The Rise of ABL Lending in Canada – And What The Heck Is It?!
Information on ABL lending in Canada . How does this financing compare to bank financing, and why are these types of loans and credit facility becoming more popular every day
A significant amount of confusion exists in the Canadian business financing arena around the definition and use of ABL lending . In the context that we are talking about we’re focusing on a comprehensive business financing credit arrangement that provides you with a total borrowing facility based on primarily receivables and inventory, but also equipment and real estate when that comes into play .
There are many subsets of abl lending in Canada. The two dominant factors that play a role in theses subsets are size of facility, and single focus financing, such as receivables only. Additional the overall credit quality of your firm (i.e. good, bad and ugly) ultimately drives what type of facility
Can anyone raise their hand and answer why abl loans (by the way they are not loans per se) are deemed by many to be the savior of Canadian business financing. We sure can – its because they have the simply ability to offer financing when traditional bank financing is not available ,and, even to a stronger point, abl loan don’t discriminate when it comes to size of the facility . Generally these facilities range from 250k on the small end to tens of millions of dollars at the high end. Oh, and by the way, many of Canada’s largest corporations use this type of financing, unbeknownst to the average follower of Canadian business financing.
So again, whats better for your firm. We have got nothing against traditional bank operating loans, they have served Canada well for a hundred years, however , they can be restrictive when it comes to size of facility, renewals of your facility on different terms, and , most importantly limiting on what can be financed and for how much .
Quick example based on a real world scenario. Manufacturing company ‘A’ has a bank financing operating facility that margins their receivables to 75% of total value, and inventory to a cap of, let’s say 750k. However, manufacturing company ‘A’ is growing quickly, requires additional inventory, and has receivable growth commensurate with sales growth. The challenge in a traditional banking arrangement is that the company is restricted in ability to grow commensurate with their working capital needs .Would banks step in. Maybe, possibly, who knows?
However, we can almost guarantee this same type of problem or challenge our company ‘A’ is facing would be met head on in an ABL lending scenario. Why , simply because abl financing is based on assets, so as the firms inventory and receivable investment grows so does the facility, pretty well automatically .
Many Canadian firms that are smaller and medium in size unfortunately don’t qualify for what we call a true pure play ABL, simply based on deal economics and size of facility and asset categories. Does it end there? Definitely not, as working capital facilities, mini ABL”s we could call them, are available that finance a combo of A/R and inventory, accounts receivable only (typically called factoring financing), with potential to add on purchase order financing when that makes sense. Our mini ABL”s, aka working capital facilities are priced significantly higher that true asset based lines of credit, but offer the same flexibility and access to capital .
So, is there a bottom line? The old saying’ the trend is your friend ‘ is applicable – more and more firms are investigating abl lending and benchmarking it against bank loans. Do not, we repeat, do not investigate this type of financing if you have all the business credit you need and have no challenges in working capital financing and business growth! If that’s not you, speak to a trusted, credible and experienced Canadian business financing advisor who can help you benchmark abl loans vs. bank financing facility.
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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 .
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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