Asset Based Lending – ( ' ABL ' ) There is one overriding reason why it might be your best choice for business financing in Canada. It's kind our version of the ' Superman' of business financing solution ! What is that reason? Simply that it works when other types of financing are not available or don't fit your current financial status. Let's dig in!!br>
The reality is that asset based lending works for all firms in all types of industries, and is not dependent on your overall financial performance that might be the focus of a more traditional based financing. That's a powerful statement, so let's examine what the financing is, how it works, and answer some key questions that might help business owners and financial managers determine if this financing is the solution to many, or all of their financing challenges.
So let's back step a bit. What is asset based financing. Focus on one key word in that phrase - assets! This method of financing simply allows you to monetize and draw on the market value of the assets of your firm. Those assets are in very predictable categories, they are receivables, inventory, equipment and real estate. If you have one or all of those your firm is a prime candidate!
In some cases this method of financing is confused with factoring. Factoring is the sale of one of those asset categories – your receivables. An asset based line of credit lends against receivables, but also includes, inventory, equipment, etc. That is the difference!
The prime difference in qualifying for such a facility is really the difference that exists when you compare this type of financing to a Canadian chartered banking relationship. That banking relationship comes with a number of requirements that are often not needed when an asset based line of credit is in fact your real and best solution. Some of those traditional requirements might be profitability, years in business, the type of industry you are in, guarantees of shareholders and owners, etc. Those qualifications are not the focus of asset based lending. However the assets are.
On a day to day basis how does this type of business financing work. It's quite simply. You and your asset based lender determine on a regular basis, i.e. weekly, monthly, etc what your asset categories total - a borrowing based is then developed on those categories and funds are depositing into your bank account for use as working capital by your firm. In Canada a 250k facility is more or less the bottom level of this type of financing, and facilities can be arranged into the many millions of dollars.
So if you want an easy way to remember the difference between this type of financing and a bank revolving line of credit simply remember that the bank focuses on overall financial strength and cash flow, our facility focuses on assets!
Because your assets are being financing as the primary focus of this type of facility you will have to report on those assets probably on a much more regular basis , so your firm should be in a position to prepare regular reports on receivables, inventory turnover, etc. When fixed assets are being financing, i.e. unencumbered equipment you own, etc then in many cases an initial appraisal will be required. This small dollar investment though can generate thousands or hundreds of thousands of dollars in working capital.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you facilitate the type of asset based lending that meets your needs in the Canadian business financing environment.
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 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 re: Canadian business financing & contact details :
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