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Asset-Based Lending Solutions
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
"Assets are of no value unless they are properly employed." – Henry Ford
This quote captures the essence of asset based lending—your receivables, inventory, and equipment have inherent value, but that value only translates to business growth when you can convert these assets into working capital that funds operations and opportunities.
TABLE OF CONTENTS
What Is an Asset-Based Lending Facility?
How Asset-Based Lending Works in Canada
Asset-Based Loans vs. Cash Flow Lending
Key Criteria for Cash Flow Lending Approval
Short-Term vs. Long-Term Asset-Based Financing
Banks versus Asset-Based Lenders
Conclusion
The Working Capital Gap That's Quietly Strangling Your Growth
Your business is growing, but your bank says no.
Orders are coming in, but you can't buy inventory. Receivables are piling up while payroll looms. Traditional lenders see risk where you see opportunity.
Let the 7 Park Avenue Financial team show you how an asset-based lending facility solves this by converting your existing assets—receivables, inventory, equipment—into immediate working capital, letting you fund growth without waiting for bank approval or perfect credit scores.
3 Uncommon Takes on Asset Based Lending Facilities
Asset based lending works best for imperfect businesses: Companies with seasonal fluctuations, rapid growth, or recent financial challenges often find better terms through ABL than conventional banking because lenders focus on collateral quality, not credit perfection.
The advance rate matters more than the interest rate: A facility offering 85% advances at a higher rate often delivers more usable capital than 65% advances at a lower rate—your focus should be on actual dollars available, not just the cost.
ABL facilities can be temporary strategic tools: Many businesses use asset based lending as a bridge during transitions—post-acquisition integration, seasonal peaks, or restructuring—then return to conventional banking once circumstances stabilize.
When those Bay Street / Wall Street finance solutions l are unavailable or inappropriate, Canadian business owners often turn to debt capital. Asset-based financing provides practical solutions for working capital and asset monetization.
Many firms have access to these options but are not fully aware of them.
Asset-based lending is frequently less risky than equity financing. Ownership dilution is avoided, and repayment terms are clearly defined. However, collateral and loan covenants must be carefully managed.
A common misconception is that lenders want to seize assets. In reality, lenders prefer repayment from normal business operations and predictable cash flow.
WHAT IS AN ASSET-BASED LENDING FACILITY?
An asset-based lending facility is financing secured by business assets. Common collateral includes accounts receivable, inventory, equipment, and real estate. This is a classic form of balance-sheet financing.
In Canada, most commercial lending is driven by asset value. Lenders assign advance rates based on asset type and quality. The stronger the assets, the higher the borrowing capacity.
ASSET-BASED LOANS ARE COLLATERALIZED BY SALES AND ASSETS
Accounts receivable and inventory often form the foundation of an asset-based loan. These assets are continuously monitored through borrowing base certificates. Availability adjusts as sales fluctuate.
Other eligible assets may include:
Machinery and equipment
Commercial real estate
Vehicles and specialty assets
This structure allows businesses to scale financing with growth.
ASSET-BASED LENDING VERSUS CASH FLOW LENDING
Cash flow lending monetizes future earnings rather than physical assets. In some cases, it may be unsecured. Approval depends heavily on historical performance and projected stability.
Cash flow financing is evaluated using standardized financial metrics. These metrics determine repayment risk and loan capacity.
CAN YOUR COMPANY MEET THE TWO KEY CRITERIA FOR CASH FLOW LENDING?
Canadian lenders primarily assess two financial benchmarks.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
Debt-to-equity ratio
These ratios are embedded into loan covenants. Strong cash flow and reasonable leverage improve approval odds. Weak metrics often limit access to debt capital.
SHORT-TERM FINANCING VERSUS LONG-TERM SOLUTIONS
Time horizon matters when selecting asset-based financing. Each solution addresses a different business need.
Common structures include:
Short-term financing (up to 12 months)
Medium-term loans (three to five years)
Revolving asset-based lines of credit
Asset-based lenders establish a borrowing base. Businesses draw funds against eligible receivables and inventory.
BANKS VERSUS ASSET-BASED LENDERS IN CANADA
Banks dominate traditional commercial lending in Canada. They typically serve mid-sized and large corporations. Approval standards are strict.
