How Facility Funding Works

A committed facility is not a bank account. Signing the agreement gives you the right to ask for money under stated conditions. It does not put cash on your balance sheet, and it does not guarantee that the amount you ask for is the amount you receive. Understanding the gap between commitment and cash is the difference between an origination plan that survives contact with a live facility and one that does not.

The commitment is a ceiling, not a balance

Take a fictional teaching facility. All figures below are invented for illustration and are not market terms; all amounts are in US dollars (USD). A USD 12m commitment sits against collateral purchased at par for USD 10m, of which USD 9m is eligible, with an 80% advance rate. The borrowing base supports USD 7.2m of debt. That is the number that matters on day one, not the USD 12m.

Two numeric limits operate together. Total permitted debt is the lesser of the commitment and the borrowing base. Subtract debt already outstanding from that permitted total to find additional availability, before any other contractual deductions.

Separate from both, and not numeric at all, are the conditions to each draw: contractual requirements such as representations remaining true, no default continuing, and deliverables in hand. A request can satisfy both numeric limits and still not fund because a condition is unmet.

In this fictional example the borrowing base binds and USD 4.8m of commitment sits unused. Under the fee terms assumed here, an unused fee accrues on that gap, which is one reason oversized commitments are not free optionality. Whether a particular facility charges that way is a document question.

An accordion sits outside all of this. In this illustrative facility, a separate USD 3m accordion is optional and uncommitted, and the assumed terms exclude it from the USD 12m commitment and from the unused-fee base until someone actually commits it. Whether your own accordion is treated that way is a document question. Treat accordion capacity as a conversation you are entitled to have, not capital you can plan against.

Equity and the timing of settlement

The mechanical point that surprises originators is that your own money has to be available at purchase, and the sequencing is a contract term rather than a rule.

In the fictional facility, buying USD 10m of collateral at par with USD 9m eligible at an 80% advance means USD 7.2m of debt and USD 2.8m of asset-purchase equity. Add the invented upfront arrangement and legal fees of USD 180,000 paid separately at closing and the opening cash contribution is USD 2.98m.

Some structures require the equity portion to be pre-funded into the vehicle before an advance is made. Others settle both legs simultaneously, with the advance and the equity contribution arriving as part of a single closing flow, sometimes through a settlement agent. Which applies to you depends on what the agreement and the account instructions say. Read that mechanic before you build a purchase calendar, because pre-funding pulls your cash need forward and changes what you need available in a given period.

Either way, the equity is not a reserve sitting quietly behind the facility. It is money you need in the relevant entity at the moment of purchase. If you intend to purchase USD 10m of receivables in a month, you need roughly USD 2.8m of your own money available in that month at these fictional advance levels, not at quarter end and not contingent on a fundraise closing. Build a rolling forecast showing equity availability against your purchase pipeline. The facility scales with your equity, not the other way round.

Who does what

Several roles appear across the illustrative US structure described here, sometimes collapsed into fewer parties.

• The borrower is often a special purpose vehicle (SPV), a separate entity formed to hold the collateral and submit borrowing requests, rather than your operating company. What the capital provider can reach, and from whom, depends on the guarantees, security and recourse actually negotiated. Whether operating-company cash sits inside or outside the security package is a documents question and a counsel question in each transaction.

• The servicer or borrower prepares and certifies the borrowing base, typically signed by a named officer.

• The agent administers the facility for one or more capital providers: receiving borrowing requests, reviewing and processing them against the conditions in the agreement, and coordinating funding. The division of who calculates and who verifies is set by contract, and in a single-provider facility the provider and agent are often the same institution.

• The capital provider or providers supply the money. Where several participate, the agreement sets out how a request is allocated and what happens if one fails to fund.

• The account bank holds the collection and funding accounts. This party matters more than its low profile suggests, because it operates under instructions that govern where your collections go and who can move them.

The draw request itself

A borrowing request is a formal notice, not a phone call. Agreements typically require it in a specified form, delivered by a specified time a specified number of business days before the requested funding date, accompanied by a borrowing base certificate and confirmations that stated conditions remain satisfied.

Draw timing and exit economics are contract terms, not conventions. Read them before you build an origination calendar around them.

