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ABL Line of Credit: Asset-Based Lending for Canadian Businesses
Table of Contents
ABL Line of Credit: Asset-Based Lending for Canadian Businesses
A Credit Line for Business: Bank vs. ABL Facility
Canadian Businesses Have Two Main Choices for a Credit Line
Uses of Bank and Asset-Based Credit Lines
Assessing the Cost of Bank Versus Asset-Based Credit Lines
Two Key Benefits of Asset-Based Revolving Credit Lines
What Is Required for Approval of an ABL Facility in Canada
How Much Can You Borrow Under an Asset-Based Loan?
Asset Advance Rates and Borrowing Power
Conclusion
The Hidden Cost of Waiting for Bank Approval
Your cash flow gap isn't getting smaller while you wait for traditional financing. Every day without working capital means missed opportunities, strained supplier relationships, and the quiet anxiety that comes with knowing your assets could solve this—if only you knew how to access them.
Let the 7 Park Avenue Financial team show you how an ABL line of credit converts your receivables and inventory into immediate liquidity, giving you control over timing instead of leaving you at the mercy of bank committees.
3 UNCOMMON TAKES ON ABL FINANCING
ABL lines reward operational excellence, not just creditworthiness: Unlike traditional lending that fixates on your past mistakes, asset-based lending focuses on the quality of your collateral management—meaning companies with strong operational systems can access capital even with imperfect credit histories.
The "overadvance" feature makes ABL lines more flexible than most business owners realize: Many ABL facilities include overadvance provisions that let you temporarily borrow beyond standard advance rates during seasonal peaks or strategic opportunities, essentially giving you a built-in expansion option.
ABL lines often cost less than you think when you factor in opportunity cost: While rates may appear higher than prime-based bank lines, the ability to act immediately on time-sensitive opportunities—bulk purchase discounts, strategic acquisitions, emergency equipment needs—often generates returns that dwarf the rate differential.
Asset-based lending (ABL) is a flexible revolving credit facility that allows Canadian businesses to borrow against receivables, inventory, and other assets. It is commonly used when traditional bank credit is unavailable or insufficient. ABL facilities are widely offered by non-bank commercial finance providers in Canada, including originators such as 7 Park Avenue Financial
A Credit Line for Business: Bank Versus ABL Facility
Many Canadian business owners ask whether a traditional chartered bank line of credit or a non-bank ABL commercial finance facility is the better option. The answer depends on access, balance sheet strength, and borrowing needs. Understanding the differences helps businesses choose the right structure.
Canadian Businesses Have Two Main Choices for a Credit Line
Canadian companies generally have two revolving credit options:
Chartered bank business lines of credit
Non-bank asset-based lending (ABL) facilities
Both options support growth. ABL facilities often fill the gap when companies lack sufficient equity, experience temporary profit declines, or exceed bank risk thresholds.
Uses of Bank and Asset-Based Credit Lines
Both types of credit lines can be used beyond daily operating needs. Common uses include:
Working capital and cash flow management
Inventory purchasing and payroll funding
Business acquisitions and growth investments
Assessing the Cost of Bank Versus Asset-Based Credit Lines
Cost is a major discussion point for business borrowers. In general, asset-based lines of credit cost more than bank facilities. However, access to capital is often more important than pricing alone.
ABL facilities originated in the United States and are now well established in Canada. Many firms significantly increase borrowing capacity through ABL, even when bank financing is limited.
Two Key Benefits of Asset-Based Revolving Credit Lines
While pricing may vary, most ABL facilities deliver two core advantages:
Increased borrowing power
Higher cost of funds compared to banks
Stronger borrowers may achieve pricing close to bank levels, but leverage remains the primary benefit.
What Is Required for Approval of an ABL Facility in Canada
The approval process for an ABL facility is similar to that of a bank line. Businesses must demonstrate reliable financial reporting, including:
Monthly financial statements
Aged accounts receivable and payables
Inventory summaries and asset reports
Small bank credit lines may be unsecured and require limited reporting. In most cases, Canadian business owners must still provide personal guarantees.
How Much Can You Borrow Under an Asset-Based Loan?
For meaningful revolving credit, $250,000 is typically the minimum facility size. There is no upper limit for financially strong firms. These facilities are not term loans and revolve based on working capital needs.
ABL facilities are highly effective for SMEs and middle-market companies that require leverage against balance sheet assets.
Asset Advance Rates and Borrowing Power
One of the strongest advantages of ABL facilities is generous advance rates:
Accounts receivable: up to 90%
Inventory: typically 25% to 75%
Unencumbered fixed assets: eligible in many structures
Owner-occupied real estate equity can also be included, further increasing available liquidity.
Case Study: ABL Line of Credit for a Canadian Manufacturer
Company: Northern Fabrication Ltd. (Metal Fabrication, Winnipeg)
Revenue: $4.5 million
Challenge:
Northern Fabrication faced a working capital shortage during rapid growth. Their bank line of credit was capped at $250,000 despite an 85% revenue increase. With $600,000 in receivables and $400,000 in inventory, the company lacked access to sufficient liquidity to fund new contracts.
Solution:
7 Park Avenue Financial arranged an asset-based lending (ABL) line of credit totaling $750,000. The facility advanced 85% on receivables and 55% on inventory, closing in four weeks and providing immediate access to working capital.
Results:
Revenue grew to $6.8 million within 18 months, with improved margins from early payment discounts. ABL availability expanded automatically to $980,000 as sales increased. Improved reporting reduced days sales outstanding from 68 to 54 days, and the company successfully transitioned back to lower-cost bank financing after 24 months.
Key Takeaways
ABL lines of credit allow borrowing against receivables, inventory, and assets.
