ABL Revolver Fact Sheet
The collateral used to secure the loans is most typically the borrowers’ accounts receivable (“AR”), but may also include their inventory (“INV”) and other types of collateral such as cash surrender value of life insurance, real estate, machinery and equipment, etc.
Repayment of the loan is effected through the use of a Cash Collateral Account (“CCA”). This account is owned by the Lender, but opened in the name of the borrower. It is specifically dedicated to the deposit of AR payments of the borrower’s account debtors, as well as any other receipts the borrower obtains.
When the loan is funded, the borrower notifies all customers that there is a new mailing address for payments. The borrower’s account debtors direct their payments to the CCA, and the borrower’s credit card receipts are routed to this account. If the borrower receives any cash payments they deposit them in the CCA the next business day. This process is termed “taking dominion over cash”, and is a normal component of ABL. The borrower’s loan balance is reduced by the amount of these payments thus reducing interest expense and creating new availability under the LOC. The borrower’s account debtors are not notified of the Lender’s involvement with the borrower. The creation and use of the CCA actually represents an efficiency improvement for the borrower since much of the labor of processing deposits is no longer necessary. VCF has proprietary computer systems which allow borrowers full information concerning account activity on a real time basis.
When the borrower wants an advance of additional funds from the LOC they submit a document called a Borrowing Base Certificate (“BBC”). This document contains information on the current status of the collateral securing the LOC. It provides updated collateral and ineligible values and is used to calculate the availability against which the loan advance request is made.
Requested funds are transferred by ACH or wire into the borrower’s operating account.