Business credit in Canada. Wasn’t it Bob Dylan who chimed that the ‘ times they are a changin’.. and nothing could be further to the truth when it comes to ABL asset based lending in Canada as a new alternative for financing your business.

Asset based lending , similar to the term ‘ cash flow ‘ gets a lot of somewhat confusing definitions . So to be clear, we’re talking about a true non bank asset based line of credit.

Confusion comes when business owners and financial managers refer to equipment financing, or just a receivable financing scenario. We’re talking about the whole kit and caboodle! which is the ability to borrow, under one facility when it comes to a business credit line. So that of course gives you a revolving line that is margined against A/R, inventory, equipment, and even real estate, if that is part of the mix.

Historically, when ‘ times are good ‘ the good folks at Canadian chartered banks do a great job of business financing. Simple problem though, is that we find it more and more difficult to remember when times were great… they seem only constantly challenging to most of our clients.

So, enter ABL asset based financing, giving your business true cash flow generation ability.

Let’s cover off 10 solid basics.

Who is using ABL? Quick answer, pretty well everybody. That covers start ups, turnarounds, firms in special loans, companies that, excuse us… are ‘ growing too quickly ‘ for traditional lenders, and yes, finally, some of the largest and most profitable and solid corporations in Canada . Enough said.

Does ABL finance really allow companies with challenges to actual work thru the turnaround? The answer is a resounding yes. Because cash flow and profits aren’t the total focus anymore, as they are with , say , our banks , the ABL solution allows you to use asset leverage to support your reorganization of emergence from a Special loans type scenario .

The question: Can Asset base lending support seasonality in business? Again, affirmative. In fact seasonality is completely covered in this form of business finance; you only pay for what facilities you use when you use them.

How important is ABL in Canada? How long has it been around? More and more Canadian business owners and financial mangers are exploring financial alternatives, and while the majority of Canadian business thinks of the banks as JOB ONE when it comes to financing, there are alternatives and it’s prudent for you to know about them.

What are the clear advantages of an asset based line of credit? First of all it suits a very of business finance needs, it is not term debt, it allows for maximum borrowing against your assets, and it often provides a new discipline to your mgmt team as a bit more reporting on receivables, inventory and equipment is often required .

What are the requirements of a true ABL facility? First of all, you of course need assets; this doesn’t really work for a service business per se. Clients must have solid financial accounting to back up the reporting, and while owner guarantees are often taken, just as with our banks, lesser emphasis is places on the PG’s. (Personal guarantees)

What doesn’t work in ABL? First of all, you have to absolutely ensure you’re working with the right partner. Also, owner views on values of inventory, equipment, real estate, etc have to be realistic.

How are valuations on your borrowing calculated? The answer is that it’s the same manner as would a bank, i.e. a borrowing certificate formula applied typically to A/R, inventory, and equipment. A/R is typically 90% advance, while inventory ranges from 25-75% based on the nature of your inventories and their overall marketability.

Can you buy a company using an ABL strategy? Absolutely, positively, yes. Financing an acquisition using the assets of the firm you are purchasing is a creative way to finance a merger or acquisition type scenario.

Was Bob Dylan right about those ‘ times a changing….’? We think so when it comes to your ability to access a newer type of financing that gives you maximum borrowing power. Speak to a trusted, credible and experienced Canadian business financing advisor on how your firm can implement a better borrowing strategy based on your firms industry and circumstances.