subject: Asset Based Lending & Financing Canada [print this page] Asset based lending and financing in Canada is a relatively new financing alternative for Canadian business owners and financial managers. The growth in asset based lending stems form external sources such as the tighter credit markets and restricted bank lending in certain areas of Canadian commercial business financing.
When times get tougher businesses of all size look to alternatives in their overall financing strategy. 'ABL ', which is the acronym for asset based lending is clearly one of those alternatives. Generally speaking asset based financing and lending is providing by independent non- bank type firms. In Canada these firms are relatively small in number, and actually even that small handful of players is dominated by U.S. firms who have established major ABL practices in the U.S.
We therefore urge all our clients to seek a trusted, credible and experienced business advisor in this area to ensure they are capable of sourcing the right facility that meets their needs.
The most fundamental definition of asset based financing in the context of our information here is simply the provision of working capital and cash flow for your receivables, inventories, and in many cases equipment and real estate if that is applicable.
Receivables and inventory tend to dominate the majority of this type of financing, as they are the largest and usually most liquid asset categories. Your business may be growing quickly and even though you are profitable your lack of cash flow will impair your ability to succeed.
Asset based lines of credit generally is available to all medium and larger size companies in Canada generally start ups and very small firms simply don't have the bench strength in assets to warrant this type of financing .
Asset based lending is simply maximizing the true value of your assets without the same focus that a bank might place on your overall financial statement quality. The facility generally has a limit, similar to a bank, but the reality is that as your assets grow your ABL facility will grow also?
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We advised clients strongly that the challenge in the Canadian market place is simply to ensure you understand what type of facility you are getting and the restrictions that a particular ABL lender will place on your firm regarding rates, structures, reporting, etc.
When clients ask what it takes to qualify for such a facility we simply advise that your business must overall be viable, and quite often ABL facilities can be uniquely structured to your specific industry and business model.
The benefits of asset based credit facilities are very significant they include:
-Improved cash flow and greater working capital
-Shorter approval times to get the facility set up
-Reporting is more stringent in asset based lending because it focuses on the assets, but many clients tell us this additional reporting helps them understand their business better.
-Higher financing costs in asset based lending bring a higher cost of borrowing, but a huge portion of these additional financing costs can be offset by better purchasing , taking advantage of supplier payment discounts, etc In some unique cases we have seen the entire cost of an asset based financing facility being nicely absorbed by those two scenarios alone!
In summary, clearly the overall benefit of an asset based financing or lending facility is simply access to greater cash flow and working capital. It is an alternative form of financing that quite frankly is developing into a traditional method of financing in Canada. Asset based facilities vary in size, structure, and rates based on your firms overall financial position your firm may well be experiencing some financial challenges and that absolutely does not preclude you from getting this type of financing. Its all about the 'asset '. Speak to an experienced advisor to determine what benefits an ABL facility will bring to your Canadian business.
