Asset Based Lending Credit Agreement
Authorized Guarantees – A term defined in the loan agreement that controls the collateral that can be included in the credit base. The interest rates on asset-based loans are lower than those of unsecured loans, as the lender can recover most or all of its losses in the event of the borrower defaulting. Revolving Credit Facility – A loan agreement that allows the borrower to often draw and repay advances. The product is generally used to support the borrower`s working capital needs. Asset-Based Lending – A specialized form of secured lending in which an entity uses its short-term assets (receivables and inventory) as collateral for a loan. Availability – The additional resources that the lender will advance as part of the credit facility. The amount is often the difference between the amount of the loan commitment and the remaining balance to be liquidated from the credit facility. Bet Passu – Credit facilities in which two or more lenders are treated on the same model as part of a loan agreement. Most often applied to security, can also relate to the structure of the credit, documentation, maturity or any other material condition. While we have provided an overview of best practices for legal advisors when negotiating ABL credit facilities, there are several other unique features of ABL credit facilities that merit further review by counsel. To extend an asset-based loan, a lender would calculate a credit base, the maximum amount a business can borrow.
As a general rule, stocks and receivables are taken into account. Aging (schedule) – A periodic report listing a borrower`s claims or liabilities per customer or supplier, which lists the current status or crime of balances due or due. These reports are generally used to determine whether the borrower meets the basic credit requirements in the loan agreement. Many businesses have to borrow or obtain lines of credit to meet routine liquidity needs. For example, a company may obtain a line of credit to ensure that it can cover its wage costs, even if there is a brief delay in the payments it expects. Asset-based Lending is the loan transaction in a guaranteed agreement. An asset-based loan or line of credit can be secured by inventory, receivables, equipment or other real estate held by the borrower. Factoring depends on your client`s creditworthiness, not yours. It does not require a long-term commitment, can rely on converting invoices into cash in 24 to 48 hours and generally requires less paperwork than a bank loan. Non-notification – The bank does not inform the borrower`s mortgaged accounts that they must transfer payments directly to the bank. In case of identical non-notification, a layout of the closing box is often available. The bank may also authorize the borrower to recover the payments and transfer them to the bank in order to obtain credit against the balance of the credit.
Advance – payment or payment of funds in accordance with the terms of an existing loan agreement. Factoring – An agreement whereby a company shortens its cash cycle by selling its receivables without recourse to a third party called a “factor.” One factor supports the total risk of recovery, including credit losses. There are two fundamental types of factoring: (1) discounting the receivable discount factor before the due date and (2) the maturity factor in which the factor pays the customer the purchase price of factored accounts at maturity.