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Asset based Financing – Canadian business owners are asking us what this term means and how they can utilized asset based financing for their cash flow and working capital needs and purposes . Asset based financing in our opinion and experience means different things to different people. For the purposes of sharing information here we will focus on asset based financing as being a non traditional (but clearly growing in popularity) means of financing Canadian business. In many cases companies either have a temporary challenge or a unique special situation need. Some of the examples of these needs are strong sales growth, or perhaps due to market or competitive reasons you have experienced balance sheet erosion due to the somewhat difficult business environment of 2008 and 2009. Ironically, one of the greatest things that can happen to your firm - explosive sales growth – can actually become a huge financial and operational challenge, as many business owners have experienced. The term ' asset ' of course more often than not refers to equipment, and that is a classic subset of asset based financing . Equipment of course covers a broad range of asset categories and our customers utilize this strategy to free equity in equipment and harness that into working capital and cash flow. How does that work – its quite simple. Although business owners in many cases have a strong sense of what some of those assets are worth quite frankly that is not what counts. It all comes down usually to an appraisal being done on the equipment, and when the appraisal comes back a loan is made against the appraised value. Usually business owners can expect to receive a fairly high percentage of the liquidation value of the equipment, but this amount tends to be less than the fair market value of the asset .It is very important to understand that the asset has to be free and clear of any liens or charges. In cases where a small amount might be owing to another lender that amount can be paid out and bundled into the new loan transaction. In the equipment area of asset based lending companies need to realize that these advances are structured totally on asset value, unlike a bank that places a lot of emphasis on your cash flow, balance sheet ratios, debt covenants, etc. There is a huge difference in how an asset based lender looks at your asset and advances funds against it, versus a Canadian chartered bank. There is technically no limit as to the amount that can be advanced against equipment, although most transaction we see in the marketplace is certainly less than 5M dollars. In summary, asset based financing means different things to different people. One of the key context areas of this type of financing is equipment financing – Canadian business owners can almost consider this a bridge loan to inject temporary working capital into assets that are unencumbered . Whether your firm is growing quickly, has restructuring issues, or other unique situations you will benefit from talking to an experienced, credible, and trusted financing advisor in this area. Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com Originating financing for Canadian companies,specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/asset_based_financing_canada.html
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