How does an asset-based lender monitor its borrowers?
The level of controls and monitoring by the asset-based lender is directly related to the credit-worthiness of the borrower. Typical controls include: Borrowing Base Formula A borrowing base formula that monitors the relationship between the value of the collateral available to secure the outstanding loan and the actual balance of the loan on a regular basis. Collateral Reporting Funding controls, or collateral reporting, may be required daily, weekly, or monthly and range from submission of sales invoices/shipping documents to accounts receivable aging and listings/inventory listings. Collection Controls The asset-based lender requires dominion, or control, over cash by establishing a collateral account into which accounts receivable collections are deposited. Access to this account is restricted to the asset-based lender. Ongoing Audits Ongoing audits are also used to monitor the account. The asset-based lender will audit the borrower’s books and records periodically to verify the ac
