OVERVIEW – Information on an alternative business credit line in Canada . The ABL facility, as offered by the asset based lender provides high liquidity and can easily be compared to a Canadian chartered bank facility in terms of cost, more borrowing power, and reporting
The business credit line in Canada has gone through a bit or transition over the last number of years – That transition comes via the Asset Based Lending (‘ ABL ‘ ) facility via the Asset Based lender . Let’s examine why this ‘ rebirth ‘ of a traditional revolving credit facility (most commonly offered by banks) has taken Canada by somewhat of a storm. Let’s dig in.
When it comes to spotting warning signs in a businesses financial situation many circumstance involves the business credit line. It quite simple really – your business either has no credit lines in place an needs working capital, or in some cases you have traditional bank financing but it cannot satisfy the needs for growth and operations . A final common scenario is the profile of firms that have had bank financing but for some reason are now self financing or , even worse, in ‘ special loans ‘ with an exit needed as quickly as possible in order to save the company .
When you’re in a position to access Canadian chartered bank financing you’re clearly part of the ‘ cash flow crowd’. ABL, the alternative borrowing scenario turns all that upside down – the total focus is on … Assets. Almost always these are receivables, inventory, equipment, and real estate if that’s part of the mix.
That’s the real trade off here – when you consider an asset based revolving facility you’re no longer dependant in any big way on leverage, ratios, and covenants. Those almost always disappear in a true ABL facility.
The trade offs between bank financing and a non bank asset based line of credit are very clear. The extremes in focus between the two don’t make the decision process all that difficult. Bank credit facilities are monitored much less , so while you can almost expect a major increase in borrowing power when it comes to an asset based lender the one thing you can also expect is more reporting requirements .
With respect to that increased borrowing power it’s achieved simply through more generous margining on A/R and inventory. AR is typically 90% and inventory ranges from 25-75% – dependent on the liquidation value and turnover history of your firms inventory.
Also, for very large corporations the actual cost of an ABL credit line is equal to or even better than bank rates. However for the thousands of small to mid size borrowers the increased borrowing power that come with an asset based credit line will almost always mean higher borrowing costs.
Top experts in corporate finance are quickly realizing the true value of the asset based credit line. It is also used in a number of scenarios to facilitate purchase and takeover of a business.
Is the business credit line challenge ‘a brewing ‘ problem for your business? If you’re looking for the know how, experience and knowledge of your cash flow needs seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can ensure proper financing is put in place to accommodate your needs.
Writer Stan Prokop – 7 Park Avenue Financial :
http://www.7parkavenuefinancial.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 90 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN BUSINESS CREDIT LINE EXPERTISE
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