Credit Line for business? The other day we were talking to a business lawyer friend of ours, and we asked him which was better , the traditional Canadian chartered bank line of credit, of the non bank ' ABL' ( asset based line ) for commercial finance purposes . Being a lawyer of course he started with. 'Well on one hand, but then again on the other hand ...' we wanted to get a bit more specific than that though. So let's dig in.!br>
The reality. You have two choices for business credit lines in Canada. They are both suited to companies that are growing , but non bank ABL's fill the gap for many firms that can't acquire the traditional financing they need from chartered banks in Canada . That might be due to lack of proper equity or profits that are struggling for a temporary period.
Both bank credit lines and asset based lending facilities can also be used for other purposes, other than day to day financing .That might include acquiring another business.
A key area that always becomes a discussion point with clients is the cost of these two different credit facilities. On balance asset based lines of credit are more expensive. However, while cost is no doubt a factor in financing any business suffice to say that access to capital is just as important. We quite frankly remember one client who hasn't significantly increased their borrowing power after having considered an ABL COMMERCIAL FINANCE facility. In fairness, on occasion better quality borrowers will find they can equal or better bank pricing, but on balance they can expect two things from an ABL credit line:
INCREASED BORROWING POWER
HIGHER COST OF FUNDS
The basic mechanics of setting up either a commercial bank facility or ABL in Canada isn't that different. You need to be able to demonstrate that you can produce on going financial statements, as well as proper regular reporting on aged receivables, payables, inventory summaries, etc.
We suppose that you can set up a bank line of credit for almost any amount, even unsecured for smaller facilities. These smaller facilities via a Canadian chartered bank don't even require regular reporting, and as much emphasis is also placed on the owner's personal credit as the business, as all business owners in Canada guarantee their credit facilities. There's rarely no chance of getting around that one!
But when it comes to a ' real ' credit line of business typically 250k facilities are the entry point. And the upper limit. There is no upper limit if your firm has financial strength!
We stress to clients that if there is one key benefit to ABL facilities over bank lines it's simply that margin power is more generous - typically A/R is financed at 90%, Inventory anywhere from 25-75%, and the uniqueness of an asset based credit line is that you can borrow against unencumbered fixed assets also.
Bottom line - when it comes to business credit lines you have a choice in Canada. While bank facilities are low cost and plentiful, if your firm can't quality of has special needs ABL credit comes to the rescue. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your commercial financing needs.
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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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