Business credit lines in Canada. What went wrong ? When we talk to Canadian business owners and financial managers it’s simply a case often of ‘ not enough , or not at all. They have challenges obtaining traditional bank financing for their operating needs. Is there a solution? One solution is in fact asset based funding for credit line need. Let’s dig in and examine why!
The good news about asset based lending is that its pretty well for everyone – from start up to it’s current usage by some of the largest companies in Canada . No industry cannot be disqualified by an asset based lending solution, if in fact you have the one requirement – assets!
Asset based funding for credit lines works because it uses somewhat of a… shall we say ‘ buffet ‘ approach. By that we mean that it takes a look at all of your assets and picks and chooses to combine into one borrowing facility that you draw down on an ongoing basis. It’s that pooling concept that makes ‘ ABL ‘ (asset based lending’) work. That pool of assets by the way includes receivables, equipment, inventory, even your real estate if your company owns it. Imagine using a portion of your companies building and premises as part of your day to day business line of credit. That’s what ABL is/ does.
As a business you have in fact ‘ unlocked’ your borrowing power, and when you combine that with the flexibility of bundling them together into one borrowing facility you in fact have… you guess it, cash flow power!
One aspect of ABL that is sometimes misunderstood, although we have hinted at it already above, is that it has various subsets. So yes, you can just have an ABL A/R facility, in industries where inventory is heavy on the balance sheet – for example a retailer, just the inventory becomes the borrowing power. Ditto for equipment and real estate.
Asst based funding almost always works better if only for the fact that it increases borrowing power. We’ve seen clients with no borrowing facilities finding themselves in a position of finally have a business credit line.
A recent example – take the case of a manufacturer who re organized their business completely due to a law suit by a major client. That re organization found them with zero borrowing power. Enter the ABL. By putting together a facility that includes receivables, inventory and unencumbered equipment a new facility was created for 500k. So 500k from zero – thats new borrowing power.
Costs of finance ABL vary significantly. While it almost always is more expensive the business owner / manager has the ability to generate cash flow, grow their business in an almost unlimited fashion, etc. We do hasten to add though that in some cases on larger transactions Asset based funding is in fact cheaper than traditional chartered bank financing. But for the SME owner expect more borrowing power at higher costs.
If you want to discover why business credit line via asset based funding work better seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your credit facility needs .