YOUR COMPANY IS LOOKING FOR  ABL ASSET BASED LINES OF CREDIT!

Discover the Flexibility of Asset Based Lending vs. Lines of Credit

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        Financing & Cash flow are the biggest issues facing business today

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Choosing between asset based lending and a line of credit is pivotal for enhancing a business’s financial health.

 

Struggling to secure the right financing for your business? Discover the best option for your needs now.

 

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer  Asset  Based Lending  Financing & solutions that solve the issue of cash flow and working capital  – Save time and focus on profits and business opportunities

 

7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”

 

 

 

 

Asset Based Lending vs Line of Credit: Solutions and Comparisons

 

 

Introduction to Asset Based Lending

 

 

We've often said that no one type of business financing in Canada can meet your growth and survival needs. That might not always be true in the context of an asset-based line of credit loan facility.

 

Optimize Your Financing Strategy with Asset Based Lending

 

Understanding the difference between Asset-based lending vs. a line of credit solution is crucial for business borrowers seeking to optimize their financial choices within their situation.

 

Which one is right for you -  Understanding these two financing options can significantly impact a your company's growth and liquidity. Let the  7 Park Avenue Financial team show you the  differences, benefits, and applications of asset-based lending and lines of credit.

 

 

The Appeal of Asset Based Lines of Credit

 

 

ABL facilities are somewhat of a hybrid type of facility. For that reason, this type of commercial business finance lending does, in many cases, suit all of your financing needs. Let’s examine how.

 

Part of the appeal of asset-based financing, including ABL asset-based lines of credit, is simply that, unlike many forms of commercial business financing, it is accessible by smaller firms, large corporations, start-ups, and firms that sometimes find themselves in serious financial difficulties. We think we’ve covered the bases on that one!

 

 

Typical Considerations for Entering an ABL Facility

 

 

Typical considerations for entering into an ABL facility revolve around being unable to meet traditional bank lending standards, which many dub as ‘traditional lending‘… In Canada traditional lending comes via our chartered banking system.

 

 

 

Moving Forward with an Asset Based Line of Credit 

 

So just exactly how does your firm move forward in considering an asset based line of credit loan financing? And, ready for a positive surprise? Working with an asset-based lender provides immediate cash flow liquidity and flexibility during financial difficulties and requires fewer financial covenants than traditional bank lending. Asset-based lending has total flexibility around structure, term, and pricing, and 99% of the time; it comes with fewer covenants and ratio restrictions required by our chartered banking system.

 

 

 

Profile of Businesses Seeking Accounts Receivable Financing 

 

 

Is there a typical profile of a Canadian business looking for an alternative to a business line of credit? The immediate thought that comes to mind is your firm’s inability to achieve the financing you need from a bank. Typically, this means your profits and losses have fluctuated, or some balance sheet issues simply have the firm temporarily underwater, so to speak, regarding the ability to qualify for a commercial bank business line of credit. In such cases, accounts receivable can be used as collateral in asset-based lending (ABL) financing to secure the necessary funds.

 

 

Benefits of ABL Over Traditional Banking

 

 

We also meet with clients who have secured favourable credit facilities from a bank or commercial credit union. Still, they cannot tap into or leverage assets any more than the current limits prescribed by the bank. Asset-based loans, a financing option, can be particularly beneficial here.

 

Typical working capital advances for receivables by a bank are 75% …while ABL lending, more often than not, comes in at 90%… so right away, you are up 15% in overall liquidity.

 

We haven’t even started because many firms who find the inventory component of their business challenging to finance are often surprised that inventory advances in an ABL facility can run from 30-70%… sometimes more, sometimes less.

 

 

Why ABL Lenders Can Offer More Flexible Financing 

 

So why can an independent asset-based lender offer this type of financing when banks sometimes cannot? It’s a good question many clients ask right out of the gate. Independent asset-based lenders tend to be unregulated institutions; therefore, their capital comes from different places and has different pricing. They’re not bound by the capital and conservative lending practices that our Canadian banks are so well known for.