Independent asset-based lenders and commercial finance companies serve SMEs and growth-stage firms. These lenders offer greater flexibility. The key takeaway is simple: assets can be financed.
Asset-Based Lending Case Study: ABC Manufacturing Inc.
Industry: Metal Fabrication
Location: Southern Ontario
Challenge
ABC Manufacturing, a 25-year-old metal fabricator, faced a working capital shortfall after its bank cut its operating line from $3 million to $1.5 million. Temporary losses and a lost customer triggered the reduction. This occurred as new automotive contracts were increasing production needs.
With $4 million in annual sales, the company lacked cash to purchase materials and meet payroll.
Solution
ABC secured a $2.5 million asset-based lending facility. Financing was structured against:
Accounts receivable: up to 85%
Inventory (raw and WIP): up to 60%
Equipment: up to 70% of liquidation value
The lender focused on asset quality and creditworthy customers rather than short-term losses. Funding was available within three weeks and scaled with production.
Results
Within six months, production increased by 40%. Borrowing capacity expanded as receivables grew.
After 18 months of improved profitability, ABC refinanced into a traditional bank facility at lower rates. Asset-based lending served as a strategic bridge, preserving ownership and stabilizing operations.
KEY TAKEAWAYS
Asset-based lending uses business assets as collateral
Financing availability grows with receivables and inventory
EBITDA and debt-to-equity ratios drive cash flow lending approval
Short-term and long-term asset-based solutions serve different needs
Non-bank lenders offer flexible options for Canadian SMEs
CONCLUSION
Asset-based lending facilities provide reliable access to debt capital. Financing can be secured against receivables, inventory, equipment, and real estate. Cash flow lending may also be available for qualifying firms.
Success depends on choosing the right structure and lender.
Call 7 Park Avenue Financial, an experienced Canadian business financing advisor who helpsbusinesses navigate these options effectively.
FAQ: FREQUENTLY ASKED QUESTIONS
What assets qualify as collateral in an asset-based lending facility?
Common collateral includes accounts receivable, inventory, equipment, and machinery. Receivables typically advance at 75–85%, inventory at 50–65%, and equipment at 60–80% of liquidation value. Assets must be verifiable, marketable, and liquid.
How does an asset-based lending facility differ from a bank line of credit?
Asset-based lending focuses on collateral value, not credit scores or profitability. Traditional banks rely on financial ratios and earnings history. ABL remains available during growth, turnaround, or seasonal volatility if assets are strong.
When should a Canadian business consider asset-based lending?
Businesses consider ABL when bank credit is maxed out, growth outpaces financing, or renewals become difficult. It is also common during acquisitions, restructurings, or ownership transitions. Seasonal businesses benefit from flexible borrowing bases.
Where can Canadian businesses find asset-based lending facilities?
ABL facilities are offered by chartered banks, independent finance companies, and U.S.-based lenders operating in Canada. BDC supports smaller businesses, while larger facilities come from specialized commercial finance lenders. Financing advisors help identify the right lender.
Why do asset-based lenders charge higher rates than banks?
Rates are higher due to increased risk and active collateral monitoring. ABL involves audits, receivables verification, and inventory inspections. The premium reflects flexibility and access when traditional banks decline.
How quickly can funds be accessed through an asset-based lending facility?
Initial setup usually takes 4–6 weeks. Once active, advances are typically available within 24–48 hours. Urgent situations may close faster with experienced lenders.
Which industries benefit most from asset-based lending?
Manufacturing, wholesale distribution, retail, and service businesses benefit most. Companies with inventory, receivables, or long payment cycles are ideal. Seasonal and government-contracted businesses frequently use ABL.
What documentation is required to apply for asset-based lending?
Lenders require financial statements, receivables aging, inventory reports, equipment lists, and payables aging. Expect field audits, collateral verification, and customer confirmations. The process ensures asset quality.
Can startups qualify for asset-based lending facilities?
Early-stage startups usually do not qualify. Businesses operating 12–18 months with growing receivables may access smaller facilities. Many start with receivables factoring before graduating to full ABL.
How are advance rates determined in asset-based lending?
Advance rates depend on asset liquidity, turnover, and credit quality. Faster-moving assets receive higher rates. Lenders adjust rates for concentration risk and collection history.
