OVERVIEW – Information on asset based lending in Canada. Business loans from commercial finance companies are a solid potential substitute for bank operating loans – Here is how and why
Asset based lending in Canada – We’re discussing 5 things you didn’t know about ‘ABL Financing ‘in Canada. Let’s dig in.
1. What is Asset Based Lending?
2. What does it Cost
3. How does it Work
4. For what type of firm is it perfect for
5. How to get such financing!
Asset based lending and financing for your business is simply the utilization of your business assets for maximum business financing based on your business needs. Business owners and financial managers should understand that this is a replacement or specific financing as an alternative to either traditional financing ( via a Canadian chartered bank ) or to firm who are unable to get financing that might otherwise be called traditional .
Firms in that category might include start up operations, or firms that have had business challenges. ABL financing is the utilization of your current, and in some cases your long term business assets for the leveraging and monetization of working capital and cash flow. The current assets are almost always accounts receivable and inventory, and longer term assets in some cases might include equipment or real estate that your firm may own – example an owner occupied premises.
All assets must be unencumbered, that is to say that they should not have any liens or registrations against them, otherwise it would be difficult, if not impossible, to structured an asset based loan. Typically the asset based lender pays out any existing creditors and takes a charge against the assets being financed.
Does asset based financing differ in cost to traditional financing. We have to use your lawyer’s typical answer (it depends) but the reality is that in Canada the costs of asset based lending are all over the map. In some cases they are actually lower than chartered bank financing; in most cases they are more costly. When we indicated to clients that a financing of this type is more costly we point to clients that they have to balance any additional costs against what they are receiving. And what they are receiving quite often is simply the maximum working capital they need based on their asset and growth needs .That can rarely be achieved these days in the current challenging economic crunch .
So how does ABL financing work. A few simple key points will help you better understand how this type of financing might work for your firm on a day to day basis, and, as importantly, for long term growth. They ‘key word’ here is ‘Asset’! ABL financing focuses on the real true market value of your assets. Many other traditional types of financing, i.e. a bank line of operating credit, etc, is in fact focused on many other metrics such as the lenders perception of what industry you are in, and typical financial ratios and metrics such as cash flow coverage analysis, debt to worth ratios, etc,etc,etc!
Asset based lending puts those items aside. Using specialized industry experience, analysis, and in some cases appraisal of your assets you are provided with the maximum amount of capital those asset categories can achieve. So, as an example if you have 500,000.00 in account receivable you can borrow $500,000.00. That typically is not how traditional financing works. We often point out quite frankly that asset based lending is in fact becoming a traditional financing method for Canadian business of all size.
So who is this type of financing for? The answer becomes very simple. It is for industries of all types in Canada – Typical transaction on the small side are $250,000.00 and deal sizes are in the multi millions when it comes to large facilities. In some cases sky is the limit and some of Canada’s largest corporations have adopted this financing method. Asset based lender are specialist in understanding what your business is about, what are its cash needs and cyclicality, and what type of optimal structure works for your firm .
How does your firm investigate asset based lending on the Canadian business scene? Since the financing is rarely front page mainstream news then it is highly recommended that you work with a trusted, credible and experienced Canadian business Financing Advisor with a track record of success. The Canadian landscape is cluttered with small firms, mega corporations out of the U.S., as well as boutique divisions of other well known institutions you know of but were not aware this type of financing was being offered to Canadian business.
So what’s out bottom line – its simply be informed, work with an expert, understand your cash needs on an immediate and long term basis, and consider structuring such a facility for your growth and benefit .
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ 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