Resources - Lending Glossary: Corporate Lending from GE

Account
An account receivable or an open account. In the commercial finance industry, "account" refers to an indebtedness; the person or company owning the indebtedness is an "account debtor."

Account Debtor (Debtor)
A customer billed by a client for a product shipped or service rendered.

Accounts Receivable Credits (Dilution)
Returns, allowances, discounts, or other offsets to accounts receivable.

Accounts Receivable Debit
An increase to accounts receivable. A debit may be the result of sales, interest charges, freight charges, or collection costs.

Acquisition Financing
A loan to a business, entrepreneur, or equity sponsor group to assist in acquiring the stock or assets of a business. Sometimes referred to as a "bootstrap" loan or a "buyout" loan.

Advance Rate
The percentage of funds extended to a client against eligible collateral as stated in a lending contract. Example: A client with a contractual advance rate of 80% assigns as collateral invoices totaling $100,000. The client receives a loan of $80,000 at once, and upon collection of the invoices, receives the balance of $20,000, on a day-to-day basis as collections are received, less any dilution.

Aging
A schedule of accounts broken down according to the month of an invoice�s original billing date.

Airball
The portion of an asset based loan which is not covered by collateral.

Appraisal
The valuation for collateral purposes of property, such as equipment or inventory, against which a loan is to be made.

Assignment of Accounts Receivable (Report of Assigned Accounts)
An instrument wherein a client assigns, reports or pledges receivables to the lender to secure a loan.

Assignment Jacket
A pouch containing all bills and receipts that a borrower assigns to a secured lender.

Availability
The amount of money a client has available to borrow, determined by the sum of collateral values less all ineligibles, multiplied by the agreed advance rate.

Average Collection Period (Turnover)
The average number of days in which cash receipts will liquidate receivables.

Bill and Hold
Merchandise billed to an account debtor but not shipped. The merchandise may be marked as property of the debtor and is held pending shipping instructions.

Blind Endorsement
Endorsement of checks collected by clients in favor of the lender by means of a number or symbol, so that the lender's name does not appear.

Borrower's Fatigue
A strained lending relationship that occurs when the borrower tires of a lender, typically for refusing to modify its loan agreement to reflect the borrower's improved financial condition.

Borrowing Base Certificate
A form prepared by the borrower that reflects the current status of the collateral. Borrowing base certificates may be due on a daily, weekly, or monthly basis.

Bulk Handling
Managing information obtained from reporting, accounting records, or aging prepared by client, but with no detail of account debtors.

Circled
A transaction is said to be hard circled� when all issues are resolved and participants are committed. Verbal agreement may constitute a soft circle.

Clearance
Average number of days necessary for deposited checks to pass through a clearing house (decided by contract, usually 3 to 5 days).

Client
The borrower.

Collection Report (Remittance Report)
Form used by client to itemize collections sent to the lender each day.

Collateral
Security offered by a client to obtain a loan. Collateral may include inventory, accounts receivable, equipment, securities, real estate, or certain other assets.

Commensurate Balances (Compensating Balances)
Funds that a borrower is required to keep on deposit with a bank extending a loan.

Commercial Financing
Various types of asset based financial services in which money is loaned by a secured party to a debtor, pursuant to a loan and security agreement which gives the lender a security interest in specified types or items of collateral. Note that commercial financing is different from factoring. In commercial financing, the secured party is entitled in all events to be repaid the money loaned. In accounts receivable factoring, the secured party (the factor) takes a loss if a factored invoice is not collected due to insolvency. If the account debtor becomes insolvent, the factor assumes the credit risk on that particular account debtor or invoice.

Commitment Fee
A fee from a lending institution as consideration for its undertaking to make a loan to a prospective borrower, charged when the borrower meets the preconditions specified in the commitment. Depending on the terms of the deal, a commitment fee may be non-refundable or it may be credited upon closing the loan.

Concentration (Jumbo Account) Ratio
The percentage of total receivables billed to single debtor.

Consignment Sale
A sale of merchandise to a buyer by a middleman in which title passes directly from the owner to the buyer. The owner expects payment only on completed sales, and unsold items may be returned by the middleman to the owner.

Contra
An account created when a company both buys from and sells to the same client and, therefore, has payables and receivables which offset.

