Asset Backed Lending in Canada: ABL Loans Guide | 7 Park Avenue Financial

 

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Monetize Your Assets: A Comprehensive Guide to ABL Financing in Canada

UPDATED 10/25/2025

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Asset Backed Loans and Business Collateral for Financing in Canada    

 

  

 

  

Introduction - The Disruptive Power of ABL Business Collateral Loans  

 

 

 

Canadian businesses seeking working capital and operating financing increasingly turn to asset-based lending (ABL) secured loans.

 

Let 7 Park Avenue Financial show you how ABL can be a powerful, even disruptive, tool for business credit and financing within Canada.

 

 

Asset-based lending represents a significant shift in the Canadian business financing landscape. ABL business collateral loans are designed with a clear understanding of assets and working capital. They offer a unique, practical approach to funding compared to the strict requirements around unsecured bank loans.

 

  

 

  

Three Uncommon Takes on Asset Backed Lending    

 

 

 

 

 

 

1. ABL as a Growth Accelerator, Not Just a Lifeline:
   Many see Asset Backed Lending as rescue financing, but smart companies use it to fuel expansion—buying new equipment, funding acquisitions, or entering export markets.

2. The Hidden Stability Factor:
   Asset-based loans can actually stabilize balance sheets by converting illiquid assets into productive capital. This liquidity boost strengthens both cash flow and financial reporting.

3. The Relationship Advantage:
   Unlike banks bound by rigid formulas, ABL lenders often build long-term relationships based on real asset value and operational strength—not credit scores.

 

 

  

Asset-Based Lending Versus Traditional Bank Facilities  

 

 

 

In ABL finance, cash flow and working capital drive everything.

 

Unlike traditional bank operating facilities, the asset-based line of credit focuses on monetizing your current assets. This primarily includes accounts receivable and inventory, as well as fixed assets or physical assets if desired by the borrower.

 

 

Commercial real estate owned by the business can also be bundled separately or financed as a bridge loan. Though commonly called a "loan," ABL is more about cash flow and asset monetization. It transforms business assets into an ongoing operating line of credit.

 

  

Understanding the Borrowing Capacity in ABL  

 

 

 

Borrowing capacity with ABL is primarily determined by your assets. Here's how lenders typically structure financing:

 

 

• Receivables: Financed at up to 90% of total accounts receivable

• Inventory: Ranges from 40% to 70%, depending on product nature and marketability

• Fixed Assets: May be included based on liquidation value

 

 

 

You can sometimes increase these percentages after establishing a solid payment history with the lender. This may even include an overadvance on assets, offering unprecedented flexibility in Canadian business financing.

 

 

  

Managing ABL Business Collateral Loans  

 

 

 

ABL business collateral loans are managed similarly to standard bank facilities in Canada. Monthly borrowing base certificates for both inventory and receivables must be maintained. The underlying assets' eligibility, quality, and nature are critical discussion points with your lender around the pledged asset /assets. Highly liquid assets are receivables and inventory.

 

 

Regular reporting ensures transparency and maintains your credit line. Most ABL lenders require detailed asset reports to verify collateral values.

 

 

Special Considerations: Progress-Type Billings

 

For companies dealing with progress-type billings, monetizing these receivables under the same facility offers a significant advantage. This flexibility can overcome numerous challenges, especially in complex scenarios involving long-term contracts and milestone payments.

 

 

Construction companies, manufacturers, and project-based businesses particularly benefit from this feature. Traditional banks often struggle to finance work-in-progress or unbilled receivables.

 

  

The Advantage of ABL as a Disruptive Form of Business Financing  

 

 

 

ABL asset-based lines of credit are disruptive because they maximize cash flow and business credit availability. They offer greater accessibility in supporting long-term working capital growth as your asset base expands.

 

 

Key advantages include:

 

 

• Higher approval rates compared to unsecured lending

• Faster access to capital based on asset values rather than creditworthiness alone

• Scalable financing that grows with your receivables and inventory

• Flexible terms for businesses with seasonal fluctuations

 

 

 

  

  

Case Study Summary: ABC Company’s Growth Through Asset-Based Lending

From The  7 Park Avenue Financial Client Files    

 

 

 

 

 

Background:

ABC Company, an Ontario-based manufacturer of industrial automation components for automotive and aerospace clients, grew to $8 million in annual sales by 2023. In 2024, a $3.5 million annual contract opportunity created major financing challenges due to long payment terms, higher inventory needs, and equipment purchases. Their bank declined further lending due to leverage limits.