 

 

 The Strengths of Canadian Banks 

 

 

While our banks are some of the strongest and most well-run on the planet, traditional bank lenders are known for their conservative lending practices, which suggests more prudent lending to commercial borrowers. That’s where the ABL advantage comes in. Asset lender turns your day-to-day assets, i.e. A/R, equipment, and inventory, into a revolving line of credit that significantly leverages up your ability to borrow.

 

 

Focus on Assets, Not Ratios

 

 

It’s all about the physical assets, not the ratios! Another way we explain it to clients is simply that the bank, generally looking more at your financials… an asset-based line of credit loan financing is looking more at your assets.

 

 

 Pricing for ABL Facilities 

 

 

Pricing for this type of financing varies significantly based on the cash flow impact.

 

The simple explanation of pricing is that the size of your facility, the quality of your assets, and the type of firm you are dealing with dictate ultimate pricing. In many cases, pricing is equivalent to the bank; however, more often than not, it’s more expensive. But, and it’s a key point… You have more liquidity and working capital on an ongoing basis, and you are growing in lockstep with your needs.

 

 Key Takeaways 

 

 

• Asset-Based Lending Benefits: Businesses leverage their assets to obtain financing, which offers higher liquidity and flexibility than traditional loans.

• Qualification Criteria: Asset-based lending typically requires collateral, while lines of credit often depend on creditworthiness and financial stability.

• Interest Rates Comparison: Due to risk factors, asset-based loans may have higher rates, whereas lines of credit can offer lower rates if credit scores are strong.

• Borrowing Limits: Asset-based loans can provide higher borrowing limits based on asset value, while lines of credit have predefined limits based on credit assessments.

• Application Process: Both require thorough documentation, but asset-based loans emphasize asset valuation, whereas lines of credit focus on credit history and financial statements.

 

  

Conclusion  

 

 

Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who (seriously!) can demonstrate to you the benefits of an ABL facility for your Canadian company.

 

  

FAQ  

 

What is asset based lending, and how does it work?

Asset based lending allows businesses to use their assets, such as receivables or inventory, as collateral for a loan, providing flexible financing options.

 

 

 

How does a line of credit differ from asset based lending?

A line of credit provides a set amount of funds that can be borrowed as needed, based on creditworthiness. In contrast, asset based lending uses business assets as collateral such as the business's accounts receivable.

 

 

 

What are the main benefits of asset based lending?

The main benefits include higher liquidity, flexible terms, and securing financing even with fluctuating profits or balance sheet issues that might not necessarily pass a bank's  lending process.

 

 

 

Who should consider asset based lending?

Businesses with valuable assets but struggle to qualify for traditional bank loans due to financial instability should consider asset based lending.

 

 

What factors affect the interest rates for asset based lending and lines of credit?

Interest rates for asset based lending depend on the quality of the collateral, while rates for lines of credit are influenced by the borrower’s credit score and financial history.

 

 

 

How can I apply for asset based lending?

To apply for asset based lending, gather documentation on your business assets and financial statements, then approach a lender specializing in asset based financing.

 

 

Are there any risks associated with asset based lending?

Yes, if your business defaults on the loan, the lender can seize the assets used as collateral, which could negatively impact operations.

 

 

What are typical borrowing limits for lines of credit?

Borrowing limits for lines of credit vary based on a business's creditworthiness and financial stability, usually ranging from tens of thousands to several million dollars.

 

 

How does the flexibility of a line of credit benefit my business?

The flexibility allows you to draw funds as needed for various expenses, providing a safety net for managing cash flow and unforeseen costs.

 

 

Can I use both asset based lending and a line of credit simultaneously?

Yes, businesses can use both financing options to maximize liquidity and meet different financial needs.

 

 

 

How do asset-based lenders assess the value of collateral?

Asset-based lenders typically evaluate the market value of the assets offered as collateral, considering factors like asset type, condition, and liquidity and generating future cash flow from those assets.

 

 

What documentation is required to apply for asset-based lending?

ABL Lenders will need detailed records of your assets, including inventory lists, accounts receivable aging reports, and financial statements.

 

 

How can asset based lending support business growth?

By leveraging assets to obtain higher financing limits, businesses can invest in growth opportunities, improve cash flow, and maintain operations during financial fluctuations.