Conversion
A client's unauthorized deposit of collections of accounts assigned to a lender.

Credit Insurance
A policy held by a client which protects the client against losses due to bad debts.

Cross Aging
When past due receivables exceed a given percentage of a debtor's total accounts receivable, the current portion of receivables is also classified as ineligible.

Datings
Terms of sale which extend the period within which the debtor is to make payment. Example: Normal terms are Net 30 Days. On a bill for merchandise shipped September 15, a bill is dated "as of November 15" making payment due December 15.

Debtor-In-Possession (DIP)
A business entity which is the subject of a reorganization proceeding under Chapter 11 of the Bankruptcy Code. Unless and until a trustee is appointed, the Debtor-In-Possession operates its business and has all the powers of a trustee to manage the affairs of the business and administer the case.

Demand Loan
A demand loan is repayable on demand rather than on a specified date. In practice, demand for repayment is not generally made unless the borrower's condition deteriorates so much that the lender concludes its risk has become too great to continue the existing account.

Detailing (Ledgering)
The posting of all transactions of a client's pledged accounts receivable to the records maintained by the lender. Detailing should agree with client's subsidiary ledger at each periodic examination.

Dilution (Credit)
Returns, allowances, credit losses, discounts and other offsets against accounts receivable. Dilution drives the advance rate in a transaction.

DIP Financing
Financing extended to a Debtor-In-Possession under Chapter 11 of the Bankruptcy Code. In most cases, DIP financing is considered attractive because it is done only under order of the Bankruptcy Court, which is empowered by the Bankruptcy Code to afford the lender a lien on property of the bankruptcy estate and/or a priority position.

Double Assignment
The assignment of receivables by a subsidiary, parent, or other affiliated company to the borrower, which in turn assigns the receivables to the lender.

Eligible Accounts
Sometimes called "acceptable accounts" or "prime accounts." These are receivables which satisfy the criteria specified in the security agreement so that they are acceptable to the secured party and included in the borrowing base as eligible collateral and entitle the debtor to an advance. Receivables which do not meet the criteria are called "ineligible."

Equity
The percentage due from lender to client upon collection of bill, calculated as the amount collected less the contracted advance.

Excess Availability
Total availability less the aggregate advances made on the outstanding revolving loan.

Field Audit (Field Examination)
An examination and inspection of a client's books, records, property, and operations, with particular attention being paid to the condition of the collateral. In revolving financing on receivables or inventory, regular field audits are an essential feature of the secured party's monitoring.

Filing
In the UCC context, filing is the act of depositing in a public office a document, usually a financing statement, which gives legal notice of the secured financing transaction. In most secured transactions, filing is an essential step in the process of perfecting the security interest.

Financing Statement
Generally known as "Form UCC-1." This form is filed in the prescribed public offices for the purpose of perfecting the security interest of a secured party.

Guaranteed Sales
Sales of merchandise for which payment is made in normal course, but with the understanding that unsold merchandise may be returned for a full refund. Title passes to the debtor.

Grid Loan
A secured but not heavily monitored loan. As long as the borrower's company performs according to the loan agreement, collateral monitoring is minimal.

Guaranty
A document by which a person or corporation (a "guarantor" or "surety") promises payment of a debtor's obligations to a secured party. It is quite customary to require guaranties from the principals of a debtor and from the debtor's parent, subsidiary, or affiliates.

Haircut
When a lender wants to end a transaction in advance, it often will accept a reduction in principal or interest accrued (i.e., a haircut) in order to be paid out in cash.

High Debtor
A debtor whose balance represents 5% or more of a company's total receivables (see Concentration).

Holdback (Reserve)
The balance of an invoice in excess of the advance. The holdback becomes equity when the invoice is paid.

Ineligible (Non-Prime)
Invoices assigned to the lender, against which no advance is made. Ineligible invoices may be past due according to contractual terms (90 to120 days from invoice date), contra, employees, affiliates, consignments, memo guaranteed sales, or in excess of limit allowed to the debtor.

Initial Assignment (Original Accounts Receivable; Report of Assigned Accounts)
Instruments used to convey an interest in accounts receivable to the lender in order to secure the initial advance.

