Could an ABL asset based line of credit in fact be all the business financing your Canadian company needs? It’s rare that one form of business finance in Canada meets everything you are looking for in a finance solution – quite often there needs to be a combination of solutions that make the final package work for yourself.
We can make the case the ABL facility in fact just might be the perfect solution for you – everything you are looking for in a revolving credit facility.
The revolving business line of credit… revolves… its as simple as that. The facility is an all encompassing umbrella around your key business assets – 99% of the time that includes the current and fixed asset triad – receivables, inventory, and equipment. Truth is told real estate can often be factored into the same facility.
The security that your firm provides for those assets becomes what the lender calls the ‘ borrowing base ‘ for you facility. A true asset based facility will have no form of notification to your clients, suppliers, etc. That’s an important differentiator when it comes to benchmarking other types of financing.
Up to now we can forgive the majority of first time clients exploring an ABL for asking ‘ so what in fact is the difference between this type of finance and a Canadian chartered bank line of credit?
One key difference exists and emerges very quickly for the Canadian business owner or financial manager. It’s simply that ‘ more ‘ in our case is better, and ‘ more ‘ in this case means more liquidity and cash flow. Another not so subtle difference is that the majority of firms utilizing an ABL asset based line of credit in fact qualify for financing when in fact they would never be a candidate for traditional bank financing.
Thats why a broad spectrum of Canadian business utilizes business financing of this manner. Does your company find itself in one of these industries: wholesale distribution, retail, and manufacturing? The bottom line is that pretty well every industry in Canada is serviced by ABL finance.
So why would your firm in fact consider a major all encompassing change in its working capital requirements. The unfortunate reason is that we would venture to say that the majority (but not all) of Canadian ABL users either doesnt qualify for bank financing or they in fact qualify but simply can’t get the amount of liquidity they need. They are in fact ‘ capped ‘.
With reference to our ‘ not all’ comment above, it may come as a surprise to many but some of the largest and most successful corporations in Canada, firms with revenues in the billions have forsaken traditional bank lines and focused on an ABL facility . In the ABL environment your firm can be public, private, small, large… it’s one size fits all.
Facility sizes for an entry level ABL tend to be in the 250k range, but it’s important to note that there is no upper limit from there – facilities in the tens of millions of dollars can be arranged.
Your new business line of credit works because the ongoing monitoring and margining of collateral (via your reporting) maximizes liquidity. Typical advances are 90% of A/R, 30-70% on inventory, and market values of equipment and real estate.
It doesnt take long for the busines owner to realize that with those margins that in some cases there overall cash flow access can be improved anywhere from 50-100% , and we’ve seen that time and time again.
So is ABL a one size fits all? You can certainly make that case when you consider the facts above. Speak to a trusted credible and experienced Canadian business financing advisor who can assist you with your asset based line of credit needs.