OVERVIEW – Information on how an asset based lender can provide a working capital solution that ensures the proper amount of business cash flow to run and grow a business
When we ask clients if they will consider an asset based lender for a working capital refinancing many business owners will come back with a surprise questions for us – namely ‘ What is an Asset Based Lender , and what do they do? The answer : Asset based lenders monetize your firms sales and assets , and, most importantly , slow down the ‘ cash burn ‘ that comes from growing sales, acquiring new equipment and other assets, etc.!
Asset based lending in Canada is still relatively speaking a fairly new for of business financing. Business owners and financial managers are moving to this form of financing for several reasons which we will discuss.
As the name implies the financing it focuses on your business assets. All sizes of companies in Canada can utilize asset financing – even start ups. Practices vary within the industry as to how the financing works on a day to day basis – frankly this is one of the biggest challenges that owners face, i.e. understanding the offering in the Canadian marketplace. (Asset based lending, or ‘ABL ‘is very commonplace in the U.S. )
Rates in Canada vary all over the place for these types of financing. The size of your financing as well as the overall perceived ‘ quality ‘ of the transaction ( as perceived by the lender, not yourself!) dictate financing rates – In Canada Abl financing cost vary from 9%/annum to , on many occasions 2% per month .
Although the financing is generally more costly it has repositioned many firms for survival and growth – simply because it brings more working capital and cash flow into your business.
The asset based lender only has one focus (your bank has two focuses). That focus is on the ‘true’ value and size of your underlying assets.
Let’s use a quick example to demonstrate the true power of asset based lines of credit. Let’s pick a sample company with say 4 Million in revenue, with the following asset size categories:
Receivables – 300k
Inventory – 250k
Equipment (unencumbered) – 400k
It is extremely common, using the asset sizes above that the firm’s bank might offer up a 225k line of credit for the receivables. For discussion purposes lets say they provided another 75k based on the personal guarantees of the owners. That’s a total of 300k. We can assure readers this would be a very common formula for a Canadian chartered bank, i.e. 75% on receivables, with no financing provided against inventory, etc.
So how an asset would based lender look at this transaction. Remarkable the line of credit provided could be in the 500k range, as an ABL lender would advance against receivables, 40% against inventory, as an example, and would also assess some value in the equipment and provide working capital financing against that.
So while the company’s asset size stayed the same the firm came close to doubling working capital and cash flow under the asset based lender. That is true working capital power.
Although the majority of asset based loans are used for straight working capital and operating facilities, many times they can be structured to allow for a major restructuring or merger and / or acquisition. Again, assets are leveraged to produce cash.
Investigate an asset based lender solution. Although sometimes more costly they provide a source of capital and do not directly affect your overall balance sheet – you are simply leveraged operating capital to the max.
Talk to a credible, trusted, and experienced advisor in this area of Canadian business – that is a solid Canadian business financing strategy for future profits and growth.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
Email = email@example.com
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 100 Million $ of financing for Canadian corporations .
‘ Canadian Business Financing With The Intelligent Use Of Experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing