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Is Asset Based Lending a Viable Option For Canadian Firms?

Guest post by: Stan Prokop

Article Overview: The article discusses the viability of asset based lending as an alternative financing strategy to bank financing, for Canadian firms .

Is Asset Based Lending a Viable Option For Canadian Firms?

More and more Canadian businesses in the small and medium sized enterprise space are finding it difficult to achieve the operating lines of credit they need from our traditional lenders such as the Canadian chartered banks. These firms are turning to asset based lenders. In our experience many companies are not even aware that such a financing option exists.

Asset based lending places less emphasis on proven track records and financial strength, instead focusing on key business assets such as accounts receivable, inventory, and in some cases equipment and real estate.

This financing should not be confused with ' factoring '. In a factoring environment the company in effect sells their receivables to another firm at a discount. Asset based lending allows the company to bill and collect its own receivables. The loan is paid down and reduced, in a fluctuating manner, as the company collects its invoices.

This type of financing can in effect become a strong lifeline in the current liquidity and credit crisis. Banks traditionally margin receivables in a more conservative manner, and further significant reliance is placed on the customers over all financial health with respect to the current balance sheet and income statements.

The one negative aspect of this type of lending is that it comes with a higher cost. The lender usually has a higher cost of capital and is looking for a significantly higher return than a traditional chartered bank.

In most cases more reporting by the company is often required. That is to say they are more often submitting updated reports related to current receivable and inventory levels. Overall a more rigorous due diligence is in place.

The current based lending']);"> asset based lending market in Canada is still quite small, but the industry is clearly growing.

In summary, small and mediums sized businesses should check out based lending']);"> asset based lending as an alternative to traditional bank financing. Due to the complexity and relative lack of knowledge around this industry the firm should work with a trusted business financing advisor. Asset based lending can provide unlimited liquidity to firms who are growing - because it focuses on the assets, not the balance sheet and income statement!

Business owners and managers should seek qualified assistance in locating an based lender']);"> asset based lender that suits their industry and overall financing requirements re loan size, etc. A study done by the CIBC several years ago indicated that business owners who sought out trusted financing advisors had revenues 76% above those who did not seek a business financing specialist or trusted advisor. Traditionally these types of loans or operating facilities are for firms with under 50 employees.

Asset based lending in Canada is a classic case of a source of capital at the right time, given the current turmoil in the financial and credit markets.

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Article Tags: asset based lending canada



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$1,000,000 - Hi Evan, Are you talking about US Dollars? If so, that would be approx £500,000 in the UK. The Canadian Dollars differs also from the Australian Dollar. In any case, one needs to solve problems to help people to get money. The more solutions are given to people's needs to solve their problems, the closer one gets. Finally, are we talking about 'Income' or can we talk about 'Asset'? Kindest Regards Beat "Unlock People's Potentials!"
Securities - Lending guru: I assume your securities offering has been registered - since you appear to making a general public solication
Canadian Entrepreneurs...let's chat.... - I thought it would be nice to gather up all the Canadian entrepreneurs on one topic to discuss how everyone is getting along. I just realized Evan is Canadian as well! Hope he's able to join the conversation. Look forward to the chat. By the way, I'm in BC. Phil
Re: Meltdown in the Financial Markets - [quote="Kevin":3lnvm7h2]If the US is simply creating fake/"funny" money with their bailout, then I wonder why the Canadian dollar has dropped so badly? One Canadian dollar is suddenly worth only about $0.84 US now. It doesn't make sense to me.[/quote:3lnvm7h2] The Canadian dollar has dropped to about $0.80 USD... what kind of holiday shopping season will it be this year if this trend continues?
Canadian Entrepreneurs - Hi Evan, I think you should profile Anita from the Body Shop. Is she Canadian? It would be nice to get a Canadian perspective for all of us who are starting businesses in Canada. Do you find th stories of the entrepreneurs vary depending on country? Thanks for all these great stories - it helps inspire us! Jessica


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