Canadian business financing has a new success story when it comes to business lines of credit and asset loans. Although it’s clearly been around for awhile we run into tens of clients who haven’t even heard of the solution, but boy do they know they have a business financing problem! The ‘ supercharger’ we are referring to is an ABL; an asset based business line of credit.
Let’s make sure you understand the basics first – and it’s actually quite simple. An ABL facility is a revolving line of credit, which, surprise, surprise, is typically offered by an institution other than a bank! That’s what really surprises some of our clients. These business lines of credit, or asset, or asset loans are credit facilities that support your receivables and inventory, just as they would if your firm qualified or had access to a Canadian chartered bank facility.
Can we add a little more ‘ supercharging’ to the mix – yes we can. The Abl facility can actually include equipment and real estate which can be bundled into the facility if your firm has those assets for additional leverage. So what is happening is that you as a Canadian business owner or financial manager are using your ‘ asset rich’ status and monetizing that into temporary working capital and cash flow. That’s a good thing.
So who in Canada is already ‘ supercharging’ their credit facilities outside of the bank environment? Literally thousands of companies, including some of the largest corporations in Canada. We would point out though that the general lower end of this type of facility typically is 250k, but after that the sky is the limit with respect to transaction size. There is a common perception out there that this type of financing is for companies that are experiencing financial challenges – and to be fair , because the program is asset based these business lines of credit and asset loans are available to firms who are doing well, and those not doing well or experiencing dire challenges . That accessibility for corporations and industries of all types is what is fueling the asset based line of credit facility growth in Canada.
It’s never a perfect world, so we advise clients to expect a higher cost of funds than that of a Canadian bank facility – but at what cost would you pay more for a facility that margined all your assets, including fixed assets and real estate. When proper value is agreed upon with your firm and the asset based lender you can actually margin and utilize cash flow on your unencumbered equipment and equity in real estate.
In summary, first, you can supercharge your working capital and cash flow via an ABL facility, which is a direct alternative to any method you are utilizing today. Secondly, your liquidity could literally double if you are in a position to monetize some of your equipment and or real estate, without taking on any additional debt! And, thirdly the facility does not exclude any type of firm from applying, so you can take advantage of Canada’s newest form of financing today! , thereby accelerating your growth and profits.