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

Tool 1 — Borrowing base certificate

BORROWING BASE CERTIFICATE Borrower: [] As of: [] Certificate No.: [__]

ACCOUNTS

Line Amount
1 Gross Accounts per aging dated [__]
2 Less: Accounts more than [90] days from invoice date or [60] days past due ( )
3 Less: Cross-aged Accounts (all Accounts of any Account Debtor with more than [50]% ineligible under line 2) ( )
4 Less: Concentration excess (balances of any Account Debtor exceeding [20]% of eligible Accounts, other than Permitted Concentration Debtors listed on Schedule I) ( )
5 Less: Contra Accounts ( )
6 Less: Foreign Accounts not Credit-Insured or LC-Supported ( )
7 Less: Government Accounts not in compliance with assignment of claims requirements ( )
8 Less: Affiliate and employee Accounts ( )
9 Less: Disputed Accounts and Accounts of Account Debtors subject to insolvency proceedings ( )
10 Less: Accounts subject to any Lien other than the Agent's ( )
11 Eligible Accounts
12 Accounts Advance Rate [__]%
13 Accounts Availability (11 × 12)

INVENTORY | 14 | Inventory at lower of cost or market | | | 15 | Less: work in process | ( ) | | 16 | Less: obsolete and slow-moving (turns < [] or age > []) | ( ) | | 17 | Less: Inventory at locations without a Landlord Waiver or Bailee Letter (Schedule II) | ( ) | | 18 | Less: consigned Inventory | ( ) | | 19 | Less: Inventory subject to licensor restrictions | ( ) | | 20 | Less: packaging, supplies, and samples | ( ) | | 21 | Eligible Inventory (at cost) | | | 22 | NOLV percentage per most recent Appraisal | []% | | 23 | Lesser of ([]% × line 21) and ([__]% × line 21 × line 22) | | | 24 | Inventory Availability | |

AVAILABILITY | 25 | Gross Borrowing Base (13 + 24) | | | 26 | Less: Rent Reserve | ( ) | | 27 | Less: Tax and Payroll Reserve | ( ) | | 28 | Less: Dilution Reserve | ( ) | | 29 | Less: Other Reserves (itemize) | ( ) | | 30 | Borrowing Base | | | 31 | Less: Revolving Loans outstanding | ( ) | | 32 | Less: Letter of Credit exposure | ( ) | | 33 | Excess Availability | |

CERTIFICATION. The undersigned, [title] of Borrower, certifies that: this Certificate is true and correct in all material respects; the amounts reported have been determined in accordance with the Credit Agreement's definitions; the Accounts included are Eligible Accounts and the Inventory included is Eligible Inventory; no Default or Event of Default exists; and the aging and inventory reports attached reconcile to Borrower's general ledger.

By: ______ Date: ______ Attachments: AR aging; AP aging; inventory report by location and category; general ledger reconciliation.

Annotations.

  • Line 4's "Permitted Concentration Debtors" schedule is where a negotiated carve-out for a strong customer lives. Ask for it.
  • Line 23 is the mechanic that surprises borrowers. Compute which branch binds at the actual appraised NOLV before agreeing to the formula.
  • The certification is a representation by an officer. Treat it accordingly, and review certificates prepared during periods of stress.

Tool 2 — Eligibility definitions, annotated

"Eligible Accounts" means Accounts of Borrower that Agent determines, in the exercise of its reasonable credit judgment, are eligible, excluding any Account:

(a) unpaid more than [90] days from the original invoice date or [60] days past its due date;

(b) owed by an Account Debtor if more than [50]% of that Account Debtor's Accounts are ineligible under clause (a);

(c) to the extent the aggregate Accounts of an Account Debtor exceed [20]% of all Eligible Accounts, provided that the applicable percentage for each Account Debtor listed on Schedule I shall be as set forth thereon;

(d) as to which the Account Debtor has or asserts any defense, dispute, counterclaim, or right of setoff, but only to the extent thereof;

(e) owed by an Account Debtor that is not organized under the laws of the United States or a State, unless the Account is (i) supported by a letter of credit in form and substance satisfactory to Agent, or (ii) covered by credit insurance with the Agent named as loss payee;

(f) owed by the United States or any State or subdivision, unless the applicable assignment of claims requirements have been complied with;

(g) owed by an Affiliate, employee, officer, or director;

(h) as to which the Account Debtor is the subject of an insolvency proceeding or has suspended business;

(i) arising from a sale on a bill-and-hold, guaranteed sale, sale-or-return, consignment, or progress-billing basis;

(j) as to which the goods have not been shipped or the services have not been fully performed, or for which an invoice has not been delivered;

(k) subject to any Lien other than Agent's and Permitted Liens that are subordinate; or

(l) that Agent otherwise determines to be ineligible in the exercise of its reasonable credit judgment, on notice to Borrower.

