An Asset Based Lending Loan Via An ABL Lender? Things You’Re Not Being Told!
An Asset Based Lending Loan. When it comes to a business line of credit via an ABL lender we sometimes think that there is a bit of a conspiracy theory when it comes to information the Canadian business owner or manager has when it comes to Canadian business financing.
Why is that?Well we certainly didnâEUR(TM)t read it in the National Enquirer, so we I suppose its just a notional feeling in talking to clients that they have been misinformed when it comes to alternatives in a commercial business credit facility. Let's explain.
In the U.S., and certainly less in Canada! asset based credit lines are an absolute cornerstone in commercial borrowing. They in effect replace Canadian chartered bank lines of credit and are essentially ' non bank' in nature. There's an interesting sidebar to our information we're sharing in that the banks are actually in the ABL business also, but it's a bit of stealth marketing we feel given that none of our clients certainly seem to know that! But we digress..!
These commercial credit facilities are conceptually the same as the bank credit lines, except that they often collateralize more assets, and, here's the kicker, they provide more working capital, cash flow and liquidity pretty well 99.999% of the time. In fact we personally with clients have never NOT seen the ABL loan provide the same or less business cash flow, it's always been more! Intrigued?
The cornerstone of the ABL credit is the flexibility it provides, as you are simply, under one umbrella, monetizing all your business assets. We were thinking about this the other day and perhaps another way to explain it is that this type of commercial borrowing is similar to the home equity credit line, where under one security agreement you can draw your funds for any purpose.
The assets that are monetized under an Asset Based credit are:
Receivables
Inventory
Equipment
Real Estate - if applicable
The equipment must of course be unencumbered, and the real estate, if itâEUR(TM)s applicable in your firmâEUR(TM)s situation uses the equity that's left in your real estate, i.e. the un-mortgaged amount.
Some readers might think that all of this might sound a little complex, but the reality is that the ABL line operates 100% in the same manner as a bank line of credit, i.e. the same security agreements, and the same daily method of usage as you draw down on the facility as you sell and collect your products and services. That differences again - more liquidity, as A/R is typically margined at 90%, inventory in the 25-75% range, plus the added bonus of throwing your fixed assets into the borrowing mix.
We've talked a lot about similarities in the facility. but are there some differences? Two major differences are pricing and reporting. Briefly speaking pricing can vary. While it can be the same or less expensive thank bank financing in most cases itâEUR(TM)s more expensive, but the benefit is the additional cash flow it brings into your company. And secondly there is more monthly reporting on the assets that fall under the credit facility. In our experience that additional reporting often makes your company a much sharper run machine as you understand your business a lot better. Trust us!
So, back to that conspiracy theory! We're still not sure we can prove it, so can we just leave it that itâEUR(TM)s up to you to investigate an asset based lending loan via an ABL lender. Discover the difference in commercial borrowing in a manner you just may have never been told about. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor.
Stan Prokop [http://www.7parkavenuefinancial.com/stan-prokop]
Why is that?Well we certainly didnâEUR(TM)t read it in the National Enquirer, so we I suppose its just a notional feeling in talking to clients that they have been misinformed when it comes to alternatives in a commercial business credit facility. Let's explain.
In the U.S., and certainly less in Canada! asset based credit lines are an absolute cornerstone in commercial borrowing. They in effect replace Canadian chartered bank lines of credit and are essentially ' non bank' in nature. There's an interesting sidebar to our information we're sharing in that the banks are actually in the ABL business also, but it's a bit of stealth marketing we feel given that none of our clients certainly seem to know that! But we digress..!
These commercial credit facilities are conceptually the same as the bank credit lines, except that they often collateralize more assets, and, here's the kicker, they provide more working capital, cash flow and liquidity pretty well 99.999% of the time. In fact we personally with clients have never NOT seen the ABL loan provide the same or less business cash flow, it's always been more! Intrigued?
The cornerstone of the ABL credit is the flexibility it provides, as you are simply, under one umbrella, monetizing all your business assets. We were thinking about this the other day and perhaps another way to explain it is that this type of commercial borrowing is similar to the home equity credit line, where under one security agreement you can draw your funds for any purpose.
The assets that are monetized under an Asset Based credit are:
Receivables
Inventory
Equipment
Real Estate - if applicable
The equipment must of course be unencumbered, and the real estate, if itâEUR(TM)s applicable in your firmâEUR(TM)s situation uses the equity that's left in your real estate, i.e. the un-mortgaged amount.
Some readers might think that all of this might sound a little complex, but the reality is that the ABL line operates 100% in the same manner as a bank line of credit, i.e. the same security agreements, and the same daily method of usage as you draw down on the facility as you sell and collect your products and services. That differences again - more liquidity, as A/R is typically margined at 90%, inventory in the 25-75% range, plus the added bonus of throwing your fixed assets into the borrowing mix.
We've talked a lot about similarities in the facility. but are there some differences? Two major differences are pricing and reporting. Briefly speaking pricing can vary. While it can be the same or less expensive thank bank financing in most cases itâEUR(TM)s more expensive, but the benefit is the additional cash flow it brings into your company. And secondly there is more monthly reporting on the assets that fall under the credit facility. In our experience that additional reporting often makes your company a much sharper run machine as you understand your business a lot better. Trust us!
So, back to that conspiracy theory! We're still not sure we can prove it, so can we just leave it that itâEUR(TM)s up to you to investigate an asset based lending loan via an ABL lender. Discover the difference in commercial borrowing in a manner you just may have never been told about. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor.
Stan Prokop [http://www.7parkavenuefinancial.com/stan-prokop]