ABL asset based finance can be the solution for business revolving lines of credit when your current finance strategy isn’t working. And what are those early warning signs? They include situations where your financing currently just isn’t working due to financial challenges you have experienced in the past. They also include acquisition scenarios, turnarounds, and the proverbial double edged sword, high growth.

The simple reality is that although the ABL credit lines have essentially the same goal they in fact get to that goal line in a very different manner. Both the chartered bank facility as well as the ABL line provide you with a bridge for financing from the time you receive customer payments while all the while generating expenses.

Receivables are often the primary component of an ABL strategy. The ABL facility is not capped, so as your sales grow so can the facility, it’s as simple as that. All of this might seem similar to a bank solution, so whets the real difference. One is in fact margining, in that asset based lines of credit, with respect to the a/r component, are usually margined at 90% – typically the bank is at 75%. Although the reporting is generally stricter with ABL the reality is that the tradeoff is significant, you can borrow more and are not focused on staying within any pre set credit limit.

Many clients we talk to don’t understand the daily mechanics of how the asset based lender operates given they are not a bank. (The ABL is generally not a bank, but it actually can be sometimes). The typical way this is handled is via a separate blocked account where all the deposits you receive are handled separately from your operating account. Simply speaking you get money from the ABL via your operating account, and your receipts go into the other account. Naturally both accounts are fluctuating all the time.

While some of these terms and the actual ABL facility itself might seem ‘ new ‘ the reality is that this type of financing has been happening for decades in the U.S. and is enjoying more popularity everyday. In effect it has become ‘ mainstream’.

While we have focused on receivables as one component of the ABL strategy the other parts are inventory, equipment, and even real estate. All of these are neatly combined into one revolving facility, enhancing your overall borrowing power. The fact that they are margined at much higher rates than a chartered bank facility simply becomes a ‘ win ‘ for your firm.

While banks focus on profits and cash flow, which sometimes are difficult to achieve! the ABL asset based finance revolving lines of credit focus on Assets! Therefore typical bank requirements such as debt to equity, tangible net worth, cash flow coverage, etc simply don’t apply in ABL finance.

ABL can cost more (it can also cost less by the way), and as we noted it require more reporting to your ABL partner. However, if it can provide solutions to growth, turnaround, acquisition, and survival we think it certainly merits your investigation. Often times the higher price of the facility can easily be offset by proper usage of funds to generate profits and savings.

Speak to a trusted, credible and experienced Canadian business financing advisor if you with to look at the new paradigm in business lines of credit,