Asset based finance is a solid working capital solution for a business line of credit as an alternative to bank financing. An ABL (asset based lending) line of credit provides an operating line of credit facility for a combination of both receivables and inventory. This can be achieved in Canada via a traditional receivable financing facility for firms that have both domestic and out of country receivables.
Often times this type of facility provides cash flow when your company is growing, or perhaps wants to acquire another firm… even a competitor. If we had to label many clients that are searching for the right asset based finance facility we would quite frankly put them in the category of being in a turnaround or restructuring situation.
Proceeds from this facility can be viewed in many positive ways, one of which is to simply give you leverage and negotiating power with suppliers for pricing and discounts … and why? Because you now have cash flow that allows you to buy smarter, purchase larger quantities of materials – all of which are on top of your new found ability to feel more comfortable about day to day financial burdens such as payables, salaries/wages , etc.
Many Canadian companies that approached asset based finance solutions have often exhausted traditional financial solutions. We stress to clients that asset based finance solutions are the last thing from ‘ lending of last resort ‘. In fact they in some cases can be more cost effective, and almost 99% of the time, in our experience, provides clients with more liquidity and access to capital.
And don’t forget also that when you approach asset based finance from a business receivables or inventory financing point of view you are no longer forced to consider scenarios such as raising additional equity and diluting ownership .. and that’s a good thing if you’re a business owner in Canada.
So how exactly do asset based finance solutions provide that much more liquidity, than say… a traditional Canadian chartered bank line of credit. They do that by margining you receivables at higher levels, or margin rates that banks, and also include additional borrowing on that same facility based on inventory, equipment and real estate, all of which are rolled into one day today borrowing facility.
In order to qualify for this type of financing it becomes a question of controls and reporting. Your firm should be in a position to report on an on going basis on aged receivables, payables, inventory counts, etc. It’s that level of business control that will get your firm the highest asset based finance facility.
Look at business receivables financing via an ABL facility as a type of financing that becomes the bridge for your firm to either move to a Canadian chartered bank facility or a true tier one ABL facility with comparable bank rates and structures.
When you are not aware of all the possibilities available to your firm for a business line of credit option speak to a trusted, credible and experienced Canadian business financing advisor who can help you reach the higher ground in asset based financing in Canada.