 

Challenge:

 

 

• Needed $2.2 million in additional working capital

• Required 40% more inventory and $450,000 in new equipment

• Existing $750,000 line of credit insufficient

 

 

 

Solution:

 

With the help of 7 Park Avenue Financial, ABC implemented a $2.8 million asset-based lending (ABL) facility, structured as:

• $1.8M on receivables (85% advance)

• $700K on inventory (50% advance)

• $300K equipment financing
  The facility included quarterly audits, monthly borrowing base reporting, and an overadvance option.

 

 

 

Results (Year 1):

• Revenue up 40% to $11.2M

• Borrowing availability tripled from $750K to $2.3M

• Cash conversion cycle improved from 68 to 54 days

• Added 12 staff and reduced emergency raw material costs by 35%

• Leveraged progress billing to unlock $380K in work-in-progress

 

 

 

Year 2:

• ABL line expanded to $3.4M

• Receivables collections improved to 98%, raising advance rate to 90%

• Won two new major contracts

 

 

 

Financial Impact:

 

 

• ABL cost: ~$285K annually (8.5% + monitoring)

• Added revenue: $3.2M

• Added gross profit: $896K

• Net annual gain: $611K after ABL  financing costs

 

 

Takeaway:

Asset-based lending enabled ABC Company to unlock working capital, meet production demands, and scale profitably—something traditional bank financing could not achieve.

  

KEY TAKEAWAYS    

 

 

 

 

 

• Asset-based lending (ABL) provides working capital by monetizing business assets like receivables and inventory

• Receivables are typically financed at 90%, while inventory financing ranges from 40% to 70%

• ABL offers more flexibility and higher approval rates compared to traditional unsecured bank loans

• Monthly borrowing base certificates must be maintained to manage ABL facilities

• Progress-type billings can be monetized under the same ABL facility, benefiting project-based businesses

• ABL credit lines scale with your business as your asset base grows

• Asset-based financing typically costs more than bank loans but provides greater access to capital

• Commercial real estate and fixed assets can be included in ABL structures

• Overadvances on assets may be available after establishing a strong payment history

• Consulting with experienced financing advisors helps businesses select the optimal ABL structure

 

 

  

Conclusion  

 

 

Selecting and structuring a suitable asset-based financing ABL facility can be challenging for those new to the field.

 

Call 7 Park Avenue Financial, a trusted, credible, and experienced business financing advisor who understands the Canadian market. They can help you achieve the commercial financing options best suited to your business needs.

 

 

  

Frequently Asked Questions About Asset-Based Lending in Canada  

 

 

 

 

What is asset-based lending (ABL), and how does it work?

ABL is a type of financing that focuses on monetizing a company's assets, mainly receivables and inventory. It transforms these assets into an operating line of credit, providing flexible and accessible working capital for businesses in Canada.

How is ABL different from traditional bank loans?

Unlike traditional bank loans, ABL is not considered term debt. It revolves around cash flow and working capital, relying primarily on the value of current assets. This allows for higher borrowing capacities and can even include overadvances on assets. Typically, asset-based credit line rates come with a higher cost but offer more access to capital.

What assets can be used for ABL?

ABL typically monetizes liquid assets such as receivables and inventory on the balance sheet. Depending on your business and the nature of your product, receivables are usually financed at 90%, and inventory ranges between 40% and 70%.

Is ABL suitable for companies dealing with progress-type billings?

Yes, ABL is highly flexible and can include progress billings. It can monetize these receivables under the same facility, providing a substantial advantage in complex financial scenarios versus a bank unsecured loan facility and its corresponding requirements.

How can I choose the right ABL facility for my business?

Selecting the right ABL facility via asset-based lenders can be challenging, especially if you're new to this type of financing. Consulting with a trusted and experienced business financing advisor who understands the Canadian market can guide you to the facility that best meets your business needs.

 

   

Statistics (Canada)   

 

 

• Asset-based loans in Canada exceed $40 billion annually, growing at 6–8% per year.

• More than 60% of mid-market manufacturers rely on some form of asset-backed financing.

• According to Deloitte, asset-based lending has outperformed traditional credit lines in recovery rates during downturns.

 

 

 

Citations

 

 

 

KPMG Canada (2024) - "Asset based loans as sustainability-linked loans"
URL: https://kpmg.com/ca/en/home/insights/2024/04/asset-based-loans-as-sustainability-linked-loans.html

 

Grant X (2024) - "Asset-Based Lending"
URL: https://grant-x.com/business-loans/asset-based-lending
 

7 Park Avenue Financial ." Asset-Based Lending in Canada" https://www.7parkavenuefinancial.com/abl-lending-asset-based-loan-rates.html

 

Medium ."Business Asset Based Loans: Canadian Business Funding Revolution"https://medium.com/@stanprokop/business-asset-based-loans-canadian-business-funding-revolution-ed3944cb8cbb