Borrower-side negotiating notes.

  • Clause (a): longer periods where the industry's terms are longer. Ninety days from invoice is punishing where standard terms are net 90.
  • Clause (b): press for 50%; lenders often propose 25%.
  • Clause (c): the Schedule I carve-out for named strong customers is the single most valuable eligibility concession available.
  • Clause (d): "but only to the extent thereof" is essential. Without it, a $5,000 dispute renders a $500,000 account ineligible.
  • Clause (e): credit insurance is inexpensive and frequently unlocks the largest single block.
  • Clause (l): insist on the reasonable credit judgment standard and the notice requirement.

Tool 3 — Reserve provision

Reserves. Agent may, upon not less than [three] Business Days' prior written notice to Borrower, establish, increase, or modify Reserves against the Borrowing Base, in the exercise of its reasonable credit judgment and in respect of facts or circumstances arising or first becoming known to Agent after the Closing Date (or, with respect to any facts disclosed to Agent prior to the Closing Date, only to the extent such facts have materially changed).

No Reserve shall be established in respect of any item to the extent such item is already excluded from Eligible Accounts or Eligible Inventory or is otherwise already accounted for in the calculation of the Borrowing Base.

Agent shall, upon Borrower's request, describe in reasonable detail the basis for and calculation of any Reserve.

Agent shall release or reduce a Reserve promptly upon the circumstances giving rise to it ceasing to exist.

Annotations.

  • The four protections in one clause: notice, standard, no double-counting, and change in circumstances. Together they convert an unlimited discretion into a bounded one.
  • The final sentence is frequently omitted and matters: a reserve for an unwaived landlord should come off when the waiver arrives, and without an express obligation it often does not.
  • The description obligation enables the borrower to test compliance, which is the practical precondition to challenging anything.

Tool 4 — Deposit account control agreement request

[Date] — to [Depositary Bank], Treasury Management

Re: Deposit account control agreement — [Borrower], account nos. [__]

Our client [Borrower] is closing a secured credit facility with [Lender] on or about [date]. The facility requires a deposit account control agreement in respect of the accounts listed above.

To move as quickly as possible, we ask that you provide your institution's standard form, which our client and the lender expect to accept with minimal comment.

Please confirm: (1) your standard form and any fee; (2) your processing time; (3) whether you will agree to a "springing" arrangement under which you follow Borrower's instructions until you receive a notice of exclusive control from the lender; (4) the notice period after which you will follow the lender's instructions; and (5) the contact who will handle execution.

We are working to a closing date of [__] and would be grateful for a response within [five] business days.

Annotations.

  • Ask for the bank's form. Negotiating a lender's form with a bank that has no economic interest adds weeks.
  • Accept the bank's fee and indemnity language. It is not worth the time.
  • Inventory every account from bank statements. The account discovered at closing is always the one nobody remembered.

Tool 5 — Landlord waiver

LANDLORD WAIVER AND ACCESS AGREEMENT

[Landlord], as landlord under the lease dated [] for premises at [] (the "Premises"), leased to [Borrower] ("Tenant"), acknowledges that [Agent] has been granted a security interest in Tenant's inventory, equipment, and other personal property located at the Premises (the "Collateral"), and agrees:

1. Waiver. Landlord waives and subordinates to Agent's security interest any lien, claim, or right of distraint it may have in the Collateral, whether arising by statute, contract, or otherwise. The Collateral shall not be deemed a fixture.

2. Access. Upon a default, Landlord shall permit Agent, on reasonable notice, to enter the Premises to inspect, remove, or dispose of the Collateral, for a period of up to [120] days following the later of Agent's notice and Landlord's recovery of possession. Agent shall pay rent at the rate then payable for the period of its actual occupancy, but shall assume no other obligation of Tenant and shall not be deemed to have assumed the lease.

