Business liquidity. We were watching a U.S. bank TV commercial the other day and they were talking about ‘ accelerating cash flow ‘. Many but not all Canadian business owners and managers are aware that the Canadian banking system is dramatically different from the U.S. one. Hundreds of U.S. banks focus very directly on commercial lending to the point that it’s actually the largest part of their portfolios – thats hardly the case in Canada of course where there is a major focus by banks on savings, mortgages, investments, securities work, etc.
So the asset based finance co (company) in the U…S is a very large part of the commercial landscape. That’s not the case in Canada; however that is slowly changing as thousands of firms investigate ‘ ABL ‘ facilities as their new alternative to accessing business liquidity and capital.
Let’s take a look at how and why the asset based lending facility is a cash flow accelerator. For a starter, what are the reasons a firm would want to consider what we term a ‘ non bank’ facility in Canada. The reasons are diverse – they include acquiring a firm, recapitalizing a firm, or simply monetizing their current and fixed asset base to accelerate cash. A true ABL financing doesnt necessarily bring any debt to your balance sheet – it a simple monetizer ‘ of assets.
So when your firm considers such a solution its simply a case of understanding and of course sharing your current financial position, and focusing on how the specific use of funds will enhance cash flow.
What are some of the reasons a firm fails to recognize the need for a better business line of credit? They can be diverse, but they include not understanding some of the external pressures facing their company , operating on a belief that the old ways in business finance will always work, or even having undertaken a project or strategy that failed, thereby severely impacting your working capital and cash flow,
In order to understand the benefits, as well as implement a solution via an asset based finance co partner you need some basics under your business belt. They include knowing your days outstanding for both your A/R and payables. If you company has an inventory component, which is certainly the case in many manufacturing and wholesale firms in Canada the amount you are carrying , its turnover, and the amount requiring financing is key .
Why then does more ‘ business liquidity come from ABL solutions. Thats the easy part to explain to a client, because it simply involves combining the total amounts of receivables, inventory, fixed assets, and real estate into one basic ‘ pot of assets ‘ that is monetized into a business line of credit.
Don’t be surprised if your new ABL facility doubles your current borrowing power! Thats because it margins receivables at 90%, inventory anywhere from 30-70%, and then throws in additional borrowing power via a constant drawdown and revolving of funds based on equipment and real estate if n fact the latter is applicable.
Speed… and acceleration; thats what the TV commercial for U.S. business banking was talking about .. and its available in Canada via an asset based finance ABL solution .Now you know!
Speak to a trusted, credible and experienced Canadian business financing advisor on this great method of increasing financing for your firm.