Asset Based Line of Credit: Strategic Financing for Canadian Business Growth | 7 Park Avenue Financial

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YOUR COMPANY IS LOOKING FOR A BUSINESS LINE OF CREDIT – WHAT WORKS

BEST - AN ABL LOAN OR A BANK FACILITY!

Asset-Based Lending Solutions

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Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS  FINANCING OPTIONS?

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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

ASSET BASED LOAN / BUSINESS CREDIT LINE  

Not all business owners and financial managers in Canada are familiar with the new (relatively speaking )kid on the block: the asset-based business line of credit, known as the ABL. It is basically an asset-based loan, non-bank in nature.

Cash Flow Constraints? Your Business Assets Hold the Solution

Is your growing business constantly trapped in a cash flow squeeze? You've earned the revenue on paper, but waiting 30, 60, or even 90 days for customer payments is strangling your operational capabilities.

Let the  7 Park Avenue Financial team show you how An asset-based line of credit transforms your existing business assets / physical assets  into immediate working capital, breaking the cycle of growth-induced cash shortages while maintaining your company's forward momentum.

Two Uncommon Takes on Asset-Based Lines of Credit

1. While typically viewed as rescue financing, asset-based lines of credit often serve as strategic growth accelerators for businesses with strong asset positions but limited credit history.
2. Unlike traditional financing, focusing heavily on credit scores, asset-based lending shifts the evaluation paradigm to asset quality and liquidity, potentially benefiting businesses with valuable assets but complex financial histories.  ABL Lending on a company's assets is different from traditional operating facility advances and focuses on sales and asset values. Liquid assets such as A/R and inventory have very high lending margins and aids in growth financing funding because of those asset lending values.

THE DIFFERENCE IN SECURED BUSINESS LINES OF CREDIT VS UNSECURED LINES OF CREDIT  

A secured business line of credit, aka 'asset-based lending,' allows companies to pledge their assets as collateral to secure business credit line facilities -

The most common assets secured under the facility include receivables and inventories, the bulk of the business's current assets. Fixed assets/equipment and commercial real estate can be bundled into these revolving credit lines! Fixed assets facility limits focus on market values and liquidation values.

Regarding unsecured business credit facilities, the senior lender, typically a Canadian chartered bank, places a general security agreement on the entire business for unsecured loans -  No specific collateral is secured, but companies qualifying for these unsecured lines require strong sales,  a company's cash flow / cash flows , profits, and good balance sheets.

Is asset based ABL a real ' triple threat ' when it comes to the alternative, the bank commercial credit facility? We'll let you decide but we’re quite sure you will agree there is a market for both as you will soon see.

BANKS ALSO OFFER ASSET-BASED ' ABL ' LENDING 

Oh, and by the way, the banks agree with us because many of them, unbeknownst to many, offer their clients both alternatives.

Talk about a secret we have let you in on! The challenge with bank ABL loans is that they often have a minimum borrowing starting in the 5 million dollars plus range, which exceeds the needs of many SME firms. Talk to the 7 Park Avenue Financial team to learn more about asset based lending banks.

ABL IS ALL ABOUT ' ASSETS ' AND SALES REVENUES 

So if the ultimate goal of both the ABL and the bank facility is to provide you with revolving credit, how in fact are they different? One way is simply the focus - for the bank, it's on cash flow and profits, while the ABL facility focuses on... you guessed it, just sales and assets, such as accounts receivable!  While our chartered banks view collateral as a backup to their credit decision, the Asset-based lender views your assets, the collateral, as pretty well the only backup plan.

THE BANK CREDIT LINE IS VERY MUCH REGULATORY-DRIVEN

The way bank revolving line of credit lines and ABL facilities behave is partly driven by regulations. That is to say that our strong Canadian banking system is driven by rules and regulations around the amount of funds banks have, what they can lend, and to whom they can lend. Given that our banks are all pretty well public corporations on the stock market, we can further imagine all the visibility around their lending that garners!

THE ASSETS INSIDE THE ASSET-BASED LENDING / LINE OF CREDIT 

And the asset-based lender, then? Wel,l we are certainly not portraying them as drunken cowboys doing what they want and when they want, but the reality is they are not regulated, are more often than not private firms, and make their own risk ratings and decisions based on management experience and their opinion of your assets -

Typically, accounts receivables, inventory, equipment, and even real estate. All of those components become part of your business credit line.

IS YOUR COMPANY IN ' SPECIAL LOANS' AT THE BANK? NO PROBLEM!  

