Asset based lending in canada - Helm & Harbour Capital
                     Asset-BasedLendinginCanada:HowItWorksand Who 
It’s For
Cash flow gaps rarely show up at a convenient time. A big order comes in, a client pays 
late, or a seasonal slowdown eats into reserves — and suddenly a business that’s 
otherwise healthy needs 
capitalitcan’tgetfromatraditionaltermloanfastenough.Thisiswhereadifferentkindoffinancing 
starts to make sense: one that looks at what a company owns, not just what its balance 
sheet or credit history says.
Thatapproachisbuiltaroundcollateralratherthancredithistoryalone.Insteadofunderwritingalo
an primarily on cash flow projections or years in business, the lender evaluates the value of
assets the company already holds — receivables, inventory, equipment, or real estate — 
and extends credit against a percentage of that value. It tends to appeal to businesses that
are asset-rich but
cash-
constrained,includingmanufacturers,distributors,andcompaniesgoingthroughrapidgrowthor a 
turnaround.
Forcompaniesweighingtheiroptions,assetbasedlendingCanadasearchesusuallyturnupamixo
f banks, credit unions, and independent finance companies, each with different appetites 
for risk and different asset classes they’ll lend against. Accounts receivable and inventory 
are the most common collateral types, though equipment and, less frequently, real estate 
can also be pledged. Advance rates typically range from 70–90% against receivables and 
lower — often 40–60% — against inventory, since inventory is harder to liquidate quickly.
Theapplicationprocesstendstomovefasterthanaconventionalbankloanbecausetheunderwritin
g focuses on the collateral itself rather than years of financial statements and forecasts. That 
said, lenders still want to see clean books, a clear picture of who owes the business money, 
and reasonable inventory turnover. Businesses with messy receivables or slow-moving stock 
will find it harder to qualify, or will see lower advance rates offered.
Where it fits compared to otherfinancing
Asset-based lending sits in an interesting middle ground. It’s usually more flexible than a
bank term loan, since the credit line can grow as receivables and inventory grow, but it 
comes with more reporting requirements — regular borrowing base certificates, aging 
reports, and sometimes periodic 
auditsofthecollateral.Businessesthatdon’twantthatlevelofongoingreportingmaypreferasimpler
product, but for companies scaling quickly, that flexibility is often worth the extra paperwork.
It’s also worth distinguishing asset-based lending from factoring, which many businesses
confuse it with.Factoringinvolvessellinginvoicesoutrighttoathirdparty,whileasset-
basedlendingusesthose same receivables as collateral for a revolving credit facility the 
business still controls. The distinction matters for cost, control, and how customers perceive 
the arrangement — factoring companies often
contact customers directly for payment, while asset-based lenders typicallydon’t.
Is it the rightfit?
Asset-based lending tends to work best for businesses with strong receivables and 
inventory but limited access to conventional credit — often because they’re growing 
quickly, coming out of a difficultstretch,oroperatinginacapital-
intensiveindustry.It’slesssuitedtoservicebusinesseswith few physical or billable assets to 
pledge.
If your business has valuable assets sitting on the balance sheet and needs working 
capital that scales with the business rather than a fixed loan amount, it’s worth having a
conversation about whether this structure fits. Helm & Harbour Capital works with 
Canadian businesses to evaluate financingoptions,includingasset-
basedstructures,andcanhelpmapoutwhat’srealisticgivenyour current asset base and 
growth plans.
Originalsource: https://medium.com/@helmharbourcapital/asset-based-lending-in-canada-how-it-works-and-  w  ho-its- 
for-bcdaf1f68cbe