Bank credit lines are cheaper but harder to qualify for.
ABL facilities increase borrowing power and balance sheet leverage.
Advance rates can reach up to 90% on receivables.
ABL is well suited for Canadian SMEs and middle-market firms.
Conclusion
Canadian businesses have a clear choice when it comes to revolving credit lines. Bank facilities offer lower cost but stricter approval standards. When a company cannot qualify or has specialized needs, asset-based lending provides a powerful alternative.
Working with an experienced Canadian business financing advisor like 7 Park Avenue Financial ensures the credit structure aligns with growth objectives and cash flow requirements.
Need More Working Capital Than Your Bank Will Offer?
If your business is growing but cash flow is tight, a traditional bank line of credit may not provide enough borrowing power. An ABL line of credit can unlock liquidity tied up in receivables, inventory, and assets—without waiting for bank approval.
Why Canadian Businesses Choose ABL Financing
Borrow up to 90% of accounts receivable
Unlock value from inventory and fixed assets
Increase liquidity without diluting ownership
Flexible revolving credit that grows with your business
When ABL Is the Right Fit
Declined or capped by a chartered bank
Rapid growth or temporary profit pressure
Seasonal or asset-heavy balance sheets
Acquisition or expansion funding needs
Speak With an ABL Financing Specialist
At 7 Park Avenue Financial, we structure custom ABL facilities for Canadian SMEs and middle-market companies. Our role is to align your balance sheet with the maximum available credit—quickly and responsibly.
FAQ/FREQUENTLY ASKED QUESTIONS - ABL CREDIT LINES
How does an ABL line of credit help manage seasonal cash flow?
An ABL line of credit expands as inventory and receivables increase and contracts as sales convert to cash. This allows businesses to fund peak-season purchases without carrying unused credit during slower periods. Financing stays aligned with the operating cycle.
What advantages do ABL lines provide during rapid business growth?
ABL facilities increase automatically as sales, receivables, and inventory grow. Businesses can fund expansion without repeated credit reviews or limit increases. This prevents growth slowdowns caused by capped bank lines.
Can an ABL line of credit improve supplier negotiations?
Yes. ABL access allows businesses to pay suppliers early or in bulk, unlocking discounts and better pricing. Consistent, on-time payments also strengthen supplier relationships and improve priority access.
How does an ABL line help businesses declined by traditional banks?
ABL approval focuses on collateral quality, not past financial setbacks. Companies with strong receivables and inventory can qualify even after bank declines. This makes ABL effective for turnarounds, acquisitions, and transitional periods.
Why is an ABL line more flexible than bank financing for acquisitions?
ABL facilities fund acquired receivables and inventory immediately after closing. This supports both purchase costs and working capital in one structure. The facility scales as the acquired business integrates and grows.
STATISTICS ON ABL LINES OF CREDIT
Market Size: The North American asset-based lending market exceeded $850 billion in outstanding credit facilities as of 2024, with Canadian ABL facilities representing approximately $85-95 billion of that total.
Advance Rates: Industry data shows average advance rates of 80-85% on eligible accounts receivable, 50-60% on finished goods inventory, and 50-65% on raw materials, with equipment typically receiving 40-50% advances.
Growth Rates: Asset-based lending in Canada grew at a compound annual growth rate of 7-9% between 2019-2024, significantly outpacing traditional commercial lending growth of 3-4% annually.
Industry Concentration: Manufacturing and distribution companies represent approximately 60% of ABL facility users, followed by retail (15%), transportation (10%), and service industries (15%).
Default Rates: ABL facilities historically maintain default rates of 1-2%, substantially lower than unsecured lending default rates of 4-6%, due to the collateral-secured nature and intensive monitoring.
Speed to Funding: Industry surveys indicate businesses with established ABL lines access capital within 24-48 hours of borrowing requests, compared to 6-12 weeks for new traditional bank loan applications.
CITATIONS
Commercial Finance Association. "Asset-Based Lending: A Comprehensive Guide." CFA Industry Report (2024). https://www.cfa.com
Medium/Stan Prokop/7 Park Avenue Financial ."Why ABL Lending Is Making Waves In The Canadian Business Financing Scene" . https://medium.com/@stanprokop/why-abl-lending-is-making-waves-in-the-canadian-business-financing-scene-79431a592783
Statistics Canada. "Survey on Financing and Growth of Small and Medium Enterprises, 2023." Government of Canada Official Statistics (2024). https://www.statcan.gc.ca
Bank of Canada. "Credit Conditions Survey: Results for Q4 2024." Bank of Canada Publications (2024). https://www.bankofcanada.ca
Substack ."Comparing Business Credit Lines: Which One's Right for You?" https://stanprokop.substack.com/p/comparing-business-credit-lines-which
Business Development Bank of Canada. "Alternative Financing Options for Canadian SMEs." BDC Knowledge Centre (2024). https://www.bdc.ca
Secured Finance Network. "The State of the Asset-Based Lending Industry: 2024 Market Report." SFNet Research (2024). https://www.sfnet.com
Canadian Federation of Independent Business. "Business Financing Challenges: 2024 Member Survey Results." CFIB Research Reports (2024). https://www.cfib-fcei.ca
Federal Reserve Bank. "Asset-Based Lending and Middle Market Companies." Federal Reserve Financial Services Review 12, no. 3 (2023): 45-68. https://www.federalreserve.gov
Industry Canada. "Capital Access for Growth-Oriented Canadian Firms." Innovation, Science and Economic Development Canada (2024). https://www.ic.gc.ca
7 Park Avenue Financial ." Asset Backed Lending: Transform Business Assets Into Immediate Working Capital" . https://www.7parkavenuefinancial.com/asset-based-lending-canada-financing-companies.html