Here's another little surprise we'll share with you today. When bank loans go bad, they are placed in a  'non-performing' part of the bank's books, a special place known as ... you guessed it, ' SPECIAL LOANS '.  Do you know who often refinances these loans and pays out the bank? Surprise! It's an asset-based lender! 

So, when a company is consuming too much cash rather than generating it, an asset-based business line of credit is a great business credit solution.

So, all of a sudden, historical cash flow and profits, which are critical to a bank, are non-issue when you are looking for an ABL facility. Big difference! In all circumstances, borrowers should be prepared to produce proper financial statements, asset lists, ageings, etc.

Do we criticize our banks for their behaviour? Some might, but not us, because Canadian chartered bank solutions deliver the lowest cost based on the risk they are prepared to take.

 WHAT ARE THE REQUIREMENTS  FOR  BUSINESS CREDIT LINE FACILITIES  

Business line of credit requirements around business revolving lines of credit include standard financial documents about your business -

Generally speaking, borrowers should be able to provide articles of incorporation and appropriate business licences, as well as financial statements,  business bank statements, and appropriate accounts receivable and accounts payable agings -

Often, a detailed business plan and cash flow projection will also help with approval.

Early-stage businesses and startup firms will often find it very difficult to obtain a credit line - As well firms experiencing several financial challenges and unable to meet current obligations will also rarely qualify for traditional bank financing -

So, when presenting your business, it's important to focus on profit generation, sales growth, and a management team in place to run and grow the business. A small business line of credit will place heavy emphasis on credit scores and personal guarantees of owners for a new business.

 THE COST OF ASSET BASED LENDING  / BUSINESS LINE OF CREDIT RATES

That brings us to pricing, of course. Certain ABL asset-based lending business lines of credit are 100% competitive, even lower than bank offerings.

However, the majority are, in fact, priced higher, with the offset being the tremendous amount of additional liquidity and working capital your firm achieves when monetizing assets via an asset-based ABL loan.

Case Study: Benefits of Asset-Based Line of Credit

Situation: A growing Canadian industrial parts manufacturer found itself in a challenging position despite record sales. With major customers extending payment terms to 60-90 days and substantial capital tied up in specialized inventory, cash flow constraints threatened their ability to fulfill increasing orders.

Challenge: Traditional lenders declined additional financing due to already high leverage ratios, despite the company's strong asset position and growing order book. The seasonal nature of their business further complicated their financing needs.

Solution: Implementing a $2.8 million asset-based line of credit secured by accounts receivable (85% advance rate) and finished goods inventory (60% advance rate).

Results:

• Immediate access to $1.9 million in working capital without adding term debt

• Ability to accept 35% larger orders from key customers

• Negotiation leverage to secure 3% early payment discounts from suppliers

KEY  TAKEAWAYS

• Borrowing base calculations determine your available credit by applying advance rates to eligible collateral values, typically refreshed daily or weekly.
• Asset eligibility criteria establish which receivables, inventory items, or equipment qualify as collateral, focusing on quality, liquidity, and verification factors.
• Advance rates vary significantly by asset class—typically 70-90% for quality receivables, 50-60% for inventory, and 60-75% for equipment—reflecting liquidation potential.
• Field examinations provide initial and periodic verification of asset quality, quantity, and reporting systems, establishing lender confidence in your collateral.
• Covenant light structure flexibility generally focuses on collateral quality rather than business performance metrics, offering operational freedom during growth or challenging periods.
• Risk-based pricing reflects collateral quality, monitoring complexity, and business stability, typically ranging from prime plus 1-5% depending on facility size and risk factors.
• Reporting requirements emphasize asset tracking through accounts receivable aging, inventory reports, and equipment condition documentation rather than financial performance.
• Facility structures combine revolving components secured by current assets with term facilities backed by fixed assets, creating comprehensive financing solutions.
• Scalability advantages enable credit limits to expand automatically as qualifying collateral grows, eliminating frequent renegotiation requirements.
• Exit strategies typically involve transitioning to traditional banking relationships as business performance stabilizes, though many companies maintain asset-based facilities long-term.

  CONCLUSION -  CHOOSE ASSET BASED LENDING FOR YOUR BUSINESS CREDIT LINE 

A revolving credit line to meet short-term day-to-day funding needs is a very valuable tool for businesses focused on running and growing their business and meeting the challenge of fuelling growth in the industry while funding specialized needs. 

So, can asset-based lenders and banks coexist? Absolutely. Just be prepared to recognize the price, limitations, and benefits that your firm is prepared to accept when looking for a true business line of credit.

Call  7 Park Avenue Financial,  a trusted, credible and experienced Canadian business advisor who can assist you with the financing your business needs.

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