Dependable Structure Strategies

Excerpted from "What Every Lender Needs to Know About Working Capital Lending"

One of the ways to set up a compliance structure that, in essence, creates a regulatory environment for the working capital lender is to assess the client, the owner/guarantor, and the client’s customer base on the outset of the working capital lending arrangement. Scores and limits should be qualified based upon the creditworthiness of each of those three entities.

The asset-based working capital lender should use all relevant credit and underwriting information available to set the parameters in each area and score the client, the owner/guarantor, and the customer base accordingly.


Once the boundaries are established through this scoring matrix, the working capital lender sets their credit culture as a defining element in the operating system. Once the scoring matrix is put into place and the boundaries of the credit culture have been established, each client will be rated according to the rules that have been established. Concentration rules can be set, as well as cross-agings and tiering to help manage the borrowing base overall integrity.

By balancing cross-aging rules and tiering rules within the borrowing base, the borrowing base balance is properly monitored throughout the entire invoice life cycle. Validation of the accounts receivable in the borrowing base, as well as in other asset classes, as applicable, can help to maintain borrowing base integrity.


These structure strategies, in addition to others, will keep the portfolio compliant and the portfolio manager constantly abreast of any portfolio developments. Thus, the lender sets their regulatory environment to the rules that fit their ultimate credit culture.