Why Asset-Based Lending is a Strategic Lever for Canadian Growth Companies
Take a look at a list of Canada’s fastest-growing companies, and you’ll find a diverse range of industries represented: financial services, healthcare, energy, technology, recreation and tourism, construction, transportation and logistics among them. The country has become an increasingly attractive destination for foreign capital, ranking second globally in Kearney's 2025 FDI Confidence Index.
Add in the fact that Canada is consistently ranked as a top choice for a country to move to, and you have an environment ripe for business growth. To achieve their growth goals, businesses of all types and sizes must look to sustainable, effective sources of capital.
One of those sources is asset-based lending (ABL), the practice of obtaining loans secured by the borrower’s assets. Those assets are typically accounts receivable, inventory and equipment, but might also include real estate and intellectual property. For a business with significant assets, ABL can unlock needed growth capital.
How ABL works
With traditional bank line financing, companies are evaluated based on standard metrics such as operating cash flow and earnings. In contrast, ABL lenders concentrate on the value of a company’s assets. A field examination and inventory appraisal determine the value.
ABL facilities tend to be more flexible than traditional bank loans. If a company experiences a drop in sales, it may struggle to meet traditional loan covenants, potentially triggering reduced credit availability or increased interest rates. ABL mitigates this risk by securing loans with tangible assets, which helps lenders remain confident in repayment even during financial fluctuations.
Putting ABL funds to work
Businesses with substantial inventory can use ABL to obtain the funds they need to grow at critical times.
- Working capital. An infusion of cash at a critical time can help a company manage day-to-day expenses and operations more smoothly, handle a short-term challenge or complete a large order. Collateralized working capital through ABL allows a business to keep its focus on overall growth goals.
- Gap funding. Companies can use ABL funds to bridge the gap that can occur between outgoing cash (such as paying for equipment and inventory) and incoming cash from customer revenues. Many companies experience these gaps due to seasonal fluctuations in business. Others, such as those in the manufacturing industry, routinely must make purchases far ahead of realizing revenues from sales. Eliminating worries about funding gaps allows businesses to maintain focus on growth goals.
- Expansion. ABL can provide the funding companies need to expand, such as in adding product or service lines, developing new markets, growing existing markets, implementing new technology, or investing in hiring and retention.
- Mergers and acquisitions. Some companies find that ABL offers a way to secure the capital they need to grow via merger or acquisition. ABL can open a direct path to increased competitive edge.
Key ABL benefits
ABL offers several advantages over unsecured loans or lines of credit, including:
- Speed. ABL financing is often simpler and faster to obtain.
- Additional funds. Companies can typically obtain more funds with ABL than when financing only with cash flow or earnings as a base.
- Flexibility. With ABL, there generally is no restriction on the use of funds. The ability to increase or decrease funding as needed makes it an effective tool for growth-minded businesses.
ABL in today’s economy
Decades ago, ABL was often a financing tool “of last resort” for troubled companies that could not qualify for more traditional loans. Today’s ABL is a smart financing option that Canadian businesses can use to fuel strategic growth.
Mitsubishi HC Capital Canada is a commercial finance company that provides customized solutions to help organizations of all sizes accelerate growth. Our experts throughout North America are leaders in the innovative use of ABL. If you would like to find out more about how ABL can help fuel your company’s strategic growth, contact us.