Canadian Business Financing Smackdown? ABL Asset Based Loan Financing vs. Commercial Bank?

It’s probably just us, but we been enamored recently by the word ‘ Smackdown’ which denotes a ‘ battle or severe beating between two parties ‘. Somehow it’s just a neat word! Which got us to thinking… who would win a Smackdown between ABL asset based loan financing and a Canadian commercial bank line from one of our Chartered banks in Canada ? !

We secretly often root for the ABL facility, but we’re going to let you decide, the Canadian business owner and financial manager.

ABL financing is one of the few areas that have grown significantly in popularity over the last several years. When the economic implosion of 2008-2009 happened thousands of Canadian businesses started to review their financing options with either their banks or on their own accord. It was ugly… lines of credit were being lowered or pulled in and it simply got a lot hard to write a cheque, make a payroll, etc.

We guess this is the day for ‘ sayings’ because out of necessity came the mother of invention – enter ABL financing. But why does ABL asset based loan financing flourish when other forms of business financing don’t?

It’s because ABL financing looks at risk management in a whole different manner than a chartered bank. Banks base all of their borrowing on their own issues, such as capital ratios and capital bases, and adjust their risk accordingly. They do a great job of that, and quickly have become world acknowledged as leaders in risk and financial stability. But, at whose expense? We think you know the answer. Yours! Because when banks manager commercial bank loans their do it in a manner that addresses their own issues, ( not yours ) by imposing rations, covenants, the needs for outside collateral, and a strong emphasis on personal guarantees .

But what about our friend ‘ ABL ‘ sitting in the corner. It generally uses none of those, simply focusing on the assets you have in your business to allow you to generate maximum liquidity from a business operating line of credit.

So does ABL cost more… and whats involved, if in fact you accept our premise that it’s potentially a better type of financing for Canadian business.

ABL can cost more; sometimes significantly more, and sometimes it can cost less! So don’t forget that. Additionally, as the total focus of an ABL asset based line of credit is assets expect to be able to prove the value of the assets being financing, which include receivables, inventory, fixed assets such as equipment, and yes, even real estate. All of those assets are in effect thrown together to get you a business line of credit that makes sense, and focuses solely one item- your assets. Because you borrow against all those assets in a bulk facility, daily, as you need it, be prepared to show you can report properly and methodically, either weekly or monthly, on items such as aged receivables, inventory. Etc.

Trends rarely lie. Certainly not at the outset! So its no surprise that thousands of Canadian firms are gravitating to asset based loan financing for their lines of credit. Abl lenders take more risk (bad for them … good for you …) and that risk and return issue they face translates into more liquidity for you.

Is there a perfect answer to our question on who would win the Smackdown? We’re not sure, but we do believe that if you seek and talk to a trusted, credible and experienced Canadian business financing advisor that you will be in a better position to determine which business financing solution works best for you when it comes to a business line of credit.