The ABL Revolver facility. Is it the business financing mechanism that can fill the gap your firm is experiencing in a business line of credit? Asset backed lending is working for thousands of firms who probably just several years ago had never heard of it! Here’s why.
To understand the benefits, and the growing popularity of this type of business credit it’s important to have a general sense of the landscape. The Canadian economy is of course way past the financial crisis it encountered in the 2008-2009 timeframe. But while that seems to be well behind us a lot of things changed in between. The bottom line is that post crisis lending for Canadian business owners and financial managers diminished and changed significantly.
How did things change? Simply put stricter lending criteria are in place and certain industries are out of favor. Canadian banks are renowned for their strength, stability, etc and they are always up for firms that have stellar credit and prospects in industries that are very much in favor. Thats great of course … except … what about the thousands of firms who have challenges and still have a demand for expansion of their business credit line?
That’s where the ABL revolver business line of credit comes into play. Your firm might not be ‘ creditworthy’ when it comes to a traditional Canadian chartered bank, but if it has assets, notwithstanding leverage or other issues it is still very much a candidate for asset backed lending.
ABL facilities focus solely on collateral – That’s where 99% of the emphasis is, and the asset backed lender has the expertise, people and systems to lend against that collateral. The assets in question are the basics: inventory, receivables, equipment that is not encumbered and even real estate.
Your revolver facility, similar to a bank line of credit is monitored and managed, and yes, margined significantly against those same assets. They are in effect your ‘ borrowing base ‘.
It’s ironic but many banks actually refer deals to an asset based lender because they are not really in position to ‘ count the boxes’ in, for example, an inventory situation. The ABL lender is very happy to count the boxes (as long as they are full!). So just to reemphasize our point, the bank is interested in monitoring your performance via financial statements; the ABL lender is focused on monitoring those assets. You report on those assets probably much more than you would in a typical bank environment, but the advantage is pretty significant – you are getting typically 90% of A/R, anywhere from 30-70% on inventory, and market values in real estate and equip.
The asset backed lender is set up to for real ‘ heavy lifting’ on your assets. By a combination of reporting and periodic visits they can feel comfortable in lending against all your business assets, notwithstanding financial performance. A company can still be losing money, having a bad year, in restructuring mode, etc and still have access to very significant business lines of credit.
If your company has a good mgmt team, proper asset controls you can experience significant upside in business credit via an ABL.
Speak to a trusted, credible and experienced Canadian business financing advisor who can help you ‘ fill the gap’ in your business line of credit situation.