Insolvency
Technically, the financial condition of an enterprise whose liabilities exceed its assets, or which is unable to pay its debts as they mature. Financing an insolvent client requires specialized lending expertise, particularly if insolvency leads to bankruptcy. Bankruptcy tends to be the path followed by insolvent companies, but it may actually open up alternative financing opportunities.

Inventory Financing
Sometimes called "inventory loans." Advances made to enable a client to acquire, manufacture, or carry inventory. They are collateralized by a security interest in the inventory and usually in the accounts receivable or other proceeds of sale.

Involuntary Bankruptcy Filing
An involuntary bankruptcy filing occurs when a creditor or group of creditors forces a company into bankruptcy. This may severely restrict the ability of the bankrupt company to control its own situation.

Jumbo Account (Concentration)
A debtor having a balance in excess of 5% of a company's total receivables.

Landlord's Lien
The privilege given by some state statutes to a landlord when a tenant has not paid rent due which allows the landlord to impose a lien for the rent against the tenant's property located in the leased premises. Since the landlord's lien is a potential rival to the UCC security interest, secured lenders often try to obtain a landlord's waiver in advance, before taking on a prospect in a state which recognizes the landlord's lien.

Ledgering (Detailing)
The posting of all transactions to reports maintained by lender of a client's accounts receivable assigned to the lender. Ledgering should agree with the client's subsidiary ledger at each periodic examination.

Lender's Fatigue
Occurs when a borrower continually disappoints the lender by missing financial targets or failing to live up to terms of the contract. In such circumstances, the lender may, depending upon its rights under the contract, ask or require the borrower to refinance.

Letter of Credit
An undertaking by a bank that, upon the presentation to it of specified documents, it will pay a specified amount to the presenter. Letters of credit are used traditionally in international transactions to assure that a shipper of goods will be paid for them.

Line of Credit
A commitment, by a bank or other lender, to lend money to a borrower up to a maximum amount during a stated period.

Negative Pledge
A promise not to secure certain assets of a company, such as inventory or receivables.

Non-Prime (Ineligible)
Invoices assigned to the lender, against which no advance is made. Ineligible invoices may be past due according to contractual terms (90 to 120 days from invoice date), contra, employees, affiliates, consignments, memo guaranteed sales, or in excess of limit allowed to the debtor.

On-Account Payments
Partial payments by a debtor which does not pay a bill or bills in full.

Original Assignment (Initial Accounts Receivable; Report of Assigned Accounts)

Over Advance
A lender's unsecured position that occurs when funds are advanced in excess of contracted terms. Example: Where a stipulated advance is 80% and client is extended 85%, the extra 5% is considered an over advance.

Pack and Hold
Merchandise that is packed and held in inventory against orders. Billing does not occur until merchandise is shipped.

Participation
Occurs when portions of a loan, usually up to 50%, are shared by different lenders.

Pay Statement
A statement that accompanies a debtor's check and which indicates an item or items being paid as well as any existing dilution.

Plan of Reorganization
The document which outlines the Chapter 11 exit strategy of the Debtor-In-Possession. It sets forth the new capital structure of the DIP and the treatment of the various classes of creditors and equity holders. The POR must be confirmed by the bankruptcy court before it can become effective. The DIP has the exclusive right to propose a plan within the first 120 days of the Chapter 11 case, subject to extension by the court. Specialized financing is often an integral part of a POR and may be critical to a company's successful emergence from bankruptcy.

Post-Dated Check
A check drawn in payment of bills, but with the date on the check being some time in the future.

Pre-Billing
Billing by a client in advance of shipping.

Prime (Eligible)
Invoices assigned to the lender, against which advances are made.

Primed
A lender is primed when it has lost its collateral position and moves down in the capital structure.

Progress Billing
Billing made on a percentage of completion basis and generally found in service, construction, and other industries.

Purchase Money Security Interest

Re-Assignment (Double Assignment)
The assignment of receivables by a subsidiary or affiliate to a parent company, which in turn assigns the receivables to the lender.

Remittance Report (Collection Report)
Forms used by client to itemize collections sent to the lender each day.

Re-Purchase Period
The period of time, generally 90 to 120 days beyond invoice date, beyond which a sale becomes ineligible for assignment in accordance with contract terms.

Reserve (Holdback)
The balance of an invoice in excess of the advance. The reserve becomes equity when the invoice is paid.

