Seems strange, don’t you think ? That the same type of financing that could be a solution for taking your company out of special loans might be the same one that can handle your growth financing needs ?
We are talking about ABL – the finance acronym for ‘ asset based lending ‘. ABL lending is a powerful financing loan (not really a loan per se) but we will get back to that) offered by a unique type of lender in the Canadian marketplace.
How unique are those lenders – we think very! And we’re going to demonstrate why, right about now!
ABL lending and financing is a financing facility that is set up to monetize or cash flow your assets. The closest comparison we can offer you to this type of financing is that it is comparable to a Canadian chartered bank operating line of credit and financing facility. But boy are they different.
Your ABL lender sets up a monetization of all your business assets, but typically the key assets are receivables, inventory, and occasionally complimented by equipment and real estate if those latter two are applicable. We can hear you already, because we have heard it from clients a thousand times ‘ But why is that different from a bank line of credit?”
The answer is simply, the total focus and amount of the facility is actually based on your total assets, and their current values. Bank operating lines on the other hand are pre set limits that are significantly focused on financial ratio, loan covenants, tangible net worth, and outside guarantees and equity. What a difference, right?
So is ABL lending better? Ours is to inform, yours is to decide – but abl financing optimizes the amount of financing you can achieve to the max. It is set up as a base of all your assets, with yourself drawing against those assets on a daily basis. That of course matches perfectly the needs of your company, i.e. the daily inflows , outflows, special bulge needs, large new contracts, overcoming slow collection challenges, etc .
Because the abl solution is always focused on your total asset picture it in effect optimizes your total available working capital. We think you’re getting the picture. And getting back to that always comparison against a chartered bank facility your borrowings on a daily basis are managed much in the same way – you use those same established ‘ borrowing base certificates ‘ that allow you to drawn down on cash flow and working capital on an ongoing basis.
The bottom line -as sales grow and you generate receivable sand inventory your abl loan financing fluctuates to turn your company into a true cash flow machine.
Some of the key issues you need to address in choosing the ‘ perfect ‘ ABL lender are as follows – the size of the facility, what information is required of your firm to set up the facility ( appraisals and operating audits are required ) , the timeline to set up the facility ( typically 2- 7 weeks depending on size and your reporting capability ) and issues such as cost and ongoing reporting and monitoring .
In the U.S. stats show that almost 30% of firms use some form of abl lending and loan financing to finance their firms. We are pretty sure the numbers in Canada are lower, but we sure do think you should determine if this type of financing is your total solution to business finance challenges. Speak to a trusted, credible and experienced Canadian business financing advisor about solving your cash flow challenges – today!