Is an ABL bank loan facility a kinder, gentler type of business borrowing in Canada? Why the asset based line of credit provides a solid commercial credit alternative
Information on the ‘ asset based line of credit ‘ for business borrowers in Canada. How does this revolving bank loan type facility work and why is it one of the two alternatives for revolving credit facilities in Canada.
An ABL Asset Based Line of Credit for Canadian business is in some ways a solution to the ‘ entitlement ‘ that business owners and financial managers feel around the necessity to access commercial credit. In some ways its access to a ‘ kinder, gentler’ method of getting approved for revolving credit to run your business. Let’s explain.
When we talk to clients about their needs and challenges around accessing business credit it’s surprising to hear that many owners/managers have not even heard of ABL business loans / credit facilities. Why is that? Actually one can be forgiven simply for the fact that it’s a newer method of financing in Canada that gains traction everyday.
Approval for business financing revolves of course around a companies ‘ credit rating ‘, not dissimilar to that same rating that follows us around as consumers. That business credit rating revolves around quality of financials, ability to meet obligations to suppliers and lenders, character and capability of management, and, more specifically cash flow and profit generation.
But what happens if the new or challenged firm can’t access the tremendous rates and flexibility offered by our Canadian chartered banks? Business still needs access to credit – enter stage right ‘ABL’ business lines of credit.
Simply speaking they are revolving loans to businesses that are secured by A/R, inventories, and, uniquely, fixed assets. Thats the ‘ big difference ‘ relative to a bank business credit line – simply that the focus is on the current and fixed asset collateral, not the unique emphasis that our banks place on ratios, covenants , and secondary sources of repayment such as outside personal collateral, etc.
Because Canadian banks, and rightly so we believe, are highly regulated they can’t take the additional risk that is posed by ongoing management of receivables, inventory, fixed asset valuation, etc. That’s where the ABL facility excels, simply by the fact that if you have assets and revenues those ratios become almost meaningless.
While it’s a bit of an unadvertised secret that banks in Canada, or at least most of them, offer ABL facilities the reality is that more often than not they are not unlike traditional bank borrowing – but that’s a subject for another day.
The asset based credit line approval amounts fluctuate and are geared toward the constant growth and change in the sum of your A/R, inventory and fixed asset values. In almost all cases a strong assessment of these values will be made to ensure you’ve got maximum borrowing power.
If you want to be sure you have access to business credit that otherwise might not be attained from Canadian banks seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in your borrowing needs.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing