Understanding ABL Backed Loans & Asset Based Financing In Canada – Not What You Think!
All we'll say for the present is ' lots ‘! and we'll leave it up for you to decide whats the best solution for your firm . We can categorically tell clients that we have seen numerous examples where firms who couldn't access bank facilities for operating credit could now have all the operating funds they need for working capital and cash flow purposes.
Secondly, many firms see their credit facilities double if not more on occasion, once they understand and embrace asset based lines of credit . So I guess now it's up to us prove it to you. so here we go !
You'll find very quickly that the asset based financing places a huge emphasis on what we call your operating cycle - simply speaking your credit facility is structured to match your operating cycle. And what exactly is that cycle ?Its really just the tracking of how cash flow goes through your business, from the time you purchase inventory ( unless you're a service company of course ) to the time you generate sales and of course receivables .. and finally your collection of that a/r. Simple as that . That's your operating cycle.
We agree with many clients that their business is unique, rarely does a Canadian business owner or financial manager feel they aren't special! But the reality is that many industries have the same operating dynamics and cycles and challenges - and you will find asset based lenders tend to be a bit more experienced than our friends at Canadian chartered banks on industry issues .
It's actually possible to calculate your operating cycle in days and compute some very accurate working capital and cash flow needs just out of 3 or 4 basic calculations.
So you can see where we are heading here, its just simply that understanding asset based financing is about ensuring you have enough cash flow and working capital to work through your own firms entire operating cycle . Naturally large more well heeled corporations can finance daily needs via their own profits and existing capital structure. They are usually more eligible for bank and traditional type borrowing.
But thousands of smaller and medium sized corporations, who are growing, have challenges, or who have really unique situations can't often access traditional bank financing.
That's where ABL loans come into play - you simply have the ability to convert assets such as A/R, inventory and other fixed or hard assets into a business line of credit - outside of the chartered banks!
ABL lenders work extra hard to understand your business. Why? It's pretty simple. They have to! Simply because they place little or no emphasis on the borrowing criteria of banks, which typically include ratio maintenance, covenants, outside collateral, personal guarantees, well... you get the drill!
By spending a significant amount of time eon your business, industry, and operating cycle an ABL lender can better put together a facility that works uniquely, for you. Bottom line, this is not cookie cutter financing!
Factors such as your management or ownership team, the quality of your assets, and their marketability quickly become job #1 for an ABL lender, but all of that translates into higher borrowing facilities for you - just what you needed and couldn't get previously.
