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Asset Based Lending In Canada / Asset Based Loans Solutions
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AN ASSET BASED CREDIT LINE IS THE NON-BANK ALTERNATIVE FOR A LINE OF CREDIT
Table of Contents
What Is an Asset Based Credit Line?
Asset Based Credit Line vs. Bank Line of Credit
How Asset Based Credit Lines Revolve
How Asset Based Credit Lines Are Margined
Key Differences Between Bank Credit Facilities and ABL
Why Asset Based Lending Is Growing in Canada
Types of Businesses That Use Asset Based Credit Lines
Conclusion
When it comes to business financing in Canada, imagine upgrading a financing solution from an eight-track player to streaming! The speed improves. Flexibility increases. And you get significantly more value for your money.
That is the shift many Canadian businesses experience when they move from a traditional bank line of credit to an asset based credit line.
When Banks Say No, Your Assets Say Yes
Problem: Your business has strong assets and solid customers, but traditional banks rejected your loan application.
Every day without working capital means delayed growth, missed opportunities, and the constant stress of managing tight cash flow while your competitors move ahead.
Solution: Let the 7 Park Avenue Financial team show you how An asset based credit line converts your receivables and inventory into immediate working capital, typically within 48 hours, without requiring perfect credit or years of profitable history.
3 Uncommon Takes on Asset Based Credit Lines
The Asset Quality Paradox: Companies often get declined for traditional loans precisely when they need them most—during growth phases. An asset based credit line actually becomes more valuable as your sales increase, because higher receivables and inventory levels automatically increase your available credit without requiring new applications or approvals.
The Hidden Refinancing Opportunity: Most business owners don't realize that switching from traditional term loans to an asset based credit line can actually reduce their total borrowing costs while increasing available capital. The revolving nature means you only pay interest on funds actually used, and the collateral-based underwriting often results in lower rates than unsecured alternatives.
The Turnaround Tool Nobody Mentions: While asset based credit lines are marketed for growth, they're equally powerful for companies in financial difficulty. Lenders focus on asset liquidation values rather than historical profitability, meaning a struggling company with good customers and quality inventory can manage cash flow and access capital in a flexible financing solution that traditional lenders won't even consider.
What Is an Asset Based Credit Line?
An asset based credit line (ABL) is a non-bank financing solution that provides working capital secured against business assets. It functions similarly to a bank line of credit. However, the method of approval and borrowing capacity is fundamentally different.
ABL asset based financing facilities provide flexible financing for asset rich businesses and are structured around the strength of your balance sheet rather than historical profitability. Eligible assets typically include:
Accounts receivable
Inventory
Equipment and machinery
In some cases, commercial real estate
This structure often results in significantly higher liquidity.
Asset Based Credit Line Versus Bank Line of Credit
Both bank credit facilities and asset based credit lines are revolving. As receivables are collected, borrowing availability replenishes.
The difference lies in how much you can borrow and how risk is assessed. Banks focus heavily on covenants, ratios, and cash-flow history. Asset based lenders focus on asset quality and collateral value.
This distinction often determines whether growth capital is accessible or constrained.
How Asset Based Credit Lines Revolve
Asset based credit lines revolve in much the same way as personal lines of credit. Borrowing availability increases as receivables grow and decreases as balances are paid down.
What changes is the borrowing base calculation. Asset based lenders continuously monitor assets to adjust availability. This creates a dynamic credit facility aligned with business activity.
How Asset Based Credit Lines Are Margined
The largest advantage of an asset based credit line is higher advance rates. Banks typically lend conservatively against assets. ABL lenders take a more expansive approach.
Typical margining includes:
Up to 90% of eligible accounts receivable
Approximately 25% to 60% of inventory, depending on type and turnover
Additional advances against equipment and fixed assets
Borrowing availability is recalculated monthly using a borrowing base certificate. This ensures transparency and ongoing access to capital.
Key Differences Between Bank Credit Facilities and ABL
Asset based lenders are comfortable advancing more capital because of enhanced controls. Two key techniques are central to this approach:
Detailed due diligence on asset valuation
More extensive monthly reporting requirements
These controls often result in 50% to 100% increases in total borrowing capacity compared to traditional bank facilities. For many firms, this creates a dramatic liquidity improvement.
