Important First Step – Understanding Why An ABL ( asset based lending) Business Line Of Credit Is Different

ABL is a compelling business line of credit that utilizes the concept of asset based lending. But why does this type of financing differ from traditional bank lending?

Simply because when you utilize this type of operating financing your company is ‘ running on all cylinders ‘ when it comes to maximizing your financial borrowing ability. Let’s examine why.

An ABL facility in effect creates a borrowing umbrella around your assets. This allows you to meet all your short term business operating needs, at the same time addressing key issues of both growth and any seasonality or cycles in your business.

On many occasions if your company has inventory as a key current asset you are going to be in a position when that inventory and your receivables fluctuate dramatically. Typically in our experience a traditional Canadian bank line of credit is unable to hand large fluctuations in business line of credit needs. Typically that’s because the bank lines have fixed limits, and are focusing on your historical needs, not your current ‘ bulge ‘ requirements.

The credit qualifications that you might be associating with a typical bank line of credit essentially don’t come into play with ABL asset based lending. In fact you can say all those rations, covenants, outside collateral, personal guarantees, etc are thrown out the door.

We’ve got nothing against a bank business line of credit by the way. And no one more than us is a supporter of the strong and credible Canadian banking system. It’s just that the majority of clients we meet are unable to access all, or even any, of the business line of credit that they need. That then hampers growth, ability to compete, etc.

Clients can be forgiven for understanding how an ABL business line of credit works or how they differ from whats generally available in Canada , That’s simply because the trend toward asset based finance has only received ‘ traction ‘ over the last number of years . We’ll also add that that traction, in effect our ‘ firing on all cylinders ‘ analogy gained a lot of steam during the global 2008-2009 credit recession when business financing dried up and came to as about as close to a standstill that we can imagine .

The essence of the ABL business line of credit could not be more fundamental – a facility is created under which you borrow against your assets on a revolving basis. You repay this business line of credit as your business fluctuates on a daily basis.

The key difference is simply you must have assets to borrow against ( inventory, a/r, equipment or real estate ) and you must be able to produce proper ( usually monthly) reports on key business metrics such as balance sheet, incomes statement, aged a/r and aged a/p and inventory lists . We submit if your business can’t produce these already you might have bigger problems!

Investigate ABL asset based lending. You might well find that this type of non bank business line of credit not only differs significantly from what you thought it was, but moreso, might be the solution you didn’t know existed for your financing needs. Speak to a trusted, credible an experienced Canadian business financing advisor on why ABL works for you!