders focus on collateral, not past credit history. Businesses emerging from restructuring or with prior financial setbacks can still qualify based on strong assets.
How does it support mergers and acquisitions?
Asset-based facilities can finance working capital for acquisitions by leveraging combined receivables and inventory, helping close deals and fund integration.
Key Questions for First-Time Borrowers
Is my business too small?
Most lenders require $500,000–$1 million in assets, though niche lenders may serve smaller companies. Businesses below that threshold can consider factoring or equipment loans.
Will it restrict how I operate?
Lenders set limits to protect collateral but offer more flexibility than banks. Restrictions typically relate to customer concentration or inventory aging, not profitability.
How long do these relationships last?
Usually 2–5 years, often renewing annually. Some companies graduate to bank lines, while others retain asset-based facilities for flexibility.
What if customers pay slowly?
Aged receivables over 60–90 days reduce borrowing availability. Frequent communication with your lender helps maintain trust and flexibility during payment delays.
Do I lose control of my business?
No. You retain full management control. Lenders require transparency and reporting, not ownership or operational authority.
Understanding the Mechanics
What is a borrowing base?
It’s the total credit available, calculated as a percentage of eligible assets—typically 80% of receivables and 60% of inventory. It changes monthly as asset values fluctuate.
Why do lenders conduct field audits?
To confirm the accuracy of reported collateral and protect against overstated asset values. Regular audits allow lenders to maintain higher advance rates confidently.
How are advance rates determined?
Rates reflect recoverable liquidation values—usually 80% for receivables, 50–60% for inventory, and around 70% for equipment. Strong collateral quality can improve these rates.
Statistics on Asset Based Business Lending
- The asset based lending market in North America exceeded $900 billion in outstanding commitments as of 2024, representing significant growth from $700 billion in 2020.
- Approximately 80% of asset based lending facilities use accounts receivable as primary collateral, with inventory serving as secondary collateral in about 60% of transactions.
- Companies using asset based lending access credit lines averaging 30-50% larger than traditional bank facilities would provide based on the same financial profile.
- Asset based lenders typically advance 75-85% against eligible accounts receivable and 50-65% against eligible inventory values.
- The average asset based lending facility size in Canada ranges from $2 million to $25 million, though facilities from $500,000 to $100 million+ exist.
- Approximately 40% of asset based lending clients are in transition situations including turnarounds, ownership changes, or rapid growth phases.
- Companies in manufacturing, distribution, and wholesale trade represent nearly 65% of asset based lending volume in Canada.
- Asset based lending approval timelines average 10-15 business days compared to 45-60 days for traditional bank financing.
Citations
Business Development Bank of Canada. "Alternative Financing for Canadian Businesses." BDC Resources, 2024. https://www.bdc.ca
Commercial Finance Association. "Asset-Based Lending: A Guide for Business Owners." CFA Publications, 2024. https://www.cfa.com
Industry Canada. "SME Financing Data Initiative." Innovation, Science and Economic Development Canada, 2024. https://www.ic.gc.ca
J.P. Morgan Commercial Banking. "Working Capital Optimization Strategies." J.P. Morgan Research, 2024. https://www.jpmorgan.com
Secured Finance Network. "State of the Asset-Based Lending Industry." SFNet Annual Report, 2024. https://www.sfnet.com
7 Park Avenue Financial . " Asset-Based Lending in Canada" https://www.7parkavenuefinancial.com/abl-lending-asset-based-loan-rates.html
Medium / Stan Prokop / 7 Park Avenue Financial ."Leveraging Your Assets for Growth: Canada’s ABL Revolution"https://medium.com/@stanprokop/leveraging-your-assets-for-growth-canadas-abl-revolution-ad736fbf87a0
