Does Your Firm Have What It Takes For An ABL Facility With An Asset Based Lender?

To say that business credit financing is top of mind these days with Canadian business owners and financial managers is clearly an understatement. With the economic clouds clearing on the horizon after the 2008-2009 business credit meltdown business owners are looking for growth financing.

And the reality is that the type of operating facilities that you are looking for are getting tougher to secure from Canada’s major chartered banks. We are of course referring in general to firms that have some sort of challenge, because medium sized and large Canadian firms with great balance sheets, profits, and solid cash flows can access great credit terms from the banks.

Unfortunately that isn’t the client profile we’re talking to everyday – as owners we meet have challenges such as inability to secure the operating cash they need, the requirement to acquire additional assets, or even a full acquisition of a competitor. And that economic turbulence we mentioned earlier usually means that many firms are coming out of a turnaround type environment and are slowly getting their financials back in order. Therefore the ability to secure an ABL facility (abl = asset based lending) for inventory and receivables becomes the goal in asset financing.

So what is the real difference in asset financing under and abl facility compared to a bank line of credit, commonly called a ‘ revolver ‘ in business finance. The best way we explain it to clients is that the bank focus is on cash flow, the asset based lender focuses on assets. Big difference!

So, does your firm qualify for abl financing? In general, as we stated, any firm with assets of receivables, inventory, equipment and real estate qualifies. Where the challenge comes in is deterring the overall quality of those assets as well as the size of the facility. An ABL facility is generally available for any firm with over 250k in a combination of receivables, inventory, and equipment. In certain cases even tax credit receivables can be financed.

Where you as a business owner have to focus is the choice of a partner in this type of financing. If your facility requirements are in the millions of dollars and you have high quality business assets (i.e. collectible receivables, inventory that turns) you can access significantly more credit than under a normal bank facility – at rates commensurate with bank financing.

Small firms pay a premium for this type of facility, but when you consider you can access almost all the business credit you need under such a line of credit, coupled with the ability to grow profits and revenues and take on additional orders… well, we’ll let you decide if that’s worth a premium.

If you want to comfortably walk the business financing minefield in ABL and feel you aren’t 100% conversant with the players, requirements, and pricing then consider seeking a trusted, credible and experienced Canadian business financing advisor in this area.

A New Savings Account for People With Disabilities

Who can have an ABLE account? Eligibility will be limited to people who became severely disabled before turning 26 years of age. An older disabled person can have such an account, provided the person’s disability arose prior to age 26. A person can prove his/her disability by receipt of Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) or by providing a disability certification, under rules that the federal government will issue.

Are there any dollar limits for such accounts? The total annual contributions from all individuals to an eligible individual’s ABLE account are limited to the gift tax exclusion amount (currently $14,000.00). The aggregate of all contributions to any one account is the maximum amount allowed by the state for Section 529 accounts (currently $310,000.00 in Oregon). An eligible individual can only have one such account.

Are there tax advantages to having such an account? Income earned by the accounts would not be taxed, provided account withdrawals are used for qualified expenses. Contributions to the account are not tax deductible.

How can the account be used? ABLE account funds can be withdrawn to pay any expenses related to the person’s disability, including housing, transportation, education, employment training, assistive technology and personal support services, health, prevention and wellness, financial management, legal fees, funeral and burial services.

Will an ABLE account affect eligibility for Medicaid? No, having an ABLE account would not jeopardize an individual’s eligibility for means-tested benefit programs such as SSI or Medicaid. This is one of the significant advantages of ABLE accounts. Under current law, individuals with more than $2,000.00 in resources are not eligible for SSI. However, the first $100,000.00 in an ABLE account would not be counted towards the $2,000.00 resource limit.

How soon can such an account be established? Ah, there’s the rub. Two things need to happen before an ABLE program can be established here in Oregon. The U.S. Department of the Treasury has to generate the rules (think fine print) by which this legislation is implemented, and that could take as long as six months. Second, the State of Oregon will need to “opt in” to the ABLE program and allow for such accounts in the state.

Watch out for federal and state action in regard to implementation of this new law.