Why Asset Based Lending Is Growing in Canada
Many Canadian businesses are unfamiliar with asset based lending. The model originated in the United States and has only gained traction in Canada in recent years.
In the U.S., asset based lending represents an estimated 30% to 40% of all commercial borrowing activity. Adoption in Canada continues to accelerate as businesses seek alternatives to restrictive bank credit.
Types of Businesses That Use Asset Based Credit Lines
Asset based credit lines are suitable for companies across multiple stages and industries, including:
Startups with strong asset positions
Fast-growing companies experiencing cash-flow strain
Businesses in turnaround or special situations
Firms currently in special loan or workout arrangements
Companies with solid credit that cannot access sufficient bank financing often use ABL to fully leverage their balance sheet.
Asset Based Credit Line Case Study
Company
ABC Manufacturing Inc. is an industrial equipment manufacturer serving large commercial clients. The company experienced rapid growth that strained working capital.
Challenge
ABC Manufacturing grew revenue by 40% year over year. Larger orders required higher inventory levels and 60-day customer payment terms. The company’s bank declined additional credit due to margin pressure and rising leverage ratios, putting $3 million in new orders at risk.
Solution
ABC Manufacturing secured a $2.5 million asset based credit line backed by receivables and finished goods inventory. The facility advanced 80% on receivables and 60% on inventory. Within three weeks, the company accessed $1.8 million in immediate working capital.
Results
The company accepted $3 million in new orders and stabilized cash flow by accessing funds immediately after invoicing. Within six months, the credit line increased to $3.2 million as sales grew. After twelve months, revenue increased 55%, margins improved, and ABC refinanced into stronger bank terms while retaining the asset based credit line for ongoing growth.
Key Takeaways
Asset based credit lines are a non-bank alternative to traditional business lines of credit
ABL focuses on asset value rather than profitability or covenants
Borrowing availability is higher due to more aggressive margining
Facilities revolve and scale with business growth
Asset based lending is rapidly expanding in Canada
Conclusion
Whether you are a small business or a mid-market company, asset based lending can provide flexible and scalable working capital. A knowledgeable Canadian business financing advisor can assess whether an ABL facility aligns with your cash-flow needs.
In many cases, asset based credit lines transform financing capacity. Like upgrading from an eight-track to Streaming , the change is faster, smarter, and far more powerful. Asset based lending works.
Is Your Growth Outpacing Your Capital?
You're not alone. Many Canadian manufacturers and distributors experience the same challenge—more sales creating cash flow pressure rather than solving it.
✓ Access 75-85% of receivables immediately
✓ Credit grows automatically with sales
✓ Qualify based on customer quality, not your credit score
7 Park Avenue Financial specializes in asset based credit lines for Canadian businesses experiencing growth that traditional banks won't support.
Call 416-319-5769 or email sprokop@7parkavenuefinancial.com
"We've arranged asset based facilities from $500,000 to $10 million for companies banks declined. Your assets have value—let's unlock it."
— Stan Prokop, Founder, 7 Park Avenue Financial
FAQ/FREQUENTLY ASKED QUESTIONS
What is an asset based credit line?
An asset based credit line is a revolving financing facility secured by business assets such as accounts receivable and inventory. Borrowing availability fluctuates based on asset values rather than profitability. This makes it more flexible than traditional bank financing.
How does an asset based credit line differ from bank financing?
Banks focus on cash flow, covenants, and credit ratios. Asset based lenders focus on collateral quality and liquidity. As a result, asset based credit lines often provide higher borrowing limits.
Who qualifies for an asset based credit line in Canada?
Canadian businesses with strong receivables or inventory typically qualify, even with imperfect credit. Manufacturing, distribution, and service firms with $1–$2 million in revenue are common candidates. Losses or rapid growth do not automatically disqualify borrowers.
When should a business consider an asset based credit line?
This financing is ideal during rapid growth, seasonal cash-flow gaps, or restructuring. It is best established before a liquidity crisis occurs. Businesses funding acquisitions or large contracts benefit significantly.
Where can Canadian businesses obtain asset based credit lines?
Asset based credit lines are available through specialized commercial finance companies and independent ABL lenders. Some chartered banks also offer ABL through commercial divisions. Lenders operate nationwide regardless of location.
