Business Credit Line Needs : Understanding The ABL Loan Facility Solution

OVERVIEW – Information on the ABL facility loan in Canada . This business credit line alternative is becoming more popular . Here is why including benefits and potential drawbacks because .. business is a balancing act

Business credit line needs in Canada sometimes require a ‘ gear change ‘ABL Loan Facilitywhen things arent working enough, or… at all. One solution and alternative is the ABL facility loan, somewhat unknown or misunderstood by many business owners and financial managers in Canada. Let’s dig in.

Asset based lenders are somewhat of the ‘ new frontier’ for satisfying borrowing needs for Canadian business owners and financial managers. While traditionally at a higher cost than bank borrowing the good news is that in almost all cases these credit lines have rates that are becoming more attractive , if for the only reason that Canadian chartered banks realize that business borrowers have more and more alternative solutions available.

Is there a ‘ simple ‘ way to understand the Asset based business line of credit? We think there is, and it’s simply to understand the ‘ collateral’ focus is ‘ Assets ‘. They most often are: Receivables, Inventory, Equipment… and occasionally real estate. From the bank perspective the main qualifiers for a credit line are: Cash flow / clean balance sheets/profits. Those arent always permanently achievable as most owners/mgrs realize.

As far as the uses of an ABL facility go they include daily operational financing, growing a business. Two other uses are commonly buying another business or simply a consolidation of debt… if that makes sense.
More often than not it’s not a permanent facility, as many clients for whatever reason deem Canadian banks as their preferred lender.

Is size important? We suppose it depends but smaller facilities typically start in the 250k range, and as far as upper borrowing limit there essentially is none. Typically a ‘ due diligence’ type fee is associated with such a loan / credit line that is based on size, risk, uniqueness of the industry, etc.

One of the strong appeals of the Asset based business credit line is that borrowing margins are more attractive. Typical ranges are 90% for receivables and anywhere from 30-70% on inventory. Firms with an investment in fixed assets can borrow on a revolving basis on the liquidation value of equipment/fixed assets.

True asset based loans tend to be ‘ non covenant ‘ in nature and don’t come with the ratio and covenants associated with a bank credit line. If there is one downside to the ABL facility it’s that reporting on your business is more rigorous – that must be balanced against borrowing power and access to capital.

If your company wants to ‘ change gears ‘ on the type of revolving credit facility that might make more sense seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can help you understand one of the ‘ new frontiers’ in business finance in Canada.

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 :

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