ABL Couldn’t Save Detroit But It Probably Will Help Save Your Firm From Financing Challenges
OVERVIEW – Information on asset based lending in Canada . Working with the right ABL lenders allows your firm to monetize assets and address growing working capital needs
Asset based lending in Canada. We’re pretty sure this type of financing from lenders could not even have saved Detroit ( Detroit apparently had not sales or cash flow!) , but we’re 100% sure this method of financing a business line of credit can either grow, or dare we say save your company when it comes to working capital and cash flows. Let’s dig in and explain.
And by the way, we never have and NEVER will condone Fake I.D. ;
but frankly we came up with that as a good analogy for ABL because that fake I.D. card grants you accesses to places you could never get into before . Asset based credit does the same thing. You’re suddenly in the big leagues when it comes to line of credit access your fIrm could not get before.
When a company in Canada has the asset base but lacks the sizeable net worth (equity) to finance the business externally the ABL business line of credit is a very solid solution. (ABL = Asset Based Lending)
While the textbook case of an asset based credit deal for us is probably the traditional manufacturing firm it is very safe to say that it applies to any business in Canada that has any assets that come from the three categories of receivables, inventory, and fixed assets.
For instance, although we traditionally think of a commercial business selling on trade credit to other businesses a great example of an asset based credit deal is a major retailer who sells on cash, but has… you guessed it… a ton of inventory in their stores and warehouses. At the other extreme might be a high technology firm that develops software. They have no inventory, but sell their software commercially to commercial and government accounts. Their sales generate receivables and those receivables can be financed by a non bank ABL.
We don’t want to digress too far from our key subject area today, but Canadian business owners and managers should know that ABL lending also has the ability to help you acquire a competitor, merge with a firm, and even work your way out of dire straits. Larger companies who find themselves in CCAA proceeding can use the facility to refinance and re-emerge.
We don’t think we have met a client over the last ten years who hasn’t eventually looked us in the eyes at that first meeting and asks the question only a customer can ask – ‘ WHAT’S MY RATE ‘.
We’re reluctant to sound like our lawyer today,
but frankly ‘ it depends ‘. Don’t worry we’re not billing you for this info. But our point is simply that asset based lending can be lower than, equal to or higher than a Canadian chartered bank similar facility. The key issues surrounding rate are the general financial health of your firm, the existence or non existence of profits, the size of your assets, and the type of ABL lender you are working with.
While the smaller ABL type loan is typically 250k and above the larger transaction in Canada can easily be in the tens of millions of dollars. There is no upper limit to a true ABL deal, and this type of ‘ loan ‘ (it’s not a loan per se – its asset monetization) is much more easy to achieve than traditional bank financing in Canada. While chartered bank credit lines in Canada are pretty well the best deal when it comes to overall analysis of cost and flexibility these type of borrowings come with some stringent requirements around cash flow, debt service rations, external collateral, personal guarantees… and on it goes.
While we don’t think ABL could have saved the bankruptcy filing of the CITY OF DETROIT in the U.S. (100,000 creditors, 20 billion in term debt, 78,000 abandoned homes, and total vacancy/dereliction of 30%) we do in fact see everyday where it helps Canadian firms such as yours refinance, grow, merge, and expand into new markets and products.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor today for getting on track with asset based lending facilities.
Author: Stan Prokop – founder of 7 Park Avenue Financial
7 Park Avenue Financial
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7 Park Avenue Financial
Canadian Business Financing