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Asset based Lines of Credit – All the business financing you need!

Guest post by: Stan Prokop

Article Overview: Asset based lending , also called ABL financing, is one of the newest and most popular forms of Canadian business financing . It allows business to maximize liquidty of business assets for growth and working capital .

Asset based Lines of Credit – All the business financing you need!

Canadian business owners and financial mangers place a great importance on their ability to achieve and maintain operating lines of credit.

Traditionally in Canada the bank line of credit is also called an ' operating loan ' . It is short term in nature, it actually revolves day to day, and so may finance people also call the operating facility a 'revolver'

So what does that facility provide the Canadian firm with? It is simply a financing facility under which the bank agrees, in advance, to lend a maximum amount of money - typically against receivables and inventory. The facility is short term in nature, not a term loan, so it does not include equipment or real estate, which is financed under other conditions.

In bank lines of credit certain conditions have to be met by your firm, and you are generally paying interest only o the amount outstanding on a daily basis. Revolving lines of credit or operating lines work best when they go up and down. Typically customers that are always at the top of their credit line are in fact candidate for other financing such as equity or cash flow term loans.

Most Canadian business owners know that the bank focuses more on receivables than inventory. Because inventory cannot easily be converted into cash by a bank, (if it had to) you will typically get a much lower advance rate or margin rate on inventory.

So, what happens when this traditional type of financing doesn't work for your firm? You will know it is not working when some or all of the following seem to occur -

- You are consistently maxed out on the operating line

- Collections are slow, which further exacerbates the line revolving to your and the banks satisfaction

- You are worried that you do not consistently have enough cash flow and working capital to take on new orders or contracts.

Is there a solution. Absolutely - a new breed of line of credit financing is gradually taking hold in Canada - It is called ABL, or asset based lines of credit. The total focus of these facilities are to maximize the liquidity of your assets to a much greater extent - and when we say all assets we mean inventory, receivables, equipment , potentially real estate, and new contracts and purchase orders . That's true asset based financing!

One of our customers had a 100,000.00 line of credit with a Canadian chartered bank that grew into a 2 Million dollar asset based financing arrangement.

The based lending']);"> asset based lending industry is robust in Europe and the U.S. It is slowly taking traction in Canada. Although one or two of the banks offer these facilities, the majority of this type of financing is independent of the banks.

Due to the somewhat early and fragmented nature of this financing in Canada your firm is strongly encouraged to seek the experience, advice, and credibility that comes with talking to a business advisor in this area of Canadian financing.

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Article Tags: asset based line of credit, business financing options



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Its About the Right Money Option - Having the right partners and financing are so important. Locking yourself into a deal with the wrong partners can easily drag you and the business down. Also, great points about finding financing and other partners who understand the goals you have for the business and can help you work toward those. I've been amazed over the years to find the ways to network and to help others. Your financing partner can not only bring money to the table, but connections, information and the background to take the business to the next level. And, since they have money involved, its in their interest to help you make the business a success. ChrisH
Getting financed - It has always been my experience that it will always be better to be in business debt rather than personal debt, but I suppose when you can run your business out of your home and have so little overhead, it could be better to simply finance yourself and secure a business line of credit just in case you need it. On the flip side, when it comes to businesses outside the home, you want to secure financing and SBA is probably the way to go (depending upon what your total project will cost). Banks that provide SBA loan products prefer the loan be 100K or more. Then there are Micro Loans (loans that go up to 35K) and Signature Loans that are unsecured loans and mainly based on your credit score (680 or higher), they can finance anything in between and then some. It's been said in some of my other posts that when you obtain business loans its beneficial because you are building a track record with a lender for future use. Should you get financed via a business loan and later you need additional working capital to keep your business going (or to expand) the lender is going to be more apt to help you because they have already taken on the risk of your loan. Now, they would prefer you better yourself whether it be expansion or to pull yourself out of a hole so you do not default on the 1st loan... and if that means helping you further, believe me they will do it. However, if you finance yourself, who's going to help you with additional working capital if you run into trouble? Lenders won't help you because you financed yourself...they tend to take on the attitude that you didnt need them before, so why now? What if you had originally financed yourslef with home equity and still haven't paid it back...now you have a first mortgage a second or Home Equity line of Credit and your business is in touble and you have no way out.
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