Talk about two different problems… a cash crisis (or ongoing cash crisis!) and badly needed growth financing. Let’s take a look at how abl loans via asset based lending and financing can be the perfect solution for your revolver facility loan needs.
In business there’s nothing more urgent than a ‘ call to action ‘ around a working capital or cash flow crisis. At this point it’s all about ‘ righting the ship ‘ and allowing Canadian business owners and financial managers to get their business finances under control. It’s more often than not a case of simple survival.
Naturally putting in a proper ongoing financial solution, such as an abl financing revolved allows you to get your eyes back on running the company normally on a daily basis – we meet with clients who regularly tell us that a huge amount of time is spent on managing cash crises and juggling things such as vendor payments . Bottom line, its time to stop putting out the fires and focus on a solution… that works.
A true asset based line of credit has the ability to allow you get back the confidence that your suppliers, lessors, and other lenders had in your business, and that’s important. It goes without saying that lenders, investors and suppliers truly have the ability to control the destiny of your company if the perception of a permanent cash flow shortage remains.
So, enough about the fear! Let’s focus on a solution that works. Simply speaking, that’s asset based financing via a revolver facility that is generally non bank in nature. (Some Canadian banks now offer this facility but the credit requirements and deal size criteria are, in our opinion, exceptionally high).
The concept of asset based lending, aka ‘ ABL ‘ is simply securing your assets, leverage them to the maximum that is possible, with the result being greater liquidity for your company. And by the way, don’t think we have just leveraged up a ton of debt on your balance sheet – 100% wrong, we have simply monetized or ‘ cash flowed ‘ existing assets… allowing you to borrow against them .
Those assets are typically very clear categories of receivables, inventory, equipment, and occasionally real estate and tax credits due your firm. (Yes tax credits such as the SR&ED credit can be included in your financing package).
So the question then becomes, don’t banks do this already…? And you have tried that possible scenario. The quick take away here is two things. First of all abl loans and financing revolver facilities provide greater leverage on current assets. Receivables are typically margined at 90%, and inventory, often difficult to finance for cash flow, can be margined anywhere from 30-70% as an example. If you were getting 75% from your bank on A/R and nothing on inventory haven’t we just increased your working capital by anywhere from 50-100%?! Wow.
A very simple way to look at this, and we use this example with clients all the time is to simply think of the asset based lender solely looking at the collateral, while the banks will focus on collateral, but mainly historical cash flow, ratios and covenants, and outside collateral via personal guarantees, etc . (As a general rule very little emphasis is placed on personal guarantees when an ABL loan facility is put in place.
Oh and by the way, you absolutely don’t have to be profitable to qualify for asset based lending facilities, which in Canada start at a low of 250k and go to the tens of millions of dollars.
So, cash flow crisis. Growth challenges. Looking for a solution? Speak to a trusted, credible and experienced Canadian business financing advisor on ensuring an ABL working capital facility is right for your firm.