Asset-Based Lending Diligence Checklist

Document type: Checklist Practice area: Finance — Commercial Lending Jurisdiction: United States Last reviewed: 5 September 2026

Section 1 — Before the term sheet

Availability modeled from actual data: the current accounts receivable aging, inventory report by location and category, and the full location list
Lender's standard eligibility criteria obtained in writing
Inventory advance rate mechanic confirmed: against cost, against net orderly liquidation value, or the lesser of both
Anticipated reserves identified
Concentration and cross-aging thresholds confirmed
Springing covenant trigger identified and modeled against the seasonal trough
Dominion: full or springing, and the trigger
Field exam and appraisal frequency and cost allocation
Third-party documents required as conditions identified, by location and account

Section 2 — Customer and contract diligence

Full accounts receivable aging by customer
Concentration profile measured against the proposed limit
Payment behavior of the largest customers
Any customer in financial distress
Contra relationships identified — customers who are also suppliers
Standard terms of sale reviewed
Return, credit, rebate, and volume-discount programs — the dilution drivers
Warranty obligations
Consignment, bill-and-hold, and guaranteed-sale arrangements
Anti-assignment and setoff provisions in major contracts
Government receivables and whether assignment of claims procedures can be followed
Foreign receivables, and whether credit insurance or letters of credit are available

Section 3 — Inventory diligence

Inventory report by location and category
Third-party locations identified: warehouses, processors, consignees
Consigned inventory identified — not the borrower's
Work in process quantified
Obsolescence and turns by category
Licensor restrictions that would prevent sale of branded goods
In-transit inventory and its documentation
Perpetual system accuracy and cycle count history

Section 4 — Locations, liens, and corporate

Every location holding collateral listed, with landlord identity and lease terms
Landlord lien provisions in each lease
UCC, tax, and judgment searches in every jurisdiction of organization and operation
Purchase money security interests identified — these prime
Existing liens: payoff and release documentation obtained
Exact legal names per the public organic record for each loan party
Jurisdictions of organization; good standing certificates
Ownership chart
Every deposit account inventoried from bank statements, not from memory
Insurance: property coverage adequate to inventory value; business interruption; lender endorsements obtainable

Section 5 — Field examination

Aging, inventory report, and reconciliations produced before examiners arrive
Contra relationships identified by the borrower first
The person who owns the reports available on site
Dilution computed and understood in advance
Systems capability demonstrated: can the borrower produce the required reports?
Exam findings received in writing and disputed items addressed before adjustments become permanent

Section 6 — Appraisal

Appraiser supported with SKU-level sales data and turn rates
Secondary market evidence provided
Net orderly liquidation value result reviewed against expectations
Effect on the inventory advance rate computed — which branch of the formula binds?
Machinery, equipment, and real estate appraised if included

Section 7 — Negotiating the borrowing base

Eligibility:

Aging thresholds appropriate to the industry's terms
Cross-aging percentage (press for 50% where 25% is proposed)
Concentration carve-out for named investment-grade customers
Foreign accounts includable with credit insurance
Government accounts includable on compliance
Third-party locations includable with bailee letters, with a post-closing period
Slow-moving definition aligned to the actual business cycle

Reserves — the four protections:

A standard: reasonable credit judgment or commercially reasonable
Notice: three to five business days
No double-counting with eligibility exclusions
Change in circumstances required, not reassessment of known facts

Other:

Inventory advance mechanic resolved to a single measure or a negotiated NOLV percentage
Springing covenant trigger set below the seasonal trough with margin
Reporting cure periods for late certificates
Field exam and appraisal caps absent a default
An over-advance line negotiated at closing, even a small one

Section 8 — Perfection

UCC-1 filings, debtor name exactly as on the public organic record
Deposit account control agreements executed before funding — a financing statement does not perfect a deposit account
Securities account control agreements, if applicable
IP security agreements recorded with the Patent and Trademark Office and the Copyright Office
Certificates of title noted for vehicles and titled equipment
Mortgages recorded; title insurance
Possession of instruments and certificated securities
Post-closing searches confirming the filings appear of record