Retention (Retainage)
The percentage held back by a debtor on a service contract to ensure adequate performance.

Revolving Credit
A series of loans, secured or unsecured, on which the amount outstanding varies from time to time. Secured financing on receivables or inventory is called revolving because the collateral and the outstanding advances change continually.

Schedule of Accounts Receivable (Report of Assigned Accounts)
An instrument by which a client assigns, reports, or pledges receivables to the lender as security for a loan.

Security Agreement
The agreement between a secured party and a debtor, providing for asset based financial services and creating a security interest. Many security agreements have identifying captions (e.g., accounts receivable financing contract, inventory loan agreement, trust receipt contract, pledge, equipment lease, etc.). The UCC lumps all of these under the category of security agreement.

Security Interest
An interest in, or lien upon, collateral which secures payment or performance of an obligation. The term includes the interest of a factor who purchases accounts receivable.

Shipping Evidence
A properly executed receipt by a carrier or debtor.

Single Risk Insurance
A policy obtained by a client to cover either one debtor or one invoice against loss.

Skip (Skipped Invoice)
The payment of an invoice by a debtor which leaves the prior invoice unpaid.

Statement
A monthly itemization of all transactions during the month. A statement may be prepared by the lender or by a client for the account debtor.

Sub-limit
A facility with a total advance limit may also specify a sub-limit on maximum loan advances supported by certain types of collateral (e.g., inventory).

Subordination
An agreement or arrangement regarding two obligations owed by a debtor. When the two obligations would otherwise be of equal rank, the agreement or arrangement gives one obligation priority in payment over the other obligation, which is subordinated.

Suppressed Availability
Suppressed availability occurs when a facility has collateral to support a loan advance but the credit line or a sub-limit prevents the borrower from drawing further loans utilizing this collateral

T/A (Trade Acceptance)
A negotiable instrument for the amount of a specific purchase and bearing debtor's promise to pay.

Term Loan
A loan, secured or unsecured, with a maturity usually exceeding one year. On the borrower's financial statement, the portion (if any) of a term loan maturing within one year from the date of the statement is shown as a current liability, and the balance as long-term debt.

Termination Statement
A form, generally known as Form UCC-3, signed by a secured party and filed to terminate the effectiveness of a previously filed financing statement. A secured party is required to sign a termination statement after the secured obligation is paid, in order to clear the record.

Third Party Checks
Checks received by a client from a debtor which are payable to the debtor and endorsed to the client.

363 Asset Sale
The ability of a company to secure bankruptcy financing may be affected by whether it can raise cash by selling assets in accordance with Section 363(a) of the Bankruptcy Code. Section 363(a) allows a debtor in bankruptcy to use or sell all noncash property in the ordinary course of its business without prior court approval. Use or sale of such property outside the ordinary course of business requires court approval.

Trade Creditors
Business concerns to which a client is indebted for purchases of goods or services. Since trade creditors are usually unsecured, they provide financing that is a critical part of the capital structure of many companies. If a client experiences financial trouble, maintaining the support of trade creditors can be crucial in developing a workable financing solution.

Turnover (Average Collection Period)

UCC
The Uniform Commercial Code, in particular Article 9 which covers secured transactions.

UCC Search
A report from a filing officer, obtainable for a fee, that shows what financing statements are on file against a named person or organization. The form of request for such information is widely know as Form UCC-11. Often, one of the first steps taken by a lender or factor when considering a prospect is to obtain a UCC search.

Unsecured Loan
A loan which is not secured by collateral. Unsecured loans are rarely made by commercial lenders.

Verification
A method used to determine the validity of receivables pledged as collateral. Generally a mail or telephone request to the debtor confirms the balance on ledgers.

Voluntary Bankruptcy Filing
Voluntarily filing occurs when a company files a bankruptcy petition before it is forced into bankruptcy by the legal action of creditors. Voluntary filing lets a company choose where the legal proceedings take place and can provide the company with more control over its situation.

Working Capital
Current assets less current liabilities. A company's working capital ratio (also called the current ratio) equals the value of current assets divided by current liabilities. A ratio of 2:1 or higher generally indicates a comfortably liquid working capital position.

Corporate Lending is a unit of Corporate Financial Services

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