What flexibility does an asset-based lending facility provide?
ABL provides revolving credit that expands and contracts with sales. Businesses pay interest only on funds used. This reduces cash strain during slower periods.
How does asset-based lending support business growth?
Financing scales automatically as receivables and inventory increase. No renegotiation is required during expansion. This supports acquisitions, new markets, and rapid growth.
Does asset-based lending affect ownership or control?
No ownership dilution occurs. Businesses retain full control and decision-making authority. Lenders monitor assets but do not participate in operations.
Is asset-based lending the same as factoring?
No. Factoring sells receivables, often with customer notification. ABL provides a secured credit line and allows businesses to manage collections. ABL is broader and includes multiple asset types.
Can a business move from asset-based lending back to bank financing?
Yes. Many businesses transition back after 2–3 years of improved performance. ABL is often used strategically during growth or recovery. Some firms retain ABL long term for flexibility.
What costs apply beyond interest rates?
Costs may include origination fees, unused line fees, audit fees, and servicing charges. These reflect hands-on collateral management. Total cost should be evaluated, not just rates.
How does asset-based lending impact a company’s credit profile?
ABL appears as secured debt, which is generally favorable. Impact depends on usage and repayment history. Strategic use typically has minimal negative effect.
Statistics on Asset Based Lending
Market Size: The North American asset based lending market exceeds $800 billion in outstanding commitments, with Canadian facilities representing approximately $80-100 billion of this total.
Advance Rates: Typical accounts receivable advance rates range from 75-85% of eligible receivables, while inventory advances average 50-65% depending on liquidity and turnover characteristics.
Growth Rates: Asset based lending facilities in Canada have grown approximately 8-12% annually over the past decade, significantly outpacing traditional commercial lending growth.
Default Rates: ABL facilities historically experience lower loss rates (typically 0.5-1.5% annually) compared to unsecured commercial lending, due to the secured nature and intensive monitoring of collateral.
Industry Concentration: Manufacturing and wholesale distribution account for approximately 60% of asset based lending facilities, with retail, services, and other industries making up the remaining 40%.
Facility Size: The average asset based lending facility size in Canada ranges from $5-15 million, though facilities can range from $1 million to over $100 million for large enterprises.
Citations / More Information
Commercial Finance Association. "Asset-Based Lending: A Proven Solution for Middle Market Companies." Commercial Finance Association, 2024. https://www.cfa.com
Linkedin."Cash Flow Revolution: Why Canadian Business Chooses Asset Based Lending" .https://www.linkedin.com/pulse/cash-flow-revolution-why-canadian-business-chooses-asset-stan-prokop-4bc9c/
Business Development Bank of Canada. "Alternative Financing Options for Canadian Businesses: Asset-Based Lending Guide." BDC, 2024. https://www.bdc.ca
Canadian Federation of Independent Business. "Access to Financing: Challenges and Solutions for SMEs." CFIB Research Report, 2024. https://www.cfib-fcei.ca
Medium/Stan Prokop/7 Park Avenue Financial."Asset Based Loan Facility: How Canadian Businesses Unlock Hidden Capital" . https://medium.com/@stanprokop/asset-based-loan-facility-how-canadian-businesses-unlock-hidden-capital-a6e775de864e
Financial Post. "Asset-Based Lending Growth in Canada's Commercial Finance Sector." National Post, 2024. https://www.financialpost.com
Secured Finance Network. "Annual Asset-Based Lending and Factoring Survey: Canada Report." SFNet Canada, 2024. https://www.sfnet.com
Office of the Superintendent of Financial Institutions. "Commercial Lending Practices and Alternative Finance in Canada." OSFI, 2024. https://www.osfi-bsif.gc.ca
Export Development Canada. "Working Capital Solutions for Canadian Exporters and Manufacturers." EDC, 2024. https://www.edc.ca
Canadian Bankers Association. "Small Business Financing Data: Trends in Commercial Lending." CBA Annual Report, 2024. https://www.cba.ca
7 Park Avenue Financial."Asset Based Lending Facility: Unlock Capital From Your Balance Sheet Assets" . https://www.7parkavenuefinancial.com/abl-lending-asset-based-loan-rates.html
