OVERVIEW – Information on ABL lending in Canada . Asset based loan rates are becoming more attractive to the Canadian business borrower when it comes to working capital and business credit facilities required to grow, operate, or acquire a business
ABL lending means different things to different business people. So asset based loan rates differ, but in our context we are talking about a working capital credit facility, in effect a ‘ business line of credit ‘ that is a strong alternative to traditional Canadian chartered bank facilities. And as thousands of business owners and managers have discovered – they can often make the impossible… possible! Let’s dig in.
ABL (‘ asset based lending’) credit lines secure the assets of your business and turn them into a working capital and cash flow facility. The most common assets financed under ABL include inventories, receivables, and fixed assets – and may also often include real estate.
(When real estate come s into lay in a business credit line it’s in effect the business version of a home owner line of credit – the infamous ‘ HELOC’ that millions of Canadians borrow under.) But we digress, because we’re talking ‘ BUSINESS’!
While public companies seemingly have access to more credit the SME sector in Canada often struggles with raising capital or monetizing assets. Enter ABL lending, which is the strong alternative to bank financing. By the way, the banks offer ABL lending; they’re just not that big on TV commercials for this specific business borrowing product. The reasons for that we won’t explore today.
Why do companies consider borrowing under asset based loan rates and facilities? While the predominant reason seems to be the bank credit alternative its also a strong way to increase borrowing power, or financing a merger and acquisition or management buy out via monetizing assets. In some cases it is used to pay down other debt when that makes sense.
We referenced more ‘ borrowing power ‘. That’s because 99% of all ABL lending provides stronger margining of receivables and inventory, typically 90% and anywhere form 30-80% respectively. And when the business owner of financial manager throws fixed assets into the borrowing mix increased cash flow ability happens.
While we reference ABL finance as predominantly used in the SME COMMERCIAL FINANCE sector it’s also used by some of the largest successful and well known public and private corporations in Canada. Typically large retail chains use the inventory finance component of ABL as their working capital facility, given they have no receivables as retailers are an ‘ all cash ‘ business.
While Asset based non bank financing rates are almost always (but not all the time) higher current rates are coming down and provide even more consideration to consider this type of financing. So while Canadian business financing needs tend to gravitate by instinct to ‘ the bank’ the business owner and financial manager should not forget that the bridging of assets into cash is also provide by ABL lending.
So if you want impossible financing made ‘ possible ‘ when it comes to business credit lines seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with a finance solution that makes sense.
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