A fictional calendar, using invented timings rather than any market convention:

• Monday: finalise the collateral pool, run eligibility, produce the draft borrowing base
• Tuesday morning: internal sign-off, submit borrowing request and certificate to the agent
• Wednesday: agent review, queries resolved, conditions confirmed
• Thursday: funds settle to the funding account, purchase completes

The days are invented. The structure is the point. Between deciding to buy receivables and having the money to buy them sit a number of steps and deliverables, each with an owner. Map yours against your actual document and staff it, including holidays and periods when your certificate preparer is away.

Where collections go

Once you draw, the cash flow reverses and the facility starts controlling money coming in.

Collections on financed receivables route to a designated collection account subject to instructions the capital provider can enforce. During the revolving period, collections in excess of interest, fees and required amounts are, under typical terms, available to purchase further eligible collateral, subject to the borrowing base holding up. That recycling is what allows a facility to finance a growing book rather than a static pool.

When the facility enters an amortisation period, whether by reaching the end of the revolving period or by triggering an early amortisation event, the recycling stops. Collections apply to repaying the facility in the order the waterfall specifies. The facility may then stop funding new purchases. Whether commitments reduce or terminate, and whether purchases can use another source of cash, depends on the documents.

Revolving capacity is not the same as committed capacity. A facility can sit well within its commitment and still be unable to fund new purchases because it has flipped into amortisation.

Four different pots of cash

Originators and fund managers talk past each other because "capital" gets used for four distinct things.

• Operating company cash funds payroll, technology and origination overhead. Whether the facility has any claim on it depends entirely on the guarantee and security package you negotiated.

• SPV cash sits in the borrowing vehicle: drawn proceeds, collections, amounts held pending application under the waterfall. Its use is constrained by the agreement and by account instructions.

• Fund cash is liquidity belonging to the fund vehicle. It can include called investor capital, investment collections, sale proceeds and permitted borrowing proceeds, less deployments and distributions.

• Uncalled LP commitments are not cash at all. A limited partner (LP) is an investor in a limited partnership fund. Its commitments and obligations follow the governing documents and law. Those commitments are made to the fund vehicle, not to the manager. Calling them follows the limited partnership agreement together with the subscription documents and any side letters, not a single document. Notice periods, funding mechanics and permitted purposes all live in that set.

A capital call and a facility borrowing request are separate processes, governed by separate documents, running on separate clocks. Neither guarantees the other's timing. If your purchase depends on both, plan around the slower one.

Fund-level financing is not your funding source

Two fund-level facility types come up often enough to distinguish, though neither is a substitute for an originator's warehouse.

A subscription facility is secured against the fund's uncalled investor commitments and the right to call them. It bridges timing between an investment decision and cash arriving from LPs.

A net asset value (NAV) facility is secured against value the fund already holds. What that security reaches varies by structure: it may attach to the fund's interests in underlying vehicles, to distributions flowing up, or to assets at a holding company level, rather than granting a blanket direct claim over every asset in the portfolio.

Different collateral, different risk, different providers. Both sit at the fund level.

The practical implication for an originator is direct. When a capital provider tells you it has capacity, ask what that capacity is and where the money comes from. Manager, vehicle and underlying capital source are three different things. A provider may fund from called capital already held, from its own balance sheet, from a fund-level facility, or from a combination. A signed subscription line does not mean each draw you request will be funded by a fresh LP call, and a provider's own funding arrangements are not a promise about your draw. What you can rely on is the commitment in your agreement and the conditions attached to it.

Before you build the plan

• Confirm the notice period and cut-off time for borrowing requests in your document, not from memory
• Identify who prepares and certifies the borrowing base, and who at the agent reviews it, with named backups on both sides
• Establish whether equity is pre-funded or settles simultaneously with the advance, and what that means for your cash timing
• Verify account details for funding and collections through an independent channel, never from an emailed instruction alone
• Model equity availability against your purchase pipeline on a rolling basis
• Know precisely which events end the revolving period
• Confirm whether unused fees accrue on undrawn commitment and on what base

The full annual economics of the fictional facility, including how unused fees, servicing costs and upfront charges combine against income, are worked through in the warehouse example. Fee mechanics, including who pays what and when, sit in facility fees and all-in cost.

Funding delays are not always credit decisions. A late certificate, an unverified account instruction, or equity committed on paper but unavailable when it was needed will each stop a draw as effectively as a covenant breach. Those are the failures you can design out before they cost you origination volume.