Let’s cut rate to the chase, that’s often the best strategy in assessing a business decision. You are in the process of investigating ABL lending under and asset finance scenario as a replacement for your business line of credit.
More of than not you are either self financing currently (that’s not a perfect growth strategy by the way) or your ability to secure the business credit you need simply is not happening with your current banking or financing partner.
So lets look at whats required to bring you the full advantages of an ABL facility, that term being the acronym for ‘asset based lending’ . The reason you are contemplating this type of business financing is simply, you want to maximize your borrowing power based on receivables, your inventory, and other potential assets which can actually be margined for temporarily liquidity. Think unencumbered equipment as an example.
Let’s examine some of the key requirements for this type of facility. That will allow you to determine your overall success in securing a facility that meets all your needs, and comes at a cost that is commensurate with your situation. We mention cost briefly here in the context of our subject because many firms experience varying degrees of cost of financing in an ABL lending facility for their new business line of credit.
That is because asset finance pricing is based on criteria such as the overall financial health of your company. However, don’t despair because ABL lending actually works even if your company is in bankruptcy proceedings, because it always comes back to the same issue – if you have assets then an asset finance solution is possible!
So lets get back to those requirements – they include receivables that are under 90 days, which typically are margined at 90% of their value. Next comes inventory, and here is where it can get tricky. Although your new ABL facility and business line of credit margins your inventory you must be able to demonstrate that the goods are saleable in some form – whether that be work in process, raw materials, or finished goods . Most companies usually have a combo of all three types.
Asset finance often doubles your borrowing power under this type of business line of credit. That’s because the firms that offer it are experts in their business – typically, more often than not, they are not banks, but private boutique type firms that specialize in business asset financing. But, and here is the ‘ but ‘ you need to demonstrate proper accounting and regular financial statements – i.e. on a monthly basis, and you should be able to provide accurate reporting on things such as aged receivables, perpetual inventory reporting , and, in some cases, an appraisal on your other business assets – since these are temporarily margined for liquidity .
What we are simply saying of course is that in order to borrow in an ABL lending environment you have to have solid business records and demonstrate you are in control of your key assets. That quite frankly should be your goal whether or not you are borrowing at all, don’t you think?
Speak to a trusted, credible, and experienced Canadian business financing advisor who can help you maximize the benefits of asset finance and assist you in achieving full success in this non bank business line of credit facility that is becoming more common everyday.