Can ABL Finance Eliminate Sleepless Nights ? Here’s How An Asset Based Lending Business Line Of Credit Can Help

A cure for sleeplessness? Well, we’re not really saying that ABL asset based lending via its business line of credit facility is your cure to what we might term as ‘ business insomnia ‘, but we do meet many Canadian business owners and financial managers who profess to have some sleepless nights worrying about how to finance their business on an ongoing basis .

So why then is an ABL facility a solution to less worrying about Canadian business financing. It’s important therefore to understand what asset based lending vis a vis a business credit line is, and why it’s getting more broad appeal everyday in Canada.

ABL is a secured credit facility collateralized against various assets of your firm. You essentially borrow against all those assets under that collateral facility. So the question then begs to be asked, ‘ why is this any different than a facility from a Canadian chartered bank?” It’s a reasonable question, and the answer we guess is two words ‘ more ‘ and ‘ easier. By that we mean that 9.9 times out of ten you are going to be able to achieve much more liquidity under an asset based business line of credit. And with respect to ‘ easier ‘ the asset based lender focuses on assets, not cash flows, covenants, ratios, outside collateral, etc.

The assets that you typically borrow against are inventory; accounts receivable and any fixed assets such as plant, machinery, etc that aren’t already encumbered by another lender or lessor.

How then does this business credit facility generate more financing for your firm, or perhaps a better expression is the potential ability to generate additional cash flow . The answer is that it’s all in the margin, because typically your business A/R is margined at 90%, unlike the bank 75%. Inventory and assets are appraised at the commencement of your facility and you can enjoy significant drawdown ability with them anywhere typically form 0-70%. (Every business/industry is a little different, so borrowings differ according to type of inventory, asset, industry, etc)

Essentially, as we have demonstrated, the assets in your busines form the borrowing base for all ongoing borrowings. You can hopefully immediately see that you have much greater access to liquidity and that as your business grows so does your facility. Clearly we have demonstrated that your sales growth is automatically funded by that commensurate growth in client receivables and inventory if in fact your firm has an industry position.

There are various technical aspects to how your ABL business line of credit is monitored and funded. Areas of concern to the ABL lender include warranty returns, credit notes, and inventory composition re raw materials, work in process, finished goods, etc.

We strongly encourage you to take a hard look at ABL credit as your key working capital revolving facility. Will you sleep better? We hope so, knowing that your business is financed properly and poised for growth and profits. Speak to a trusted, credible an experienced Canadian business financing advisor today.