3. Notice. Landlord shall give Agent written notice of any default by Tenant and a reasonable opportunity (not less than [15] days) to cure, before terminating the lease or taking possession.

4. Repair. Agent shall repair any damage to the Premises caused by its removal of Collateral, ordinary wear excepted.

Annotations.

  • Paragraph 1's fixture sentence matters for equipment that may be argued to be affixed.
  • Paragraph 2's access period is what makes the inventory realizable. Under 60 days is not useful; 90 to 120 is market.
  • Paragraph 3's notice and cure right protects the lender against a lease termination it did not know about.
  • How to get it signed: send in week one; explain that no rent is at risk; offer to pay reasonable legal fees; find the actual decision-maker. And where it will not happen, price the rent reserve and move on.

Tool 6 — Bailee letter

[Bailee/Warehouseman/Processor] acknowledges that it holds goods of [Borrower] at [location] and that [Agent] has a security interest in those goods, and agrees:

  1. It holds the goods for the account of Agent and will note Agent's interest on its records;
  2. It subordinates any lien it may have to Agent's security interest, except for accrued and unpaid storage, handling, and processing charges not exceeding $[__] in the aggregate at any time;
  3. It will not release the goods contrary to Agent's written instructions after receipt of a notice of default;
  4. It will give Agent notice of any claim asserted against the goods and of any intention to assert a lien;
  5. It will permit Agent access to inspect and remove the goods; and
  6. Agent assumes no obligation of Borrower and is liable only for charges accruing during Agent's own use.

Annotation. Clause 2's cap is the whole negotiation. Bailees will not subordinate entirely and should not be asked to; a stated cap gives the lender a quantified deduction it can reserve against.

Tool 7 — Factoring agreement: the provisions that determine characterization

Purchase. Seller hereby sells, assigns, and transfers to Purchaser, and Purchaser purchases, all right, title, and interest in the Accounts listed on each Schedule of Accounts. Each such transfer is a true sale and not a loan secured by the Accounts.

Purchase Price. Purchaser shall pay Seller [__]% of the face amount (the "Advance"), with the balance (the "Reserve") payable upon collection, less the Discount and fees.

Credit Risk. Purchaser assumes the risk of nonpayment of any purchased Account solely by reason of the financial inability of the Account Debtor to pay ("Credit Risk"). Purchaser assumes no other risk.

Repurchase. Seller shall repurchase any Account, at face less amounts collected, if: (a) any representation as to that Account was untrue; (b) the Account Debtor asserts any dispute, defense, counterclaim, or setoff; (c) the Account remains unpaid for [__] days for any reason other than Credit Risk; or (d) Seller breaches this Agreement with respect to that Account.

No Surplus or Deficiency. Purchaser shall have no obligation to remit to Seller any amounts collected in excess of the Purchase Price, and shall have no right to recover from Seller any deficiency, in each case except as expressly provided in the Repurchase provision.

Collection. Purchaser shall have the sole right to collect each purchased Account, to determine credit terms, to settle, compromise, or write off, and to bring suit in its own name. Purchaser may appoint Seller as its servicing agent, terminable at will.

Precautionary Security Interest. If any transfer is characterized as a loan rather than a sale, Seller hereby grants Purchaser a security interest in the Accounts and proceeds to secure all obligations, and this Agreement constitutes a security agreement. Purchaser is authorized to file financing statements.

Annotations.

  • The Credit Risk and Repurchase provisions together are the characterization. Repurchase for disputes and breaches of representation is consistent with a sale; repurchase for nonpayment generally is not.
  • The No Surplus or Deficiency provision is the second most important. A purchaser that must account for surplus is a lender.
  • The Collection provision must give the purchaser real control, with servicing by the seller as agent rather than as principal.
  • The Precautionary Security Interest provision is non-negotiable and costs nothing. Include it and file, regardless of how confident anyone is about characterization.

Tool 8 — Notification letter to account debtors

[Date] — On Seller's letterhead

IMPORTANT — CHANGE OF PAYMENT INSTRUCTIONS

Dear [Account Debtor]:

We have entered into a financing arrangement with [Factor] under which all amounts owing by you to us, whether now existing or hereafter arising, have been assigned to [Factor].

Effective immediately, all payments must be made payable to [Factor] and remitted to: [address / account details].

Payment to us will not discharge your obligation. This notice may be revoked only in writing signed by [Factor].

