Why Asset-Based Lending?

What Is Asset-Based Lending?

Asset-based lending (ABL) is a financing solution where a business borrows money secured against its assets. These assets can include:

• Equipment and machinery
  
  
• Accounts receivable (invoices)
  
  
• Inventory
  
  
• Real estate (in some cases)
  
  

Instead of relying solely on credit scores or profitability, lenders base approval and loan size on the value of your assets. At Mehmi Financial Group, we provide asset-based lending tailored to Canadian small and mid-sized businesses.

Why Businesses Use Asset-Based Lending

Asset-based lending answers a common problem: cash flow gaps caused by slow-paying customers, seasonal swings, or high upfront expenses.

Here’s why companies turn to it:

1. Unlock Immediate Cash
   
   
   • Use unpaid invoices or equipment equity to free up working capital.
     
     
   • Perfect for businesses waiting 30–90 days for client payments.
     
     
2. Higher Approval Chances
   
   
   • Since loans are secured by assets, lenders are more flexible.
     
     
   • This makes ABL accessible even to businesses with weaker credit.
     
     
3. Flexible Use of Funds
   
   
   • Funds can be used for payroll, vendor payments, repairs, or growth projects.
     
     
   • Unlike government grants or restricted loans, usage is open-ended.
     
     
4. Scalable with Business Growth
   
   
   • As receivables and inventory grow, so does your borrowing capacity.
     
     

How Asset-Based Lending Works

1. Valuation
   
   
   • Lender assesses the value of your receivables, equipment, or inventory.
     
     
2. Advance Rate
   
   
   • A percentage of the asset value is advanced (e.g., 70%–85% of receivables, 50%–75% of inventory).
     
     
3. Borrowing Base
   
   
   • Your credit line increases or decreases as your asset levels change.
     
     
4. Repayment
   
   
   • Payments are made as you collect invoices or generate revenue.
     
     

Benefits of Asset-Based Lending

• Speed: Faster approvals than traditional bank loans.
  
  
• Cash Flow Relief: Smooths out income fluctuations.
  
  
• Growth Financing: Funds expansion projects without equity dilution.
  
  
• Flexibility: Borrow more as assets increase.
  
  
• Stability: Provides predictability for payroll and supplier management.
  
  

Disadvantages to Keep in Mind

• Collateral at Risk: Failure to repay may result in loss of pledged assets.
  
  
• Monitoring & Reporting: Lenders may require ongoing updates on receivables and inventory.
  
  
• Costs: Interest rates and fees may be higher than bank loans, though typically lower than unsecured credit.
  
  

Industries That Benefit Most from ABL

• Transportation & Logistics: Trucks and trailers as collateral; smooth out freight invoice delays.
  
  
• Construction: Use equipment or receivables to fund projects.
  
  
• Manufacturing & Wholesale: Convert raw material and receivables into working capital.
  
  
• Agriculture: Secure funding against crop inventory and machinery.
  
  

Explore more in Mehmi’s Industries section.

Case Study: Logistics Company in Alberta

A mid-sized trucking firm faced cash flow strain due to 60-day customer payment terms. By leveraging asset-based lending, they borrowed against $500,000 in outstanding invoices.

• Immediate Result: $350,000 advanced within a week.
  
  
• Impact: Covered payroll, fuel costs, and fleet maintenance.
  
  
• Long-Term: Company stabilized cash flow and secured larger contracts.
  
  

FAQ: Why Choose Asset-Based Lending?

1. Is ABL only for companies with bad credit?
No. While it helps those with weaker credit, even strong companies use it to free up working capital.

2. How fast can I access funds?
Often within days, compared to weeks with traditional bank loans.

3. Do I lose ownership of assets?
No. You keep ownership but pledge assets as collateral.

4. What’s the typical advance rate?
Around 70–85% of receivables and 50–75% of inventory.

5. Can startups use ABL?
Yes, if they have valuable receivables, inventory, or equipment.

6. How does it compare to invoice factoring?
ABL is broader, covering equipment and inventory as well — not just receivables.

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Final Thoughts

Asset-based lending is one of the most flexible financing tools for Canadian businesses. By leveraging equipment, receivables, or inventory, companies can unlock working capital without waiting for slow-paying customers or draining cash reserves.

At Mehmi Financial Group, we help businesses design tailored asset-based lending solutions that stabilize cash flow and support growth.

Ready to explore your options? Speak with our credit analysts today.

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