QUOTE :
Asset-based lending exists precisely because traditional bank underwriting often undervalues a company's working assets relative to their real liquidation worth — a gap that alternative lenders are built to close. “ CHARLES GEISST ”
ABL ASSET-BASED LENDING
Business financing requirements for Canadian businesses often require very timely solutions.
Alternative finance solutions for your business are increasingly becoming the new norm for funding companies in Canada.
They get our clients, often highly leveraged companies, to the 'goal line' more quickly, particularly for some of the timelines imposed on firms applying for traditional bank credit.
Asset-based lending, commonly called 'ABL' solutions, provides fast-growing solutions and a solid funding alternative for your cash flow and working capital needs.
What is ABL financing?
ABL financing, or asset-based lending, is a loan or revolving credit facility that provides financing and is secured mainly by business assets such as accounts receivable, inventory, equipment, or real estate.
In simple terms, the lender focuses more on the value and liquidity of your assets than on last year’s earnings.
Three Uncommon Takes On The ABL Loan
1. ABL financing is often less about borrowing more and more and more about buying time without selling equity. That matters when you want control to stay in your hands.
2. The real advantage is not just access to cash; it is access to a lending method that can move with your asset value base rather than punish seasonal swings.
3. Many owners focus on interest rate alone, but reporting burden and customer-facing process changes can matter more to day-to-day operations and make financing available.
Key Requirements for ABL Lending
Clients of 7 Park Avenue Financial will often ask what the key requirements are for asset-based credit lines and other funding solutions within the ABL world.
That key requirement? Assets! Those assets can come in the form of trade receivables, any specific type of inventory financing, equipment and fixed assets, company real estate, and, in a roundabout way, orders and contracts—the latter two being valuable but not on the balance sheet.
Types of Your Company Assets Used in ABL Asset-Based Financing
Those assets are collateralized or 'cash flowed' in asset-based borrowing facilities. Revolving credit facilities, like business bank lines of credit, are the standard solution for many clients.
Cost of ABL Working Capital Financing / Inventory Financing & AR Financing
Cost always becomes a factor in ABL origination - it is more expensive than traditional bank rates.
Still, the harsh reality is that many companies can't meet the key criteria banks require, such as solid, consistent profits, clean balance sheets, and outside collateral and personal guarantees available to secure bank financing.
Comparing Costs with Other Financing Options
It's safe to say that most forms of business financing, however costly, are cheaper than giving up owner equity in your firm, especially for a growing firm that promises great value and success.
Although we stated that ABL typically costs more than bank financing, larger, higher-quality deals can compete with bank rates while providing much more liquidity!
Valuing and Monetizing Your Assets
So, how does the asset-based lender value and monetize those assets?
Receivables are typically financed at 90% of the a/r base; inventory margins vary depending on the nature and marketability of the inventory and can range from 30% to 70%; and, finally, equipment and real estate are typically appraised at their market or liquidation values.
The bottom line? More borrowing power!
Key Benefits of Asset-Based Lending
So, what are some of the key benefits of asset-based lending solutions? They include, as we mentioned, quicker approval.
That is because the ABL lender's main focus isn't on all those financial covenants and ratios imposed by banks. For ABL, it's all about ... you guessed it ... Assets!
Flexibility of Asset-Based Lending
Another point is flexibility. We see this a lot. It all comes down to the fact that your business is likely to be different from many other businesses and operate in a different industry.
We often see that a tremendous amount of flexibility can be applied via ABL asset-based lending to your circumstances. Some of those circumstances might be the seasonality of your revenues, cash flows, etc.
ABL is known for its 'covenant light structure', unlike bank facilities, which come with significant ratios and covenant requirements, which appeals to companies with high leverage but who have sales and assets
The maturing of Asset Finance in Canada
Asset finance has matured significantly in Canada. It's relatively new historically, but it has exploded onto the business landscape due to choices, costs, and other factors.
Many Canadian banks have explored and are exploring these types of solutions. In the Globe & Mail or Financial Post, we keep reading about the abundance of capital in the markets, and ABL lending is one of those reasons.
That's a good thing for Canadian business borrowers.
Characteristics of ABL Facility Asset Finance Solutions
Asset finance solutions and ABL Facilities are typically revolving facilities and rarely add debt to the balance sheet. That's a good thing!
Case Study — ABL Financing in Action
Company: ABC Company, a Western Canadian industrial equipment distributor with $12 million in annual revenue.
Challenge: The company had outgrown its bank operating line, which provided insufficient funding against its receivables and inventory. Although a non-bank ABL facility offered substantially more capital, management initially hesitated because of the higher quoted interest rate.
Solution: 7 Park Avenue Financial compared the facility's effective borrowing cost rather than the headline rate. The higher advance rates on receivables and inventory delivered significantly greater working capital, while the actual cost on funds drawn remained competitive.
Results: The new ABL facility increased available working capital by approximately 70%, enabling the company to finance larger equipment orders and support continued growth without cash flow constraints.
KEY TAKEAWAYS
1. The nature of the ABL Finance Facility: This financial solution involves businesses selling their accounts receivable or other assets to a financier to gain immediate cash. This process is not a loan but a sale, providing businesses with liquidity without increasing their debt levels.
