Being well informed in any area of business is critical, and business financing is certainly an area that comes under that category. Let’s examine five typically client questions on ABL asset-based lending in Canada and why this type of business credit revolver loan (it’s not a loan by the way) can help your company through growth and or challenging times.
Question 1 – It’s a simple one. What is ABL? The term is actually used in many ways ( ABL = asset-based lending), but in our context today, it is a revolving credit line that Canadian business owners can draw down on. Collateral for the facility is typically your A/R and inventory but can include miscellaneous assets such as equipment, real estate, tax credits, etc. All these assets are collateralized and become your firm’s new line of credit facility based on the ongoing fluctuating values.
We said an ABL credit revolver loan was not a loan per se, and that’s an important distinction. No debt appears on our balance sheet, you are just monetizing current assets on an ongoing daily basis. Canadian business is graduating more and more to ABL types of business credit if only for the reason that it gives them more borrowing power than a traditional Canadian chartered bank business credit revolver.
Question 2 – Why in fact are businesses moving to or considering this type of facility? Our answer here is pretty simple, and we have touched on it already. It’s the fact that you now have the ability to generate cash flow more quickly to support growth. Your firm’s newfound ability to create faster asset turnover increases profits. It’s a solid alternative to borrowing via long term debt, of the dreaded giving up of owner equity, never a great solution for business owners. We point out also that pretty well every firm in Canada that has business “current assets” is eligible for some form of asset-based lending . Small facilities tend to be $250,000 and up, but the large mega corporations in Canada also use this method of financing. There is no discrimination when it comes to an ABL revolving loan. And by that way, that includes public companies also.
Question 3 – Is the difference in new credit facilities actually worth considering the move to an asset-based line of credit facility? We’re biased of course, so you decide. Typical bank credit lines margin receivables at 75 percent and inventory anywhere from zero (yes zero) to 50 percent. ABL facilities get you about 90 percent of A/R and inventory financing can go as high as 70 percent in many industries, depending on your type of inventory.
Question 4 – Our company is having some challenges in a number of areas, are we still eligible? The answer is a resounding yes, yes and yes! Whether you are a startup, established or even in bankruptcy or receivership proceedings (you heard us right!) you are always eligible for this financing, as long as you have one thing – Assets!
Question 5 – Where can we find out more? Speak to any trusted, credible and experienced Canadian business financing adviser on the merits and tangible benefits of ABL asset based lending. There is no better way to finance your firm in current times.