The ‘Silver Bullet ‘. It’s always been an interesting term to us, referring of course to something that ‘ cuts through complexity and provides an immediate solution to a problem ‘. (In the old days it was the actual use of a silver bullet that was the only way believed to kill a werewolf! ) So why do we maintain ABL lending and asset based lenders and the financing they provide are a silver bullet for Canadian business financing? Here’s why.
Asset based lenders have emerged in Canada as a true alternative to traditional Canadian chartered bank financing. While they are often categorized as a form of ‘ debt ‘ in reality these firms simply monetize the left side of your balance sheet – i.e. your assets. These assets, usually both current, but sometimes fixed, are monetized into a revolving business line of credit that accelerates liquidity for Canadian business.
We feel that because asset based lenders emerged much later onto the Canadian business financing scene that that’s one of the main reasons there is a lack of understanding and standardization when Canadian business owners and financial managers attempt to understand the finance offering this type of financing provides..
ABL lending is typically ‘ unregulated’ financing services. simply meaning that the majority of firms providing services in this area of Canadian business finance aren’t under the bank act . The irony is that a small handful of the larger ABL firms are in fact divisions of U.S. and even Canadian banks. So why should we care about unregulated financial services, if they are offered by large well capitalized companies who want to do business with your firm. Simply speaking – flexibility!
That flexibility comes in the form of higher L T V (loan to value) lending that gives you only two things – more liquidity and cash flow. The simply reason behind that is that it leverages your assets to a much higher level than a typical bank offering.
So how and why is ABL lending able to advance such higher amounts when it comes to your firm’s new business line of credit revolving facility? It simply because greater care, valuation, and control and reporting (that reporting is by yourself by the way!) Allows asset based lenders to margin your receivables, inventory, and in some cases fixed assets at rates that can be anywhere from 10-50 % higher on inventory, and as much as 20% more in receivables.
Again, we’re circling back to flexibility. It is rare that any industry is totally ‘ out of favor ‘ with an asset based lender. Why? Because based on their internal expertise and their ability to work with your firm in any stage of your existence (start up, high growth, turnaround, recapitalization, etc) almost every Canadian firm is eligible for an asset based line of credit facility. The greatest flexibility, if we had to name one, is that the facility grows as your firm grows – that certainly is not the case when it comes to more traditional forms of financing, or term debt.
And again, the ABL facility is somewhat of a ‘ catch all’ as it works for companies of all size (typical facilities range from 250k to tens of millions of dollars); firms that are both doing well and growing or those that have experienced significant business challenges. Your firm is no longer pressured to perform under ratios, covenants, and other issues that detract from your ability to grow or save your business.
If you want to learn more about the new ‘ SILVER BULLET ‘ in Canadian business financing consider speaking to a trusted, credible and experienced Canadian business financing advisor who will help you determine the right facility for your company.