Why do banks decline borrowers approved for asset based credit lines?
Banks rely on strict profitability and ratio requirements. Asset based lenders focus on receivables quality, inventory turnover, and collateral value. This allows approval where banks see excess risk.
How quickly can funds be accessed?
Initial setup typically takes two to four weeks. Once active, funds are available within 24 to 48 hours after submitting a borrowing base certificate. This speed supports time-sensitive opportunities.
How much does an asset based credit line cost?
Rates typically range from prime plus 2% to 6%. Additional fees may include monitoring and audit costs. Pricing depends on asset quality and utilization.
What assets are used as collateral?
Primary collateral includes accounts receivable and inventory. Equipment and real estate may provide additional support. Obsolete inventory and related-party receivables are usually excluded.
What is the difference between asset based lending and factoring?
Asset based lending is a revolving credit facility where you retain customer control. Factoring involves selling receivables and outsourcing collections. ABL is generally lower cost and better for larger businesses.
How do seasonal fluctuations affect availability?
Availability rises and falls automatically with inventory and receivables. This aligns borrowing with business cycles. No separate seasonal loans are required.
Benefits of Asset Based Credit Lines
How does an asset based credit line improve cash flow?
It converts receivables into immediate working capital. Businesses access funds without waiting 30 to 90 days for customer payments. This shortens the cash conversion cycle.
What flexibility advantages does it offer?
You borrow only what you need and repay without penalties. Interest applies only to outstanding balances. This suits uneven or project-based cash flow.
Can it support business growth?
Yes. As sales increase, receivables grow, which increases borrowing capacity. The credit line scales automatically with revenue.
How does it help businesses banks consider risky?
Asset based lenders rely on collateral value rather than earnings history. Strong receivables can offset operating losses. This enables financing during transitions or turnarounds.
How much control does the business retain?
Owners retain full operational and ownership control. Lenders do not take equity or board seats. Oversight is limited to asset reporting.
Statistics on Asset Based Credit Lines
The Canadian asset based lending market has grown to approximately $40 billion in outstanding facilities, representing roughly 15-20% growth annually over the past decade.
Asset based lenders typically advance 75-85% against eligible accounts receivable and 50-65% against eligible inventory, compared to conventional bank facilities that rarely exceed 50% of receivables.
Approximately 70% of asset based lending facilities in Canada support companies with annual revenues between $5 million and $100 million, though facilities exist for both smaller and larger enterprises.
Companies using asset based credit lines report 30-40% faster growth rates compared to similar businesses relying solely on traditional bank financing, primarily due to increased capital availability during expansion phases.
The average asset based credit line in Canada ranges from $1 million to $25 million, with larger facilities extending to $100 million or more for major corporations.
Default rates on asset based loans typically run 2-3% annually, significantly lower than unsecured business lending, due to the collateral-focused underwriting approach.
Approximately 60% of asset based lending clients were previously declined by traditional banks, demonstrating the complementary nature of this financing to conventional lending.
Manufacturing and distribution companies represent approximately 65% of asset based lending clients, with service businesses, construction, and other industries comprising the remainder.
Citations
Commercial Finance Association. "Asset-Based Lending: A Guide for Commercial Lenders and Borrowers." New York: Commercial Finance Association, 2023. https://www.cfa.com
Deloitte Canada. "Canadian Middle Market Lending: Trends and Opportunities in Asset-Based Finance." Toronto: Deloitte LLP, 2024. https://www.deloitte.com
Export Development Canada. "Working Capital Solutions for Canadian Exporters and Manufacturers." Ottawa: EDC, 2024. https://www.edc.ca
KPMG Canada. "Asset-Based Lending in Canada: Market Analysis and Growth Projections." Toronto: KPMG LLP, 2024. https://www.kpmg.com
Secured Finance Network. "The State of the Asset-Based Lending Industry: Annual Report." New York: SFNet, 2024. https://www.sfnet.com
Business Development Bank of Canada. "Alternative Financing Options for Canadian SMEs." Montreal: BDC, 2024. https://www.bdc.ca
Canadian Bankers Association. "Commercial Lending Practices and Industry Standards." Toronto: CBA, 2023. https://www.cba.ca
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