Please direct any questions regarding invoices or remittances to [Factor] at [contact]. Our commercial relationship with you is unchanged and we look forward to continuing to serve you.

Very truly yours, [Seller] Acknowledged: [Factor]

Annotations.

  • "Payment to us will not discharge your obligation" is the operative sentence and is required to make the notification effective against the account debtor.
  • On the seller's letterhead, because account debtors respond to their counterparty rather than to a stranger.
  • Send by a method producing proof of delivery, and keep the proof — a disputed notification is a disputed payment.

Tool 9 — Intercreditor access rights clause

Access. Following the commencement of any Enforcement Action, the Term Agent shall not, and shall not permit any Term Secured Party to, take any action that would hinder ABL Agent's right to sell, dispose of, or otherwise realize on the ABL Priority Collateral, and shall permit ABL Agent, for a period of [120] days following the later of (i) the date ABL Agent obtains the right to access, and (ii) the date Term Agent or any purchaser takes possession of the Term Priority Collateral (the "Access Period"):

(a) to access and use the real property, fixtures, equipment, and other Term Priority Collateral for the purpose of assembling, storing, processing, completing, selling, and removing the ABL Priority Collateral;

(b) to use the trademarks, trade names, and other intellectual property included in the Term Priority Collateral, on a non-exclusive, royalty-free basis, solely for such purposes;

(c) to conduct going-out-of-business or similar sales at the locations; and

(d) to remove the ABL Priority Collateral at the end of the Access Period.

ABL Agent shall pay rent, utilities, and other ordinary operating costs attributable to its actual use during the Access Period, and shall repair damage caused by its removal, but shall assume no other obligation.

Annotation. This clause is the difference between priority over inventory and the ability to realize it. Inventory cannot be sold from premises the lender cannot enter, using equipment it cannot operate, under brands it cannot use. Negotiate the period, the IP license, and the going-out-of-business sale right specifically; a general "reasonable access" formulation is not enough.

Tool 10 — Borrowing base procedure memorandum (for the borrower's finance team)

MEMORANDUM — Preparing the monthly borrowing base certificate To: [Name], Controller From: [Counsel] Re: What the credit agreement actually requires

What this is. Each month you certify to the lender how much collateral supports our borrowing. The certificate is a formal representation signed by an officer. Getting it wrong is a default under the credit agreement, so this memorandum explains each line in our own terms.

Step 1 — Produce the aging. Run the AR aging as of month end and reconcile it to the general ledger. Attach both. If they do not tie, find out why before proceeding.

Step 2 — Apply the exclusions. In order:

  • Old invoices: anything over 90 days from the invoice date, or 60 days past due.
  • Cross-aging: if more than half of a customer's total balance is old under the previous rule, all of that customer's balance comes out — including the current invoices. This surprises people.
  • Concentration: any customer's balance above 20% of the eligible total comes out, except [named customers] who are permitted 25% (Schedule I).
  • Contra: any customer we also buy from — [list] — comes out entirely.
  • Foreign: any customer outside the US, unless it is on the credit insurance schedule.
  • Government: federal, state, and local, unless we have filed the assignment paperwork.
  • Related parties: affiliates and employees.
  • Disputed: any invoice with an open dispute, but only the disputed amount, not the whole invoice.
  • Not shipped or not invoiced: anything where the goods have not gone out or the invoice has not been sent.

Step 3 — Inventory. Run the report by location and category. Exclude: work in process; anything with turns below [] or aged over []; everything at [list of unwaived locations]; consigned goods; [licensed brand] goods; and packaging and supplies.

Step 4 — Apply the rates. Accounts at []%. Inventory at the lesser of []% of cost and []% of the appraised liquidation value — **currently the liquidation branch binds, so use []% of cost effectively.**

Step 5 — Reserves. Currently: rent reserve $[] for [locations]; tax reserve $[]; LC exposure $[__]. The lender must give us three business days' notice before adding any new reserve — tell [counsel] immediately if a notice arrives.

Step 6 — Certify and deliver. By the [__] of each month. If you are going to be late, tell [counsel] before the deadline, not after.

Questions that always come up: [Answer the three or four recurring ones for this borrower specifically.]

Annotation. This memorandum, translated into the borrower's own vocabulary and delivered at closing with a practice run, prevents more problems than any drafting refinement in this toolkit. The person preparing the certificate is rarely the person who negotiated it, and the gap between them is where inaccurate certificates come from.

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