Section 9 — Third-party documents

All sent in week one
Control agreements: bank's own form used where acceptable; treasury contact identified; springing arrangement negotiated
Landlord waivers: cover letter explaining no rent is at risk; offer to pay reasonable legal fees; decision-maker identified
Rent reserve quantified for locations where a waiver will not be obtained — treat as a cost, not a closing obstacle
Bailee letters: subordination except for accrued charges, with a cap
Escalation plan for non-responders, with post-closing periods where appropriate

Section 10 — Intercreditor

Collateral split defined: ABL priority (accounts, inventory, deposit accounts, proceeds) and term priority (real estate, equipment, IP, equity)
Standstill period
Access rights: duration, rent obligation, use of equipment and marks — the most important provision
Purchase option at par
Application of proceeds, including mixed collateral
Bankruptcy provisions: DIP financing and cash collateral consent, agreements not to object, adequate protection
Permitted amendments without the other's consent, including commitment increases

Section 11 — Factoring and true sale

Recourse structure determined: full recourse (loan), non-recourse (sale), or dilution recourse only
Pricing reflects transferred risk
No surplus remittance obligation; no deficiency right
Buyer control of collection and credit decisions; servicing by seller as agent, terminable
True sale opinion; non-consolidation opinion for a securitization
Special purpose entity with independent directors and separateness covenants, where applicable
Backup grant of a security interest and precautionary UCC filing — always
Notification letters prepared
Validity guaranty from principals covering fraud and invoice accuracy
Account debtor verification rights expressly permitted
Diligence on the account debtors, not only the seller

Section 12 — Closing and post-closing

Every perfection step complete and confirmed by search
Initial borrowing base certificate prepared from actual data and reviewed against the criteria by counsel
Simultaneous payoff and lien release
Person who owns the borrowing base named, by name
Written procedure delivered, translating the criteria into the borrower's reporting language, with worked examples
Practice certificate run before the first is due
Finance and counsel walk the criteria together, once
Post-closing schedule calendared: outstanding waivers, control agreements, title notations
Reporting deadlines and exam and appraisal cycle calendared
First three certificates reconciled to the general ledger, with every variance investigated

Section 13 — Availability model worksheet

Build this before signing anything. The output is the number that matters.

Line	Computation	Amount
Gross accounts receivable	From the aging
Less: over 90 days from invoice / 60 past due		( )
Less: cross-aged balances	Debtors with >[__]% ineligible by age	( )
Less: concentration excess	Balances above [__]% of eligible	( )
Less: contra accounts		( )
Less: foreign accounts, uninsured		( )
Less: government accounts, non-compliant		( )
Less: affiliate and employee accounts		( )
Less: disputed accounts		( )
Eligible accounts
× advance rate	[__]%, adjusted for dilution above baseline
Accounts availability
Inventory at cost
Net orderly liquidation value	[__]% of cost per appraisal
Lesser of []% of cost and []% of NOLV	Which branch binds?
Less: work in process		( )
Less: obsolete and slow-moving		( )
Less: third-party locations without waivers		( )
Less: consigned inventory		( )
Less: licensor-restricted goods		( )
Inventory availability
Gross borrowing base
Less: rent reserve, unwaived locations		( )
Less: tax and payroll reserves		( )
Less: letter of credit exposure		( )
Less: other reserves		( )
Availability
Commitment
Gap	Commitment less availability

Then answer three questions. What is the largest single item in the deductions, and can it be fixed? What is the seasonal low point of this model, and does it breach the springing covenant trigger? And which branch of the inventory formula binds, at the appraised NOLV?

Section 14 — Ongoing administration

Monthly: aging, inventory report, reconciliations, certificate prepared and reviewed, delivered on time
Variances investigated and explained proactively
Reserve notices checked against the negotiated protections — notice given, standard satisfied, no double-count, changed circumstances
Field exam reports obtained, read, and disputed findings answered in writing
Availability tracked weekly against the springing covenant trigger
Thirteen-week availability forecast maintained, updated weekly once tight
Post-closing conditions completed and confirmed
Amendments handled as conversations, supported by a clean reporting record
Certificates prepared during periods of stress reviewed by counsel — this is when eligibility judgments become optimistic