2. Immediate Liquidity: By converting invoices into cash, the ABL Finance Facility quickly enhances a company’s liquidity, usually within a few days. This is particularly advantageous for managing cash flow and funding operations without waiting for customer payments.
3. Eligibility Requirements: A business must have creditworthy customers and reliable invoices to utilize this financing via ABL lenders. The quality of receivables and inventory determines the amount of funding relative to the face value and the terms of the agreement.
4. Costs Involved: The primary costs include a factor fee and a discount rate applied to the total value of the receivables. The volume of invoices influences these rates, the customers' credit risk, and the length of the repayment period. Interest rates are generally higher on ABL facilities, but they provide more cash based on the borrowing base of balance-sheet assets.
5. Risk Management: While ABL enhances cash flow, it introduces risks, including dependence on the financier's practices and potential discrepancies in invoice payments. Properly managing these relationships and terms is crucial to mitigating the risks of customer defaults and disputes.
Conclusion
Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor with a track record of successfully providing financing alternatives for growth financing that are achievable for your firm, no matter your circumstances. 7 Park Avenue Financial originates ABL Financing.
We're experts in delivering and executing abl transactions.
FAQ/FREQUENTLY ASKED QUESTIONS
What is ABL Finance Factoring Facility?
ABL Finance Facility is a financial service where businesses sell their accounts receivable to a financier to receive immediate cash.
How does the ABL Finance Facility benefit businesses?
It accelerates cash flow, reduces payment delays, and minimizes credit risk through committed revolving lines.
What types of businesses are eligible for the ABL Finance Factor Facility?
Businesses with reliable invoices from creditworthy customers are ideal candidates.
What are the typical costs associated with ABL Finance Facility?
Costs generally include a service fee and a discount rate on the invoices factored.
How does ABL Finance Facility differ from traditional loans?
Unlike loans, ABL Finance Facility does not involve debt accrual but monetizes existing assets, such as invoices, on the company's balance sheet.
How does the ABL Finance Facility impact business relationships?
Properly managed, it should not negatively affect relationships as dealings are with the finance provider, not direct customers.
Are there risks associated with using the ABL Finance Facility?
Risks include dependency on customer payments and potential costs if customers fail to pay on time.
Can an ABL Finance Facility improve a company's credit rating?
Indirectly, improving cash flow and reducing late payments can improve credit standing.
What happens if a customer fails to pay an invoice under the ABL Finance Facility?
Depending on the terms of the asset-based financing agreement, the business might need to repurchase the invoice or cover the shortfall on the loan.
How quickly can funds be accessed through the ABL Finance Facility?
Funds for ABL loans can typically be accessed within 24 to 48 hours after verifying invoices. If a company is in a cyclical or seasonal industry, this is critical.
What is the maximum percentage of an invoice that can be funded?
Depending on the collateral quality, asset-based lending can advance up to 90% of eligible accounts receivable, with additional funding available against inventory, equipment, and commercial real estate. Because ABL is based on collateral value rather than traditional bank lending formulas, it typically provides greater borrowing capacity and can be used to refinance existing debt, operating lines, term loans, and bridge financing.
Can an asset-based lending ABL Finance Facility be used for international invoices?
It can be applied to international receivables, depending on the financier's capabilities and risk assessment. Credit insurance can be purchased to avoid the risk of borrower defaults.
STATISTICS - Statistical Overview of the Canadian Market
Recent data indicate a significant shift in how Canadian companies are funding their operations. Traditional financial institution risk appetites have tightened, prompting businesses to pivot toward asset-focused models.
| Metric |
Detail |
Source |
| Market Volume |
The Canadian market grew by 9.4% year-over-year, reaching nearly $6.7 billion in active facilities. |
Equifax Commercial Lending Data |
| Adoption Rate |
Over 35% of Canadian manufacturers now utilize asset-backed structures as a primary financing tool. |
Canadian Industrial Financing Insights |
| Global Growth |
The global asset-based lending market is projected to reach $1.0 trillion in 2026, driven by a 12.8% CAGR as traditional credit tightens. |
Research and Markets (2026 Survey) |
| Utilization Context |
Approximately 61% of Canadian mid-market businesses actively seek external financing to manage cash flow lag. |
Statistics Canada Small Business Survey |
The global asset-based lending market has been estimated at hundreds of billions of dollars in outstanding facilities, with steady annual growth tied to tightening bank credit standards.
• Receivables-based advance rates in North American ABL facilities commonly range from 80-90% of eligible invoices.
• Inventory advance rates typically fall in the 30-65% range, depending on inventory type and marketability.
CITATIONS
Brandon, Bruce. “5 Questions to Ask an Asset Based Lender.” LinkedIn, March 7, 2018. https://www.linkedin.com/pulse/5-questions-ask-asset-based-lender-bruce-tretzen.
7 Park Avenue Financial."Asset Based Lending Canada : Key to Financial Flexibility".https://www.7parkavenuefinancial.com/asset-based-lending-business-loans-financing.html
Canadian Association of Financial Advisors. “Asset Based Lending… not just for the bad times.” CAFA, May 23, 2020. https://cafafinance.com/en/bulletins/asset-based-lending-not-just-for-the-bad-times/.
Medium/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
Business Development Bank of Canada. “What is Asset-Based Lending (ABL).” BDC. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/asset-based-lending.
Linkedin."Asset-based Canadian Financing Solutions".https://lnkd.in/gfpk__W
