Commercial financing for business credit lines. Is there a revolutionary new way to look at the way businesses in Canada can access operating credit? We know there is, and it's the alternative to the good old stand by of bank commercial borrowing. It's called ' ABL '. Let's dig in.!br>
ABL's are asset based lines of credit that are typically ' non bank ' in nature. Some of the very reasons your firm might not be able to obtain bank financing are the same reasons you're the perfect candidate for a business credit line via ABL. Let's dig in!
Non bank commercial entities offer asset based loans that operate in a very similar manner to bank revolving credit facilities. All these facilities monetize your current assets -typically A/R and inventory. The asset based credit line takes it two steps further:
1. It often includes fixed assets which increase your borrowing base, but the facility revolves in the same manner
2. Borrowing margins are significantly higher - Receivables typically financed at 90% - Inventory in the 30-70% range depending on quality and mix of the asset in question
Business owners who are growing or have their debt to equity and cash flow ratios temporarily out of whack are also very appropriate candidates for this method of financing. Dont get us wrong though - you still have to have qualified commercial receivables to decent clients, as well as inventory that have the appropriate amount of turnovers and can be liquidated by the asset based lender if needed. Hopefully that is never going to be the case though!
Asset based financing started in the United States, and is also prevalent in Europe. It continues to gain a strong foot hold in Canada, but clearly there are fewer players involved. This often makes it challenging for the Canadian business owner and manager to access the right partner .Some expertise in picking the right partner is highly recommended.
Clients often question us on minimum and maximums size of transactions for business credit lines that are non bank in nature. Typically $ 250,000 is the minimum, and all things being equal there is no upper borrowing limit if your firm has the assets to qualify.
Many businesses are pressured either via banks or other lenders or their equity investors to put additional equity into the company. ABL business credit allows you to eliminate the ' equity ' component of your overall financing strategy. As a result it's good for larger retailers, tech firms, manufacturers, distributors, almost ever industry is a candidate.
Is it all ' apple pie and motherhood ' when it comes to ABL credit. Not all the time, as this method of financing is typically (not always) more expensive and you have to be prepared to report a bit more regularly on the assets being financed. That's because they are the sole collateral for your borrowing! Debt to equity and cash flow coverage don't really play a role in this type of borrowing.
The average business owner, financial manager, CFO rarely feels they have the 'upper hand 'when negotiating day to day credit facilities. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can help you select between bank and ABL facilities in a manner that suits your company best.
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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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