OVERVIEW – Information on asset based lending as a viable bank alternative for business credit .The asset based loan known as the ‘ ABL Business credit line ‘ is a solid revolving credit facility for many companies in all sorts of industries
The ABL business credit line could well be called the ‘ new vintage’ in business financing. In simplest terms its borrowing, via one facility, against all your business assets. What are those assets? Typically receivables, contracts, inventories, and equipment. Why should you consider this type of non bank borrowing? It is the ultimate asset based loan .Let’s dig in.
Bank financing in Canada, low cost and flexible as it is, is simply not available to all businesses in the SME Commercial sector in Canada.
It is an irony in business that growth opportunities and the ability to generate more sales and profits simply becomes ‘ too much of a good thing’ as it relates to the company’s ability to handle that growth. While that might refer to people, systems, processes, new assets required we’re focusing today on cash flow and working capital availability.
Europeans have a great name for this – they call it overtrading. Without a decent facility in place payable grow, CRA obligations mount, and the company struggles to meet client needs.
ABL (asset based lending) provides one solid solution to that challenge. In effect you are opening the tap by cash flowing your business assets. Part of the cash flow shortage problem is simply that fact that a ‘ domino theory’ exists in commercial ‘ business to business’ transactions. Each firm stretches out payables- the irony included here is that even the largest corporations and government bodies are sometimes the slowest payers!
So why is the ABL business credit line getting more popular every day? Simply because it provides the alternative to traditional Canadian chartered bank financing that might not be available. The right facility, properly structured, with the right finance firm, can provide unlimited capital, allowing the owner/manager to capitalize on growth opportunities.
Part of the appeal of the ABL business credit line is way it is structured. As your assets and sales revenues grow you have the ability to draw down on a daily basis. We should probably note that the borrowing calculations you receive on your maximum borrowing power in fact is calculated monthly by a standard document known as a ‘ borrowing base certificate’. It totals your A/R, inventory and equipment and allows you to borrow against that balance via some very healthy margining ratios. Typically that’s 90% of A/R, 30-70% of inventory, as well as the liquidation value of equipment.
A short technical point – Inventory is assessed when you start up your facility and an on going borrowing per cent age is applied to future inventory calculations. As far as equipment goes assets are appraised at the start of the facility and become a key part of your borrowing base.
Costs vary in the asset based loan. Larger credit worthy concerns can achieve facilities that are even lower priced than banks! But the majority of the SME COMMERCIAL sector that uses ABL credit pays higher rates than banks, the trade off being access to unlimited credit that goes lock step with sales growth.
There’s nothing like the taste of a good new ‘ vintage ‘, so it might be time to consider speaking to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can introduce you to a new idea in business credit.
Author: Stan Prokop – 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN ABL ASSET BASED CREDIT LINE EXPERTISE
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