The terms of an asset-based loan depend on the nature and value of the assets offered as collateral. Lenders prefer highly liquidated collateral, such as securities, which can easily be converted into cash if the borrower does not default the payments. Loans using tangible assets are considered riskier, so the maximum amount of credit is significantly less than the book value of the assets. The interest rates charged vary considerably depending on the applicant`s credit history, cash flow and the duration of the activity. 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. After the deal is concluded, establish a compliance checklist for the borrower, which will summarize in the layperson`s terms what the borrower can or cannot do to stay in compliance with his ABL credit contract. Consider regular, event-based reporting obligations, as well as negative operational agreements. The inclusion of these requirements can be a valuable tool for borrowers as they navigate through the sometimes overwhelming number of commitments contained in ABL credit documents. In addition, the advisor should consider considering the maintenance of a list of ongoing compliance issues raised by clients. This list would be useful to have prior to any change or refinancing to resolve any general or recurring compliance concerns. When negotiating a credit contract, several factors, including the borrower`s risk profile or credit rating, affect the extent of the positive, negative and financial obligations imposed on the borrower. Among the most difficult credit contracts are credit contracts with Asset-Based-Lending (ABL).
The heart and soul of ABL credit is security; As a result, ABL credit contracts often provide for intensive monitoring and monitoring by lenders, as the credit base is linked to “eligible” assets. Under such a strict regime and without the good advice of consultants, it is not uncommon for borrowers to erase an involuntary default. The purpose of this article is to provide an overview of ABL credit contracts and to define several best practices in negotiating ABL credit facilities on behalf of borrowers, in order to avoid unintentional “foot errors”. Advance – payment or payment of funds in accordance with the terms of an existing loan agreement. Compliance Certifications – The borrower`s statement confirms compliance with the terms of the loan agreement during the specified period. Credit – A detailed memorandum that is forwarded from one party or company to another to another providing credit for returned goods, some omissions, additional payments or other causes. Authorized Guarantees – A term defined in the loan agreement that controls the collateral that can be included in the credit base. 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. Since ABL facilities often contain detailed reporting obligations, borrowers should subject all termination requirements to a monthly or quarterly financial report. For example, instead of requiring ten days before a new security site is written notification, the advisor could revise the agreement so that the borrower would notify all new guarantee sites with the monthly or quarterly financial/compliance certificate.